View:
Download DOC
Download PDF
Download XLS
Download XBRL
Document
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 __________________________________________________________
FORM 10-Q
 __________________________________________________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2017
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 001-35004
 __________________________________________________________
FleetCor Technologies, Inc.
(Exact name of registrant as specified in its charter)
 __________________________________________________________
Delaware
 
72-1074903
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
5445 Triangle Parkway, Norcross, Georgia
 
30092
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (770) 449-0479
 __________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one:)
Large accelerated filer
ý
Accelerated filer
¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Emerging growth company
¨ 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

Table of Contents

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
 
Outstanding at April 24, 2017
Common Stock, $0.001 par value
 
92,257,881
 

Table of Contents

FLEETCOR TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-Q
For the Three Month Period Ended March 31, 2017
INDEX
 
 
 
Page
PART I—FINANCIAL INFORMATION
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II—OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 

i
Table of Contents

PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
FleetCor Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share and Par Value Amounts)
 
 
March 31, 2017
 
December 31, 2016
 
 
(Unaudited)
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
546,560

 
$
475,018

Restricted cash
 
188,433

 
168,752

Accounts receivable (less allowance for doubtful accounts of $40,985 and $32,506 at March 31, 2017 and December 31, 2016, respectively)
 
1,360,833

 
1,202,009

Securitized accounts receivable—restricted for securitization investors
 
676,000

 
591,000

Prepaid expenses and other current assets
 
110,265

 
90,914

Total current assets
 
2,882,091


2,527,693

Property and equipment
 
271,534

 
253,361

Less accumulated depreciation and amortization
 
(122,497
)
 
(110,857
)
Net property and equipment
 
149,037


142,504

Goodwill
 
4,227,472

 
4,195,150

Other intangibles, net
 
2,633,651

 
2,653,233

Investments
 
40,763

 
36,200

Other assets
 
76,940

 
71,952

Total assets
 
$
10,009,954


$
9,626,732

Liabilities and stockholders’ equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
1,246,182

 
$
1,151,432

Accrued expenses
 
213,999

 
238,812

Customer deposits
 
589,387

 
530,787

Securitization facility
 
676,000

 
591,000

Current portion of notes payable and other obligations
 
731,708

 
745,506

Other current liabilities
 
43,389

 
38,781

Total current liabilities
 
3,500,665


3,296,318

Notes payable and other obligations, less current portion
 
2,460,629

 
2,521,727

Deferred income taxes
 
666,572

 
668,580

Other noncurrent liabilities
 
40,276

 
56,069

Total noncurrent liabilities
 
3,167,477


3,246,376

Commitments and contingencies (Note 12)
 

 

Stockholders’ equity:
 
 
 
 
Common stock, $0.001 par value; 475,000,000 shares authorized; 121,680,903 shares issued and 92,257,881 shares outstanding at March 31, 2017; and 121,259,960 shares issued and 91,836,938 shares outstanding at December 31, 2016
 
122

 
121

Additional paid-in capital
 
2,114,560

 
2,074,094

Retained earnings
 
2,342,414

 
2,218,721

Accumulated other comprehensive loss
 
(572,789
)
 
(666,403
)
Less treasury stock 29,423,022 shares at March 31, 2017 and December 31, 2016, respectively
 
(542,495
)
 
(542,495
)
Total stockholders’ equity
 
3,341,812


3,084,038

Total liabilities and stockholders’ equity
 
$
10,009,954


$
9,626,732

See accompanying notes to unaudited consolidated financial statements.

1
Table of Contents

FleetCor Technologies, Inc. and Subsidiaries
Unaudited Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
 
 
 
Three Months Ended
March 31,
 
 
2017
 
2016¹
Revenues, net
 
$
520,433

 
$
414,262

Expenses:
 
 
 
 
Merchant commissions
 
24,384

 
28,233

Processing
 
101,824

 
79,814

Selling
 
38,837

 
26,553

General and administrative
 
95,434

 
67,594

Depreciation and amortization
 
64,866

 
36,328

Other operating, net
 
20

 
(215
)
Operating income
 
195,068


175,955

Equity method investment loss
 
2,377

 
2,193

Other expense, net
 
2,196

 
659

Interest expense, net
 
23,127

 
16,191

Total other expense
 
27,700


19,043

Income before income taxes
 
167,368

 
156,912

Provision for income taxes
 
43,675

 
45,822

Net income
 
$
123,693


$
111,090

Earnings per share:
 
 
 
 
Basic earnings per share
 
$
1.34

 
$
1.20

Diluted earnings per share
 
$
1.31

 
$
1.17

Weighted average shares outstanding:
 
 
 
 
Basic weighted average shares outstanding
 
92,108

 
92,516

Diluted weighted average shares outstanding
 
94,560

 
95,030


1 Reflects the impact of the Company's adoption of Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, to simplify several aspects of the accounting for share-based compensation, including the income tax consequences.
See accompanying notes to unaudited consolidated financial statements.



2
Table of Contents

FleetCor Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In Thousands)
 
 
 
Three Months Ended
March 31,
 
 
 
2017
 
2016
 
Net income
 
$
123,693

 
$
111,090

 
Other comprehensive income:
 
 
 
 
 
Foreign currency translation gains, net of tax
 
93,614

 
31,202

 
Total other comprehensive income
 
93,614


31,202


Total comprehensive income
 
$
217,307


$
142,292


See accompanying notes to unaudited consolidated financial statements.


3
Table of Contents

FleetCor Technologies, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
(In Thousands)
 
 
Three Months Ended
March 31,
 
 
2017
 
2016
Operating activities
 
 
 
 
Net income
 
$
123,693

 
$
111,090

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation
 
10,667

 
7,976

Stock-based compensation
 
23,093

 
15,186

Provision for losses on accounts receivable
 
12,988

 
6,836

Amortization of deferred financing costs and discounts
 
1,914

 
1,822

Amortization of intangible assets
 
52,654

 
27,362

Amortization of premium on receivables
 
1,544

 
990

Deferred income taxes
 
(3,453
)
 
(2,128
)
Equity method investment loss
 
2,377

 
2,193

Other non-cash operating income
 
—

 
(215
)
Changes in operating assets and liabilities (net of acquisitions):
 
 
 
 
Restricted cash
 
(19,283
)
 
23,743

Accounts receivable
 
(236,564
)
 
(182,761
)
Prepaid expenses and other current assets
 
(16,453
)
 
(2,086
)
Other assets
 
(2,673
)
 
(11,696
)
Accounts payable, accrued expenses and customer deposits
 
103,711

 
124,311

Net cash provided by operating activities
 
54,215


122,623

Investing activities
 
 
 
 
Acquisitions, net of cash acquired
 
—

 
(4,092
)
Purchases of property and equipment
 
(14,796
)
 
(11,739
)
Other
 
(6,327
)
 
(4,914
)
Net cash used in investing activities
 
(21,123
)

(20,745
)
Financing activities
 
 
 
 
Proceeds from issuance of common stock
 
15,230

 
387

Borrowings (payments) on securitization facility, net
 
85,000

 
(63,000
)
Principal payments on notes payable
 
(33,363
)
 
(25,875
)
Borrowings from revolver – A Facility
 
90,000

 
40,000

Payments on revolver – A Facility
 
(159,949
)
 
(110,000
)
Borrowings on swing line of credit, net
 
21,639

 
—

Other
 
537

 
(19
)
Net cash provided by (used in) financing activities
 
19,094


(158,507
)
Effect of foreign currency exchange rates on cash
 
19,356

 
8,795

Net increase (decrease) in cash and cash equivalents
 
71,542

 
(47,834
)
Cash and cash equivalents, beginning of period
 
475,018

 
447,152

Cash and cash equivalents, end of period
 
$
546,560


$
399,318

Supplemental cash flow information
 
 
 
 
Cash paid for interest
 
$
33,190

 
$
15,310

Cash paid for income taxes
 
$
88,503

 
$
11,824

See accompanying notes to unaudited consolidated financial statements.

4
Table of Contents

FleetCor Technologies, Inc. and Subsidiaries
Notes to Unaudited Consolidated Financial Statements
March 31, 2017
1. Summary of Significant Accounting Policies
Basis of Presentation
Throughout this report, the terms “our,” “we,” “us,” and the “Company” refers to FleetCor Technologies, Inc. and its subsidiaries. The Company prepared the accompanying interim consolidated financial statements in accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”). The unaudited consolidated financial statements reflect all adjustments considered necessary for fair presentation. These adjustments consist primarily of normal recurring accruals and estimates that impact the carrying value of assets and liabilities. Actual results may differ from these estimates. Operating results for the three month period ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.
The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the rates of exchange in effect at period-end. The related translation adjustments are made directly to accumulated other comprehensive income. Income and expenses are translated at the average monthly rates of exchange in effect during the period. Gains and losses from foreign currency transactions of these subsidiaries are included in net income. The Company recognized foreign exchange losses of $1.5 million and $0.7 million for the three months ended March 31, 2017 and 2016, respectively, which are recorded within other expense, net in the Unaudited Consolidated Statements of Income. The Company recognized net gains on intra-entity foreign currency transactions that are of a long-term-investment nature of approximately $36 million and $19 million in the three months ended March 31, 2017 and 2016, respectively, in the statements of comprehensive income.
Adoption of New Accounting Standards
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Codification ("ASC") 606, “Revenue from Contracts with Customers”, which amends the guidance in former ASC 605, Revenue Recognition. This amended guidance requires revenue to be recognized in an amount that reflects the consideration to which the company expects to be entitled for those goods and services when the performance obligation has been satisfied. This amended guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and related cash flows arising from contracts with customers. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date”, which defers the effective date of the new revenue recognition standard by one year. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, which clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. In April 2016, the FASB issued ASU 2016-10, "Identifying Performance Obligations and Licensing", which clarifies the accounting for intellectual property licenses and identifying performance obligations. In May 2016, the FASB issued ASU 2016-11, "Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting", which rescinds certain SEC guidance in response to announcements made by the SEC staff at the EITF's March 3, 2016 meeting and ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients", which clarifies the guidance on collectibility, non-cash consideration, the presentation of sales and other similar taxes collected from customers and contract modifications and completed contracts at transition. Additionally, ASU 2016-12 clarifies that entities electing the full retrospective transition method would no longer be required to disclose the effect of the change in accounting principle on the period of adoption; however, entities would still be required to disclose the effects on preadoption periods that were retrospectively adjusted. These ASUs are effective for the Company for reporting periods beginning after December 15, 2017, but permit companies the option to adopt as of the original effective date. In the first quarter of 2017, the Company continued its assessment of the new standard with a focus on identifying the performance obligations included within its revenue arrangements with customers and evaluating its methods of estimating the amount of and timing of variable consideration. The guidance permits the use of either a retrospective or cumulative effect transition method. The Company anticipates selecting the modified retrospective method, which would result in an adjustment to retained earnings for the cumulative effect, if any, of applying the standard to contracts in process as of the adoption date. Under this method, the Company would not restate the prior financial statements presented; therefore the new standard requires the Company to

