Competition
Our primary competition is from financial institutions providing a full suite of financial products, including general purpose cards, AP payments (i.e. check and ACH), and foreign exchange (FX) solutions. We also compete with specialized competitive offerings from other companies that vary by product solution.
•Vehicle Payments: Our fuel solutions compete with similar offerings such as, WEX, U.S. Bank Voyager Fleet Systems, Edenred, Sodexo, Alelo, Radius Payment Solutions and DKV. Our toll solutions compete with similar offerings such as, ConectCar, Veloe (Alelo), and Repom (Edenred). Our parking solutions compete with similar offerings such as ParkMobile, ParkHub, Parking BOXX and FLASH.
•Corporate Payments: Our corporate payments solutions compete with similar offerings from financial institutions, such as, American Express, Coupa, AvidXchange, Bill.com and Convera.
•Lodging Payments: Our lodging solutions compete with similar offerings from traditional travel management companies such as, American Express Global Business Travel, as well as in-house travel solutions at large corporations and airlines.
•Other; Our gift and payroll card solutions compete with similar offerings from Fiserv, other special-purpose card issuers, and payroll companies.
Competitive Advantage
In executing our strategy, we are advantaged by leveraging our competitive strengths:
•Global Scale – We have strong market positions across four continents. This enables us to provide new offerings with better cost economics, sell complementary products, acquire attractive assets that can leverage existing infrastructure and cost synergies, and introduce successful products and practices from other markets.
•Compounding Growth Model – Our growth model historically benefits from strong revenue retention, organic growth from new customer acquisitions and selling more value-added products to current customers, via developed and acquired payment solutions.
•Proprietary Networks – Our specialized proprietary networks allow for unique data capture at the point of sale, providing an incremental value proposition to our customers. These proprietary networks also provide us with advantageous economics by providing attractive, captive spend to the merchant base.
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•Diversification – Our collections strategy includes a combination of internalsolutions and outsourcedgeographic diversification are designed to provide stability through the “portfolio effect” when one geography or business is underperforming relative to the others. This allows FLEETCOR to deliver more consistent financial performance relative to competitors, continue to invest throughout business cycles and reallocate resources which use both manual and dialer-based calling strategies. We use a segmented collection strategy which prioritizesto higher risk and higher balance accounts. For severely delinquent, high balance accounts we may pursue legal remedies.
performing businesses.Technology
Our technology provides continuous authorization of transactions, processing of critical account and clientcustomer information, and settlement between merchants, issuing companies, and individual commercial entities. We recognize the importance of state-of-the-art, secure, efficient, and reliable technology in our business and have made significant investments in our applications and infrastructure. In 2017,2023, we spent more than $185approximately $370 million inin capital andand operating expenses to operate, protect, and enhance our technology and expect to continue the build out of our proprietary processing platform in Europe and Asia, as well as the integration of our recently acquired businesses.
We operate several proprietary processing systems that provide features and functionality to run our card programs and product offerings,solutions, including our card issuing, processing, and information services. Our processing systems also integrate with our proprietary networks, which provide brand awareness and connectivity to our acceptance locations that enables the “end-to-
We continually seek to modernize and evolve our technology solutions through our core IT transformation initiatives. Our IT transformation initiatives are focused on three main pillars: (1) digital strategy; (2) core systems modernization; and (3) data. Our digital strategy is focused on streamlining a digital customer experience across all of our solutions, providing a seamless experience. Additionally, we are investing in modernizing our core transactional systems to make them more resilient, secure, and scalable. Our technology infrastructure is supported by highly-secure data centers, with redundant locations. We operate our primary data centers, located in Atlanta, Georgia; Studley, United Kingdom; Prague, Czech Republic; Las Vegas, Nevada; Lexington and Louisville, Kentucky; São Paulo, Brazil; and Toronto, Canada.
Additionally, as we develop new solutions and modernize legacy assets, we increasingly leverage cloud services. Through the use of cloud technology and microservices, we are able to modernize our platforms with no disruption to our customers. Finally, data is becoming an ever-increasing part of how the Company and its customers do business. We are focused on investing in our data assets to deliver value for our customers through improved insights to help them to better control expenses and mitigate fraud. The use of cloud services provides us with increased flexibility and agility. We use only proven technology and expect no foreseeable capacity limitations.
We maintain disaster recovery and business continuity plans, which benefited us during the COVID-19 pandemic and continue to benefit us. Our telecommunications and internet systems have multiple levels of redundancy to ensure the reliability of network service. In 2023, we achieved over 99.9% up-time for authorizations globally.
Safeguarding Our Business
To provide our services, we may collect, use and store sensitive business information and personal information. Some of this information is also processed and stored by financial institutions, merchants, and other entities, as well as third-party service providers to whom we outsource certain functions and other agents, which we refer to collectively as, our associated third parties. We may have responsibility to the card networks, financial institutions, and in some instances, our customers, and/or individuals, for our failure or the failure of our associated third parties (as applicable) to protect this information.
Our intellectual propertysystems align with industry standards for security, with multiple industry certifications. Our network is an important elementconfigured with multiple layers of security to isolate our business.core systems from unauthorized access. We relyuse secure communication among applications, and our employees access critical components strictly on trademark, copyright, trade secret, patent and other intellectual property laws, confidentiality agreements, contractual provisions and similar measuresa "need-to-know" basis. We may not be able to adequately protect our intellectual property. Our employees involved insystems or the data we collect from continually evolving cybersecurity risks or other technological risks, which could subject us to liability and damage our reputation. See also, "Risks related to information technology development in someand security" under Item 1A for further discussion of the countriesrisks we face in which we operate, including the United States, are required to sign agreements acknowledging that all intellectual property created by them on our behalf is owned by us. We also have internal policies regarding the protection, disclosure and use of our confidential information. Confidentiality, license or similar agreements or clauses are generally usedconnection with our business partnerstechnology systems and vendors to control access, usepotential data breach and distributioncybersecurity risks facing the Company. Also, see Item 1C Cybersecurity for further discussion of our intellectual property. Unauthorized persons may attempt to obtain our intellectual property despite our efforts and others may develop similar intellectual property independently. We own trade names, service marks, trademarks and registered trademarks supporting a number of our brands, such as FLEETCOR, Fuelman, Comdata, and Comchek (among others) in the United States. We also own trademarks and registered trademarks in various foreign jurisdictions for a number of our brands, such as Keyfuels, AllStar, CTF, and Sem Parar (among others). We hold a number of patents and pending applications relating to payment cards and fuel tax returns.
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Regulatory
A substantial number of laws and regulations, both in the United StatesU.S. and in other jurisdictions, apply to businesses offering payment cardsproducts to customers, processing payments and servicing related accounts, or processing or servicing foroperating payment cards and related accounts.networks. These laws and regulations are often evolving and sometimes ambiguous or inconsistent, and the extent to which they apply to us is at times unclear. Failure to comply with regulations may result in the suspension or revocation of licenses or registrations, the limitation, suspension, or termination of services or relationships with our bank partners and sponsors and business and sales partners, and/or the imposition of civil and criminal penalties, including fines. Certain of our servicessolutions are also subject to rules set by various payment networks, such as MasterCard,Mastercard, as more fully described below.
The following, while not exhaustive, is a description of several federal and state laws and regulations in the United StatesU.S., as well as foreign laws and regulations, that are applicable to our business. The lawsbusiness, and regulations of other jurisdictions alsotherefore can materially affect us,our capital expenditures, earnings, and they may be more or less restrictive than those in the United States and may also impact different parts of our operations.competitive position. In addition, the legal and regulatory framework governing our business is subject to ongoing revision, and changes in that framework could have a significant effect on us.
Money Transmission and Payment Instrument Licensing Regulations
We are subject to various U.S. laws and regulations governing money transmission and the issuance and sale of payment instruments relating to certain aspects of our business.instruments. In the United States,U.S., most states license money transmitters and issuers of payment instruments. Through our subsidiaries, we are licensed in all states where required for business. Many states exercise authority over the operations of our services related to money transmission and payment instruments and, as part of this authority, subject us to periodic examinations, which may include a review of our compliance practices, policies and procedures, financial position and related records, privacy and data security policies and procedures, and other matters related to our business. SomeAs a result of these periodic examinations, state agencies conduct periodic examinations andsometimes issue us findings and recommendations, as a result of which weprompting us to make changes to our operations, such as improving our reporting processes, detailing our intercompany arrangements, and implementing new or revising existing policies and procedures such as our anti-money laundering and the U.S. Department of Treasury's Office of Foreign Assets Control ("OFAC") compliance program and complaints management process, and improvements to our documentation processes.
procedures.
As a licensee, we are subject to certain restrictions and requirements, including net worth and surety bond requirements, record keeping and reporting requirements, requirements for regulatory approval of controlling stockholders or direct and indirect changes of control of the licensee and certain other corporate events, and requirements to maintain certain levels of permissible investments in an amount equal to our outstanding payment obligations. Many states as well as the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (FinCEN) also require money transmitters and issuers of payment instruments to comply with federal and/orand state anti-money laundering laws (AML) and regulations. Many states require prior approval for both directSee “Anti-Money Laundering, Counter Terrorist, and indirect changesSanctions Regulations.”
Recently, a number of controlstate legislatures have adopted all or parts of a new money transmission and sales of payment instruments model law, the licenseeMoney Transmission Modernization Act. State laws regarding money transmission and certain other corporate events.
Privacy and Information Security Laws and Regulations
We provide services that may beare subject to various state, federal, and foreign privacy and information security laws and regulations including, among others, the Financial Services Modernization Act of 1999, which we refer to as the Gramm-Leach-Bliley Act, the EU’s General Data Protection Regulation (GDPR) and its Network and Information Security (NIS) Directive, 95/46/EC,the U.K.'s GDPR and theNIS Regulations, Canada’s Personal Information Protection and Electronic Documents Act, Brazil’s General Data Protection Law, and China's Personal Information Protection Law. In the U.S., we are now subject to several comprehensive data privacy laws at the state level, including the California Consumer Privacy Act, as amended by the California Privacy Rights Act, the Virginia Consumer Data Protection Act, the Colorado Privacy Act (effective July 1, 2023), the Connecticut Data Privacy Act (effective July 1, 2023), and the Utah Consumer Privacy Act (effective December 31, 2023). We are also subject to the separate security breach notification laws of each of the 50 states, and the District of Columbia. Some non-U.S. data protection laws, including in Canada. the U.K., EU., and China, impose restrictions on the international transfer of personal data absent lawfully recognized transfer mechanisms or, in some cases, prohibit such transfer completely. Going forward, we will likely be subject to new and evolving data privacy laws in the U.S. and abroad, which could result in additional costs of compliance, enforcement actions, regulatory investigations and fines, individual or class action litigation, or reputational harm.
These and similar laws and their implementingrelated regulations collectively restrict certain collection, processing, storage, use, and disclosure of personal information, require notice to individuals of privacy practices, and provide individuals with certain rights to prevent use and disclosure of protected information. These lawsSome also impose requirements for the safeguarding and proper destruction of personal information through the issuance of data security standards or guidelines. Certain federal, state and foreign laws and regulationsIn many cases they impose similar privacy obligations and, in certain circumstances, obligations to notify affected individuals, state officers or other governmental authorities, the media, and consumer reporting agencies, as well as businesses and governmental agencies, of security breaches affecting personal information. In addition, there are state and foreign laws restrictingsome restrict the ability to collect and utilize certain types of information such as Social Security and driver’s license numbers. In February 2013, the European Commission proposed additional European Union-wide legislation regarding cyber security in the formThese laws and regulations are complex and evolving, and can provide for significant penalties for non-compliance. We incur and expect to continue to incur significant and ongoing operating costs as part of the proposed NIS Directive. The NIS Directive was adopted by the European Parliament in July 2016 and entered into force in August 2016. The NIS Directive provides legal measures intended to boost the overall level of cybersecurity in the EU by ensuring: (1) Member States’ preparedness by requiring them to be appropriately equipped, for example, via a Computer Security Incident Response Team and a competent national NIS authority; (2) cooperation among all the Member States, by setting up a cooperation group, in order to support and facilitate strategic cooperation and the exchange of information among Member States; and (3) a culture of security across sectors vital to the EU’s economy and society, including banking, financial market infrastructures and digital infrastructure.
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Certain of our products that access payment networks require compliance with Payment Card Industry (“PCI”)(PCI) data security standards. Our subsidiary, Comdata Inc.See “Payment Card Industry Rules.”
Email and Text Marketing Laws and Regulations
We use email marketing and text-messaging to reach out to current or potential customers and therefore are subject to various statutes, regulations, and rulings, including the Telephone Consumer Protection Act (TCPA), is PCI 3.2 compliantthe Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act) and related Federal Communication Commission (FCC) orders. Several states have enacted additional, more restrictive and punitive laws regulating telemarketing and commercial email. Foreign legislation exists as well, including Canada’s Anti-Spam Legislation and the European laws that have been enacted pursuant to European Union Directive 2002/58/EC and its Attestation of Compliance is listed on MasterCard’s compliant
All persons engaged in commerce, including, but not limited to, us and our bank sponsors and customers, are subject to regulatory enforcement by the FTC, under Section 5 of the Federal Trade Commission Act, and state attorneys general, under various consumer-protection statutes, prohibiting unfair or deceptive acts or practices, and certain products also are subject to the jurisdiction of the Consumer Financial Protection Bureau ("CFPB")(CFPB) regarding the prohibition of unfair, deceptive, or abusive acts and practices (both, collectively, UDAAP). Variouspractices. As a service provider to certain of our bank sponsors, we may further be subject to direct supervision and examination by federal banking regulators in connection with certain of our products and state regulatory enforcement agencies including the Federal Trade Commission (“FTC”), CFPB and the state attorneys general have authority to take action against businesses, merchants and financial institutions that engage in UDAAP or violate other laws, rules and regulations.services, which may increase our compliance costs. If we violate suchare accused of violating any of these laws, rules and regulations, we may be subject to enforcement actions and as a result, may incur losses and liabilities that may impact our business. A number of state
Lending Regulations
We are subject to several laws and related regulations also prohibit unfairgoverning the provision and deceptive business practices.
administration of credit. The Truth in Lending Act or TILA,(TILA) was enacted as a consumer protection measure to increase consumer awareness of the cost of credit and to protect consumers from unauthorized charges or billing errors, and is implemented by the CFPB’s Regulation Z. Most provisions of TILA and Regulation Z apply only to the extension of consumer credit, but a limited number of provisions apply to commercial cards as well. One example where TILA and Regulation Z are generally applicable is a limitation on liability for unauthorized use, although a business that acquires 10 or more credit cards for its personnel can agree to more expansive liability. Our cardholder agreements generally provide that these business customers waive, to the fullest extent possible, all limitations on liability for unauthorized card use.
The Equal Credit Opportunity Act or ECOA,(ECOA) together with Regulation B prohibit creditors from discriminating on certain prohibited bases, such as an applicant’s sex, race, nationality, age and marital status, and further requires that creditors disclose the reasons for taking any adverse action against an applicant or a customer seeking credit.
The Fair Credit Reporting Act or FCRA,(FCRA) regulates consumer reporting agencies and the disclosure and use of consumer reports. We may obtain consumer reports with respect to an individual who guarantees or otherwise is obligated on a commercial card.
The Fair and Accurate Credit Transactions Act of 2003 amended FCRA and requires creditors to adopt identity theft prevention programs to detect, prevent and mitigate identity theft in connection with covered accounts, which can include business accounts for which there is a reasonably foreseeable risk of identity theft.
Anti-Money Laundering, and Counter Terrorist, and Sanctions Regulations
The Currency and Foreign Transactions Reporting Act, which is also known as the Bank Secrecy Act (the "BSA")(BSA) and which has been amended by the USA PATRIOT Act of 2001, contains a variety of provisions aimed at fighting terrorism and money laundering. Our business in Canada is also subject to Proceeds of Crime (Money Laundering) and Terrorist Financing Act, or the PCTFA, which is a corollary to the BSA. Among other things, the BSA and implementingrelated regulations issued by the U.S. Treasury DepartmentFinCEN require financial-services providers to establish anti-money launderingAML programs, to not engage in terroristprohibit the financing of terrorism, to report suspicious activity, and to maintain a number of related records. We are also subject to certain economic and trade sanctions programs that are administered by the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) that prohibit or restrict transactions to or from or dealings with specified countries, their governments and, in certain circumstances, their nationals, narcotics traffickers, and terrorists or terrorist organizations. In addition to economic sanctions programs, we are also subject to a number of international laws and regulations focused on fighting terrorism and money laundering, including primarily:
•in Canada, Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA);
•in Australia, as a registered remittance dealer with AUSTRAC, the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act);
•in the U.K., as a registered Electronic Money Institution with the Financial Conduct Authority, the Proceeds of Crime Act, 2002, and the Terrorism Act 2000;
•in Ireland, the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, as amended by Part 2 of the Criminal Justice Act 2013 and by the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2018; and
•in the EU, AML requirements promulgated under the 4th, 5th and 6th EU Anti-Money Laundering Directives.
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Numerous other countries have also enacted or proposed new or enhanced AML legislation and regulations applicable to us.
Non-banks that provide certain financial services are required to register with the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (FinCEN)FinCEN as “money services businesses” (MSBs)(MSB). Through certainCertain of our subsidiaries we are
registered as MSBs. As a result, we have established anti-money laundering compliance programs that include: (i) internal policies and controls; (ii) designation of a compliance officer; (iii) ongoing employee training; and (iv) an independent review function. We have developed and implemented compliance programs comprised of policies, procedures, systems and internal controls to monitor and address various legal requirements and developments.
In addition, provisions of the BSA known as the Prepaid Access Rule issued by FinCEN impose certain obligations, such as registration and collection of consumer information, on “providers” of certain prepaid access programs, including the stored value products issued by our sponsor banks for which we serve as program manager. FinCEN has taken the position that, where the issuing bank has principal oversight and control of such prepaid access programs, no other participant in the distribution chain would be required to register as a provider under the Prepaid Access Rule. Despite this position, we have opted to register as a provider of prepaid access through our subsidiary, Comdata Inc. We are also subject to certain economic and trade sanctions programs that are administered by the OFAC that prohibit or restrict transactions to or from or dealings with specified countries, their governments and, in certain circumstances, their nationals, narcotics traffickers, and terrorists or terrorist organizations.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or the Dodd-Frank Act,(Dodd-Frank Act) effected comprehensive revisions to a wide array of federal laws governing financial institutions, financial services, and financial markets. Among its most notable provisions is the creation of the CFPB, which is charged with regulating consumer financial products or services and which is assuming much of the rulemaking authority under TILA, ECOA, FCRA, and other federal laws affecting the extension of credit. In addition to rulemaking authority over several enumerated federal consumer financial protection laws, the CFPB is authorized to issue rules prohibiting unfair, deceptive, and abusive acts and practices (UDAAP) by persons offering consumer financial products or services and their service providers, and has authority to enforce these consumer financial protection laws and CFPB rules. The CFPB has not defined what is a consumer financial product or service but has indicated informally that, in some instances, small businesses may be covered under consumer protection.
Anti-Bribery Regulations
The FCPAForeign Corrupt Practices Act (FCPA) prohibits the payment of bribes to foreign government officials and political figures and includes anti-bribery provisions enforced by the Department of Justice and accounting provisions enforced by the SEC.Securities and Exchange Commission (SEC). The statute has a broad reach, covering all U.S. companies and citizens doing business abroad, among others, and defining a foreign official to include not only those holding public office but also local citizens affiliated with foreign government-run or -owned organizations. The statute also requires maintenance of appropriate books and records and maintenance of adequate internal controls to prevent and detect possible FCPA violations. We are subject to similar statutes in certain foreign jurisdictions in which we operate, such as the U.K. Bribery Act.
Payment Card Industry Rules
us to a variety of fines or penalties that may be levied by the payment networks for certain acts or omissions. The payment networks routinely update and modify their requirements. Our failure to comply with the networks’ requirements or to pay the fines they impose could cause the termination of our registration and require us to stop processing transactions on their networks. Our subsidiary, Comdata Inc., is PCI DSS 3.2 compliant.
We are also subject to network operating rules promulgated by the National Automated Clearing HouseACH Association relating to payment transactions processed by us using the Automated Clearing HouseACH Network.
Escheat Regulations
We may be subject to unclaimed or abandoned property (escheat) laws in the United StatesU.S. that require us to turn over to certain government authorities the property of others that we hold that has been unclaimed for a specified period of time, such as payment instruments that have not been presented for payment and account balances that are due to a customer following discontinuation of our relationship. We may be subject to audit by individual U.S. states with regard to our escheatment practices.
Prepaid Card Regulations
Prepaid card programs managed by us arethat we manage may be subject to various federal and state laws and regulations, in addition to those identified above, includingsuch as the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD Act) and the Federal Reserve’sCFPB’s Regulation E, which impose requirements on general-use prepaid cards, store gift cards and electronic gift certificates. These laws and regulations are evolving, unclear and sometimes inconsistent and subject to judicial and regulatory challenge and interpretation, and therefore the extent to which these laws and rules have application to, and their impact on us, is in flux. At this time we are unable to determine the impact that the clarification of these laws and their potential application and future interpretations, as well as new laws, may have on us in a number of jurisdictions. On October 5, 2016, the Consumer Financial Protection Bureau issued a final rule amending Regulations E and Z to create comprehensive consumer protections for prepaid financial products, and on January 25, 2018, the CFPB released final amendments to the final rule, clarifying certain disclosure provisions and reducing potential liability with respect to cardholders who are not registered and verified. These changes include a delay of the final rule’s effective date until April 1, 2019. The extensive nature of these regulations and the implementation dates for this additional rulemaking may result in additional compliance obligations and expense for our business.
State Usury Laws
Extensions of credit under many of our card products may be treated as commercial loans.loans and may require state licensing. In some states, usury laws limit the interest rates that can be charged not only on consumer loans but on commercial loans as well. To the extent that these usury laws apply, we are limited in the amount of interest that we can charge and collect from our customers. Because we have substantial operations in multiple jurisdictions, we utilize choice of law provisions in our cardholder agreements as to the laws of which jurisdiction to apply. In addition, the interest rates on certain of our card products are set based upon the usury limit of the cardholder’s state. With respect to card products where we work with a partner
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or issuing bank, the partner bank may utilize the law of the jurisdiction applicable to the bank and “exports”“export” the usury limit of that state in connection with cards issued to residents of other states or we may use our choice of law provisions.
Derivatives Regulations
Rules adopted under the Dodd-Frank Act by the Commodity Futures Trading Commission (the "CFTC")(CFTC), as well as the provisions of the European Market Infrastructure Regulation and its technical standards, which are directly applicableas well as derivative reporting in Canada and the member states of the European Union,U.S., have subjected certain of the foreign exchange derivative contracts we offer to our customers as part of Cambridge'sour cross-border payments business to reporting, recordkeeping, and other requirements. Additionally, certain foreign exchange derivatives transactions we may enter into in the future may be subject to centralized clearing requirements, or may be subject to margin requirements in the United StatesU.S., U.K., and European Union. Other jurisdictions outside the United StatesU.S., U.K., and the European Union are considering, have implemented, or are implementing regulations similar to those described above.
Other
We must contractually comply with certain regulations to which our sponsor banks are subject, as applicable. We may be examined by our sponsor banks’ regulators and be subject to audits by certain sponsor banks relative to such regulations.
The Housing Assistance Tax Act of 2008 requires information returns to be made for each calendar year by merchants, acquiring entities, and third-party settlement organizations with respect to payments made in settlement of electronic payment transactions and third-party payment network transactions occurring in that calendar year. Reportable transactions are also subject to backup withholding requirements. We are required to comply with these requirements for the merchants in our Comdata network. We could be liable for penalties if our information return is not in compliance with these regulations.
Human Capital
As of December 31, 2023, FLEETCOR employed approximately 10,500 associates located in more than 21 countries around the world, with approximately 4,100 of those associates based in the U.S. At FLEETCOR, we strongly believe that talent is a strong determinant of the Company’s performance and success. Our values-driven people programs, practices and policies have been developed to ensure we are able to attract, retain and develop the quality of talent necessary to advance our key initiatives and achieve our strategic objectives. We are firmly committed to delivering a strong employee value proposition and unique employment experience to our associates which, in turn, should lead to better customer experiences and business outcomes.
Culture
Our culture has evolved through time, as the Company has grown considerably both organically and through acquisitions. Despite FLEETCOR’s expansive size and geographic scope, we seek to retain a strong entrepreneurial spirit, and share a common vision, mission and set of values, which together serve as cornerstones to our “One FLEETCOR” culture. Our values, listed below, are infused in all aspects of FLEETCOR, and guide our employee selection, behavior and interactions with both internal and external stakeholders:
•Innovation – figure out a better way
•Execution – get it done; outputs matter
•Integrity – do the right thing
•People – we make the difference
•Collaboration – accomplish more together
Diversity, Inclusion and Belonging
Our focus on diversity, inclusion and belonging (DIB) is part of our successful “One FLEETCOR” culture. As of December 31, 2023, females represented approximately 52% of our global workforce and approximately 17% of our senior leadership team, while minorities comprised approximately 36% of our domestic workforce and approximately 17% of our senior leadership team.
Fostering a culturally diverse and inclusive environment and creating a true sense of belonging are among our top priorities. Our global diversity council, three regional councils and nine employee resource groups (ERGs) are dedicated to building diversity, inclusion and belonging into all aspects of our global operations. Sponsored by the Chairman of the Board and CEO, the councils and ERGs are vital to creating an environment where all employees are able to prosper. Our ERGs allow a safe space for traditionally underrepresented employees to connect and discuss experiences. The ERGs also provide FLEETCOR with perspectives on the unique needs and lived experiences of those who are traditionally underrepresented.
Employee Wellness
FLEETCOR’s benefits programs are designed to meet the evolving needs of a diverse workforce across the globe. Because we want our employees and their families to thrive, in additional to our regular benefit offerings, we focused on physical and mental well-being in 2023. During the year, we offered free, online fitness classes, sponsored the FLEETCOR Wellbeing
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Challenge, provided access to employee assistance programs in all regions, and celebrated Mental Health Awareness programs globally.
Talent Development
FLEETCOR offers a variety of high-quality learning opportunities, designed to support employee development and organizational effectiveness. Learning opportunities are available in all geographies at all levels, and incorporate personal, business and leadership skills development with the goal of empowering our organization, creating avenues for closing skill gaps, and enhancing the capabilities of our workforce. Leadership, teamwork, communication, and many other soft skills are vital to our success. We offer a wide variety of career opportunities and paths to advancement through on-the-job coaching, training, and education. We are proud to be a company where an associate can start as an intern and turn it into a successful career.
The Voice of the Employee
We continue to develop and refine our people programs based on feedback we receive directly from our workforce, which we gather through a survey of all employees globally. The participation rate for our 2023 survey was approximately 70%. Our employee engagement score in 2023 remained consistent with previous years’ results. We believe our employee proposition remains strong and we continue to attract and retain top talent. We continue to share the detailed engagement scores across the organization, and analyze the results to understand differences by geography, demographics, job level, and leader, and to identify opportunities for further improvement. Throughout 2023, we conducted several additional pulse surveys and focus groups to assess the ongoing engagement of our workforce.
In October 2020, FLEETCOR published its inaugural Corporate Responsibility & Sustainability Report (CRS Report), in which we provided detailed information about the Company’s views and approaches regarding environmental, social and governance issues. We published a 2021 CRS Report in January 2022, which contains information incremental to our inaugural report and is therefore intended to be read in conjunction with that report. Our 2021 CRS Report includes further details related to our global talent strategy, DIB metrics, employee wellness and talent development. We are currently preparing our third CRS Report for publication later this year. Our CRS Reports may be accessed electronically at https://investor.fleetcor.com, in the governance section.
Additional Information
The Company maintains a website at www.fleetcor.com. The information on the Company’s website is not incorporated by reference into this Annual Report on Form 10-K. We make available on or through our website certain reports and amendments to those reports that we file with or furnish the SEC in accordance with the Securities and Exchange Act of 1934, as amended (Exchange Act). These include our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K. We make this information available on our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.
In addition, the SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically at https://www.sec.gov.
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ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding our executive officers, with their respective ages as of December 31, 2023. Our officers serve at the discretion of our board of directors. There are no family relationships between any of our directors or executive officers.
| Name | Age | Position(s) | ||||||||||||
| Ronald F. Clarke | 68 | Chief Executive Officer and Chairman of the Board of Directors | ||||||||||||
| Tom Panther | 55 | Chief Financial Officer | ||||||||||||
| Alan King | 47 | Group President—Vehicle Payments | ||||||||||||
| Armando L. Netto | 55 | Group President—Vehicle Payments | ||||||||||||
| Alissa B. Vickery | 46 | Chief Accounting Officer | ||||||||||||
Ronald F. Clarke has been our Chief Executive Officer since August 2000 and was appointed Chairman of our Board of Directors in March 2003. From 1999 to 2000, Mr. Clarke served as President and Chief Operating Officer of AHL Services, Inc., a staffing firm. From 1990 to 1998, Mr. Clarke served as Chief Marketing Officer and later as a Division President with Automatic Data Processing, Inc., a human resources software and services company. From 1987 to 1990, Mr. Clarke was a Principal with Booz Allen Hamilton, a global management consulting firm. Earlier in his career, Mr. Clarke was a marketing manager for General Electric Company, a diversified technology, media, and financial services corporation.
Tom Panther has been our Chief Financial Officer since May 2023. Prior to joining FLEETCOR, Mr. Panther served as the CFO at EVO Payments, Inc. (“EVO”) from November 2019 until March 2023, where he was instrumental in EVO delivering strong revenue growth and significant margin expansion, as well as executing a number of key initiatives, including international M&A, debt and capital financings, and serving as a key advisor to the Board. Prior to joining EVO, Mr. Panther worked at SunTrust Banks, Inc. for nearly 20 years serving in numerous leadership roles. Mr. Panther began his career at Arthur Andersen.
Alan King has served as our Group President — Vehicle Payments since December 2023 and prior to that was our Group President of Global Fleet since May 2022. Mr. King joined FLEETCOR in August 2016 and served as our President - U.K., Australia, and New Zealand, based in London, until June 2019. From July 2019 to April 2022, Mr. King was Group President of Europe, Australia, and New Zealand Fuel. Prior to joining us, Mr. King worked at Mastercard where he was most recently Managing Director, MasterCard Prepaid Management Services. During his 11 year career at Mastercard, Mr. King held the roles of Group Head, Global Prepaid Solutions, Group General Manager for Market and Business Development in the U.K. & Ireland, and General Manager, Global Accounts. Prior to Mastercard, Mr. King held leadership positions at VISA in the CEMEA region from 2003 to 2005 and at Citibank from 1998 to 2003, largely across commercial payments in international markets. Mr. King spent the early part of his career in the telecom and automotive industries, in various sales and marketing roles covering Europe.
Armando L. Netto has served as our Group President — Vehicle Payments since December 2023 and prior to that was our Group President – Brazil since June 2014. Prior to joining us, Mr. Netto led IT Services for TIVIT, an IT and BPO services company, from 2006 to 2014, where he led the integration of functional areas into the business unit, focused on onboarding new clients and ensuring service quality. Prior to TIVIT, Mr. Netto held various leadership roles with Unisys and McKinsey, where he gained international experience in Europe supporting clients in the U.K., France, Austria, Portugal, and the Netherlands.
Alissa B. Vickery has been our Chief Accounting Officer since September 2020 and also served as our interim Chief Financial Officer from October 2022 through May 2023. Mrs. Vickery joined FLEETCOR in 2011 and served as Senior Vice President of Accounting and Controls, with oversight of external reporting, technical accounting and internal audit until her appointment as interim Chief Financial Officer. Prior to joining us, Mrs. Vickery held a Senior Director position at Worldpay and spent more than nine years in public accounting at Deloitte LLP and Arthur Andersen LLP, as a senior manager in the audit and assurance practice.
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ITEM 1A. RISK FACTORS
You should carefully consider the following risks applicable to us. If any of the following risks actually occur, our business, operating results, financial condition and the trading price of our common stock could be materially adversely affected. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. See “Note Regarding Forward-Looking Statements” in this report.
Risks related to information technology and security
We are dependent on the efficient and uninterrupted operation of interconnected computer systems, telecommunications, data centers and call centers, including technology and network systems managed by multiple third parties, which could result in our inability to prevent disruptions in our services.
Our ability to provide reliable service to customers, cardholders and other network participants depends upon uninterrupted operation of our data centers and call centers as well as third-party labor and services providers. Our business involves processing large numbers of transactions, the movement of large sums of money and the management of large amounts of data. We rely on the ability of our employees, contractors, suppliers, systems and processes to complete these transactions in a secure, uninterrupted and error-free manner.
Our subsidiaries operate in various countries and country specific factors, such as power availability, telecommunications carrier redundancy, embargoes and regulation can adversely impact our information processing by or for our local subsidiaries.
We engage backup facilities for each of our processing centers for key systems and data. However, there could be material delays in fully activating backup facilities depending on the nature of the breakdown, security breach or catastrophic event (such as fire, explosion, flood, pandemic, natural disaster, power loss, telecommunications failure or physical break-in). We have controls and documented measures to mitigate these risks but these mitigating controls might not reduce the duration, scope or severity of an outage in time to avoid adverse effects.
We may experience software defects, system errors, computer viruses and development delays, which could damage customer relationships, decrease our profitability and expose us to liability.
Our business depends heavily on the reliability of proprietary and third-party processing systems. A system outage could adversely affect our business, financial condition or results of operations, including by damaging our reputation or exposing us to third-party liability. To successfully operate our business, we must be able to protect our processing and other systems from interruption, including from events that may be beyond our control. Events that could cause system interruptions include, but are not limited to, fire, natural disaster, unauthorized entry, power loss, telecommunications failure, computer viruses, terrorist acts and war. Although we have taken steps to protect against data loss and system failures, there is still risk that we may lose critical data or experience system failures.
Our solutions are based on sophisticated software and computing systems that are constantly evolving. We often encounter delays and cost overruns in developing changes implemented to our systems. In addition, the underlying software may contain undetected errors, viruses or defects. Defects in our software products and errors or delays in our processing of electronic transactions could result in additional development costs, diversion of technical and other resources from our other development efforts, loss of credibility with current or potential customers, harm to our reputation or exposure to liability claims. In addition, we rely on technologies supplied to us by third parties that may also contain undetected errors, viruses or defects that could adversely affect our business, financial condition or results of operations. Although we attempt to limit our potential liability for warranty claims through disclaimers in our software documentation and limitation of liability provisions in our licenses and other agreements with our customers, we cannot assure that these measures will be successful in limiting our liability.
We may not be able to adequately protect our systems or the data we collect from continually evolving cybersecurity risks or other technological risks, which could subject us to liability and damage our reputation.
We electronically receive, process, store and transmit data and sensitive information about our customers and merchants, including bank account information, social security numbers, expense data, and credit card, debit card and checking account numbers. We endeavor to keep this information confidential; however, our websites, networks, information systems, services and technologies may be targeted for sabotage, disruption or misappropriation. The uninterrupted operation of our information systems and our ability to maintain the confidentiality of the customer and consumer information that resides on our systems are critical to the successful operation of our business. Unauthorized access to our networks and computer systems could result in the theft or publication of confidential information or the deletion or modification of records or could otherwise cause interruptions in our service and operations.
Other than a previously disclosed unauthorized access incident during the second quarter of 2018, we are not aware of any material breach of our or our associated third parties’ computer systems, although we and others in our industry are regularly the subject of attempts by bad actors to gain unauthorized access to these computer systems and data or to obtain, change or destroy confidential data (including personal consumer information of individuals) through a variety of means.
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Because techniques used to sabotage or obtain unauthorized access to our systems and the data we collect change frequently and may not be recognized until launched against a target, especially considering heightened threats and risks associated with artificial intelligence, we may be unable to anticipate these techniques or to implement adequate preventative measures. An incident may not be detected until well after it occurs and the severity and potential impact may not be fully known for a substantial period of time after it has been discovered. Our ability to address incidents may also depend on the timing and nature of assistance that may be provided from relevant governmental or law enforcement agencies. Threats to our systems and our associated third parties’ systems can derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. Computer viruses can be distributed and could infiltrate our systems or those of our associated third parties. In addition, denial of service or other attacks could be launched against us for a variety of purposes, including to interfere with our services or create a diversion for other malicious activities. Although we believe we have sufficient controls in place to prevent disruption and misappropriation and to respond to such attacks, any inability to prevent security breaches could have a negative impact on our reputation, expose us to liability, decrease market acceptance of electronic transactions and cause our present and potential clients to choose another service provider.