5
Table of Contents

provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during 2018, as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes, if any. The Company continues its assessment to evaluate the impact of the provisions of ASC 606 on the results of operations, financial condition, and cash flows. Based upon our assessment to date, which is ongoing, we have not identified significant changes to our current processes, systems and revenue recognition practices.
Accounting for Leases
In February 2016, the FASB issued ASU 2016-02, “Leases”, which requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. This ASU also requires disclosures to provide additional information about the amounts recorded in the financial statements. This ASU is effective for the Company for annual periods beginning after December 15, 2018 and interim periods therein. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance for leases that exist or are entered into after the beginning of the earliest comparative period presented. The Company is currently evaluating the impact of this ASU on the results of operations, financial condition, or cash flows.
Accounting for Employee Stock-Based Payment
In March 2016, the FASB issued ASU 2016-09, "Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting", which requires excess tax benefits recognized on stock-based compensation expense be reflected in the consolidated statements of operations as a component of the provision for income taxes on a prospective basis. ASU 2016-09 also requires excess tax benefits recognized on stock-based compensation expense be classified as an operating activity in the consolidated statements of cash flows rather than a financing activity. Companies can elect to apply this provision retrospectively or prospectively. ASU 2016-09 also requires entities to elect whether to account for forfeitures as they occur or estimate expected forfeitures over the course of a vesting period. This ASU is effective for the Company for annual periods beginning after December 15, 2016. Early adoption is permitted.
During the third quarter of 2016, the Company elected to early adopt ASU 2016-09. The adoption of this ASU resulted in excess tax benefits being recorded as a reduction of income tax expense prospectively for all periods during 2016, rather than additional paid in capital, and an increase in the number of dilutive shares outstanding at the end of each period, which resulted in an increase to diluted earnings per share during the respective period. As required by ASU 2016-09, excess tax benefits recognized on stock-based compensation expense are classified as an operating activity in our consolidated statements of cash flows on a prospective basis within changes in accounts payable, accrued expenses and customer deposits. In accordance with ASU 2016-09, prior periods related to the classification of excess tax benefits have not been adjusted. The Company also elected to account for forfeitures as they occur, rather than estimate expected forfeitures over the course of a vesting period. As a result of the adoption of ASU 2016-09, the net cumulative effect of this change was not material.

6
Table of Contents

The following table shows the impact of retrospectively applying ASU 2016-09 to the previously issued consolidated statements of operations for the three month period ended March 31 (in thousands, except per share amounts):
 
 
Three Months Ended March 31, 2016
 
 
As Previously Reported
 
Adjustments
 
As Recast
Income before income taxes
 
$
156,912

 
$
—

 
$
156,912

Provision for income taxes
 
46,940

 
(1,118
)
 
45,822

Net income
 
$
109,972

 
$
1,118

 
$
111,090

Earnings per share:
 
 
 
 
 
 
Basic earnings per share
 
$
1.19

 
$
0.01

 
$
1.20

Diluted earnings per share
 
$
1.17

 
$
—

 
$
1.17

Weighted average common shares outstanding:
 
 
 
 
 
 
Basic
 
92,516

 
—

 
92,516

Diluted
 
94,329

 
701

 
95,030

The following table shows the impact of retrospectively applying this guidance to the Consolidated Statement of Cash flows for the three months ended March 31, 2016 (in thousands):
 
 
Three Months Ended March 31, 2016
 
 
As Previously Reported
 
Adjustments
 
As Recast
Net cash provided by operating activities
 
$
121,505

 
$
1,118

 
$
122,623

Net cash used in investing activities
 
(20,745
)
 
—

 
(20,745
)
Net cash used in financing activities
 
(157,389
)
 
(1,118
)
 
(158,507
)
Effect of foreign currency exchange rates on cash
 
8,795

 
—

 
8,795

Net (decrease) increase in cash
 
$
(47,834
)
 
$
—

 
$
(47,834
)
Accounting for Breakage
In March 2016, the FASB issued ASU 2016-04, “Liabilities-Extinguishments of Liabilities: Recognition of Breakage for Certain Prepaid Stored-Value Products”, which requires entities that sell prepaid stored value products redeemable for goods, services or cash at third-party merchants to derecognize liabilities related to those products for breakage. This ASU is effective for the Company for reporting periods beginning after December 15, 2017. Early adoption is permitted. The ASU must be adopted using either a modified retrospective approach with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption or a full retrospective approach. The Company’s adoption of this ASU is not expected to have a material impact on the results of operations, financial condition, or cash flows.
Cash Flow Classification
In August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments", which amends the guidance in ASC 230, Statement of Cash Flows. This amended guidance reduces the diversity in practice that has resulted from the lack of consistent principles related to the classification of certain cash receipts and payments in the statement of cash flows. This ASU is effective for the Company for reporting periods beginning after December 15, 2017. Early adoption is permitted. Entities must apply the guidance retrospectively to all periods presented but may apply it prospectively from the earliest date practicable if retrospective application would be impracticable. The Company’s adoption of this ASU is not expected to have a material impact on the results of operations, financial condition, or cash flows.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash", which amends the guidance in ASC 230, Statement of Cash Flows, on the classification and presentation of restricted cash in the statement of cash flows. This ASU is effective for the Company for reporting periods beginning after December 15, 2017. Early adoption is permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this ASU should be applied using a retrospective transition method to each period presented. The Company’s adoption of this ASU is not expected to have a material impact on the results of operations, financial condition, or cash flows.
Intangibles - Goodwill and Other Impairment
In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment, which eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount

7
Table of Contents

over its fair value (i.e., measure the charge based on Step 1). The standard has tiered effective dates, starting in 2020 for calendar-year public business entities that meet the definition of an SEC filer. Early adoption is permitted for interim and annual goodwill impairment testing dates after January 1, 2017. The Company’s adoption of this ASU is not expected to have a material impact on the results of operations, financial condition, or cash flows.
Definition of a Business
In January 2017, the FASB issued ASU 2017-01, "Clarifying the Definition of a Business", which amends the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If so, the set of transferred assets and activities is not a business.The guidance also requires a business to include at least one substantive process and narrows the definition of outputs.The guidance is effective for the Company for reporting periods beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company’s adoption of this ASU is not expected to have a material impact on the results of operations, financial condition, or cash flows.
2. Accounts Receivable
The Company maintains a $950 million revolving trade accounts receivable Securitization Facility. Accounts receivable collateralized within our Securitization Facility relate to trade receivables resulting from charge card activity. Pursuant to the terms of the Securitization Facility, the Company transfers certain of its domestic receivables, on a revolving basis, to FleetCor Funding LLC (Funding) a wholly-owned bankruptcy remote subsidiary. In turn, Funding sells, without recourse, on a revolving basis, up to $950 million of undivided ownership interests in this pool of accounts receivable to a multi-seller, asset-backed commercial paper conduit (Conduit). Funding maintains a subordinated interest, in the form of over-collateralization, in a portion of the receivables sold to the Conduit. Purchases by the Conduit are financed with the sale of highly-rated commercial paper.
The Company utilizes proceeds from the sale of its accounts receivable as an alternative to other forms of financing to reduce its overall borrowing costs. The Company has agreed to continue servicing the sold receivables for the financial institution at market rates, which approximates the Company’s cost of servicing. The Company retains a residual interest in the accounts receivable sold as a form of credit enhancement. The residual interest’s fair value approximates carrying value due to its short-term nature. Funding determines the level of funding achieved by the sale of trade accounts receivable, subject to a maximum amount.
The Company’s consolidated balance sheets and statements of income reflect the activity related to securitized accounts receivable and the corresponding securitized debt, including interest income, fees generated from late payments, provision for losses on accounts receivable and interest expense. The cash flows from borrowings and repayments, associated with the securitized debt, are presented as cash flows from financing activities.
The Company’s accounts receivable and securitized accounts receivable include the following at March 31, 2017 and December 31, 2016 (in thousands):  
 
 
March 31, 2017
 
December 31, 2016
Gross domestic accounts receivable
 
$
629,629

 
$
529,885

Gross domestic securitized accounts receivable
 
676,000

 
591,000

Gross foreign receivables
 
772,189

 
704,630

Total gross receivables
 
2,077,818


1,825,515

Less allowance for doubtful accounts
 
(40,985
)
 
(32,506
)
Net accounts and securitized accounts receivable
 
$
2,036,833


$
1,793,009

A rollforward of the Company’s allowance for doubtful accounts related to accounts receivable for three months ended March 31 is as follows (in thousands):
 
 
2017
 
2016
Allowance for doubtful accounts beginning of period
 
$
32,506

 
$
21,903

Provision for bad debts
 
12,988

 
6,836

Write-offs
 
(4,509
)
 
(4,706
)
Allowance for doubtful accounts end of period
 
$
40,985

 
$
24,033



8
Table of Contents

Foreign receivables are not included in the Company’s accounts receivable securitization program.
3. Fair Value Measurements
Fair value is a market-based measurement that reflects assumptions that market participants would use in pricing an asset or liability. GAAP discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions.
As the basis for evaluating such inputs, a three-tier value hierarchy prioritizes the inputs used in measuring fair value as follows:
 
•
Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.
•
Level 2: Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
•
Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following table presents the Company’s financial assets and liabilities which are measured at fair values on a recurring basis as of March 31, 2017 and December 31, 2016, (in thousands). 
 