In addition, the risk of cyber-attacks has increased in connection with the military conflicts between Russia and Ukraine, as well as within the Middle East, and the resulting geopolitical conflicts. In light of those and other geopolitical events, nation-state actors or their supporters may launch retaliatory cyber-attacks, and may attempt to cause supply chain and other third-party service provider disruptions, or take other geopolitically motivated retaliatory actions that may disrupt our business operations, result in data compromise, or both. Nation-state actors have in the past carried out, and may in the future carry out, cyber-attacks to achieve their aims and goals, which may include espionage, information operations, monetary gain, ransomware, disruption, and destruction. In February 2022, the U.S. Cybersecurity and Infrastructure Security Agency issued a warning for American organizations noting the potential for Russia’s cyber-attacks on Ukrainian government and critical infrastructure organizations to impact organizations both within and beyond the U.S., particularly in the wake of sanctions imposed by the U.S. and its allies. These circumstances increase the likelihood of cyber-attacks and/or security breaches.
We could also be subject to liability for claims relating to misuse of personal information, such as unauthorized marketing purposes and violation of data privacy laws. For example, we are subject to a variety of U.S. and international statutes, regulations, and rulings relevant to the direct email marketing and text-messaging industries. While we believe we are in compliance with the relevant laws and regulations, if we were ever found to be in violation, our business, financial condition, operating results and cash flows could be materially adversely affected. We cannot provide assurance that the contractual requirements related to security and privacy that we impose on our service providers who have access to customer and consumer data will be followed or will be adequate to prevent the unauthorized use or disclosure of data. In addition, we have agreed in certain agreements to take certain protective measures to ensure the confidentiality of customer data. The costs of systems and procedures associated with such protective measures, as well as the cost of deploying additional personnel, training our employees and hiring outside experts, may increase and could adversely affect our ability to compete effectively. Any failure to adequately enforce or provide these protective measures could result in liability, protracted and costly litigation, governmental and card network intervention and fines, remediation costs, and with respect to misuse of personal information of our customers, lost revenue and reputational harm. While we maintain insurance covering certain security and privacy damages and claim expenses above a certain financial retention level, we may not carry insurance or maintain coverage sufficient to compensate for all liability and such insurance may not be available for renewal on acceptable terms or at all, and in any event, insurance coverage would not address the reputational damage that could result from a security incident.
In addition, under payment network rules, regulatory requirements, and related obligations, we may be responsible for the acts or failures to act of certain third parties, such as third-party service providers, vendors, partners and others, which we refer to collectively as associated participants. The failure of our associated participants to safeguard cardholder data and other information in accordance with such rules, requirements and obligations could result in significant fines and sanctions and could harm our reputation and deter existing and prospective customers from using our services. We cannot assure you that there are written agreements in place with every associated participant or that such written agreements will ensure the adequate safeguarding of such data or information or allow us to seek reimbursement from associated participants. Any such unauthorized use or disclosure of data or information also could result in litigation that could result in a material adverse effect on our business, financial condition and results of operations.
If we fail to develop and implement new technology, products and services, adapt our products and services to changes in technology, or if our ongoing efforts to upgrade our technology, products and services are not successful, we could lose customers and partners.
The markets for our solutions are highly competitive and characterized by rapid technological change, frequent introduction of new products and services, evolving industry standards and evolving customer needs. We must respond to the technological advances offered by our competitors, including the use of artificial intelligence, and the requirements of regulators and our customers and partners, in order to maintain and improve upon our competitive position and fulfill contractual obligations. We may be unsuccessful in expanding our technological capabilities and developing, marketing, selling or encouraging adoption of new products and services that meet these changing demands, which could jeopardize our competitive position. Similarly, if new technologies are developed that displace our traditional payment card as payment mechanisms for purchase transactions by businesses, we may be unsuccessful in adequately responding to customer practices and our transaction volume may decline. In addition, we regularly engage in significant efforts to upgrade our products, services and underlying technology, which may or may not be successful in achieving broad acceptance or their intended purposes.
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The solutions we deliver are designed to process complex transactions and provide reports and other information on those transactions, all at high volumes and processing speeds. Any failure to deliver an effective and secure product or service or any performance issue that arises with a new product or service could result in significant processing or reporting errors or other losses. We may rely on third parties to develop or co-develop our solutions or to incorporate our solutions into broader platforms for the commercial payments industry. We may not be able to enter into such relationships on attractive terms, or at all, and these relationships may not be successful. In addition, partners, some of whom may be our competitors or potential competitors, may choose to develop competing solutions on their own or with third parties.
In order to remain competitive, we are continually involved in a number of projects, including the development of new platforms, mobile payment applications, e-commerce services and other new offerings emerging in the payments technology industry, including with respect to EVs. These projects carry the risks associated with any development effort, including cost overruns, delays in delivery and performance problems. Any delay in the delivery of new services or the failure to differentiate our services could render our services less desirable to customers, or possibly even obsolete.
Risks related to our business and operations
Adverse effects on payment card transaction volume and other aspects of our business and operations, from unfavorable macroeconomic conditions, weather conditions, natural catastrophes or public health crises or from changes to business purchasing practices, could adversely affect our financial condition and operating results.
Adverse macroeconomic conditions within the U.S. or internationally, including but not limited to recessions, inflation, rising interest rates, labor shortages and disputes, high unemployment, currency fluctuations, actual or anticipated large-scale defaults or failures, terrorist attacks, prolonged or recurring government shutdowns, regional or domestic hostilities, economic sanctions and the prospect or occurrence or more widespread conflicts, rising energy prices, or a slowdown of global trade, and reduced consumer, small business, government, and corporate spending, have a direct impact on the demand for fuel, business-related products and services, or payment card services in general.A substantial portion of our revenue is based on the volume of payment card transactions by our customers. Accordingly, our operating results could be adversely impacted by such events or trends that negatively impact the demand for fuel, business-related products and services, or payment card services in general.
For example, our transaction volume is generally correlated with general economic conditions and levels of spending, particularly in the U.S., Canada, the United Kingdom, Europe, Latin America, Australia and New Zealand, and the related amount of business activity in economies in which we operate. Downturns in these economies are generally characterized by reduced commercial activity and, consequently, reduced purchasing of fuel and other business-related products and services by our customers. Similarly, prolonged adverse weather events, travel bans due to medical quarantine (such as the responses to the COVID-19 pandemic) or in response to natural catastrophes, especially those that impact regions in which we process a large number and amount of payment transactions, could adversely affect our transaction volumes. Likewise, recent political, investor and industry focus on greenhouse gas emissions and climate change issues may adversely affect the volume of transactions or business operations of the oil companies, merchants and truck stop owners with whom we maintain strategic relationships, which could adversely impact our business. Further, we may not be able to successfully execute our EV strategy, which could further adversely impact our business.
In addition, our transaction volumes could be adversely affected if businesses do not continue to use, or fail to increase their use of, credit, debit, ACH, virtual cards or stored value cards as a payment mechanism for their transactions. Similarly, our transaction volumes could be impacted by adverse developments in the payments industry, such as new legislation or regulation that makes it more difficult for customers to do business, or a well-publicized data security breach that undermines the confidence of the public in electronic payment systems.
Further, adverse macroeconomic conditions, and resulting trends, weather conditions, natural catastrophes or public health crises, could affect other aspects of our business. For example, because we derive a portion of our revenues from travel-related spending, our business is sensitive to safety concerns related to travel and, limitations on travel and mobility and health-related risks, and such adverse factors could impact the amount spent on lodging solutions or other business expenses. While our lodging solutions generally benefit from weather-related events, disasters or catastrophic events in the future, including the impact of such events on certain industries or the overall economy, could have a negative effect on our business, results of operations and infrastructure, including our technology and systems. Climate change may exacerbate certain of these threats, including the frequency and severity of weather-related events. Such factors and conditions may also impact the proper functioning of financial and capital markets, which could have a negative impact on our ability to access capital in the future.
If we fail to adequately assess and monitor credit risks of our customers, we could experience an increase in credit loss.
We are subject to the credit risk of our customers which range in size from small sole proprietorships to large publicly traded companies. We use various methods to screen potential customers and establish appropriate credit limits, but these methods cannot eliminate all potential credit risks and may not always prevent us from approving customer applications that are not credit-worthy or are fraudulently completed. Changes in our industry, customer demand, and, in relation to our fuel customers, movement in fuel prices may result in periodic increases to customer credit limits and spending and, as a result, could lead to increased credit losses. We may also fail to detect changes to the credit risk of customers over time. Further, during a declining economic environment (including economic weakness caused by large-scale crises like the COVID-19 pandemic), we may experience increased customer defaults and preference claims by bankrupt customers. Additionally, the counterparties to the
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derivative financial instruments that we use in our international payments provider business to reduce our exposure to various market risks, including changes in foreign exchange rates, may fail to honor their obligations, which could expose us to risks we had sought to mitigate. This risk includes the exposure generated when we write derivative contracts to our customers as part of our cross-currency payments business, and we typically hedge the net exposure through offsetting contracts with established financial institution counterparties. If a customer becomes insolvent, files for bankruptcy, commits fraud or otherwise fails to pay us, we may be exposed to the value of an offsetting position with such counterparties for the derivatives or may bear financial risk for those receivables where we have offered trade credit. If we fail to adequately manage our credit risks, our bad debt expense could be significantly higher than historic levels and adversely affect our business, operating results and financial condition.
We may incur substantial losses due to fraudulent use of our payment solutions.
Under certain circumstances, when we fund customer transactions, we may bear the risk of substantial losses due to fraudulent use of our payment solutions. We do not maintain insurance to protect us against all of such losses. We bear similar risk relating to fraudulent acts of employees or contractors, for which we maintain insurance. However, the conditions or limits of coverage may be insufficient to protect us against such losses.
Criminals are using increasingly sophisticated methods to engage in illegal activities involving financial products, such as skimming and counterfeiting payment cards and identity theft. A single significant incident of fraud, or increases in the overall level of fraud, involving our cards and other products and services, could result in reputational damage to us, which could reduce the use and acceptance of our cards and other payment solutions and services or lead to greater regulation that would increase our compliance costs. Fraudulent activity could also result in the imposition of regulatory sanctions, including significant monetary fines, which could have a material adverse effect on our business, financial condition and results of operations.
Any decrease in our receipt of fees and charges, or limitations on our fees and charges, could adversely affect our business, results of operations and financial condition.
Our card solutions include a variety of fees and charges associated with transactions, cards, reports, optional services and late payments. Revenues for late fees and finance charges represented approximately 4% of our consolidated revenue for the year ended December 31, 2023. If the users of our cards decrease their transaction activity, or the extent to which they use optional services or pay invoices late, our revenue could be materially adversely affected. In addition, several market factors can affect the amount of our fees and charges, including the market for similar charges for competitive card products and the availability of alternative payment methods. Furthermore, regulators and Congress have passed new legislation that changes the electronic payments industry’s pricing, charges and other practices related to its customers. Any restrictions on our ability to price our products and services could materially and adversely affect our revenue.
We operate in a competitive business environment, and if we are unable to compete effectively, our business, operating results and financial condition would be adversely affected.
The market for our solutions is highly competitive, and competition could intensify in the future. Our competitors vary in size and in the scope and breadth of the products and services they offer. Our primary competitors in the North American Fuel solutions are small regional and large independent fleet card providers, major oil companies and petroleum marketers that issue their own fleet cards, and major financial services companies that provide card services to major oil companies and petroleum marketers. Corporate Payments solutions faces a variety of competitors, some of which have greater financial resources, name recognition and scope and breadth of products and services. Competitors in the Lodging solutions include travel agencies, online lodging discounters, internal corporate procurement and travel resources, and independent services companies. Our primary competitors in Europe, Australia and New Zealand are independent fleet card providers, major oil companies and petroleum marketers that issue branded fleet cards, and providers of card outsourcing services to major oil companies and petroleum marketers. Our primary competitors in Latin America are independent providers of fleet cards and vouchers for food, fuel, tolls, and transportation and major oil companies and providers of card outsourcing services to major oil companies and petroleum marketers who offer commercial fleet cards.
The most significant competitive factors in our business are the breadth of product and service features, network acceptance size, customer service, payment terms, account management, and price. We may experience competitive disadvantages with respect to any of these factors from time to time as potential customers prioritize or value these competitive factors differently. As a result, a specific offering of our features, networks and pricing may serve as a competitive advantage with respect to one customer and a disadvantage for another based on the customers’ preferences.
Some of our existing and potential competitors have longer operating histories, greater brand name recognition, larger customer bases, more extensive customer relationships or greater financial and technical resources than we do. In addition, our larger competitors may also have greater resources than we do to devote to the promotion and sale of their products and services and to pursue acquisitions. Many of our competitors provide additional and unrelated products and services to customers, such as treasury management, commercial lending and credit card processing, which allow them to bundle their products and services together and present them to existing customers with whom they have established relationships, sometimes at a discount. If price competition continues to intensify, we may have to increase the incentives that we offer to our customers, decrease the prices of our solutions or lose customers, each of which could adversely affect our operating results. In Vehicle Payments
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solutions, major oil companies, petroleum marketers and large financial institutions may choose to integrate fuel card services as a complement to their existing or complementary card products and services to adapt more quickly to new or emerging technologies, such as EVs, and changing opportunities, standards or customer requirements. To the extent that our competitors are regarded as leaders in specific categories, they may have an advantage over us as we attempt to further penetrate these categories.
Future mergers or consolidations among competitors, or acquisitions of our competitors by large companies may present competitive challenges to our business if their fuel card products and services are effectively integrated and bundled into lower cost sales packages with other widely utilized non-fuel card related products and services.
Overall, increased competition in our markets could result in intensified pricing pressure, reduced profit margins, increased sales and marketing expenses and a failure to increase, or a loss of, market share. We may not be able to maintain or improve our competitive position against our current or future competitors, which could adversely affect our business, operating results and financial condition.
A decline in retail fuel prices or contraction in fuel price spreads could adversely affect our revenue and operating results.
We estimate during the year ended December 31, 2023, approximately 10% of our consolidated revenue was directly influenced by the absolute price of fuel. Approximately 5% of our consolidated revenue during the year ended December 31, 2023 was derived from transactions where our revenue is tied to fuel price spreads. When our fleet customers purchase fuel, certain arrangements in our Vehicle Payments solutions generate revenue as a percentage of the fuel transaction purchase amount and other arrangements generate revenue based on fuel price spreads. The fuel price that we charge to any Vehicle Payments customer is dependent on several factors including, among others, the fuel price paid to the fuel merchant, posted retail fuel prices and competitive fuel prices. The significant volatility in fuel prices can impact these revenues by lowering total fuel transaction purchase amounts and tightening fuel price spreads. 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 Vehicle Payments customers, or the fuel price we charge to our Vehicle Payments customers decreases at a faster rate than the merchant’s wholesale cost of fuel. The volatility is due to many factors outside our control, including new oil production or production slowdowns, supply and demand for oil and gas and market expectations of future supply and demand, merchant mix and fuel type, political conditions, actions by OPEC and other major oil producing countries, speculative trading, government regulation, weather and general economic conditions. When such volatility leads to a decline in retail fuel prices or a contraction of fuel price spreads, our revenue and operating results could be adversely affected.
The value of certain of our solutions depend, in part, on relationships with oil companies, fuel and lodging merchants, truck stop operators, airlines, sales channels, and other channels and partnerships to grow our business. The failure to maintain and grow existing relationships, or establish new relationships, could adversely affect our revenues and operating results.
The success and growth of our solutions depend on the wide acceptability of such cards when our customers need to use them. As a result, the success of these solutions is in part dependent on our ability to maintain relationships with major oil companies, petroleum marketers, closed-loop fuel and lodging merchants, truck stop operators, airlines, sales channels, and other channels and partnerships (each of whom we refer to as our “partners”) and to enter into additional relationships or expand existing arrangements to increase the acceptability of our payment solutions. These relationships vary in length and may be renegotiated at the end of their respective terms. Due to the highly competitive, and at times exclusive, nature of these relationships, we often must participate in a competitive bidding process to establish or continue the relationships. Such bidding processes may focus on a limited number of factors, including pricing, which may affect our ability to effectively compete for these relationships.
If the various partners with whom we maintain relationships experience bankruptcy, financial distress, or otherwise are forced to contract their operations, our solutions could be adversely impacted. Similarly, because some of our solutions are independently marketed, certain other adverse events outside our control, like those companies’ failure to maintain their brands or a decrease in the size of their branded networks may adversely affect our ability to grow our revenue.
The loss of, failure to continue or failure to establish new relationships, or the weakness or decrease in size of companies with whom we maintain relationships, could adversely affect our ability to serve our customers and adversely affect our solutions and operating results.
We must comply with various rules and requirements, including the payment of fees, of Mastercard and our sponsor banks in order to remain registered to participate in the Mastercard networks.
A significant source of our revenue comes from processing transactions through the Mastercard networks. In order to offer Mastercard programs to our customers, one of our subsidiaries is registered as a member service provider with Mastercard through sponsorship by Mastercard member banks in both the U.S. and Canada. Registration as a service provider is dependent upon our being sponsored by member banks. If our sponsor banks should stop providing sponsorship for us or determine to provide sponsorship on materially less favorable terms, we would need to find other financial institutions to provide those services or we would need to become a Mastercard member, either of which could prove to be difficult and expensive. Even if we pursue sponsorship by alternative member banks, similar requirements and dependencies would likely still exist. In addition, Mastercard routinely updates and modifies its membership requirements. Changes in such requirements may make it significantly more expensive for us to provide these services. If we do not comply with Mastercard requirements, it could seek
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to fine us, suspend us or terminate our registration, which allows us to process transactions on its networks. The termination of our registration, or any changes in the payment network rules that would impair our registration, could require us to stop providing Mastercard payment processing services. If we are unable to find a replacement financial institution to provide sponsorship or become a member, we may no longer be able to provide such services to the affected customers.
Changes in Mastercard interchange fees could decrease our revenue.