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
March 31, 2017
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Repurchase agreements
 
$
286,921

 
$
—

 
$
286,921

 
$
—

Money market
 
50,254

 
—

 
50,254

 
—

Certificates of deposit
 
3,549

 
—

 
3,549

 
—

Total cash equivalents
 
$
340,724


$
—


$
340,724


$
—

 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Repurchase agreements
 
$
232,131

 
$
—

 
$
232,131

 
$
—

Money market
 
50,179

 
—

 
50,179

 
—

Certificates of deposit
 
48

 
—

 
48

 
—

Total cash equivalents
 
$
282,358


$
—


$
282,358


$
—


The Company has highly liquid investments classified as cash equivalents, with original maturities of 90 days or less, included in our Consolidated Balance Sheets. The Company utilizes Level 2 fair value determinations derived from directly or indirectly observable (market based) information to determine the fair value of these highly liquid investments. The Company has certain cash and cash equivalents that are invested on an overnight basis in repurchase agreements, money markets and certificates of deposit. The value of overnight repurchase agreements is determined based upon the quoted market prices for the treasury securities associated with the repurchase agreements. The value of money market instruments is the financial institutions' month-end statement, as these instruments are not tradeable and must be settled directly by us with the respective financial institution. Certificates of deposit are valued at cost, plus interest accrued. Given the short term nature of these instruments, the carrying value approximates fair value.
The level within the fair value hierarchy and the measurement technique are reviewed quarterly. Transfers between levels are deemed to have occurred at the end of the quarter. There were no transfers between fair value levels during the periods presented for 2017 and 2016.
The Company’s nonfinancial assets that are measured at fair value on a nonrecurring basis and are evaluated with periodic testing for impairment include property, plant and equipment, investments, goodwill and other intangible assets. Estimates of the fair value of assets acquired and liabilities assumed in business combinations are generally developed using key inputs such as management’s projections of cash flows on a held-and-used basis (if applicable), discounted as appropriate, management’s

9
Table of Contents

projections of cash flows upon disposition and discount rates. Accordingly, these fair value measurements are in Level 3 of the fair value hierarchy.
The fair value of the Company’s cash, accounts receivable, securitized accounts receivable and related facility, prepaid expenses and other current assets, accounts payable, accrued expenses, customer deposits and short-term borrowings approximate their respective carrying values due to the short-term maturities of the instruments. The carrying value of the Company’s debt obligations approximates fair value as the interest rates on the debt are variable market based interest rates that reset on a quarterly basis. These are each Level 2 fair value measurements, except for cash, which is a Level 1 fair value measurement.
4. Stockholders' Equity
On February 4, 2016, the Company's Board of Directors approved a stock repurchase program (the "Program") under which the Company may begin purchasing up to an aggregate of $500 million of its common stock over the following 18 month period. 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 available cash flow from the business and working capital. Since the beginning of the Program, 1,670,311 shares, for an aggregate purchase price of $240.1 million have been repurchased. There were no shares repurchased under the Program during the three months ended March 31, 2017. In May 2017, the Company repurchased 411,166 common shares totaling $52.4 million under the Program.
5. Stock-Based Compensation
The Company has Stock Incentive Plans (the Plans) pursuant to which the Company’s board of directors may grant stock options or restricted stock to employees. The table below summarizes the expense recognized related to share-based payments recognized for the three month periods ended March 31 (in thousands): 
 
 
Three Months Ended
March 31,
 
 
 
2017
 
2016
 
Stock options
 
$
12,089

 
$
9,244

 
Restricted stock
 
11,004

 
5,942

 
Stock-based compensation
 
$
23,093


$
15,186


The tax benefits recorded on stock based compensation were $15.0 million and $6.2 million for the three month periods ended March 31, 2017 and 2016, respectively.
The following table summarizes the Company’s total unrecognized compensation cost related to stock-based compensation as of March 31, 2017 (cost in thousands):
 
 
Unrecognized
Compensation
Cost
 
Weighted Average
Period of Expense
Recognition
(in Years)
Stock options
 
$
101,535

 
1.60
Restricted stock
 
26,310

 
0.76
Total
 
$
127,845

 
 

10
Table of Contents

Stock Options
Stock options are granted with an exercise price estimated to be equal to the fair market value of the Company's stock on the date of grant as authorized by the Company’s board of directors. Options granted have vesting provisions ranging from one to six years and vesting of the options is generally based on the passage of time or performance. Stock option grants are subject to forfeiture if employment terminates prior to vesting.

The following summarizes the changes in the number of shares of common stock under option for the three month period ended March 31, 2017 (shares and aggregate intrinsic value in thousands):
 
 
Shares
 
Weighted
Average
Exercise
Price
 
Options
Exercisable
at End of
Period
 
Weighted
Average
Exercise
Price of
Exercisable
Options
 
Weighted
Average Fair
Value of
Options
Granted 
During the Period
 
Aggregate
Intrinsic
Value
Outstanding at December 31, 2016
 
6,146

 
$
91.20

 
3,429

 
$
55.00

 
 
 
$
309,238

Granted
 
1,598

 
150.85

 
 
 
 
 
$
37.58

 
 
Exercised
 
(236
)
 
64.65

 
 
 
 
 
 
 
20,443

Forfeited
 
(17
)
 
142.33

 
 
 
 
 
 
 
 
Outstanding at March 31, 2017
 
7,491

 
$
104.65

 
3,833

 
$
65.23

 
 
 
$
350,477

Expected to vest as of March 31, 2017
 
7,491

 
$
104.65

 
 
 
 
 
 
 
 
The aggregate intrinsic value of stock options exercisable at March 31, 2017 was $330.4 million. The weighted average remaining contractual term of options exercisable at March 31, 2017 was 5.4 years.
The fair value of stock option awards granted was estimated using the Black-Scholes option pricing model during the three months ended March 31, 2017 and 2016, with the following weighted-average assumptions for grants or modifications during the period:
 
 
March 31
 
 
2017
 
2016
Risk-free interest rate
 
1.83
%
 
1.11
%
Dividend yield
 
—

 
—

Expected volatility
 
27.31
%
 
27.36
%
Expected life (in years)
 
4.2

 
3.3

Restricted Stock
Awards of restricted stock and restricted stock units are independent of stock option grants and are subject to forfeiture if employment terminates prior to vesting. The vesting of shares granted is generally based on the passage of time or performance, or a combination of these. Shares vesting based on the passage of time have vesting provisions of one year.
The following table summarizes the changes in the number of shares of restricted stock and restricted stock units for the three months ended March 31, 2017 (shares in thousands): 
 
 
Shares
 
Weighted
Average
Grant Date
Fair Value
Outstanding at December 31, 2016
 
379

 
$
140.39

Granted
 
129

 
153.94

Vested
 
(203
)
 
136.77

Cancelled
 
(31
)
 
152.71

Outstanding at March 31, 2017
 
274

 
$
158.06


11
Table of Contents

6. Acquisitions
2017 Acquisitions

On April 28, 2017, the Company signed a definitive agreement to acquire Cambridge Global Payments (“Cambridge”) for approximately $675 million, a leading business to business (B2B) international payments provider. Cambridge processes over $20 billion in B2B cross-border payments annually, helping 13,000 business clients make international payments to suppliers and employees. The purpose of this acquisition is to further expand the Company's corporate payments footprint. This acquisition is expected to be completed in third quarter of 2017.

2016 Acquisitions

STP

On August 31, 2016, the Company acquired all of the outstanding stock of Serviços e Tecnologia de Pagamentos S.A. (“STP”), for approximately $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 the Company's presence in the toll market in Brazil.The Company financed the acquisition using a combination of existing cash and borrowings under its existing credit facility. Results from the acquired business have been reported in the Company's international segment since the date of acquisition. The following table summarizes the preliminary acquisition accounting for STP (in thousands):
 
Trade and other receivables
$
243,157

Prepaid expenses and other
6,998

Deferred tax assets
9,365

Property and equipment
38,732

Other long term assets
14,280

Goodwill
645,766

Customer relationships and other identifiable intangible assets
584,274

Liabilities assumed
(315,082
)
Aggregate purchase price
$
1,227,490

 
 
The estimated fair value of intangible assets acquired and the related estimated useful lives consisted of the following (in thousands):
 
Useful Lives (in Years)
Value
Customer relationships
8.5-17
$
349,310

Trade names and trademarks - indefinite
N/A
189,547

Technology
6
45,417

 
 
$
584,274


In connection with the STP acquisition, the Company recorded contingent liabilities aggregating $13.5 million in the consolidated balance sheet, recorded within other noncurrent liabilities and accrued expenses in the consolidated balance sheet at the date of acquisition. A portion of these acquired liabilities have been indemnified by the respective sellers. As a result, an indemnification asset of $13.0 million was recorded within prepaid and other current assets and other long term assets in the consolidated balance sheet. The contingent liabilities and the indemnification asset are included in the preliminary acquisition accounting for STP at the date of acquisition. The potential range of acquisition related contingent liabilities that the Company estimates would be incurred and ultimately recoverable is $13.5 million to $18.6 million. Along with the Company's acquisition of STP, the Company signed noncompete agreements with certain parties for approximately $21.6 million.

The purchase price allocation related to this acquisition is preliminary as the Company is still completing the valuation for intangible assets, income taxes, certain acquired contingencies and the working capital adjustment period remains open. Goodwill recognized is comprised primarily of expected synergies from combining the operations of the Company and STP and assembled workforce. The allocation of the goodwill to the reporting units has not been completed. The goodwill and definite lived intangibles acquired with this business is expected to be deductible for tax purposes.