A portion of our revenue is generated by network processing fees charged to merchants, known as interchange fees, associated with transactions processed using our Mastercard-branded cards. Interchange fee amounts associated with our Mastercard network cards are affected by a number of factors, including regulatory limits in the U.S. and Europe and fee changes imposed by Mastercard. In addition, interchange fees are the subject of intense legal, political and regulatory scrutiny and competitive pressures in the electronic payments industry, which could result in lower interchange fees generally in the future.
Our Cross-Border solution depends on our relationships with banks and other financial institutions around the world, which may impose fees, restrictions and compliance burdens on us that make our operations more difficult or expensive.
In our Cross-Border solution, we facilitate payment and foreign exchange solutions, primarily cross-border, cross-currency transactions, for small and medium size enterprises and other organizations. Increased regulation and compliance requirements are impacting these businesses by making it more costly for us to provide our solutions or by making it more cumbersome for businesses to do business with us. Any factors that increase the cost of cross-border trade for us or our customers or that restrict, delay, or make cross-border trade more difficult or impractical, such as trade policy (including restrictions arising out of the Russian and Ukrainian conflict or the Middle East conflict) or higher tariffs, could negatively impact our revenues and harm our business. We may also have difficulty establishing or maintaining banking relationships needed to conduct our services due to banks’ policies.
Increasing scrutiny and changing expectations from investors, customers and our employees with respect to our environmental, social and governance (ESG) practices may impose additional costs on us or expose us to new or additional risks.
There is increased focus, including from governmental organizations, investors, employees and clients, on ESG issues such as environmental stewardship, climate change, diversity and inclusion, racial justice and workplace conduct. Negative public perception, adverse publicity or negative comments in social media could damage our reputation if we do not, or are not perceived to, adequately address these issues. Any harm to our reputation could impact employee engagement and retention and the willingness of customers and our partners to do business with us. In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters, and unfavorable ratings of our company or our industries may lead to negative investor sentiment and the diversion of investment to other companies or industries.
Maintaining and enhancing our brands is critical to our business relationships and operating results.
We believe that maintaining and enhancing our brands is critical to our customer relationships, and our ability to obtain partners and retain employees. The successful promotion of our brands will depend upon our marketing and public relations efforts, our ability to continue to offer high-quality products and services and our ability to successfully differentiate our solutions from those of our competitors. In addition, future extension of our brands to add new products or services different from our current offerings may dilute our brands, particularly if we fail to maintain our quality standards in these new areas. The promotion of our brands will require us to make substantial expenditures, and we anticipate that the expenditures will increase as our markets become more competitive and we expand into new markets. Even if these activities increase our revenues, this revenue may not offset the expenses we incur. There can be no assurance that our brand promotion activities will be successful.
If one or more of our counterparty financial institutions default on their financial or performance obligations to us or fail, we may incur significant losses.
We have significant amounts of cash, cash equivalents, receivables outstanding, and other investments on deposit or in accounts with banks or other financial institutions in the U.S. and international jurisdictions. Among other services, certain banks and other financial institutions are lenders under our credit facilities, hold customer deposits for customers funds payable on demand, and hold cash collateral received from customers for derivative transactions as part of our Cross-Border solution. We regularly monitor our concentration of, and exposure to counterparty risk, and actively manage this exposure to mitigate the associated risk. Despite these efforts, we may be exposed to the risk of default on obligations by, or deteriorating operating results or financial condition or failure of, these counterparty financial institutions. If one of our counterparty financial institutions were to become insolvent, placed into receivership, or file for bankruptcy, our ability to recover losses incurred as a result of default or to access or recover our assets that are deposited, held in accounts with, or otherwise due from, such counterparty may be limited due to the insufficiency of the failed institutions’ estate to satisfy all claims in full or the applicable laws or regulations governing the insolvency, bankruptcy, or resolution proceedings. In the event of default on obligations by, or the failure of, one or more of these counterparties, we could incur significant losses, which could negatively impact our results of operations and financial condition.
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We are subject to risks related to volatility in foreign currency exchange rates, and restrictions on our ability to utilize revenue generated in foreign currencies or funds held in foreign jurisdictions.
As a result of our foreign operations, we are subject to risks related to changes in currency rates for revenue generated in currencies other than the U.S. dollar. For the year ended December 31, 2023, approximately 43% of our revenue was denominated in currencies other than the U.S. dollar (primarily, British pound, Brazilian real, Canadian dollar, Russian ruble, Mexican peso, Czech koruna, euro, Australian dollar and New Zealand dollar). Revenue and profit generated by international operations may increase or decrease compared to prior periods as a result of changes in foreign currency exchange rates. Resulting exchange gains and losses are included in our net income. In addition, a majority of the revenue from our international payments provider business is from exchanges of currency at spot rates, which enable customers to make cross-currency payments. This solution also writes foreign currency forward and option contracts for our customers. The duration of these derivative contracts at inception is generally less than one year. The credit risk associated with our derivative contracts increases when foreign currency exchange rates move against our customers, possibly impacting their ability to honor their obligations to deliver currency to us or to maintain appropriate collateral with us.
Additionally, from time to time, we have and expect to continue to enter into cross-currency swap agreements with financial institutions to hedge against the effect of variability in the U.S. dollar to foreign exchange rates. The swap agreements require an exchange of the notional amounts between us and the counterparties upon expiration or earlier termination of the agreements. If, at the expiration or earlier termination of the swap agreements, the U.S. dollar to applicable foreign exchange rate has declined from the rate in effect on the execution date, we are required to pay the counterparties an amount equal to the excess of the U.S. dollar value over the respective foreign currency principal amount. In the event of a significant decline in the applicable exchange rate, our payment obligations to the counterparties could have a material adverse effect on our cash flows.
Furthermore, we are subject to exchange control regulations that restrict or prohibit the conversion of more than a specified amount of our foreign currencies into U.S. dollars, and, as we continue to expand, we may become subject to further exchange control regulations that limit our ability to freely utilize and transfer currency in and out of particular jurisdictions. These restrictions may make it more difficult to effectively utilize the cash generated by our operations and may adversely affect our financial condition.
Our expansion through acquisitions may divert our management’s attention and result in unexpected operating or integration difficulties or increased costs and dilution to our stockholders, and we may never realize the anticipated benefits.
We have been an active acquirer in the U.S. and internationally, and, as part of our growth strategy, we expect to seek to acquire businesses, commercial account portfolios, technologies, services and products in the future. We have substantially expanded our overall portfolio of solutions, customer base, headcount and operations through acquisitions. The acquisition and integration of each business involves a number of risks and may result in unforeseen operating difficulties, delays and expenditures in assimilating or integrating the businesses, technologies, products, personnel or operations of the acquired business, all of which may divert resources and management attention otherwise available to grow our existing portfolio. In addition, acquisitions may expose us to geographic or business markets in which we have little or no prior experience, present difficulties in retaining the customers of the acquired business and present difficulties and expenses associated with new regulatory requirements, competition controls or investigations.
In addition, international acquisitions often involve additional or increased risks including difficulty managing geographically separated organizations, systems and facilities, difficulty integrating personnel with diverse business backgrounds, languages and organizational cultures, difficulty and expense introducing our corporate policies or controls and increased expense to comply with foreign regulatory requirements applicable to acquisitions.
Integration of acquisitions could also result in the distraction of our management, the disruption of our ongoing operations or inconsistencies on our services, standards, controls, procedures and policies, any of which could affect our ability to achieve the anticipated benefits of an acquisition or otherwise adversely affect our operations and financial results.
To complete future acquisitions, we may determine that it is necessary to use a substantial amount of our cash or engage in equity or debt financing. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. In addition, we may not be able to obtain additional financing on terms favorable to us, if at all, which could limit our ability to engage in acquisitions. Moreover, we can make no assurances that the anticipated benefits of any acquisition, such as operating improvements or anticipated cost savings, would be realized. Further, an acquisition may negatively affect our operating results because it may require us to incur charges and substantial debt or other liabilities, may cause adverse tax consequences, substantial depreciation and amortization or deferred compensation charges, may require the amortization, write-down or impairment of amounts related to deferred compensation, goodwill and other intangible assets, may include substantial contingent consideration payments or other compensation that reduce our earnings during the quarter in which incurred, or may not generate sufficient financial return to offset acquisition costs.
In addition, from time to time, we may divest businesses, for, among other things, alignment with our strategic objectives. We may not be able to complete desired or proposed divestitures on terms favorable to us. Gains or losses on the sales of, or lost operating income from, those businesses may affect our profitability and margins. Moreover, we may incur asset impairment
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charges related to divestitures that reduce our profitability. Our divestiture activities may present financial, managerial and operational risks. Those risks include diversion of management attention from existing businesses, difficulties separating personnel and financial and other systems, possible need for providing transition services to buyers, adverse effects on existing business relationships with suppliers and customers and indemnities and potential disputes with the buyers. Any of these factors could adversely affect our business, financial condition, and results of operations.
Our business in foreign countries may be adversely affected by operational and political risks that are greater than in the U.S.
We have foreign operations in, or provide services for customers in more than 150 countries throughout North America, South America, Europe, Africa, Oceania and Asia. We also expect to seek to expand our operations into various additional countries in Asia, Europe and Latin America as part of our growth strategy.
Some of the countries where we operate, and other countries where we will seek to operate, such as Brazil and Mexico, have undergone significant political, economic and social change in recent years, and the risk of unforeseen changes in these countries may be greater than in the U.S. In addition, changes in laws or regulations, including with respect to payment service providers, taxation, information technology, data transmission and the internet, revenues from non-U.S. operations or in the interpretation of existing laws or regulations, whether caused by a change in government or otherwise, could materially adversely affect our business, operating results and financial condition.
The current military conflicts between Russia and Ukraine, as well as within the Middle East, are creating substantial uncertainty about the global economy in the future. Although the length, impact and outcome of the ongoing military conflicts between Russia and Ukraine and within the Middle East are highly unpredictable, these conflicts could lead to significant market and other disruptions. We have recently exited the Russia market via the disposition of our Russia business, which closed in the third quarter of 2023. Additionally, we do not have operations in Israel or Gaza. We cannot predict how and the extent to which these conflicts will affect our customers, operations or business partners or the demand for our products and our global business.
We are actively monitoring the situations and assessing the impact on our business. The extent, severity, duration and outcome of the military conflicts, sanctions and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown period of time.
In response to the Russian invasion of Ukraine, the U.S., the European Union, the U.K. and other governments have imposed sanctions and other restrictive measures. Such sanctions, and other measures, as well as countersanctions or other responses from Russia or other countries have adversely affected, and will adversely affect, the global economy and financial markets and could adversely affect our business, financial condition and results of operations or otherwise aggravate the other risk factors that we identify herein. We cannot predict the scope of future developments in sanctions, punitive actions or macroeconomic factors arising from these conflicts. These measures are complex and still evolving. Our efforts to comply with such measures may be costly and time consuming and will divert the attention of management. Any alleged or actual failure to comply with these measures may subject us to government scrutiny, civil or criminal proceedings, sanctions, and other liabilities, which may have a material and adverse effect on our business, financial condition, and results of operations.
Depending on the actions we take or are required to take, the ongoing conflicts could also result in loss of cash, assets or impairment charges. Additionally, we may also face negative publicity and reputational risk based on the actions we take or are required to take as a result of these conflicts, which could damage our brand image or corporate reputation. The extent of the impact of these tragic events on our business remains uncertain and will continue to depend on numerous evolving factors that we are not able to accurately predict, including the extent, severity, duration and outcome of these conflicts. We are actively monitoring the situations and assessing the impact on our business, and are continuing to refine our business continuity plan, which includes crisis response materials designed to mitigate the impact of disruptions to our business. Further, there can be no assurance that our plan will successfully mitigate all disruptions. To date we have not experienced any material interruptions in our infrastructure, technology systems or networks needed to support our operations. The extent, severity, duration and outcome of these military conflicts, sanctions and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown period of time.
In addition, conducting and expanding our international operations subjects us to other political, economic, technological, operational and regulatory risks and difficulties that we do not generally face in the U.S. These risks and difficulties could negatively affect our international operations and, consequently, our operating results. Further, operating in international markets requires significant management attention and financial resources. We cannot be certain that the investment and additional resources required to establish, acquire or integrate operations in other countries will produce desired levels of revenue or profitability.
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Our payment solutions' results are subject to seasonality, which could result in fluctuations in our quarterly financial results.
Our Vehicle Payments solutions are typically subject to seasonal fluctuations in revenues and profit, which are impacted during the first and fourth quarter each year by the weather, holidays in the U.S., and lower business levels in Brazil due to summer break and the Carnival celebration. Our Gift solutions are typically subject to seasonal fluctuations in revenues as a result of consumer spending patterns. Historically, Gift revenues have been strongest in the third and fourth quarters and weakest in the first and second quarters, as the retail industry has its highest level of activity during and leading up to the Christmas holiday season.
Other Financial Risks
The restatement of our 2023 quarterly financial statements may affect investor confidence and raise reputational issues and may subject us to additional risks and uncertainties, including increased professional costs and the increased possibility of legal proceedings and regulatory inquiries.
As discussed in Note 20 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, we determined to restate our unaudited condensed consolidated financial statements for the quarterly periods ended March 31, 2023, June 30, 2023 and September 30, 2023 after the Company determined that there were errors related to the accounting for certain balance sheet accounts. As a result of these errors and the resulting restatement of our unaudited condensed consolidated financial statements for the impacted periods, we have incurred, and may continue to incur, unanticipated costs for accounting and legal fees in connection with or related to the restatement, and have become subject to a number of additional risks and uncertainties, including the increased possibility of litigation and regulatory inquiries. Any of the foregoing may affect investor confidence in the accuracy of our financial disclosures and may raise reputational risks for our business, both of which could harm our business and financial results.
We have identified material weaknesses in our internal control over financial reporting and, if we fail to remediate these material weaknesses, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business.
As described under Item 9A. "Controls and Procedures" below, we have concluded that material weaknesses in our internal control over financial reporting existed as of December 31, 2023 and, accordingly, internal control over financial reporting and our disclosure controls and procedures were not effective as of such date.Specifically, as a result of management’s evaluation, management identified the material weaknesses related to 1) ineffective information technology general controls (ITGCs) in the area of user access management over certain information technology systems used in the execution of controls that support the Company’s financial reporting processes and 2) ineffective controls related to the application of U.S. GAAP guidance related to the balance sheet recognition of customer funds held for the benefit of others leading to the correction of previously issued unaudited condensed consolidated financial statements for the 2023 quarterly periods as further discussed above.
Management has developed its remediation plan and is in the process of implementing it. Until the remediation plan is fully implemented, tested and deemed effective, we cannot provide assurance that our actions will adequately remediate the material weaknesses or that additional material weaknesses in our internal controls will not be identified in the future. Effective internal control over financial reporting is necessary for us to provide reliable and timely financial reports and, together with adequate disclosure controls and procedures, are designed to reasonably detect and prevent fraud. The occurrence of, or failure to remediate, these material weaknesses and any future material weaknesses in our internal control over financial reporting may adversely affect the accuracy and reliability and timeliness of our financial statements and have other consequences that could materially and adversely affect our business.
Risks related to our intellectual property
If we are unable to protect our intellectual property rights and confidential information, our competitive position could be harmed and we could be required to incur significant expenses in order to enforce our rights.
To protect our proprietary technology, we rely on copyright, trade secret, patent and other intellectual property laws and confidentiality agreements with employees and third parties, all of which offer only limited protection. Despite our precautions, it may be possible for third parties to obtain and use without our consent confidential information or infringe on our intellectual property rights, and our ability to police that misappropriation or infringement is uncertain, particularly in countries outside of the U.S. In addition, our confidentiality agreements with employees, vendors, customers and other third parties may not effectively prevent disclosure or use of proprietary technology or confidential information and may not provide an adequate remedy in the event of such unauthorized use or disclosure.
Protecting against the unauthorized use of our intellectual property and confidential information is expensive, difficult and not always possible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our confidential information, including trade secrets, or to determine the validity and scope of the proprietary rights of others. This litigation could be costly and divert management resources, either of which could harm our business, operating results and financial condition. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property and proprietary information.
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We cannot be certain that the steps we have taken will prevent the unauthorized use or the reverse engineering of our proprietary technology. Moreover, others may independently develop technologies that are competitive to ours or infringe our intellectual property. The enforcement of our intellectual property rights also depends on our legal actions against these infringers being successful, and we cannot be sure these actions will be successful, even when our rights have been infringed. Furthermore, effective patent, trademark, service mark, copyright and trade secret protection may not be available in every country in which we may offer our products and services.
Claims by others that we or our customers infringe their intellectual property rights could harm our business.
Third parties have in the past, and could in the future claim that our technologies and processes underlying our products and services infringe their intellectual property. In addition, to the extent that we gain greater visibility, market exposure, and add new products and services, we may face a higher risk of being the target of intellectual property infringement claims asserted by third parties. We may, in the future, receive notices alleging that we have misappropriated or infringed a third party’s intellectual property rights. There may be third-party intellectual property rights, including patents and pending patent applications that cover significant aspects of our technologies, processes or business methods. Any claims of infringement or misappropriation by a third party, even those without merit, could cause us to incur substantial defense costs and could distract our management from our business, and there can be no assurance that we will be able to prevail against such claims. Some of our competitors may have the capability to dedicate substantially greater resources to enforcing their intellectual property rights and to defending claims that may be brought against them than we do. Furthermore, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages, potentially including treble damages if we are found to have willfully infringed a patent. A judgment could also include an injunction or other court order that could prevent us from offering our products and services. In addition, we might be required to seek a license for the use of a third party’s intellectual property, which may not be available on commercially reasonable terms or at all. Alternatively, we might be required to develop non-infringing technology, which could require significant effort and expense and might ultimately not be successful.
Third parties may also assert infringement claims against our customers relating to their use of our technologies or processes. Any of these claims might require us to defend potentially protracted and costly litigation on their behalf, regardless of the merits of these claims, because under certain conditions we may agree to indemnify our customers from third-party claims of intellectual property infringement. If any of these claims succeed, we might be forced to pay damages on behalf of our customers, which could adversely affect our business, operating results and financial condition.
Finally, we use open source software in connection with our technology and services. Companies that incorporate open source software into their products, from time to time, face claims challenging the ownership of open source software. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software. Open source software is also provided without warranty, and may therefore include bugs, security vulnerabilities or other defects for which we have no recourse or recovery. Some open source software licenses require users of such software to publicly disclose all or part of the source code to their software and/or make available any derivative works of the open source code on unfavorable terms or at no cost. While we monitor the use of open source software in our technology and services and try to ensure that none is used in a manner that would require us to disclose the source code to the related technology or service, such use could inadvertently occur and any requirement to disclose our proprietary source code could be harmful to our business, financial condition and results of operations.
Our success is dependent, in part, upon our executive officers and other key personnel, and the loss of key personnel could materially adversely affect our business.
Our success depends, in part, on our executive officers and other key personnel. Our senior management team has significant industry experience and would be difficult to replace. The market for qualified individuals is competitive, especially in certain fields, including information technology, and we may not be able to attract and retain qualified personnel or candidates to replace or succeed members of our senior management team or other key personnel. The loss of key personnel could materially adversely affect our business.
Risks related to regulatory matters and litigation
Changes in laws, regulations and enforcement activities may adversely affect our products and services and the markets in which we operate.
The electronic payments industry is subject to increasing regulation in the U.S. and internationally. The laws and regulations applicable to us, including those enacted prior to the advent of digital payments, continue to evolve through legislative and regulatory action and judicial interpretation. Domestic and foreign government regulations impose compliance obligations on us and restrictions on our operating activities, which can be difficult to administer because of their scope, mandates and varied requirements. We are subject to government regulations covering a number of different areas, including, among others: interest rate and fee restrictions; credit access and disclosure requirements; licensing and registration requirements, including money transmitter licenses; collection and pricing regulations; compliance obligations; security, privacy and data breach requirements; identity theft protection programs; countering terrorist financing; AML compliance programs and consumer protection. While a large portion of these regulations focuses on individual consumer protection, legislatures and regulators continue to consider whether to include business customers, especially smaller business customers, within the scope of these regulations. As a result, new or expanded regulation focusing on business customers or changes in interpretation or enforcement of regulations, as well
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as increased penalties and enforcement actions related to non-compliance, may have an adverse effect on our business and operating results, due to increased compliance costs and new restrictions affecting the terms under which we offer our products and services.
In addition, certain of our subsidiaries are subject to regulation under the BSA by FinCEN and must comply with applicable AML requirements, including implementation of an effective AML program. Our business in Canada is also subject to the PCMLTFA, which is a corollary to the BSA. Changes in this regulatory environment, including changing interpretations and the implementation of new or varying regulatory requirements by the government, may significantly affect or change the manner in which we currently conduct some aspects of our business.
As a service provider to certain of our bank sponsors, we are subject to direct supervision and examination by the CFPB, in connection with certain of our products and services. CFPB rules, examinations and enforcement actions may require us to adjust our activities and may increase our compliance costs. In addition, our bank partners are subject to regulation by federal and state banking authorities and, as a result, could pass through some of those compliance obligations to us or alter the extent or the terms of their dealings with us in ways that may have adverse consequences for our business.
Many of these laws and regulations are evolving, unclear and inconsistent across various jurisdictions, and ensuring compliance with them is difficult and costly. With increasing frequency, federal and state regulators are holding businesses like ours to higher standards of training, monitoring and compliance, including monitoring for possible violations of laws by our customers and people who do business with our customers while using our products. If we fail or are unable to comply with existing or changed government regulations in a timely and appropriate manner, we may be subject to injunctions, other sanctions or the payment of fines and penalties, and our reputation may be harmed, which could have a material adverse effect on our business, financial condition and results of operations. Further, as we interact directly with consumers, in conjunction with our existing customers and partners or directly on our own behalf, our compliance obligations may expand.
For more information about laws, regulations and enforcement activities that may adversely affect our products and services and the markets in which we operate, see “Business- Regulatory.”
Derivatives regulations have added costs to our business and any additional requirements, such as future registration requirements and increased regulation of derivative contracts, may result in additional costs or impact the way we conduct our hedging activities, as well as impact how we conduct our business within our international payments provider operations.
Over-the-counter (OTC) derivatives are a core product offered by the Cross-Border business. Non-centrally cleared OTC derivatives can have certain advantages over exchange-traded and centrally cleared derivatives. Some derivative types are only available to be traded as non-centrally cleared OTC. In particular,other cases, exchange-traded equivalents are less liquid or less cost-effective in gaining or hedging certain market exposures. Further, OTC derivatives offer investors more flexibility in structure because, unlike the standardized cleared products, they can be tailored or customized to fit specific needs or investment goals. In order to best meet a client’s risk management objectives, our Cross-Border solution would like to preserve the ability to continue trading these types of OTC derivatives when possible. The most broadly used OTC derivative at Cross-Border Solutions are foreign currency forwards, the most common financial tool used in the marketplace to hedge currency.
Rules adopted under the Dodd-Frank Act by the CFTC has recently issued a proposed rule that, if adoptedin the U.S., provisions of the European Market Infrastructure Regulation and its technical standards in the UK and EU, as proposed, would increasewell as derivative reporting in Canada and Australia, have subjected certain of the likelihood thatforeign exchange derivative contracts we will haveoffer to register one or moreour customers as part of our subsidiaries withCross-Border solutions to reporting, record keeping, and other requirements. Additionally, certain foreign exchange derivatives transactions we may enter into in the CFTC as swap dealers. Swap dealers arefuture may be subject to a comprehensive regulatory framework and compliance with this framework will leadcentralized clearing requirements or may be subject to additional costs, including costs relating to regulatory capital and margin requirements in the U.S., U.K., and may impact how we conduct our hedging activities and derivatives business with customers. We are currently evaluating the impact the proposed rule, if adopted, would have on our hedging activities and operations.
European Union or other jurisdictions.
Our compliance with these requirements has resulted, and may continue to result, in additional costs to our business and may impact our international payments provider business operations. Furthermore, our failure to comply with these requirements could result in fines and other sanctions, as well as necessitate a temporary or permanent cessation to some or all of our derivative related activities. Any such fines, sanctions or limitations on our business could adversely affect our operations and financial results. Additionally, the regulatory regimes for derivatives in the United StatesU.S., U.K., and European Union, such as under the Dodd-Frank Act and the European Markets in Financial Instruments Directive known as "MiFID II,"(MiFID II) are continuing to evolve and changes to such regimes, our designation under such regimes, our associated costs for entering into derivatives transactions or the implementation of new rules under such regimes, such as future registration requirements and increased regulation of derivative contracts, may result in additional costs to our business. Other jurisdictions outside the United StatesU.S., U.K., and the European Union are considering, have implemented, or are implementing regulations similar to those described above and these may result in greater costs to us as well.
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currency market experiences significant disruption, our clients may take longer to post variation margin or collateral than what is required of our Cross-Border solution related to its own interbank counterparties, resulting in transitory periods of elevated liquidity risk.
Derivative transactions and delayed settlements may expose us to unexpected risk and potential losses.
In connection with our Cross-Border business, we are party to a large number of derivative transactions. Many of these derivative instruments are individually negotiated and non-standardized, which can make exiting, transferring or settling positions difficult. Derivative transactions may also involve the risk that documentation has not been properly executed, that executed agreements may not be enforceable against the counterparty, or that obligations under such agreements may not be able to be “netted” against other obligations with such counterparty. In addition, counterparties may claim that such transactions were not appropriate or authorized.
Derivative contracts and other transactions entered into with third parties often don’t require performance until a future date, which can be months away, and are not always settled on a timely basis. While the transaction remains open there is always the chance of non-performance, especially is market movements make the contract less attractive, so we are subject to heightened credit and operational risk and in the event of a default. In addition, as new complex derivative products are created, disputes about the terms of the underlying contracts could arise, which could impair our ability to effectively manage our risk exposures from these products and subject us to increased costs. The provisions of the Dodd-Frank Act requiring central clearing of OTC derivatives, or a market shift toward standardized derivatives, could reduce the risk associated with such transactions, but under certain circumstances could also limit our ability to develop derivatives that best suit the needs of our clients and to hedge our own risks, and could adversely affect our profitability and increase our credit exposure to such platform.
Laws, governmental regulations and contractual obligations designed to protect or limit access to personal information could adversely affect our ability to effectively provide our services.
Governmental bodies in the U.S. and abroad have adopted, or are considering the adoption of, laws and regulations granting consumer rights to, restricting the transfer of, and requiring safeguarding of, non-public personal information. For example, in the U.S., all financial institutions must undertake certain steps to help protect the privacy and security of consumer financial information. In connection with providing services to our clients, we are required by regulations and arrangements with payment networks, our sponsor bankbanks and certain clients to provide assurances regarding the confidentiality and security of non-public consumer information. These arrangements require periodic audits by independent companies regarding our compliance with industry standards such as PCI standards and also allow for similar audits regarding best practices established by regulatory guidelines. The compliance standards relate to our infrastructure, components, and operational procedures designed to safeguard the confidentiality and security of non-public consumer personal information received from our customers. Our ability to maintain compliance with these standards and satisfy these audits will affect our ability to attract and maintain business in the future. If we fail to comply with these regulations, we could be exposed to suits for breach of contract or to governmental proceedings. In addition, our client relationships and reputation could be harmed, and we could be inhibited in our ability to obtain new clients. If more restrictive privacy laws or rules are adopted by authorities in the future on the federal or state level or internationally, our compliance costs may increase, our opportunities for growth may be curtailed by our compliance capabilities or reputational harm and our potential liability for security breaches may increase, all of which could have a material adverse effect on our business, financial condition and results of operations.
We are aware of operations.
In addition to the reductionregulatory efforts described above, there have also been efforts in recent years aimed at the investment community, including investment advisors, sovereign wealth funds, public pension funds, universities and other groups, promoting the divestment of fossil fuel equities as well as to pressure lenders and other financial services companies to limit or curtail activities with companies engaged in the corporate income tax rate, the overall impactextraction of fossil fuel reserves. If these efforts are successful, our ability to access capital markets may be limited and our stock price may be negatively impacted.
Members of the new federal tax law is uncertain, and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conforminvestment community have recently increased their focus on sustainability practices with regard to the newly enacted federal tax law. The impactoil and gas industry, including practices related to GHGs and climate change. An increasing percentage of this tax reform on holdersthe investment community considers sustainability factors in making investment decisions, and an increasing number of our common stock is also uncertainpartners and could be adverse.
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lose partners or merchants, our stock price may be negatively impacted, our reputation may be negatively affected, and trucking industries generally could cause a decrease in demandit may be more difficult for our products and services in our lodging card business, resulting in decreased revenue, or increased credit risk and related losses, resulting in increased expenses. In addition, mergers or consolidations in these industries could reduce our customer and partnership base, resulting in a smaller market for our products and services.us to effectively compete.
We contract with government entities and are subject to risks related to our governmental contracts.
In the course of our business we contract with domestic and foreign government entities, including state and local government customers, as well as federal government agencies. As a result, we are subject to various laws and regulations that apply to companies doing business with federal, state and local governments. The laws relating to government contracts differ from other commercial contracting laws and our government contracts may contain pricing terms and conditions that are not common among commercial contracts. In addition, we may be subject to investigation from time to time concerning our compliance with the laws and regulations relating to our government contracts. Our failure to comply with these laws and regulations may result in suspension of these contracts or administrative or other penalties.
Litigation and regulatory actions could subject us to significant fines, penalties or requirements resulting in significantly increased expenses, damage to our reputation and/or material adverse effects on our business.
We are, or may from time to time be, subject to claims and a number of judicial and administrative proceedings considered normal in the ordinary course of our current and past operations, including employment-related disputes, contract disputes,individual and class action lawsuits, arbitration proceedings, government and regulatory investigations, inquiries, actions or requests, and other proceedings alleging violations of laws, rules, and regulations with respect to competition, antitrust, intellectual property, privacy, data protection, information security, anti-money laundering, counter-terrorist financing, sanctions, anti-bribery, anti-corruption, consumer protection (including unfair, deceptive, or abusive acts or practices), fraud, accessibility, securities, tax, labor and employment, commercial disputes, government auditsproduct liability, use of our services for illegal purposes and regulatory proceedings, customerother matters. The number and significance of these disputes and tort claims.inquiries is expected to continue to increase as our products, services, and business expand in complexity, scale, scope, and geographic reach, including through acquisitions of businesses and technology. Responding to proceedings may be difficult and expensive, and we may not prevail. In some proceedings, the claimant seeks damages as well as other relief, which, if granted, would require expenditures on our part or changes in how we conduct business. There can be no certainty that we will not ultimately incur charges in excess of presently established or future financial accruals or insurance coverage, or that we will prevail with respect to such proceedings. Regardless of whether we prevail or not, such proceedings could have a material adverse effect on our business, reputation, financial condition and results of operations. FromFurther, these types of matters could divert our management’s attention and other resources away from our business. In addition, from time to time, we have had, and expect to continue to receive, inquiries from regulatory bodies and administrative agencies relating to the operation of our
business. SuchAny potential claims or any such inquiries or potential claims have resulted in, and may continue to result in, various audits, reviews and investigations, which can be time consuming and expensive. These types of inquiries, audits, reviews, and investigations could result in the institution of administrative or civil proceedings, sanctions and the payment of fines and penalties, various forms of injunctive relief and redress, changes in personnel, and increased review and scrutiny by customers, regulatory authorities, the media and others, which could be significant and could have a material adverse effect on our business, reputation, financial condition and results of operations. For more information about our judicial and other proceedings, see “Business—
As described in the Legal Proceedings.”
performance.
Failure to comply with the FCPA, anti-money launderingAML regulations, economic and trade sanctions regulations and similar laws and regulations associated withapplicable to our international activities, could subject us to penalties and other adverse consequences.
As we continue to expand our business internationally, we may continue to expand into certain foreign countries, particularly those with developing economies, where companies often engage in business practices that are prohibited by U.S., U.K. and other foreign regulations, including the FCPA, the U.K. Bribery Act, the 2013 Brazilian Clean Companies ActCanada’s PCMLTFA, and the 2013 Russian Law on Preventing Corruption.Australia’s AML/CTF Act. These laws and regulations generally prohibit us, our employees, consultants and agents from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We have implemented policies to discourage such practices; however, there can be no assurances that all of our employees, consultants and agents, including those that may be based in or from countries where practices that violate U.S.these laws may be customary, will not take actions in violation of our policies for which we may be ultimately responsible. Violations of the FCPA or similar laws may result in severe criminal or civil sanctions and, in the U.S., suspension or debarment from U.S. government contracting, which could negatively affect our business, operating results and financial condition.
In addition, we are subject to anti-money launderingAML laws and regulations, including the BSA. Among other things, the BSA requires money services businesses (such as money transmitters and providers of prepaid access) to develop and implement risk-based anti-money launderingAML programs, verify the identity of our customers, report large cash transactions and suspicious activity, and maintain transaction records.
We are also subject to certain economic and trade sanctions programs that are administered by OFAC, which prohibit or restrict transactions to or from or dealings with specified countries, their governments, and in certain circumstances, their nationals, and with individuals and entities that are specially-designatedspecially designated nationals of those countries, narcotics traffickers, and terrorists or terrorist organizations. Other group entities may be subject to additional foreign or local sanctions requirements in other relevant jurisdictions.
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Similar anti-money launderingAML and counter-terrorist financing and proceeds of crime laws apply to movements of currency and payments through electronic transactions and to dealings with persons specified in lists maintained by the country equivalent to OFAC lists in several other countries and require specific data retention obligations to be observed by intermediaries in the payment process. Our businesses in those jurisdictions are subject to those data retention obligations.
Violations of these laws and regulations may result in severe criminal or civil sanctions and, in the U.S., suspension or debarment from U.S. government contracting, which could negatively affect our business, operating results and financial condition.contracting. Likewise, any investigation of any potential violations of these laws and regulations by U.S. or foreign authorities could also have an adverse impact on our reputation business, financial condition and operating results. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws and regulations might be administered or interpreted.
Risks related to our debt
At December 31, 2023, we had approximately $6.7 billion of debt outstanding under our Credit Facility and Securitization Facility. In addition, we are permitted under our credit agreement to incur additional indebtedness, subject to specified limitations. Our indebtedness currently outstanding, or declines inas may be outstanding if we incur additional indebtedness, could have important consequences, including the money transfer, payment service,following:
•we may have difficulty satisfying our obligations under our debt facilities and, if we fail to satisfy these obligations, an event of default could result;
•we may be required to dedicate a substantial portion of our cash flow from operations to required payments on our indebtedness, thereby reducing the availability of cash flow for acquisitions, working capital, capital expenditures and other marketsgeneral corporate activities. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Material Cash Requirements and Uses of Cash;”
•covenants relating to our debt may limit our ability to enter into certain contracts, pay dividends or to obtain additional financing for acquisitions, working capital, capital expenditures and other general corporate activities, including to react to changes in our business or the industry in which we operate,operate;
•events outside our control, including volatility in the credit markets or a significant rise in fuel prices, may make it difficult to renew our Securitization Facility on terms acceptable to us and limit our ability to timely fund our working capital needs;
•the amount of receivables that qualify under our Securitization Facility could decrease, which could materially and adversely impact our liquidity;
•we may be more vulnerable than our less leveraged competitors to the impact of economic downturns and adverse developments in the industry in which we operate; and
•we are exposed to the risk of increased interest rates because our borrowings are generally subject to variable or declines related to interruptions in migration patterns, and difficult conditions in global financial markets andfinancial market disruptions could adversely affect our business, financialcondition, resultsfloating rates of operations, and cash flows.interest.
Our balance sheet includes the exposure generated when we write derivative contracts to our customers as partsignificant amounts of our cross-currency payments business,goodwill and we typically hedge the net exposure through offsetting contracts with established financial institution counterparties. That failure could have an adverse effect onintangible assets. The impairment of a significant portion of these assets would negatively affect our financial condition, resultsresults.
Our balance sheet includes goodwill and intangible assets that represent approximately 50% of operations,our total assets at December 31, 2023. These assets consist primarily of goodwill and cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We have no unresolved written comments regarding our periodic or current reports from the staff of the SEC.