12
Table of Contents


Other

During 2016, the Company 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 approximately $76.7 million, net of cash acquired of $11.1 million. The following table summarizes the preliminary acquisition accounting for these acquisitions (in thousands):
 
Trade and other receivables
$
27,810

Prepaid expenses and other
5,097

Property and equipment
992

Goodwill
28,540

Other intangible assets
61,823

Deferred tax asset
146

Liabilities assumed
(42,550
)
Deferred tax liabilities
(5,123
)
Aggregate purchase prices
$
76,735

The estimated fair value of intangible assets acquired and the related estimated useful lives consisted of the following (in thousands):
 
Useful Lives (in Years)
Value
Customer relationships and other identifiable intangible assets
10-18
$
61,823

 
 
$
61,823

The other 2016 acquisitions were not material individually or in the aggregate to the Company’s consolidated financial statements. The accounting for certain of these acquisitions is preliminary as the Company is still completing the valuation of intangible assets, income taxes and evaluation of acquired contingencies.
7. Goodwill and Other Intangible Assets
A summary of changes in the Company’s goodwill by reportable business segment is as follows (in thousands): 
 
 
December 31, 2016
 
Acquisitions/ Dispositions
Acquisition Accounting
Adjustments
 
Foreign
Currency
 
March 31, 2017
Segment
 
 
 
 
 
 
 
 
 
North America
 
$
2,640,409

 
$
—

$
—

 
$
—

 
$
2,640,409

International
 
1,554,741

 


(13,522
)
 
45,844

 
1,587,063

 
 
$
4,195,150


$
—

$
(13,522
)

$
45,844


$
4,227,472

As of March 31, 2017 and December 31, 2016, other intangible assets consisted of the following (in thousands):
 

13
Table of Contents

 
 
 
 
March 31, 2017
 
December 31, 2016
 
 
Weighted-
Avg
Useful
Lives
(Years)
 
Gross
Carrying
Amounts
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amounts
 
Accumulated
Amortization
 
Net
Carrying
Amount
Customer and vendor agreements
 
16.9
 
$
2,471,625

 
$
(499,199
)
 
$
1,972,426

 
$
2,449,389

 
$
(458,118
)
 
$
1,991,271

Trade names and trademarks—indefinite lived
 
N/A
 
518,505

 
—

 
518,505

 
510,952

 
—

 
510,952

Trade names and trademarks—other
 
14.7
 
2,757

 
(2,056
)
 
701

 
2,746

 
(2,021
)
 
725

Software
 
5.3
 
213,289

 
(94,968
)
 
118,321

 
211,331

 
(85,167
)
 
126,164

Non-compete agreements
 
5.0
 
36,505

 
(12,807
)
 
23,698

 
35,191

 
(11,070
)
 
24,121

Total other intangibles
 
 
 
$
3,242,681


$
(609,030
)

$
2,633,651


$
3,209,609


$
(556,376
)

$
2,653,233

Changes in foreign exchange rates resulted in a $33.1 million increase to the carrying values of other intangible assets in the three months ended March 31, 2017. Amortization expense related to intangible assets for the three months ended March 31, 2017 and 2016 was $52.7 million and $27.4 million, respectively.

8. Debt
The Company’s debt instruments consist primarily of term notes, revolving lines of credit and a Securitization Facility as follows (in thousands):
 
 
 
March 31, 2017
 
December 31, 2016
Term notes payable—domestic(a), net of discounts
 
$
2,606,684

 
$
2,639,279

Revolving line of credit A Facility—domestic(a)
 
425,000

 
465,000

Revolving line of credit A Facility—foreign(a)
 
94,907

 
123,412

Revolving line of credit A Facility—swing line(a)
 
48,577

 
26,608

Other debt(c)
 
17,169

 
12,934

Total notes payable and other obligations
 
3,192,337


3,267,233

Securitization Facility(b)
 
676,000

 
591,000

Total notes payable, credit agreements and Securitization Facility
 
$
3,868,337


$
3,858,233

Current portion
 
$
1,407,708

 
$
1,336,506

Long-term portion
 
2,460,629

 
2,521,727

Total notes payable, credit agreements and Securitization Facility
 
$
3,868,337


$
3,858,233

 ______________________
(a)
On October 24, 2014, the Company entered into a $3.36 billion Credit Agreement, which provides for senior secured credit facilities consisting of (a) a revolving A credit facility in the amount of $1.0 billion, with sublimits for letters of credit, swing line loans and multi-currency borrowings, (b) a revolving B facility in the amount of $35 million for loans in Australian Dollars or New Zealand Dollars, (c) a term loan A facility in the amount of $2.02 billion and (d) a term loan B facility in the amount of $300 million. On August 22, 2016, the Company entered into the first Amendment to the existing Credit Agreement, which established an incremental term A loan in the amount of $600 million under the Credit Agreement accordion feature. The proceeds from the additional $600 million in term A loans were used to partially finance the STP acquisition. The Amendment also established an accordion feature for borrowing an additional $500 million in term A, term B or revolver A debt. On January 20, 2017, the Company entered into the second amendment to the Credit Agreement, which established a new term B loan (Term B-2 loan) in the amount of $245.0 million to replace the existing Term B loan. Interest on the Term B-2 loan facility accrues based on the Eurocurrency Rate or the Base Rate, except that the applicable margin is fixed at 2.25% for Eurocurrency Loans and at 1.25% for Base Rate Loans. In addition, the Company pays 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.

14
Table of Contents

The stated maturity dates for the term A loans, revolving loans, and letters of credit under the Credit Agreement is November 14, 2019 and November 14, 2021 for the term loan B. The Company has unamortized debt discounts of $5.6 million related to the term A facility and $0.9 million related to the term B facility at March 31, 2017.
(b)
The Company is party to a $950 million receivables purchase agreement (Securitization Facility) that was amended and restated on December 1, 2015. There is a program fee equal to one month LIBOR and the Commercial Paper Rate of 0.98% plus 0.90% and 0.85% plus 0.90% as of March 31, 2017 and December 31, 2016, respectively. The unused facility fee is payable at a rate of 0.40% per annum as of March 31, 2017 and December 31, 2016.
(c)
Other debt includes the long-term portion of contingent consideration and deferred payments associated with certain of our businesses.
The Company was in compliance with all financial and non-financial covenants at March 31, 2017.

9. Income Taxes
The provision for income taxes differs from amounts computed by applying the U.S. federal tax rate of 35% to income before income taxes for the three months ended March 31, 2017 and 2016 due to the following (in thousands):
 
 
 
2017
 
2016
Computed tax expense at the U.S. federal tax rate
 
$
58,579

 
35.0
 %
 
$
54,919

 
35.0
 %
Changes resulting from:
 
 
 
 
 
 
 
 
Foreign income tax differential
 
(5,843
)
 
(3.5
)%
 
(4,769
)
 
(3.0
)%
Excess tax benefits related to stock-based compensation
 
(8,721
)
 
(5.2
)%
 
(1,118
)
 
(0.7
)%
State taxes net of federal benefits
 
1,607

 
1.0
 %
 
1,832

 
1.1
 %
Foreign-sourced nontaxable income
 
(603
)
 
(0.4
)%
 
(2,178
)
 
(1.4
)%
Other
 
(1,344
)
 
(0.8
)%
 
(2,864
)
 
(1.8
)%
Provision for income taxes
 
$
43,675

 
26.1
 %
 
$
45,822

 
29.2
 %

The adoption of ASU 2016-09, "Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting" resulted in excess tax benefits being recorded as a reduction of income tax expense beginning January 1, 2016, rather than additional paid in capital as discussed in the summary of significant accounting policies footnote.
10. Earnings Per Share
The Company reports basic and diluted earnings per share. Basic earnings per share is computed by dividing net income attributable to shareholders of the Company by the weighted average number of common shares outstanding during the reported period. Diluted earnings per share reflect the potential dilution related to equity-based incentives using the treasury stock method. The calculation and reconciliation of basic and diluted earnings per share for the three months ended March 31 (in thousands, except per share data) follows:
 
 
 
Three Months Ended
March 31,
 
 
 
2017
 
2016
 
Net income
 
$
123,693

 
$
111,090

 
Denominator for basic earnings per share
 
92,108

 
92,516

 
Dilutive securities
 
2,452

 
2,514

 
Denominator for diluted earnings per share
 
94,560


95,030


Basic earnings per share
 
$
1.34

 
$
1.20

 
Diluted earnings per share
 
$
1.31

 
$
1.17

 
There were 0.8 million antidilutive shares during the three month period ended March 31, 2017. Diluted earnings per share for the three month period ended March 31, 2016 excludes the effect of 1.8 million shares of common stock that may be issued upon the exercise of employee stock options because such effect would be antidilutive. Diluted earnings per share also excludes the effect of 0.2 million and 0.3 million shares of performance based restricted stock for which the performance criteria have not yet been achieved for the three month period ended March 31, 2017 and 2016, respectively.

15
Table of Contents

11. Segments
The Company reports information about its operating segments in accordance with the authoritative guidance related to segments. The Company’s reportable segments represent components of the business for which separate financial information is evaluated regularly by the chief operating decision maker in determining how to allocate resources and in assessing performance. The Company operates in two reportable segments, North America and International. There were no inter-segment sales.

The Company’s segment results are as follows for the three month periods ended March 31 (in thousands):
 
 
 
Three Months Ended
March 31,
 
 
 
2017
 
2016
 
Revenues, net:
 
 
 
 
 
North America
 
$
329,948

 
$
303,548

 
International
 
190,485

 
110,714

 
 
 
$
520,433


$
414,262


Operating income:
 
 
 
 
 
North America
 
$
120,972

 
$
113,850

 
International
 
74,096

 
62,105

 
 
 
$
195,068


$
175,955


Depreciation and amortization:
 
 
 
 
 
North America
 
$
33,177

 
$
31,432

 
International
 
31,689

 
4,896

 
 
 
$
64,866


$
36,328


Capital expenditures:
 
 
 
 
 
North America
 
$
9,632

 
$
7,942

 
International
 
5,164

 
3,797

 
 
 
$
14,796


$
11,739


12. Commitments and Contingencies
In the ordinary course of business, the Company is involved in various pending or threatened legal actions. The Company has recorded reserves for certain legal proceedings. The amounts recorded are estimated and as additional information becomes available, the Company will reassess the potential liability related to legal actions and revise its estimate in the period that information becomes known. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will not have a material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.
13. Assets Held for Sale

On March 3, 2017, the Company signed a definitive agreement to contribute our Stored Value Solutions (SVS) prepaid card services and gift card program management assets into a venture with First Data’s core gift card business, Transactions Wireless, Inc. and Gyft, that will consolidate these various gift solutions to drive new value for clients. First Data will own 57.5% percent of the joint venture and the Company will own 42.5% percent once the venture closes, which is expected in the second half of 2017, subject to customary regulatory approvals.