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ITEM 1C. CYBERSECURITY
Risk Management and Strategy
The Company is subject to cyber-attacks and information theft risks in our operations, which we seek to manage through cyber and information security programs, training, and insurance coverage. To strengthen our security and cyber defenses, we maintain a defensive approach to cyber and information security designed to defend our systems against misuse, intrusions, and cyberattacks and to protect the data we collect. The Company's processes to assess, identify and manage material risks from cybersecurity threats are strategically integrated into the Company's overall risk management framework, as evidenced by annual risk assessments and required trainings across business lines and applications. The Company’s information security program maintains procedures and controls for the systems, applications, and data of the Company and of its third-party providers. The Company has an established cybersecurity training program which is administered through online learning modules and is required for all employees at least annually. Such trainings cover topics such as password protection, phishing, the protection of confidential information and asset security, among others, and educate employees on mechanisms in place to report cyber-related incidents or suspicions of cybersecurity threats. Further, the Company maintains a cybersecurity incident response plan, which is managed by the Company's chief information security officer and is reviewed and tested annually. The incident response process is overseen by a security operations and cybersecurity incident response team comprised of members across the organization, including global management and IT operations and leverages an organizational-wide self-service platform that allows the Company to track, manage and resolve information security risks across the organization.
Our information security program is designed to generally align with recommended practices in security standards issued by ISO, AICPA (SSAE18), National Institute of Standards and Technology Cybersecurity Framework (NIST CSF), Payment Card Industry Data Security Standard (PCI DSS) and other industry sources. Specifically, we strive to maintain ISO certifications (ISO 27001 Brazil and U.K.), SOC 1 and 2 Type 2 reports and PCI DSS reports on compliance to adhere to industry standard practices.
Our newly acquired businesses maintain separate cybersecurity programs and processes that may differ in scope and complexity from the Company’s overall cybersecurity programs and processes.
As part of our overall risk mitigation strategy, the Company also maintains cyber insurance coverage; however, such insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyberattacks and other related breaches.
We have not identified any cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of our operations, or financial condition. However, we have been the target of cyber-attacks and expect them to continue as cybersecurity threats have been rapidly evolving in sophistication and becoming more prevalent in the industry. We cannot eliminate all risks from cybersecurity threats or provide assurances that we have not experienced an undetected cybersecurity incident in the past or that we will not experience such an incident in the future. For more information on the risks from cybersecurity threats that we face, refer to Part I, “Item 1A. Risk Factors.”
Use of Third-Parties
To regularly assess whether our cybersecurity strategies and processes remain appropriate to prevent, investigate and address cyber-related issues, the Company engages with information security and forensics firms with specialized industry knowledge. Our collaboration with these third parties includes the administration of third-party security questionnaires, risk assessments and testing, and consultation on security enhancements to attempt to mitigate threats. We also collaborate with third parties, regulators, and law enforcement, when appropriate, to resolve security incidents and assist in efforts to prevent unauthorized access to our processing systems.
In order to oversee and identify risks from cybersecurity threats associated our use of third-party service providers, we maintain a risk management program designed to help protect against the misuse of information technology. In addition to risk assessments and questionnaires obtained upon selection of a new service provider, we also perform annual third-party risk assessments to ensure these service providers continue to meet contractual obligations for cybersecurity, regulatory and industry requirements.
Governance
The Board of Directors oversees the Company’s information security and risk management program. To support effective governance in managing risks related to cybersecurity, the Board has established an information technology and security committee.
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Board of Directors Oversight
The information technology and security committee is responsible for providing oversight and leadership for our information technology security and cybersecurity, planning processes, policies and objectives. The information technology and security committee is composed of board members with both industry knowledge as well as expertise in technology and security, finance and risk management. The primary purpose of the committee is to review, assess and make recommendations regarding the long-term strategy for global information security and the evolution of our technology in a competitive environment.
To accomplish this purpose, the information technology and security committee has five primary responsibilities:
•understanding the security controls and assessments conducted on our major payment platforms and comparing them to industry best practices;
•evaluating strategies to protect our intellectual property;
•assessing opportunities to update our processing platform strategies to ensure the long term use of our resources;
•reviewing progress on significant IT security and cybersecurity projects and evaluating effectiveness of projects; and
•overseeing our disaster recovery and business continuity plans.
Management's Role
The Board and the information technology and security committee directed the formation of a cross-functional cybersecurity council at the Company, and receive regular cybersecurity reports from the global CIO, the corporate CIO and the chief information security officer (CISO), among others. These reports include updates on the Company’s cybersecurity strategy and execution of its processes, including updates on procedures to prepare for, prevent, detect, respond to and recover from (as applicable) cyber incidents. Such updates also include updates on the Company's continued compliance with regulatory requirements. The Company’s information security and risk management program is periodically evaluated by third-party specialists, and the results of those reviews are reported to the Board.
Our CISO, who reports directly to the Company’s Chief Information Officer (“CIO”), has served in various roles in information technology and information security for over 20 years, with experience in technology risk management, cybersecurity, compliance, network engineering, information systems, and business resiliency. He is a Certified Information Systems Security Professional and Certified Information Systems Auditor.
Our CISO manages the Company's information security and oversees our data security personnel and our incident response and business continuity management programs to assess and manage the cybersecurity element of our risk management program, including policies, cybersecurity training, security operations and engineering, cyber threat detection and incident response. Our CISO promptly informs and updates the Board about any information security incidents that may pose a significant risk to the Company.
ITEM 2. PROPERTIES
Our corporate headquarters are located in Atlanta, Georgia where we lease approximately 46,500 square feet of office space. In addition to our corporate headquarters, we have major operations located in Brentwood, Tennessee; Covington, Louisiana; Louisville, Kentucky; Lexington, Kentucky; and Peachtree Corners, Georgia. Our largest offices internationally are located in São Paulo, Brazil; London, United Kingdom; Prague, Czech Republic; Mexico City, Mexico and Toronto, Canada. We lease all of the real property used in our business, except as noted below. The following table lists eachfor a portion of our material facilities and its location, use and approximate square footage, at December 31, 2017.headquarters in Mexico City, which we own.
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ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, we are subject tothe Company is involved in various pending and potentialor threatened legal actions, arbitration proceedings, claims, subpoenas, and matters relating to compliance with laws and regulations (collectively, legal proceedings)"legal proceedings"). Based on our current knowledge, management presently does not believe that the liabilities arising from these legal proceedings will have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, it is possible that the ultimate resolution of these legal proceedings could have a material adverse effect on our results of operations and financial condition for any particular period.
On July 10, 2017, a shareholder derivative complaint was filed against the Company and certain of the Company’s directors and officers in the United States District Court for the Northern District of Georgia ("Federal Derivative Action") seeking recovery from the Company. The District Court dismissed the Federal Derivative Action on October 21, 2020, and the United States Court of Appeals for the Eleventh Circuit affirmed the dismissal on July 27, 2022, ending the lawsuit. A similar derivative lawsuit that had been filed on January 9, 2019 in the Superior Court of Gwinnett County, Georgia (“State Derivative Action”) was likewise dismissed on October 31, 2022.
On January 20, 2023, the previous State Derivative Action plaintiffs filed a new derivative lawsuit in the Superior Court of Gwinnett County, Georgia. The new lawsuit, City of Aventura Police Officers’ Retirement Fund, derivatively on behalf of the Company. The derivative complaintFleetCor Technologies, Inc. v. Ronald F. Clarke and Eric R. Dey, alleges that the defendants issued a false and misleading proxy statement in violation of the federal securities laws; that defendants breached their fiduciary duties by causing or permitting the Company to make allegedlyengage in unfair or deceptive marketing and billing practices, making false and misleading public statements concerning the Company’s fee charges and financial and business prospects;prospects, and that certain defendants breached their fiduciary duties through allegedlymaking improper sales of stock. The complaint seeks unspecifiedapproximately $118 million in monetary damages on behalf of the Company, corporate governance reforms,including contribution by defendants as joint tortfeasors with the Company in unfair and deceptive practices, and disgorgement of profits, benefitsincentive pay and compensation bystock compensation. On January 24, 2023, the defendants, restitution, costs,previous Federal Derivative Action plaintiffs filed a similar new derivative lawsuit, Jerrell Whitten, derivatively on behalf of FleetCor Technologies, Inc. v. Ronald F. Clarke and attorneys’Eric R. Dey, against Mr. Clarke and experts’ fees. On August 18, 2017, the court entered an order deferring the case pending a ruling on the defendants' motion to dismiss the putative shareholder class action, or until otherwise agreed to by the parties.Mr. Dey in Gwinnett County, Georgia. The defendants dispute the allegations in the complaintderivative complaints and intend to vigorously defend against the claims.
FTC Investigation
In October 2017, the Federal Trade Commission ("FTC") issued a Notice of Civil Investigative Demand to the Company for the production of documentation and a request for responses to written interrogatories. After discussions with the Company, the FTC proposed in October 2019 to resolve potential claims relating to the Company’s advertising and marketing practices, principally in its U.S. direct fuel card business within its North American Fuel Card business. The parties reached impasse primarily related to what the Company believes are unreasonable demands for redress made by the FTC. On December 20, 2019, the FTC filed a lawsuit in the Northern District of Georgia against the Company and Ron Clarke. See FTC v. FLEETCOR and Ronald F. Clarke, No. 19-cv-05727 (N.D. Ga.). The complaint alleges the Company and Ron Clarke violated the FTC Act’s prohibitions on unfair and deceptive acts and practices. The complaint seeks among other things injunctive relief, consumer redress, and costs of suit. The Company continues to believe that the FTC’s claims are without merit and these matters are not and will not be material to the Company’s financial performance. On April 17, 2021, the FTC filed a motion for summary judgment. On April 22, 2021, the United States Supreme Court held unanimously in AMG Capital Management v. FTC that the FTC does not have authority under current law to seek monetary redress by means of Section 13(b) of the FTC Act, which is the means by which the FTC has sought such redress in this case. FLEETCOR cross-moved for summary judgment regarding the FTC’s ability to seek monetary or injunctive relief on May 17, 2021. On August 13, 2021, the FTC filed a motion to stay or to voluntarily dismiss without prejudice the case pending in the Northern District of Georgia in favor of a parallel administrative action under Section 5 of the FTC Act that it filed on August 11, 2021 in the FTC’s administrative process. Apart from the jurisdiction and statutory change, the FTC’s administrative complaint makes the same factual allegations as the FTC’s original complaint filed in December 2019. The Company opposed the FTC’s motion for a stay or to voluntarily dismiss, and the court denied the FTC’s motion on February 7, 2022. In the meantime, the FTC’s administrative action is stayed. On August 9, 2022, the District Court for the Northern District of Georgia granted the FTC's motion for summary judgment as to liability for the Company and Ron Clarke, but granted the Company's motion for summary judgment as to the FTC's claim for monetary relief as to both the Company and Ron Clarke. The Company intends to appeal this decision after final judgment is issued. On October 20-21, 2022, the court held a hearing on the scope of injunctive relief. At the conclusion of the hearing, the Court did not enter either the FTC’s proposed order or the Company’s proposed order, and instead suggested that the parties enter mediation. Following mediation, both parties filed proposed orders with the Court.
On June 8, 2023, the Court issued an Order for Permanent Injunction and Other Relief. The Company filed its notice of appeal to the United States Court of Appeals for the Eleventh Circuit on August 3, 2023. On August 17, 2023, the FTC Commission ordered that the stay of the parallel Section 5 administration action will remain in place during the pendency of the Eleventh Circuit appeal. The Company has incurred and continues to incur legal and other fees related to this FTC complaint. Any settlement of this matter, or defense against the lawsuit, could involve costs to the Company, including legal fees, redress, penalties, and remediation expenses.
Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult and requires an extensive degree of judgment, particularly where, as here, the matters involve indeterminate claims for monetary damages and
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are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, we arethe Company is currently unable to predict the ultimate timing or outcome of, or reasonably estimate the possible losses or a range of possible losses resulting from, the matters described above.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the New York Stock Exchange (NYSE) under the symbol “FLT.”ticker FLT. As of December 31, 2017,2023, there were 146 holders of454 holders of record of our common stock. The table set forth below provides the intra-day high and low sales prices per share of our common stock for the four quarters during 2017 and 2016.
| High | Low | |||||||
| 2017: | ||||||||
| First Quarter | $ | 171.78 | $ | 142.62 | ||||
| Second Quarter | 157.36 | 121.52 | ||||||
| Third Quarter | 157.40 | 138.43 | ||||||
| Fourth Quarter | 194.51 | 153.45 | ||||||
| 2016: | ||||||||
| First Quarter | $ | 150.25 | $ | 107.56 | ||||
| Second Quarter | 156.58 | 133.64 | ||||||
| Third Quarter | 174.84 | 137.26 | ||||||
| Fourth Quarter | 176.42 | 140.75 | ||||||
DIVIDENDS AND SHARESTOCK REPURCHASES
We currently expect to retain all future earnings, if any, for use in the operation, and expansion of our business.business and stock repurchases. We have never declared or paid any dividends on our common stock and do not anticipate paying cash dividends to holders of our common stock in the foreseeable future. In addition, our credit agreements restrict our ability to pay dividends. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements and covenants in our existing financing arrangements, and any future financing arrangements.
On August 18, 2023, as part of the Program, the Company entered an accelerated share repurchase ("ASR") agreement ("2023 ASR Agreement") with a third-party financial institution to repurchase $450 million of its common stock. Pursuant to the 2023 ASR Agreement, the Company delivered $450 million in cash and received 1,372,841 shares based on a stock price of $262.23 on August 18, 2023. The transactions contemplated by the 2023 ASR Agreement was completed on September 26, 2023, at which time the Company received 293,588 additional shares based on a final weighted average per share purchase price during the repurchase period of $590 million$270.04.
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 repurchased.and are expected to be funded by a combination of available cash flow from the business, working capital and debt.
| Period | Total Number of Shares Purchased1 | Average Price Paid Per Share | Total Number of Shares Purchased as Part of the Publicly Announced Plan | Maximum Value that May Yet be Purchased Under the Publicly Announced Plan (in thousands) | ||||||||||||||||||||||
| October 1, 2023 through October 31, 2023 | 325 | $ | 235.28 | — | ||||||||||||||||||||||
| November 1, 2023 through November 30, 2023 | 14 | $ | 233.41 | — | ||||||||||||||||||||||
| December 1, 2023 through December 31, 2023 | 563,703 | $ | 254.01 | 563,703 | $ | 558,853 | ||||||||||||||||||||
1 During the quarter ended December 31, 2023, pursuant to our Stock Incentive Plan, we withheld 339 shares, at an average price per share of $235.20, in order to satisfy employees' tax withholding obligations in connection with the vesting of awards of restricted stock. | ||
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PERFORMANCE GRAPH
The following graph assumes $100 invested on December 31, 2012,2018, at the closing price ($53.65)185.72) of our common stock on that day, and compares (a) the percentage change of our cumulative total stockholder return on the common stock (as measured by dividing (i) the difference between our share price at the end and the beginning of the period presented by (ii) the share price at the beginning of the periods presented) with (b) (i) the Russell 2000 Index, and (ii) the S&P 500® Data Processing & Outsourced Services.Services and (iii) S&P 500.
| Period Ending | FLEETCOR Technologies, Inc. | Russell 2000 | S&P Data Processing and Outsourced Services | |||||||||
| 12/31/2012 | $ | 100.00 | $ | 100.00 | $ | 100.00 | ||||||
| 3/31/2013 | $ | 142.91 | $ | 112.03 | $ | 112.20 | ||||||
| 6/30/2013 | $ | 151.54 | $ | 115.09 | $ | 118.85 | ||||||
| 9/30/2013 | $ | 205.33 | $ | 126.42 | $ | 130.25 | ||||||
| 12/31/2013 | $ | 218.40 | $ | 137.00 | $ | 151.76 | ||||||
| 3/31/2014 | $ | 214.54 | $ | 138.11 | $ | 144.46 | ||||||
| 6/30/2014 | $ | 245.67 | $ | 140.46 | $ | 144.86 | ||||||
| 9/30/2014 | $ | 264.90 | $ | 129.71 | $ | 146.72 | ||||||
| 12/31/2014 | $ | 277.19 | $ | 141.84 | $ | 170.19 | ||||||
| 3/31/2015 | $ | 281.30 | $ | 147.50 | $ | 173.97 | ||||||
| 6/30/2015 | $ | 290.89 | $ | 147.64 | $ | 175.73 | ||||||
| 9/30/2015 | $ | 256.51 | $ | 129.59 | $ | 172.99 | ||||||
| 12/31/2015 | $ | 266.41 | $ | 133.74 | $ | 188.13 | ||||||
| 3/30/2016 | $ | 277.26 | $ | 131.16 | $ | 188.59 | ||||||
| 6/30/2016 | $ | 266.78 | $ | 135.62 | $ | 185.00 | ||||||
| 9/30/2016 | $ | 323.82 | $ | 147.37 | $ | 199.67 | ||||||
| 12/31/2016 | $ | 263.78 | $ | 159.78 | $ | 199.15 | ||||||
| 3/31/2017 | $ | 282.26 | $ | 163.17 | $ | 216.67 | ||||||
| 6/30/2017 | $ | 268.80 | $ | 166.64 | $ | 232.21 | ||||||
| 9/30/2017 | $ | 288.48 | $ | 175.53 | $ | 259.13 | ||||||
| 12/31/2017 | $ | 358.68 | $ | 180.79 | $ | 280.89 | ||||||
RECENT SALES OF UNREGISTERED SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 6. SELECTED FINANCIAL DATA
(RESERVED)
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| (in thousands, except per share data) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Consolidated statement of income data: | ||||||||||||||||||||
| Revenues, net | $ | 2,249,538 | $ | 1,831,546 | $ | 1,702,865 | $ | 1,199,390 | $ | 895,171 | ||||||||||
| Expenses: | ||||||||||||||||||||
| Merchant commissions | 113,133 | 104,345 | 108,257 | 96,254 | 68,143 | |||||||||||||||
| Processing | 429,613 | 355,414 | 331,073 | 173,337 | 134,030 | |||||||||||||||
| Selling | 170,717 | 131,443 | 109,075 | 75,527 | 57,346 | |||||||||||||||
| General and administrative | 387,694 | 283,625 | 297,715 | 205,963 | 142,283 | |||||||||||||||
| Depreciation and amortization | 264,560 | 203,256 | 193,453 | 112,361 | 72,737 | |||||||||||||||
| Other operating, net | 61 | (690 | ) | (4,242 | ) | (29,501 | ) | — | ||||||||||||
| Operating income | 883,760 | 754,153 | 667,534 | 565,449 | 420,632 | |||||||||||||||
| Investment loss | 53,164 | 36,356 | 57,668 | 8,586 | — | |||||||||||||||
| Other (income) expense, net | (173,436 | ) | 2,982 | 2,523 | (700 | ) | 602 | |||||||||||||
| Interest expense, net | 107,146 | 71,896 | 71,339 | 28,856 | 16,461 | |||||||||||||||
| Loss on extinguishment of debt | 3,296 | — | — | 15,764 | — | |||||||||||||||
| Total other (income) expense | (9,830 | ) | 111,234 | 131,530 | 52,506 | 17,063 | ||||||||||||||
| Income before income taxes | 893,590 | 642,919 | 536,004 | 512,943 | 403,569 | |||||||||||||||
| Provision for income taxes | 153,390 | 190,534 | 173,573 | 144,236 | 119,068 | |||||||||||||||
| Net income | $ | 740,200 | $ | 452,385 | $ | 362,431 | $ | 368,707 | $ | 284,501 | ||||||||||
| Earnings per share: | ||||||||||||||||||||
| Basic earnings per share | $ | 8.12 | $ | 4.89 | $ | 3.94 | $ | 4.37 | $ | 3.48 | ||||||||||
| Diluted earnings per share | $ | 7.91 | $ | 4.75 | $ | 3.85 | $ | 4.24 | $ | 3.36 | ||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||
| Basic shares | 91,129 | 92,597 | 92,023 | 84,317 | 81,793 | |||||||||||||||
| Diluted shares | 93,594 | 95,213 | 94,139 | 86,982 | 84,655 | |||||||||||||||
| As of December 31, | ||||||||||||||||||||
| (in thousands) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Consolidated balance sheet data: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 913,595 | $ | 475,018 | $ | 447,152 | $ | 477,069 | $ | 338,105 | ||||||||||
| Restricted cash(1) | 217,275 | 168,752 | 167,492 | 135,144 | 48,244 | |||||||||||||||
| Total assets | 11,318,359 | 9,626,732 | 7,889,806 | 8,524,701 | 3,908,717 | |||||||||||||||
| Total debt | 4,518,616 | 3,858,233 | 2,935,000 | 3,593,717 | 1,486,378 | |||||||||||||||
| Total stockholders’ equity | 3,676,522 | 3,084,038 | 2,830,047 | 2,618,562 | 1,223,502 | |||||||||||||||
ITEM 7. 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 consolidated financial statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences include, but are not limited to, those identified below and those described in Item 1A “Risk Factors” appearing elsewhere in this report. 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.
Executive Overview
FLEETCOR has been a member of the S&P 500 since 2018 and trades on the New York Stock Exchange under the ticker FLT. We expect to rebrand FLEETCOR to Corpay, Inc. in March 2024, including changing our New York Stock Exchange ticker from FLT to CPAY.
Businesses spend an estimated $135 trillion each year in transactions with other businesses. In many instances, businesses lack the proper tools to monitor what is being purchased, and employ manual, paper-based, disparate processes and methods to both approve and make payments for underlying productstheir business-to-business purchases. This often results in wasted time and services. Inmoney due to unnecessary or unauthorized spending, fraud, receipt collection, data input and consolidation, report generation, reimbursement processing, account reconciliations, employee disciplinary actions, and more.
FLEETCOR’s vision is that every payment is digital, every purchase is controlled, and every related decision is informed. Digital payments are faster and more secure than paper-based methods such as checks, and provide timely and detailed data that can be utilized to effectively reduce unauthorized purchases and fraud, automate data entry and reporting, and eliminate reimbursement processes. Combining this report, we referpayment data with analytical tools delivers powerful insights, which managers can use to this net revenuebetter run their businesses. Our wide range of modern, digitized solutions generally provides control, reporting, and automation benefits superior to many of the payment methods businesses often use such as “revenue". See “Resultscash, paper checks, general purpose credit cards, as well as employee pay and reclaim processes.
Impact of Operations” for additional segment information.Geo-Political Events on Our Business
The current military conflicts between Russia and Ukraine, as well as within the Middle East, continue to create substantial uncertainty about the global economy in the future. Although the length, impact and outcome of the ongoing military conflicts between Russia and Ukraine and within the Middle East are highly unpredictable, these conflicts could lead to significant market and other disruptions. We reportrecently exited the Russia market via the disposition of our results from Cambridge (acquiredRussia business, which closed in the third quarter of 2017)2023 (see "Russia Disposition" section below), and CLS (acquiredwe do not have material operations in Israel or Gaza. We cannot predict how and the extent to which these conflicts will affect our customers, operations or business partners or the demand for our products and our global business.
We are actively monitoring the situations and assessing the impact on our business. The extent, severity, duration and outcome of the military conflicts, sanctions and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown period of time.
Russia Disposition
During the second quarter of 2023, we signed definitive documents to sell our Russia business to a third party. At June 30, 2023, we concluded that the sale was not considered probable due to continued uncertainty regarding regulatory approvals and ongoing discussions regarding the nature and timing of deal completion. As such, the assets and liabilities associated with our Russian business were not classified as held for sale prior to the completion of the transaction. The Russia business was historically reported within our Vehicle Payments segment and did not meet the criteria to be presented as discontinued operations. We completed the sale of our Russia business on August 15, 2023.
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The sale included the entirety of our operations in Russia and resulted in a complete exit from the Russia market. We received total proceeds, net of cash disposed and net of a $5.6 million foreign exchange loss upon conversion of the ruble-denominated proceeds to U.S. dollars, of $197.0 million, which have been recorded within investing activities in the fourth quarteraccompanying Consolidated Statements of 2017)Cash Flows. In connection with the sale, we recorded a net gain on disposal of $13.7 million during the year ended December 31, 2023, which represents the proceeds received less the derecognition of the related net assets, the reclassification of accumulated foreign currency translation losses, and the foreign exchange loss upon conversion of the ruble-denominated proceeds to U.S. dollars. The net gain is included within other (income) expense, net in the accompanying Consolidated Statements of Income.
Exclusive of the impact of disposition, our North America segment. The results of operations from the fuel card business acquired in Russia are included within our International segment. As partaccounted for approximately $62.0 million and $84.7 million of our plan to exit the telematics business, on July 27, 2017, we sold NexTraq, a U.S. fleet telematics business, which has historically been included in our North America segment.
Results
| Year ended December 31, | |||||||||||||||||||||
| 2017 | 2016 | 2015 | |||||||||||||||||||
| (in millions) | Revenues, net | % of total revenues, net | Revenues, net | % of total revenues, net | Revenues, net | % of total revenues, net | |||||||||||||||
| North America | $ | 1,429 | 63.5 | % | $ | 1,279 | 69.8 | % | $ | 1,232 | 72.3 | % | |||||||||
| International | 821 | 36.5 | % | 552 | 30.2 | % | 471 | 27.7 | % | ||||||||||||
| $ | 2,250 | 100.0 | % | $ | 1,832 | 100.0 | % | $ | 1,703 | 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 years ended December 31, 2017, 20162023 and 2015.2022 (in millions, except per share amounts).
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| Revenues, net | $ | 3,758 | $ | 3,427 | |||||||||||||
| Net income | $ | 982 | $ | 954 | |||||||||||||
| Net income per diluted share | $ | 13.20 | $ | 12.42 | |||||||||||||
| Year ended December 31, | ||||||||||||
| (in millions, except per share amounts) | 2017 | 2016 | 2015 | |||||||||
| Revenues, net | $ | 2,250 | $ | 1,832 | $ | 1,703 | ||||||
| Net income | $ | 740 | $ | 452 | $ | 362 | ||||||
| Net income per diluted share | $ | 7.91 | $ | 4.75 | $ | 3.85 | ||||||
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| (in millions, except per share amounts) | ||||||||||||
| Adjusted revenues | $ | 2,136 | $ | 1,727 | $ | 1,595 | ||||||
| Adjusted net income | $ | 799 | $ | 659 | $ | 593 | ||||||
| Adjusted net income per diluted share | $ | 8.54 | $ | 6.92 | $ | 6.30 | ||||||
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| Adjusted net income | $ | 1,259 | $ | 1,237 | |||||||||||||
| Adjusted net income per diluted share | $ | 16.92 | $ | 16.10 | |||||||||||||
| EBITDA | $ | 1,994 | $ | 1,769 | |||||||||||||
| EBITDA margin | 53.1 | % | 51.6 | % | |||||||||||||
Adjusted revenues, adjusted net income, and adjusted net income per diluted share, EBITDA and EBITDA margin are supplemental non-GAAP financial measures of operating performance. See the heading entitled “Management’s Use of Non-GAAP Financial Measures.” We use adjusted revenues asMeasures” for more information and a basis to evaluate our revenues, netreconciliation of the commissions that are paidnon-GAAP financial measure to merchants that participatethe most directly comparable financial measure calculated 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 more effective way to evaluate our revenue performance on a consistent basis.accordance with U.S. generally accepted accounting principles, or GAAP. We use adjusted net income, and adjusted net income per diluted share, EBITDA and EBITDA margin to eliminate the effect of items that we do not consider indicative of our core operating performance on a consistent basis. These non-GAAP measures are presented solely to permit investors to more fully understand how our management assesses underlying performance and are not, and should not be viewed as, a substitute for GAAP measures, and should be viewed in conjunction with our GAAP financial measures.
Sources of Revenue
We report information about our operating segments in accordance with the authoritative guidance related to segments. In the fourth quarter of 2023, in order to align with recent changes in our strategy and resulting organizational structure and management reporting, we updated our segment structure. The presentation of segment information has been recast for the prior years to align with this segment presentation for 2023. We manage and report our operating results through the following three reportable segments: Vehicle Payments, Corporate Payments and Lodging Payments. The remaining results are included within Other, which includes our Gift and Payroll Card businesses. These segments align with how the Chief Operating Decision Maker (CODM) allocates resources, assesses performance and reviews financial information.
Our revenue is generally reported net of the cost for underlying products and services purchased. In this report, we refer to this net revenue as “revenue" or "revenues, net". See “Results of Operations” for additional segment information.
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Revenues, net, by Segment. Revenues, net by segment for the years ended December 31, 2023 and 2022, our segments generated the following revenues, net (in millions):
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||
| Revenues by Segment* | Revenues, net | % of Total Revenues, net | Revenues, net | % of Total Revenues, net | Revenues, net | % of Total Revenues, net | ||||||||||||||||||||||||||||||||
| Vehicle Payments | $ | 2,005.5 | 53 | % | $ | 1,950.0 | 57 | % | $ | 1,690.0 | 60 | % | ||||||||||||||||||||||||||
| Corporate Payments | 981.1 | 26 | % | 769.6 | 22 | % | 598.2 | 21 | % | |||||||||||||||||||||||||||||
| Lodging Payments | 520.2 | 14 | % | 456.5 | 13 | % | 309.6 | 11 | % | |||||||||||||||||||||||||||||
| Other | 250.9 | 7 | % | 251.0 | 7 | % | 235.9 | 8 | % | |||||||||||||||||||||||||||||
| Consolidated revenues, net | $ | 3,757.7 | 100 | % | $ | 3,427.1 | 100 | % | $ | 2,833.7 | 100 | % | ||||||||||||||||||||||||||
*Columns may include those merchants affiliated withnot calculate due to rounding. Other includes our proprietary networks or those participatingGift and Payroll card operating segments.
We generate revenue in the third-party networks we utilize.
| i) Cost Plus Mark-up: | ii) Percentage Discount: | iii) Fixed Fee: | ||||||||||||||
| Wholesale Cost | $ | 2.86 | Retail Price | $ | 3.00 | Retail Price | $ | 3.00 | ||||||||
| Mark-up | 0.05 | Discount (3%) | (0.09 | ) | Fixed Fee | (0.09 | ) | |||||||||
| Price Paid to Merchant | $ | 2.91 | Price Paid to Merchant | $ | 2.91 | Price Paid to Merchant | $ | 2.91 | ||||||||
In all other cases,our Lodging Payments segment, we refer toprimarily earn revenue from the difference between the amount charged to the customer and the amount paid to the merchanthotel for a given transaction or based on commissions paid by hotels. We may also charge fees for access to the network and ancillary services provided.
The remaining revenues represent our Gift and Payroll card businesses, referred to as interchange revenue.Other. In these businesses, we primarily earn revenue from the processing of transactions. We may also charge fees for ancillary services provided.
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||
| Revenues by Geography* | Revenues, net | % of total revenues, net | Revenues, net | % of total revenues, net | |||||||||||||||||||||||||||||||
| United States | $ | 2,134.7 | 57 | % | $ | 2,093.9 | 61 | % | |||||||||||||||||||||||||||
| Brazil | 525.1 | 14 | % | 442.2 | 13 | % | |||||||||||||||||||||||||||||
| United Kingdom | 441.4 | 12 | % | 363.3 | 11 | % | |||||||||||||||||||||||||||||
| Other | 656.5 | 17 | % | 527.7 | 15 | % | |||||||||||||||||||||||||||||
| Consolidated revenues, net | $ | 3,757.7 | 100 | % | $ | 3,427.1 | 100 | % | |||||||||||||||||||||||||||
*Columns may not calculate due to rounding.
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Revenues, net, by segment is affectedKey Performance Metric and Organic Growth. Revenues, net by the mix of productskey performance metric and acquisitions, which may result in revenue per transactionorganic growth by product providing more meaningful data for analysis.
| Year ended December 31, | ||||||||||||
| (Unaudited) | 2017 | 2016 | 2015 | |||||||||
| Transactions (in millions) | ||||||||||||
| North America | 1,842.4 | 1,714.6 | 1,667.5 | |||||||||
| International | 1,114.5 | 507.8 | 183.9 | |||||||||
| Total transactions | 2,956.9 | 2,222.4 | 1,851.4 | |||||||||
| Revenue per transaction | ||||||||||||
| North America | $ | 0.78 | $ | 0.75 | $ | 0.74 | ||||||
| International | $ | 0.74 | $ | 1.09 | $ | 2.56 | ||||||
| Consolidated revenue per transaction | $ | 0.76 | $ | 0.82 | $ | 0.92 | ||||||
| Consolidated adjusted revenue per transaction | $ | 0.72 | $ | 0.78 | $ | 0.86 | ||||||
| As Reported | Pro Forma and Macro Adjusted2 | ||||||||||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||
| (Unaudited) | 2017 | 2016 | Change | % Change | 20173 | 20164 | Change | % Change | |||||||||||||||||||||||
Fuel Cards6 | |||||||||||||||||||||||||||||||
Transactions5 | 466 | 434 | 32 | 7 | % | 466 | 444 | 23 | 5 | % | |||||||||||||||||||||
| Revenues, net per transaction | $ | 2.35 | $ | 2.30 | $ | 0.05 | 2 | % | $ | 2.29 | $ | 2.25 | $ | 0.04 | 2 | % | |||||||||||||||
Revenues, net5 | $ | 1,096 | $ | 997 | $ | 99 | 10 | % | $ | 1,066 | $ | 998 | $ | 68 | 7 | % | |||||||||||||||
| Corporate Payments | |||||||||||||||||||||||||||||||
| Transactions | 42 | 39 | 3 | 7 | % | 42 | 39 | 3 | 6 | % | |||||||||||||||||||||
| Revenues, net per transaction | $ | 6.30 | $ | 4.64 | $ | 1.66 | 36 | % | $ | 6.26 | $ | 5.80 | $ | 0.46 | 8 | % | |||||||||||||||
| Revenues, net | $ | 262 | $ | 180 | $ | 82 | 46 | % | $ | 260 | $ | 226 | $ | 34 | 15 | % | |||||||||||||||
| Tolls | |||||||||||||||||||||||||||||||
| Transactions | 916 | 327 | 589 | 180 | % | 916 | 894 | 22 | 2 | % | |||||||||||||||||||||
| Revenues, net per transaction | $ | 0.36 | $ | 0.31 | $ | 0.04 | 13 | % | $ | 0.33 | $ | 0.29 | $ | 0.04 | 14 | % | |||||||||||||||
| Revenues, net | $ | 327 | $ | 103 | $ | 224 | 218 | % | $ | 302 | $ | 257 | $ | 45 | 18 | % | |||||||||||||||
| Lodging | |||||||||||||||||||||||||||||||
| Transactions | 17 | 13 | 4 | 30 | % | 17 | 14 | 3 | 22 | % | |||||||||||||||||||||
| Revenues, net per transaction | $ | 7.45 | $ | 7.58 | $ | (0.13 | ) | (2 | )% | $ | 7.45 | $ | 7.68 | (0.23 | ) | (3 | )% | ||||||||||||||
| Revenues, net | $ | 127 | $ | 101 | $ | 26 | 26 | % | $ | 127 | 105 | $ | 22 | 21 | % | ||||||||||||||||
| Gift | |||||||||||||||||||||||||||||||
| Transactions | 1,439 | 1,327 | 111 | 8 | % | 1,439 | 1,327 | 111 | 8 | % | |||||||||||||||||||||
| Revenues, net per transaction | $ | 0.13 | $0.14 | $0.00 | (3 | )% | $ | 0.13 | $ | 0.14 | $ | (0.01 | ) | (7 | )% | ||||||||||||||||
| Revenues, net | $ | 194 | $185 | $9 | 5 | % | $ | 194 | $ | 185 | $ | 9 | 5 | % | |||||||||||||||||
Other1 | |||||||||||||||||||||||||||||||
Transactions5 | 77 | 82 | (5 | ) | (6 | )% | 77 | 82 | (4 | ) | (5 | )% | |||||||||||||||||||
| Revenues, net per transaction | $ | 3.15 | $ | 3.23 | $ | (0.08 | ) | (2 | )% | $ | 3.14 | $ | 2.99 | $ | 0.15 | 5 | % | ||||||||||||||
Revenues, net5 | $ | 244 | $ | 266 | $ | (23 | ) | (8 | )% | $ | 243 | $ | 244 | $ | (1 | ) | — | % | |||||||||||||
| FLEETCOR CONSOLIDATED REVENUES | |||||||||||||||||||||||||||||||
‑Transactions5 | 2,957 | 2,222 | 735 | 33 | % | 2,957 | 2,799 | 158 | 6 | % | |||||||||||||||||||||
| ‑Revenues, net per transaction | $ | 0.76 | $ | 0.82 | $ | (0.06 | ) | (7 | )% | $ | 0.74 | $ | 0.73 | $ | 0.02 | 2 | % | ||||||||||||||
| ‑ Revenues, net | $ | 2,250 | $ | 1,832 | $ | 418 | 23 | % | $ | 2,193 | $ | 2,015 | $ | 178 | 9 | % | |||||||||||||||
| As Reported | Pro Forma and Macro Adjusted2 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | % Change | 2023 | 2022 | Change | % Change | |||||||||||||||||||||||||||||||||||||||||||
| VEHICLE PAYMENTS | ||||||||||||||||||||||||||||||||||||||||||||||||||
'- Revenues, net | $2,005.5 | $1,950.0 | $55.5 | 3% | $2,037.5 | $1,913.8 | $123.8 | 6% | ||||||||||||||||||||||||||||||||||||||||||
'- Transactions | 648.6 | 594.7 | 53.9 | 9% | 648.6 | 629.3 | 19.3 | 3% | ||||||||||||||||||||||||||||||||||||||||||
'- Revenues, net per transaction | $3.09 | $3.28 | $(0.19) | (6)% | $3.14 | $3.04 | $0.10 | 3% | ||||||||||||||||||||||||||||||||||||||||||
'- Tag transactions3 | 79.6 | 74.4 | 5.2 | 7% | 79.6 | 74.4 | 5.2 | 7% | ||||||||||||||||||||||||||||||||||||||||||
'- Parking transactions | 68.0 | — | 68.0 | 100% | 68.0 | 59.1 | 8.9 | 15% | ||||||||||||||||||||||||||||||||||||||||||
'- Fleet transactions | 477.4 | 501.1 | (23.8) | (5)% | 477.4 | 476.7 | 0.7 | —% | ||||||||||||||||||||||||||||||||||||||||||
'- Other transactions | 23.7 | 19.2 | 4.5 | 24% | 23.7 | 19.2 | 4.5 | 24% | ||||||||||||||||||||||||||||||||||||||||||
| CORPORATE PAYMENTS | ||||||||||||||||||||||||||||||||||||||||||||||||||
'- Revenues, net | $981.1 | $769.6 | $211.6 | 27% | $987.4 | $829.6 | $157.8 | 19% | ||||||||||||||||||||||||||||||||||||||||||
'- Spend volume | $145,571 | $116,827 | $28,743 | 25% | $145,571 | $126,076 | $19,494 | 15% | ||||||||||||||||||||||||||||||||||||||||||
'- Revenues, net per spend $ | 0.67% | 0.66% | 0.02% | 2% | 0.68% | 0.66% | 0.02% | 3% | ||||||||||||||||||||||||||||||||||||||||||
| LODGING PAYMENTS | ||||||||||||||||||||||||||||||||||||||||||||||||||
'- Revenues, net | $520.2 | $456.5 | $63.7 | 14% | $520.1 | $465.6 | $54.5 | 12% | ||||||||||||||||||||||||||||||||||||||||||
'- Room nights | 36.5 | 37.3 | (0.8) | (2)% | 36.5 | 37.9 | (1.4) | (4)% | ||||||||||||||||||||||||||||||||||||||||||
'- Revenues, net per room night | $14.25 | $12.24 | 2.0 | 16% | $14.25 | $12.29 | $1.96 | 16% | ||||||||||||||||||||||||||||||||||||||||||
OTHER1 | ||||||||||||||||||||||||||||||||||||||||||||||||||
'- Revenues, net | $250.9 | $251.0 | $(0.1) | —% | $251.1 | $251.0 | $— | —% | ||||||||||||||||||||||||||||||||||||||||||
'- Transactions | 1,309.2 | 1,192.6 | 116.6 | 10% | 1,309.2 | 1,192.6 | 116.6 | 10% | ||||||||||||||||||||||||||||||||||||||||||
'- Revenues, net per transaction | $0.19 | $0.21 | $(0.02) | (10)% | $0.19 | $0.21 | $(0.02) | (9)% | ||||||||||||||||||||||||||||||||||||||||||
| FLEETCOR CONSOLIDATED REVENUES, NET | ||||||||||||||||||||||||||||||||||||||||||||||||||
'- Revenues, net | $3,757.7 | $3,427.1 | $330.6 | 10% | $3,796.1 | $3,460.0 | $336.1 | 10% | ||||||||||||||||||||||||||||||||||||||||||
1Other includes | ||
2 | ||
3 | ||
Revenue per transactionrelevant key performance indicator (KPI), which may include transactions, spend volume, room nights, or other metrics, is derived from the various revenue types as discussed above and can vary based on geography, the relevant merchant relationship, the payment product utilized and the types of products or services purchased, the mix of which would be influenced by our acquisitions, organic growth in our business, and the overall macroeconomic environment, including fluctuations in foreign currency exchange rates, fuel prices and fuel price spreads. Relevant KPI is derived by broad product type and may differ from how we describe the business. Revenue per transactionKPI per customer changesmay change as the level of services we provide to a customer increases or decreases, as macroeconomic factors change and as adjustments are made to merchant and customer rates. See “Results of Operations” for further discussion of transaction volumes and revenue per transaction.