At March 31, 2017, the carrying value of current assets, goodwill and intangibles at SVS is approximately $54.7 million, $183.9 million and $218.0 million, respectively. SVS revenues were $48 million and $42 million in the three months ended March 31, 2017 and 2016. The results of the SVS businesses are included in our North America segment. The results of operations associated with the SVS assets will remain in continuing operations as the contribution of assets does not represent a significant shift in our corporate strategy and does not have a major effect on our operations and financial results.


16
Table of Contents

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 the global leader in workforce payment products.  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.
 

17
Table of Contents

For the three months ended March 31, 2017 and 2016, our North America and International segments generated the following revenue:
 
 
Three Months Ended March 31,
 
 
2017
 
2016
(Unaudited) (in millions)
 
Revenues, net
 
% of
total
revenues, net
 
Revenues, net
 
% of
total
revenues, net
North America
 
$
329.9

 
63.4
%
 
$
303.5

 
73.3
%
International
 
190.5

 
36.6
%
 
110.7

 
26.7
%
 
 
$
520.4

 
100.0
%
 
$
414.3

 
100.0
%

Revenues, net, Net Income and Net Income Per Diluted Share. Set forth below are revenues, net, net income and net income per diluted share for the three months ended March 31, 2017 and 2016.
 
(Unaudited)
 
Three Months Ended March 31,
(in thousands, except per share amounts)
 
2017
 
2016
Revenues, net
 
$
520,433

 
$
414,262

Net income
 
$
123,693

 
$
111,090

Net income per diluted share
 
$
1.31

 
$
1.17

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 Flowhttps://cdn.kscope.io/6e747251506f0393e22cbfd8952c1b5d-tranflowexamplea02.jpg
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

18
Table of Contents

(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 months ended March 31, 2017 and 2016 (in millions):
 
 
Three Months Ended March 31,
Revenue by Geography*
 
2017
 
2016
(Unaudited)
 
Revenues,
net
 
% of
total
revenues, net
 
Revenues,
net
 
% of
total
revenues, net
United States
 
$
330

 
63
%
 
$
304

 
73
%
United Kingdom
 
54

 
10

 
59

 
14

Brazil
 
93

 
18

 
17

 
4

Other
 
43

 
8

 
35

 
8

Consolidated revenues, net
 
$
520

 
100
%
 
$
414

 
100
%
*Columns may not calculate due to impact of rounding.
 
 
Three Months Ended March 31,
Revenue by Product Category*
 
2017
 
2016
(Unaudited)
 
Revenues,
net
 
% of total revenues, net
 
Revenues,
net
 
% of total
revenues, net
Fuel cards
 
$
258

 
50
%
 
$
241

 
58
%
Corporate Payments
 
47

 
9

 
41

 
10

Tolls
 
77

 
15

 
2

 
1

Lodging
 
24

 
5

 
21

 
5

Gift
 
48

 
9

 
42

 
10

Other
 
66

 
13

 
67

 
16

Consolidated revenues, net
 
$
520

 
100
%
 
$
414

 
100
%
*Columns may not calculate due to impact of rounding.


19
Table of Contents

 
 
Three Months Ended March 31,
Major Sources of Revenue*
 
2017
 
2016
(Unaudited)
 
Revenues,
net
 
% of total
revenues, net
 
Revenues,
net
 
% of total
revenues, net
Customer
 
 
 
 
 
 
 
 
Processing and program revenue1
 
$
244

 
47
%
 
$
173

 
42
%
Late fees and finance charges2
 
37

 
7
%
 
27

 
7
%
Miscellaneous fees3
 
34

 
6
%
 
28

 
7
%
 
 
315

 
61
%
 
228

 
55
%
Merchant
 
 
 
 
 
 
 
 
Discount revenue (fuel)4
 
80

 
15
%
 
68

 
16
%
Discount revenue (nonfuel)5
 
41

 
8
%
 
37

 
9
%
Tied to fuel-price spreads6
 
50

 
10
%
 
52

 
12
%
Program revenue7
 
34

 
7
%
 
30

 
7
%
 
 
205

 
39
%
 
186

 
45
%
Consolidated revenues, net
 
$
520

 
100
%
 
$
414

 
100
%
1Includes 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, gift cards and toll related businesses.
2Fees for late payment and interest charges for carrying a balance charged to a customer.
3Non-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.
4Interchange revenue directly influenced by the absolute price of fuel and other interchange related to fuel products.
5Interchange revenue related to nonfuel products.
6Revenue 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.
7Revenue derived primarily from the sale of equipment, software and related maintenance to merchants.
*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.

Revenue per transaction. Set forth below is revenue per transaction information for the three months ended March 31, 2017 and 2016: 
 
 
Three Months Ended March 31,
 
(Unaudited)
 
2017
 
2016
 
Transactions (in millions)
 
 
 
 
 
North America
 
474.0

 
434.5

 
International
 
270.9

 
52.5

 
Total transactions
 
744.9


487.0


Revenue per transaction
 

 

 
North America
 
$
0.70

 
$
0.70

 
International
 
0.70

 
2.11

 
Consolidated revenue per transaction
 
0.70

 
0.85

 
For the three months ended March 31, 2017, total transactions increased from 487.0 million to 744.9 million, an increase of 257.9 million, or 52.9%. North American segment transactions increased approximately 9% in the three months ended March 31, 2017 as compared to 2016 due primarily to growth in our SVS and fuel card businesses. Transaction volumes in our international segment increased by 415.6% over the comparable period in 2016, primarily due to the acquisition of STP and Travelcard during the third quarter of 2016.

20
Table of Contents

Set forth below is further breakdown of revenue and revenue per transaction, by product category for the three months ended March 31, 2017 and 2016 (in millions except revenues, net per transaction):
 
 
As Reported
 
Pro Forma and Macro Adjusted2
(Unaudited)
 
Three Months Ended March 31,
 
Three Months Ended March 31,
 
 
2017
 
2016
 
Change
 
% Change
 
20173
 
20164
 
Change
 
% Change
FUEL CARDS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
'- Transactions
 
114.4

 
103.0

 
11.4

 
11
 %
 
114.4

 
106.1

 
8.3

 
8
 %
'- Revenues, net per transaction
 
$
2.26

 
$
2.34

 
$
(0.08
)
 
(3
)%
 
$
2.27

 
$
2.23

 
$
0.05

 
2
 %
'- Revenues, net
 
$
258.3

 
$
240.7

 
$
17.6

 
7
 %
 
$
260.1

 
$
236.4

 
$
23.7

 
10
 %
CORPORATE PAYMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
'- Transactions
 
9.5

 
8.9

 
0.6

 
6
 %
 
9.5

 
8.9

 
0.6

 
6
 %
'- Revenues, net per transaction
 
$
4.93

 
$
4.61

 
$
0.33

 
7
 %
 
$
4.90

 
$
4.61

 
$
0.29

 
6
 %
'- Revenues, net
 
$
46.8

 
$
41.2

 
$
5.6

 
14
 %
 
$
46.5

 
$
41.2

 
$
5.3

 
13
 %
TOLLS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
'- Transactions
 
222.9

 
10.1

 
212.8

 
2,109
 %
 
222.9

 
219.7

 
3.2

 
1
 %
'- Revenues, net per transaction
 
$
0.35

 
$
0.22

 
$
0.13

 
57
 %
 
$
0.28

 
$
0.25

 
$
0.03

 
10
 %
'- Revenues, net
 
$
77.0

 
$
2.2

 
$
74.8

 
3,372
 %
 
$
62.0

 
$
55.5

 
$
6.5

 
12
 %
LODGING
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
'- Transactions
 
3.2

 
3.0

 
0.2

 
6
 %
 
3.2

 
3.0

 
0.2

 
6
 %
'- Revenues, net per transaction
 
$
7.38

 
$
6.84

 
$
0.54

 
8
 %
 
$
7.38

 
$
6.84

 
$
0.54

 
8
 %
'- Revenues, net
 
$
23.8

 
$
20.7

 
$
3.1

 
15
 %
 
$
23.8

 
$
20.7

 
$
3.1

 
15
 %
GIFT
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
'- Transactions
 
377.7

 
342.0

 
35.6

 
10
 %
 
377.7

 
342.0

 
35.6

 
10
 %
'- Revenues, net per transaction
 
$
0.13

 
$
0.12

 
$
—

 
3
 %
 
$
0.13

 
$
0.12

 
$
—

 
3
 %
'- Revenues, net
 
$
48.4

 
$
42.5

 
$
6.0

 
14
 %
 
$
48.4

 
$
42.5

 
$
6.0

 
14
 %
OTHER1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
'- Transactions
 
17.3

 
20.0

 
(2.7
)
 
(13
)%
 
17.3

 
20.0

 
(2.7
)
 
(13
)%
'- Revenues, net per transaction
 
$
3.83

 
$
3.36

 
$
0.47

 
14
 %
 
$
3.87

 
$
3.36

 
$
0.51

 
15
 %
'- Revenues, net
 
$
66.2

 
$
67.0

 
$
(0.9
)
 
(1
)%
 
$
66.7

 
$
67.0

 
$
(0.3
)
 
—
 %
FLEETCOR CONSOLIDATED REVENUES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
'- Transactions
 
744.9

 
487.0

 
257.9

 
53
 %
 
744.9

 
699.8

 
45.1

 
6
 %
'- Revenues, net per transaction
 
$
0.70

 
$
0.85

 
$
(0.15
)
 
(18
)%
 
$
0.68

 
$
0.66

 
$
0.02

 
3
 %
'- Revenues, net
 
$
520.4

 
$
414.3

 
$
106.2

 
26
 %
 
$
507.6

 
$
463.3

 
$
44.3

 
10
 %
1Other includes telematics, maintenance, food and transportation related businesses.
2Pro 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 reconciliation of revenue, net to pro forma and macro adjusted revenue, net.
32017 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.
42016 is pro forma to include acquisitions and exclude dispositions consistent with 2017 ownership. 2016 also includes an approximately $6 million one-time true-up.
_________________________________________________________________________________________________________________
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.

21
Table of Contents

•
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.
•
Equity method investment loss—Our equity method investment results relate to our minority interest in Masternaut, a provider of telematics solutions to commercial fleets in Europe, which we account for using the equity 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.
•
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.

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 months ended March 31, 2017 and 2016.
 
(Unaudited)
 
Three Months Ended March 31,
 
(in thousands, except per share amounts)
 
2017
 
2016
 
Adjusted revenues
 
$
496,049

 
$
386,029

 
Adjusted net income
 
$
184,978

 
$
145,689

 
Adjusted net income per diluted share
 
$
1.96

 
$
1.53

 
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 a 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.”
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

22
Table of Contents

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 70 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 73% of our revenue in the three months ended March 31, 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 April 28, 2017, the Company signed a definitive agreement to acquire Cambridge Global Payments (“Cambridge”) for approximately $675 million, a leading business to business (B2B) international payments provider. Cambridge processes over $20 billion in B2B cross-border payments annually, helping 13,000 business clients make international payments to suppliers and employees. The purpose of this acquisition is to further expand our corporate payments footprint. This acquisition is expected to be completed in third quarter of 2017.

During 2016, the Company completed acquisitions with an aggregate purchase price of $1.3 billion, net of cash acquired of $51.3 million, which includes deferred payments made during the period related to prior acquisitions of $6.1 million.

•
In August 2016, we acquired all of the outstanding stock of STP for approximately $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 existing 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 approximately $76.7 million, net of cash acquired of $11.1 million.
•
During 2016, we made additional investments of $7.9 million related to our equity method investment at Masternaut. We also received a $9.2 million return of our investment in Masternaut.

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.

Assets Held for Sale

On March 3, 2017, we signed a definitive agreement to contribute Stored Value Solutions (SVS) prepaid card services and gift card program management assets into a venture with First Data’s core gift card business, Transactions Wireless, Inc. and Gyft, that will consolidate these various gift solutions to drive new value for clients. First Data will own 57.5% percent of the joint

23
Table of Contents

venture and we will own 42.5% percent once the venture closes, which is expected in the second half of 2017, subject to customary regulatory approvals.

24
Table of Contents

Results of Operations
Three months ended March 31, 2017 compared to the three months ended March 31, 2016
The following table sets forth selected consolidated statement of income data for the three months ended March 31, 2017 and 2016 (in thousands).
(Unaudited)
 
Three Months Ended March 31, 2017
 
% of total
revenue
 
Three Months Ended March 31, 2016
 
% of total
revenue
 
Increase
(decrease)
 
% Change
Revenues, net:
 
 
 
 
 
 
North America
 
$
329,948

 
63.4
%
 
$
303,548

 
73.3
 %
 
$
26,400

 
8.7
 %
International
 
190,485

 
36.6
%
 
110,714

 
26.7
 %
 
79,771

 
72.1
 %
Total revenues, net
 
520,433

 
100.0
%
 
414,262

 
100.0
 %
 
106,171

 
25.6
 %
Consolidated operating expenses:
 
 
 
 
 
 
Merchant commissions
 
24,384

 
4.7
%
 
28,233

 
6.8
 %
 
(3,849
)
 
(13.6
)%
Processing
 
101,824

 
19.6
%
 
79,814

 
19.3
 %
 
22,010

 
27.6
 %
Selling
 
38,837

 
7.5
%
 
26,553

 
6.4
 %
 
12,284

 
46.3
 %
General and administrative
 
95,434

 
18.3
%
 
67,594

 
16.3
 %
 
27,840

 
41.2
 %
Depreciation and amortization
 
64,866

 
12.5
%
 
36,328

 
8.8
 %
 
28,538

 
78.6
 %
Other operating, net
 
20

 
—
%
 
(215
)
 
(0.1
)%
 
235

 
109.3
 %
Operating income
 
195,068

 
37.5
%
 
175,955

 
42.5
 %
 
19,113

 
10.9
 %
Equity method investment loss
 
2,377

 
0.5
%
 
2,193

 
0.5
 %
 
184

 
8.4
 %
Other expense, net
 
2,196

 
0.4
%
 
659

 
0.2
 %
 
1,537

 
233.2
 %
Interest expense, net
 
23,127

 
4.4
%
 
16,191

 
3.9
 %
 
6,936

 
42.8
 %
Provision for income taxes
 
43,675

 
8.4
%
 
45,822

 
11.1
 %
 
(2,147
)
 
(4.7
)%
Net income
 
$
123,693

 
23.8
%
 
$
111,090

 
26.8
 %
 
$
12,603

 
11.3
 %
Operating income for segments:
 
 
 
 
 
 
North America
 
$
120,972

 
 
 
$
113,850

 
 
 
$
7,122

 
6.3
 %
International
 
74,096

 
 
 
62,105

 
 
 
11,991

 
19.3
 %
Operating income
 
$
195,068

 
 
 
$
175,955

 
 
 
$
19,113

 
10.9
 %
Operating margin for segments:
 
 
 
 
 
 
 
 
 
 
 
 
North America
 
36.7
%
 
 
 
37.5
%
 
 
 
(0.8
)%
 
 
International
 
38.9
%
 
 
 
56.1
%
 
 
 
(17.2
)%
 
 
Total
 
37.5
%
 
 
 
42.5
%
 
 
 
(5.0
)%
 
 
The sum of the columns and rows may not calculate due to rounding.

Revenues
Our consolidated revenues increased from $414.3 million in the three months ended March 31, 2016 to $520.4 million in the three months ended March 31, 2017, an increase of $106.2 million, or 25.6%. The increase in our consolidated revenue was primarily due to:

•
The impact of acquisitions during 2016, which contributed approximately $56 million in additional revenue.
•
Organic growth of approximately 10% on a constant fuel price and fuel spread margin and pro form basis, in certain of our payment programs driven by increases in both volume and revenue per transaction.
•
Partially offsetting this growth was the negative impact of the macroeconomic environment. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our consolidated revenue for the three months ended March 31, 2017 over the comparable period in 2016 of approximately

25
Table of Contents

$2 million. Changes in foreign exchange rates had an unfavorable impact on consolidated revenues of approximately $5 million due to unfavorable fluctuations in rates in most geographies in the three months ended March 31, 2017 compared to 2016. Conversely, we believe the impact of higher fuel prices, primarily in the U.S., partially offset by lower fuel spread margins, had a favorable impact on consolidated revenues of approximately $3 million.
North America segment revenues
North America revenues increased from $303.5 million in the three months ended March 31, 2016 to $329.9 million in the three months ended March 31, 2017, an increase of $26.4 million, or 8.7%. The increase in our North America segment revenue was primarily due to:

•
Organic growth of approximately 10%, on a constant fuel price and fuel spread margin and pro forma basis, in certain of our payment programs driven by increases in both volume and revenue per transaction.
•
The positive impact of macroeconomic environment. 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 three months ended March 31, 2017 over the comparable period in 2016 of approximately $2 million, primarily due to the impact of higher fuel prices, partially offset by lower fuel spread margins.
International segment revenues
International segment revenues increased from $110.7 million in the three months ended March 31, 2016 to $190.5 million in the three months ended March 31, 2017, an increase of $79.8 million, or 72.1%. The increase in our International segment revenue was primarily due to:
 
•
The impact of acquisitions during 2016 which contributed approximately $56 million in additional revenue.
•
Organic growth of approximately 9% on a constant macroeconomic basis in certain of our payment programs driven by increases in both volume and revenue per transaction.
•
Partially offsetting this growth was the negative impact of the macroeconomic environment. Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a negative impact on our International segment revenue for the three months ended March 31, 2017 over the comparable period in 2016 of approximately $5 million, primarily due to unfavorable fluctuations in foreign exchange rates in most geographies where we do business, partially offset by the favorable impact of changes in fuel price of approximately $1 million.
Consolidated operating expenses
Merchant commissions. Merchant commissions decreased from $28.2 million in the three months ended March 31, 2016 to $24.4 million in the three months ended March 31, 2017, a decrease of $3.8 million, or 13.6%. This decrease was primarily due to the fluctuation of the margin between the wholesale cost and retail price of fuel, as well as the impact of fluctuations in foreign exchange rates. partially offset by the impact of higher volume in certain revenue streams where merchant commissions are paid.
Processing. Processing expenses increased from $79.8 million in the three months ended March 31, 2016 to $101.8 million in the three months ended March 31, 2017, an increase of $22.0 million, or 27.6%. Increases in processing expenses were primarily due to expenses related to acquisitions completed in the third quarter of 2016 of approximately $18 million, incremental bad debt expense of $3 million, offset by the impact of fluctuations in foreign exchange rates and lower negotiated vendor processing costs. The increase in bad debt was primarily due to bad debt inherent in the acquired STP business, the addition of new Euro Shell locations and normal quarterly fluctuations of certain businesses.
Selling. Selling expenses increased from $26.6 million in the three months ended March 31, 2016 to $38.8 million in the three months ended March 31, 2017, an increase of $12.3 million, or 46.3%. Increases in spending were primarily due to ongoing expenses related to acquisitions completed in the third quarter of 2016 of approximately $6 million, as well as increases in spending and investment in existing portfolios.
General and administrative. General and administrative expenses increased from $67.6 million in the three months ended March 31, 2016 to $95.4 million in the three months ended March 31, 2017, an increase of $27.8 million, or 41.2%. The increase was primarily due to ongoing expenses related to acquisitions completed in the third quarter of 2016 of approximately $10 million, increased stock based compensation expense of approximately $9 million and increases in other professional fees of approximately $6 million.

Depreciation and amortization. Depreciation and amortization increased from $36.3 million in the three months ended March 31, 2016 to $64.9 million in the three months ended March 31, 2017, an increase of $28.5 million, or 78.6%. The

26
Table of Contents

increase was primarily due to amortization of intangible assets related to acquisitions of STP and Travelcard completed in the third quarter of 2016.

Equity method investment loss. Equity method investment loss was $2.4 million in the three months ended March 31, 2017, compared to $2.2 million in the three months ended March 31, 2016.

Interest expense, net. Interest expense increased from $16.2 million in the three months ended March 31, 2016 to $23.1 million in the three months ended March 31, 2017, an increase of $6.9 million, or 42.8%. The increase in interest expense is primarily due to the impact of additional borrowings for the acquisitions of STP and Travelcard completed during the third quarter of 2016 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 March 31,
(Unaudited)
 
2017
 
2016
Term loan A
 
2.53
%
 
1.93
%
Term loan B
 
3.20
%
 
3.75
%
Domestic Revolver A
 
2.55
%
 
1.92
%
Foreign Revolver A
 
2.01
%
 
—
%
Foreign swing line
 
1.96
%
 
—
%
The average unused credit facility fee for Domestic Revolver A was 0.34% and 0.30% in the three month period ending March 31, 2017 and 2016, respectively.
Provision for income taxes. The provision for income taxes decreased from $45.8 million in the three months ended March 31, 2016 to $43.7 million in the three months ended March 31, 2017, a decrease of $2.1 million, or 4.7%. 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 decreased from 29.2% for three months ended March 31, 2016 to 26.1% for the three months ended March 31, 2017. The decrease in the provision for income taxes and in the effective tax rate was due primarily to excess tax benefits on share based compensation and the favorable mix impact of higher international earnings, in the three months ended March 31, 2017 as compared to 2016.
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.
Net income. For the reasons discussed above, our net income increased from $111.1 million in the three months ended March 31, 2016 to $123.7 million in the three months ended March 31, 2017, an increase of $12.6 million, or 11.3%.
Operating income and operating margin
Consolidated operating income. Operating income increased from $176.0 million in the three months ended March 31, 2016 to $195.1 million in the three months ended March 31, 2017, an increase of $19.1 million, or 10.9%. Our operating margin was 42.5% and 37.5% for the three months ended March 31, 2016 and 2017, respectively. The increase in operating income was primarily due to acquisitions completed in the third quarter of 2016 and organic growth. The lower operating margin was driven 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 stock based compensation of approximately $9 million and additional bad debt expense of $2 million, due to normal quarterly fluctuations in certain businesses. The impact of the macro economic environment was mostly neutral.
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 $113.9 million in the three months ended March 31, 2016 to $121.0 million in the three months ended March 31, 2017, an increase of $7.1 million, or 6.3%. North America operating margin was 37.5% and 36.7% for the three months ended March 31, 2016 and 2017, respectively. The increase in operating income was due primarily to organic growth and the positive impact of the macroeconomic environment

27
Table of Contents

of approximately $4 million, driven by higher fuel prices. These increases were partially offset by additional stock based compensation of approximately $6 million and additional bad debt expense of $1 million.

International segment operating income. International operating income increased from $62.1 million in the three months ended March 31, 2016 to $74.1 million in the three months ended March 31, 2017, an increase of $12.0 million, or 19.3%. International operating margin was 56.1% and 38.9% for the three months ended March 31, 2016 and 2017, respectively. The increase in operating income was due primarily to the impact of acquisitions completed in the third quarter of 2016 and organic growth, partially offset by the negative impact of the macroeconomic environment of approximately $5 million, driven primarily by changes in foreign exchange rates, as well as higher stock based compensation of approximately $3 million. The lower operating margin was driven 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 stock based compensation expense of $3 million and additional bad debt expense of $1 million.
Liquidity and capital resources
Our principal liquidity requirements are to service and repay our indebtedness, make acquisitions of businesses and commercial account portfolios, repurchase shares of our common stock and meet working capital needs, tax and capital expenditure needs.
Sources of liquidity
At March 31, 2017, our cash balances totaled $735.0 million, with approximately $188.4 million restricted. Restricted cash primarily 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 March 31, 2017, cash and cash equivalents held in foreign subsidiaries where we have determined we are permanently reinvested is $395.3 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 March 31, 2017, we had the ability to generate approximately $77 million of additional liquidity under our Securitization Facility. At March 31, 2017, we had approximately $467 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.

28
Table of Contents

Cash flows
The following table summarizes our cash flows for the three months ended March 31, 2017 and 2016.
 
(Unaudited)
 
Three Months Ended March 31,
(in millions)
 
2017
 
2016
Net cash provided by operating activities
 
$
54.2

 
$
122.6

Net cash used in investing activities
 
(21.1
)
 
(20.7
)
Net cash provided by (used in) financing activities
 
19.1

 
(158.5
)
Operating activities. Net cash provided by operating activities decreased from $122.6 million in the three months ended March 31, 2016 to $54.2 million in the three months ended March 31, 2017. Net income and non-cash expense items increased operating cash flow by $54.4 million from $171.1 million in the first quarter of 2016 to $225.5 million in 2017, driven primarily by higher amortization of acquired intangible assets of $25 million and higher net income of $13 million. Net working capital was a use of cash of $171.3 million in the first quarter of 2017 compared to $48.5 million in 2016. The primary reason for the increased use of working capital was $77 million in higher income tax payments made in the first quarter of 2017 than 2016, which was due to tax payments normally due in the third and fourth quarters of 2016 being deferred until the first quarter of 2017. The remaining increased use of working capital related to the overall growth of the business and the timing of settlement of receivables and payables during the three months ended March 31, 2017 over the comparable period in 2016.
Investing activities. Net cash used in investing activities increased from $20.7 million in the three months ended March 31, 2016 to $21.1 million in the three months ended March 31, 2017.
Financing activities. Net cash used in financing activities was $158.5 million in the three months ended March 31, 2016 compared to net cash provided by financing activities of $19.1 million in the three months ended March 31, 2017. The increase in cash provided by financing activities is primarily due to an increase in net borrowings on our Securitization Facility in the first quarter of 2017 over the comparable period in 2016.
Capital spending summary
Our capital expenditures increased from $11.7 million in the three months ended March 31, 2016 to $14.8 million in the three months ended March 31, 2017, an increase of $3.1 million, or 26.0%. This increase is primarily due to increased spending on strategic projects, including continued investment in our GFN application.
Credit Facility
On October 24, 2014, FleetCor Technologies Operating Company, LLC, and certain of our domestic and foreign owned subsidiaries, as designated co-borrowers (the “Borrowers”), entered into a new $3.36 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”). The Credit Agreement provided for senior secured credit facilities consisting of (a) a revolving A credit facility in the amount of $1.0 billion, with sublimits for letters of credit, swing line loans and multicurrency borrowings, (b) a revolving B facility in the amount of $35 million for loans in Australian Dollars or New Zealand Dollars, (c) a term A loan facility in the amount of $2.02 billion and (d) a term B loan facility in the amount $300 million. The revolving line of credit contains a $20 million sublimit for letters of credit, a $20 million sublimit for swing line loans and sublimits for multicurrency borrowings in Euros, Sterling, Japanese Yen, Australian Dollars and New Zealand Dollars. The Credit Agreement also contains an accordion feature for borrowing an additional $500 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 proceeds of the Credit Facility were used to paydown borrowings under the Credit Agreement. On November 14, 2014 in order to finance a portion of the Comdata Acquisition and to refinance our existing Credit Agreement, we made initial borrowings under the Credit Agreement.
On August 22, 2016, the Company entered into the first amendment to the Credit Agreement, which increased the size of our Term A loan from $2.02 billion to $2.62 billion. The proceeds from the additional $600 million in term A loan were used to partially finance the STP acquisition. On January 20, 2017, the Company entered into the second amendment to the Credit Agreement, which established a new term B loan (Term B-2 loan) in the amount of $245.0 million to replace the existing Term B loan. Interest on the Term B-2 loan facility accrues based on the Eurocurrency Rate or the Base Rate, except that the applicable margin is fixed at 2.25% for Eurocurrency Loans and at 1.25% for Base Rate Loans. In addition, the Company pays 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.

29
Table of Contents

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 our ability to pay dividends and make other restricted payments under certain circumstances and compliance with certain financial ratios. As of March 31, 2017, we were in compliance with each of the covenants under the Credit Facility.
The stated maturity dates for our term A loans, revolving loans, and letters of credit under the Credit Agreement is November 14, 2019 and November 14, 2021 for our Term B-2 loan. 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.
At March 31, 2017, we had $2,370.2 million in borrowings outstanding on the term A loan, excluding the related debt discount, $244.4 million in borrowings outstanding on Term B-2 loan, excluding the related debt discount, $425.0 million in borrowings outstanding on the domestic revolving A facility, $94.9 million in borrowings outstanding on the foreign revolving A facility and $48.6 million in borrowings outstanding on the swing line revolving A facility. The Company has unamortized debt discounts of $5.6 million related to the term A facility and $0.9 million related to the term B facility at March 31, 2017.
During the three months ended March 31, 2017, we made principal payments of $32.7 million on the term A loan, $0.6 million on the Term B-2 loan, $130 million on the domestic revolving A facility, $29.9 million on the foreign revolving A facility and $0.2 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 0.98% plus 0.90% and 0.85% plus 0.90% as of March 31, 2017 and December 31, 2016, respectively. The unused facility fee is payable at a rate of 0.40% as of March 31, 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 March 31, 2017.

Other Liabilities
In connection with our acquisition of certain businesses, we owe final payments of $3.6 million, which are payable in the next twelve months.
Stock Repurchase Program
On February 4, 2016, our Board of Directors approved a stock repurchase program under which the Company may begin purchasing up to $500 million of its common stock over the following 18 month period. 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 available cash flow from the business and working capital. Since the beginning of the Program, 1,670,311 shares, for an aggregate purchase price of $240.1 million have been repurchased. There were no shares repurchased under the Program during the three months ended March 31, 2017. In May 2017, we repurchased 411,166 common shares totaling $52.4 million under the Program.
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

30
Table of Contents

reasonably could have used different accounting estimates and, in other instances, changes in our accounting estimates could occur from period to period, with the result in each case being a material change in the financial statement presentation of our financial condition or results of operations. We refer to estimates of this type as critical accounting estimates.
Accounting estimates necessarily require subjective determinations about future events and conditions. During the three months ended March 31, 2017, 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 March 31,
 
(Unaudited)
 
2017
 
2016
 
Revenues, net
 
$
520,433

 
$
414,262

 
Merchant commissions
 
(24,384
)
 
(28,233
)
 
Total adjusted revenues
 
$
496,049


$
386,029



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 stock-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 equity method investment, and (e) other non-cash adjustments.
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 adjusted net income. 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

31
Table of Contents

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 March 31,
(Unaudited)
 
2017
 
 
20161
Net income
 
$
123,693

 
  
$
111,090

Net income per diluted share
 
1.31

 
  
1.17

Stock based compensation
 
23,093

 
  
15,186

Amortization of intangible assets
 
52,654

 
  
27,362

Amortization of premium on receivables
 
1,544

 
  
990

Amortization of deferred financing costs and discounts
 
1,914

 
  
1,822

Amortization of intangibles at equity method investment
 
2,459

 
  
2,303

Total pre-tax adjustments
 
81,664



47,663

Income tax impact of pre-tax adjustments at the effective tax rate2
 
(20,379
)
 
 
(13,064
)
Adjusted net income
 
$
184,978

 
  
$
145,689

Adjusted net income per diluted share
 
$
1.96

 
  
$
1.53

Diluted shares
 
94,560

 
  
95,030

1Reflects the impact of the Company's adoption of Accounting Standards Update 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, to simplify several aspects of the accounting for the share-based compensation, including the income tax consequences.
 
2Excludes the results of our equity method investment on our effective tax rate, as results from our equity method investment are reported within the Consolidated Income Statements on a post-tax basis and no tax-over-book outside basis differences related to our equity method investment reversed during 2016 or are expected to reverse in 2017.


32
Table of Contents

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):

33
Table of Contents

 
 
Revenue
 
Transactions
 
 
Three Months Ended March 31,
 
Three Months Ended March 31,
(Unaudited)
 
2017*
 
2016*
 
2017*
 
2016*
FUEL CARDS
 
 
 
 
 
 
 
 
Pro forma and macro adjusted2,3
 
$
260.1

 
$
236.4

 
$
114.4

 
$
106.1

Impact of acquisitions/dispositions
 
—

 
4.3

 
—

 
(3.1
)
Impact of fuel prices/spread
 
2.8

 
—

 
—

 
—

Impact of foreign exchange rates
 
(4.6
)
 
—

 
—

 
—

As reported
 
$
258.3

 
$
240.7

 
$
114.4

 
$
103.0

CORPORATE PAYMENTS
 
 
 
 
 
 
 
 
Pro forma and macro adjusted2,3
 
$
46.5

 
$
41.2

 
$
9.5

 
$
8.9

Impact of acquisitions/dispositions
 
—

 
—

 
—

 
—

Impact of fuel prices/spread
 
0.3

 
—

 
—

 
—

Impact of foreign exchange rates
 
—

 
—

 
—

 
—

As reported
 
$
46.8

 
$
41.2

 
$
9.5

 
$
8.9

TOLLS
 
 
 
 
 
 
 
 
Pro forma and macro adjusted2,3
 
$
62.0

 
$
55.5

 
$
222.9

 
$
219.7

Impact of acquisitions/dispositions
 
—

 
(53.3
)
 
—

 
(209.6
)
Impact of fuel prices/spread
 
—

 
—

 
—

 
—

Impact of foreign exchange rates
 
14.9

 
—

 
—

 
—

As reported
 
$
77.0

 
$
2.2

 
$
222.9

 
$
10.1

LODGING
 
 
 
 
 
 
 
 
Pro forma and macro adjusted2,3
 
$
23.8

 
$
20.7

 
$
3.2

 
$
3.0

Impact of acquisitions/dispositions
 
—

 
—

 
—

 
—

Impact of fuel prices/spread
 
—

 
—

 
—

 
—

Impact of foreign exchange rates
 
—

 
—

 
—

 
—

As reported
 
$
23.8

 
$
20.7

 
$
3.2

 
$
3.0

GIFT
 
 
 
 
 
 
 
 
Pro forma and macro2,3
 
$
48.4

 
$
42.5

 
$
377.7

 
$
342.0

Impact of acquisitions/dispositions
 
—

 
—

 
—

 
—

Impact of fuel prices/spread
 
—

 
—

 
—

 
—

Impact of foreign exchange rates
 
—

 
—

 
—

 
—

As reported
 
$
48.4

 
$
42.5

 
$
377.7

 
$
342.0

OTHER1
 
 
 
 
 
 
 
 
Pro forma and macro2,3
 
$
66.7

 
$
67.0

 
$
17.3

 
$
20.0

Impact of acquisitions/dispositions
 
—

 
—

 
—

 
—

Impact of fuel prices/spread
 
—

 
—

 
—

 
—

Impact of foreign exchange rates
 
(0.6
)
 
—

 
—

 
—

As reported
 
$
66.2

 
$
67.0

 
$
17.3

 
$
20.0

 
 
 
 
 
 
 
 
 
FLEETCOR CONSOLIDATED REVENUES
 
 
 
 
 
 
 
 
Pro forma and macro adjusted2,3
 
$
507.6

 
$
463.3

 
$
744.9

 
$
699.8

Impact of acquisitions/dispositions
 
—

 
(49.0
)
 
—

 
(212.8
)
Impact of fuel prices/spread
 
3.1

 
—

 
—

 
—

Impact of foreign exchange rates
 
9.8

 
—

 
—

 
—

As reported
 
$
520.4

 
$
414.3

 
$
744.9

 
$
487.0

 
 
 
 
 
 
 
 
 
* Columns may not calculate due to impact of rounding.
 
 
1Other includes telematics, maintenance, food and transportation related businesses.
 
 
22016 is pro forma to include acquisitions and exclude dispositions consistent with 2017 ownership. 2016 also includes an approximately $6 million one-time true-up.
32017 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.
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,”

34
Table of Contents

“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 recent 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, 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. 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
As of March 31, 2017, 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 March 31, 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 March 31, 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 March 31, 2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

35
Table of Contents

PART II—OTHER INFORMATION

Item 1.
Legal Proceedings
As of the date of this filing, we are not currently party to any legal proceedings or governmental inquiries or investigations that we consider to be material and we were not involved in any material legal proceedings that terminated during the first quarter. We are and may become, however, subject to lawsuits from time to time in the ordinary course of our business.
Item 1A.
Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition or future results.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
On February 4, 2016, our Board of Directors approved a stock repurchase program (the "Program") under which we may begin purchasing up to an aggregate of $500 million of the Company's common stock over the following 18 month period. Since the beginning of the Program, 1,670,311 shares, for an aggregate purchase price of $240.1 million have been repurchased. No repurchases were made during the three months ended March 31, 2017. In May 2017, the Company repurchased 411,166 common shares totaling $52.4 million under the Program.
Item 3.
Defaults Upon Senior Securities
Not applicable.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Other Information
Not applicable.

36
Table of Contents

Item 6. Exhibits

 
 
 
Exhibit
No.
  
 
2.1
  
Acquisition agreement to acquire Serviços e Tecnologia de Pagamentos S.A. (incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K, File No. 001-35004, filed with the Securities and Exchange Commission ("SEC") on March 18, 2016)
 
 
 
3.1
  
Amended and Restated Certificate of Incorporation of FleetCor Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K, File No. 001-35004, filed with the SEC on March 25, 2011)
 
 
3.2
  
Amended and Restated Bylaws of FleetCor Technologies, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K, File No. 001-35004, filed with the SEC on October 28, 2016)
 
 
4.1
  
Form of Stock Certificate for Common Stock (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the Registrant’s Registration Statement on Form S-1, File No. 333-166092, filed with the SEC on June 29, 2010)
 
 
31.1
  
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended
 
 
31.2
  
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and rule 15d-14(a) of the Securities Exchange Act, as amended
 
 
32.1
  
Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2001
 
 
32.2
  
Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2001
 
 
101
  
The following financial information for the Registrant formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Unaudited Consolidated Statements of Income, (iii) the Unaudited Consolidated Statements of Comprehensive Income; (iv) the Unaudited Consolidated Statements of Cash Flows and (v) the Notes to Unaudited Consolidated Financial Statements



37
Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned; thereunto duly authorized, in their capacities indicated on May 8, 2017.
 
 
 
 
 
 
 
 
 
 
FleetCor Technologies, Inc.
 
 
 
 
(Registrant)
 
 
 
Signature
 
 
 
Title
 
 
 
/s/ Ronald F. Clarke
 
 
 
President, Chief Executive Officer and Chairman of the Board of Directors (Duly Authorized Officer and Principal
Executive Officer)
Ronald F. Clarke
 
 
 
 
 
 
/s/ Eric R. Dey
 
 
 
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
Eric R. Dey
 
 
 


38
Exhibit


Exhibit 31.1
CERTIFICATIONS
I, Ronald F. Clarke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of FleetCor Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
/s/ Ronald F. Clarke
Ronald F. Clarke
Chief Executive Officer
May 8, 2017


Exhibit



Exhibit 31.2
CERTIFICATIONS
I, Eric R. Dey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of FleetCor Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
/s/ Eric R. Dey
Eric R. Dey
Chief Financial Officer
May 8, 2017


Exhibit


Exhibit 32.1
CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of FleetCor Technologies, Inc., a Delaware corporation (the “Company”), on Form 10-Q for the period ended March 31, 2017, as filed with the Securities and Exchange Commission (the “Report”), Ronald F. Clarke, Chief Executive Officer of the Company, does hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Ronald F. Clarke
Ronald F. Clarke
Chief Executive Officer
May 8, 2017
[A signed original of this written statement required by Section 906 has been provided to FleetCor Technologies, Inc. and will be retained by FleetCor Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.]


Exhibit


Exhibit 32.2
CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of FleetCor Technologies, Inc., a Delaware corporation (the “Company”), on Form 10-Q for the period ended March 31, 2017, as filed with the Securities and Exchange Commission (the “Report”), Eric R. Dey, Chief Financial Officer of the Company, does hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Eric R. Dey
Eric R. Dey
Chief Financial Officer
May 8, 2017
[A signed original of this written statement required by Section 906 has been provided to FleetCor Technologies, Inc. and will be retained by FleetCor Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.]