Organic revenue growth is a supplemental non-GAAP financial measure of operating performance. Organic revenue growth is calculated as revenue growth in the current period adjusted for the impact of changes in the macroeconomic environment (to include fuel price, fuel price spreads and changes in foreign exchange rates) over revenue in the comparable prior period adjusted to include or remove the impact of acquisitions and/or divestitures and non-recurring items that have occurred subsequent to that period. See the heading entitled “Management’s Use of Non-GAAP Financial Measures” for more information and a reconciliation of the non-GAAP financial measure to the most directly comparable financial measure calculated in accordance with GAAP. We believe that organic revenue growth on a macro-neutral, one-time item, and
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consistent acquisition/divestiture/non-recurring item basis is useful to investors for understanding the performance of FLEETCOR.
Sources of ExpenseExpenses
We incur expenses in the following categories:
•Processing—Our processing expense consistsexpenses consist of expenses related to processing transactions, servicing our customers and merchants, bad debt expensecredit losses and cost of goods sold related to our hardware and card sales in certain businesses.
•Selling—Our selling expenses consist primarily of wages, benefits, sales commissions (other than merchant commissions) and related expenses for our sales, marketing and account management personnel and activities.
•General and administrative—Our general and administrative expenses include compensation and related expenses (including stock-based compensation)compensation and bonuses) for our executive,employees, finance and accounting, information technology, human resources, legal and other administrative personnel. Also included are facilities expenses, third-party professional services fees, travel and entertainment expenses, and other corporate-level expenses.
•Depreciation and amortization—Our depreciation expenses include depreciation of property and equipment, consisting of computer hardware and software (including proprietary software development amortization expense), card-reading equipment, furniture, fixtures, vehicles and buildings and leasehold improvements related to office space. Our amortization expenses include amortization of intangible assets related to customer and vendor relationships, trade names and trademarks, software and non-compete agreements. We also amortizeare 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.
•Other (income) expense, net—Our other (income) expense, net includes proceeds/costs from the sale of assets, foreign currency transaction gains or losses from the following: sales of assets or businesses, foreign currency transactions, extinguishment of debt, and investments. This category also includes other miscellaneous operatingnon-operating costs and revenue.
Certain of these items may be presented separately on the Consolidated Statements of Income.•Interest expense, net—Our interest expense, net includes interest income on our cash balances and interest expense on our outstanding debt, interest income on cash balances and interest on our Securitization Facility. We have historically invested our cash primarily in short-term money market funds.
interest rate and cross-currency swaps.•Provision for income taxes—TheOur provision for income taxes consists primarily of corporate income taxes related primarily to profits resulting from the sale of our products and services. Our worldwide effective tax rate is lower than the U.S. statutory rate of 35%, due primarily to the Tax Cuts and Job Act ("Tax Act") and lower rates in foreign jurisdictions and foreign-sourced non-taxable income.services on a global basis.
Factors and Trends Impacting our Business
We believe that the following factors and trends are important in understanding our financial performance:
•Global economic conditions—Our results of operations are materially affected by conditions in the economy generally, both in North America, Brazil, and internationally.internationally, including the current conflict between Russia and Ukraine and other geopolitical events in the Middle East, as discussed elsewhere in this Annual Report on Form 10-K, and the ultimate impact of the COVID-19 pandemic. Factors affected by the economy include our transaction volumes, and the credit risk of our customers.customers and changes in tax laws across the globe. These factors affected our businesses in botheach of our North America and International segments.
•Foreign currency changes—Our results of operations are significantly impacted by changes in foreign currency exchange rates; namely, by movements of the Australian dollar, Brazilian real, British pound, Canadian dollar, Czech koruna, Euro,euro, Mexican peso, New Zealand dollar and Russian ruble (for periods prior to the disposition or our Russia business), relative to the U.S. dollar. Approximately 62%Approximately 57%, 70% and 72%61% of our revenue in 2017, 20162023 and 2015,2022, 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.
Our cross-border foreign risk management business aggregates foreign currency exposures arising from customer contracts and economically hedges the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties. These contracts are subject to counterparty credit risk.
In February 2023, to further manage the impact of economic changes in the value of certain foreign-denominated net assets, we entered into a cross currency interest rate swap on $500 million of notional value of investments in various euro-functional subsidiaries. This swap was terminated in February 2024, and we subsequently entered into four new cross-currency interest rate swaps totaling $500 million of notional value that are designated as net investment hedges of our investments in euro-denominated operations.
•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
41
balances and the financelate fees and charges based on these amounts. We estimate approximately 10% and 13% of revenues, net were directly impacted by changes in fuel price in 2023 and 2022, respectively. See “Sources"Results of Revenue” aboveOperations" for further information related to the absolutefuel price of fuel.
impact on our total revenues, net.•Acquisitions—Since 2002, we have completed over 7595 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 resultsFrom January 1, 2022 to July 23, 2023, the U.S. Federal Open Market Committee increased the target federal funds rate eleven times for a total rate increase of operations5.25%. Additional increases are affected by interest rates.possible in future periods. We are exposed to market risk changes in interest rates on our debt, particularly in rising interest rate environments, which is partially offset by incremental interest income earned on cash investments and debt.
restricted cash. As of December 31, 2023, we have a number of receive-variable SOFR, pay-fixed interest rate swap derivative contracts with a cumulative notional U.S. dollar value of $4.0 billion. The objective of these contracts is to reduce the variability of cash flows in the previously unhedged interest payments associated with variable rate debt, the sole source of which is due to changes in SOFR benchmark interest rate.See "Liquidity" section below for additional information regarding our derivatives.
•Expenses—Over the long term, we expect that our general and administrative expense will decrease as a percentage of revenue as our revenue increases.increases, except for expenses related to transaction volume processed. To support our expected revenue growth, we plan to continue to incur additional sales and marketing expense by investing in our direct marketing, third-party agents, internet marketing, telemarketing and field sales force.
•Taxes—We pay taxes in various taxing jurisdictions, including the U.S., most U.S. states and many non-U.S. jurisdictions. The tax rates in non-U.S. taxing jurisdictions are different than the U.S. tax rate. Consequently, as our earnings fluctuate between taxing jurisdictions, our effective tax rate fluctuates.
Acquisitions, Investments and InvestmentsDivestitures
•In January 2023, we acquired Global Reach, a U.K.-based cross border payments provider, for approximately $102.9 million, net of cash. Results from Global Reach Group are reported in our Corporate Payments segment.
•In February 2023, we acquired the Company completed acquisitions with an aggregate purchase priceremainder of $720.8Mina Digital Limited, a cloud-based electric vehicle ("EV") charging software platform, and we also acquired Business Gateway AG, a European-based vehicle maintenance provider, for a total of approximately $23.8 million, net of cash. Results from Mina Digital Limited and Business Gateway AG are reported in our Vehicle Payments segment.
•In September 2023, we acquired PayByPhone Technologies, Inc. a global parking payment application, for approximately $301.6 million, net of cash. Results from PayByPhone are reported in our Vehicle Payments segment.
•In the third quarter of 2023, we disposed of our Russian business for $197.0 million, net of cash acquired of $96.2 million. During 2017, the Company made investments in other businesses of $39 million.
Each of a note payablethese 2023 acquisitions provide incremental geographic expansion of $23.8 million. Cambridge processes B2B cross-borderour products, with PayByPhone specifically intended to progress our broader strategy to transform our vehicle payments assisting business clients in making international payments. The purpose of this acquisition is to further expand our corporate payments footprint.business.
•In September 2022, we made an investment of $6.1 million in a U.K.-based EV search and pay mapping service.
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•In September 30, 2017,2022, we entered intocompleted the acquisition of Plugsurfing, a European EV software and network provider, for $75.8 million, net of cash. Results from Plugsurfing are reported in our Vehicle Payments segment.
•In August 2022, we completed the acquisition of Accrualify, an amended Masternautaccounts payable (AP) automation software company, for $41.2 million, net of cash. Results from Accrualify are reported in our Corporate Payments segment.
•In March 2022, we completed the acquisition of Levarti, a U.S.-based airline software platform company, for $23.7 million, net of cash. Results from Levarti are included in our Lodging Payments segment.
•In February 2022, we made an investment agreement that resultedof $7.8 million in the loss of significant influence,Mina Digital Limited, an EV charging payments business and we began accounting for the Masternaut investment by applying the cost method.$5.0 million in an EV data analytics business.
Results of Operations
Year ended December 31, 20172023 compared to the year ended December 31, 20162022
The following table sets forth selected financial information from the consolidated statementstatements of income and selected operational data for the years ended December 31, 20172023 and 20162022 (in millions, except percentages)*.
Year ended December 31, 2017 | % of total revenue | Year ended December 31, 2016 | % of total revenue | Increase (decrease) | % Change | ||||||||||||||||
| Revenues, net: | |||||||||||||||||||||
| North America | $ | 1,428.7 | 63.5 | % | $ | 1,279.1 | 69.8 | % | $ | 149.6 | 11.7 | % | |||||||||
| International | 820.8 | 36.5 | % | 552.4 | 30.2 | % | 268.4 | 48.6 | % | ||||||||||||
| Total revenues, net | 2,249.5 | 100.0 | % | 1,831.5 | 100.0 | % | 418.0 | 22.8 | % | ||||||||||||
| Consolidated operating expenses: | |||||||||||||||||||||
| Merchant commissions | 113.1 | 5.0 | % | 104.3 | 5.7 | % | 8.8 | 8.4 | % | ||||||||||||
| Processing | 429.6 | 19.1 | % | 355.4 | 19.4 | % | 74.2 | 20.9 | % | ||||||||||||
| Selling | 170.7 | 7.6 | % | 131.4 | 7.2 | % | 39.3 | 29.9 | % | ||||||||||||
| General and administrative | 387.7 | 17.2 | % | 283.6 | 15.5 | % | 104.1 | 36.7 | % | ||||||||||||
| Depreciation and amortization | 264.6 | 11.8 | % | 203.3 | 11.1 | % | 61.3 | 30.2 | % | ||||||||||||
| Other operating, net | 0.1 | — | % | (0.7 | ) | — | % | (0.8 | ) | (108.8 | )% | ||||||||||
| Operating income | 883.8 | 39.3 | % | 754.2 | 41.2 | % | 129.6 | 17.2 | % | ||||||||||||
| Investment loss | 53.2 | 2.4 | % | 36.4 | 2.0 | % | 16.8 | 46.2 | % | ||||||||||||
| Other (income) expense, net | (173.4 | ) | (7.7 | )% | 3.0 | 0.2 | % | (176.4 | ) | NM | |||||||||||
| Interest expense, net | 107.1 | 4.8 | % | 71.9 | 3.9 | % | 35.3 | 49.0 | % | ||||||||||||
| Loss on extinguishment of debt | 3.3 | 0.1 | % | — | — | % | 3.3 | — | % | ||||||||||||
| Provision for income taxes | 153.4 | 6.8 | % | 190.5 | 10.4 | % | (37.1 | ) | (19.5 | )% | |||||||||||
| Net income | $ | 740.2 | 32.9 | % | $ | 452.4 | 24.7 | % | $ | 287.8 | 63.6 | % | |||||||||
| Operating income for segments: | |||||||||||||||||||||
| North America | $ | 541.6 | $ | 506.4 | $ | 35.2 | 6.9 | % | |||||||||||||
| International | 342.2 | 247.7 | 94.4 | 38.1 | % | ||||||||||||||||
| Operating income | $ | 883.8 | $ | 754.2 | $ | 129.6 | 17.2 | % | |||||||||||||
| Operating margin for segments: | |||||||||||||||||||||
| North America | 37.9 | % | 39.6 | % | (1.7 | )% | |||||||||||||||
| International | 41.7 | % | 44.8 | % | (3.2 | )% | |||||||||||||||
| Total | 39.3 | % | 41.2 | % | (1.9 | )% | |||||||||||||||
Year Ended December 31, 2023 | % of Total Revenue | Year Ended December 31, 2022 | % of Total Revenue | Increase (Decrease) | % Change | |||||||||||||||||||||||||||||||||
| Revenues, net: | ||||||||||||||||||||||||||||||||||||||
| Vehicle Payments | $ | 2,005.5 | 53.4 | % | $ | 1,950.0 | 56.9 | % | $ | 55.5 | 2.8 | % | ||||||||||||||||||||||||||
| Corporate Payments | 981.1 | 26.1 | % | 769.6 | 22.5 | % | 211.6 | 27.5 | % | |||||||||||||||||||||||||||||
| Lodging Payments | 520.2 | 13.8 | % | 456.5 | 13.3 | % | 63.7 | 14.0 | % | |||||||||||||||||||||||||||||
| Other | 250.9 | 6.7 | % | 251.0 | 7.3 | % | (0.1) | (0.1) | % | |||||||||||||||||||||||||||||
| Total revenues, net | 3,757.7 | 100.0 | % | 3,427.1 | 100.0 | % | 330.6 | 9.6 | % | |||||||||||||||||||||||||||||
| Consolidated operating expenses: | ||||||||||||||||||||||||||||||||||||||
| Processing | 819.9 | 21.8 | % | 764.7 | 22.3 | % | 55.2 | 7.2 | % | |||||||||||||||||||||||||||||
| Selling | 340.2 | 9.1 | % | 309.1 | 9.0 | % | 31.1 | 10.1 | % | |||||||||||||||||||||||||||||
| General and administrative | 603.4 | 16.1 | % | 584.1 | 17.0 | % | 19.3 | 3.3 | % | |||||||||||||||||||||||||||||
| Depreciation and amortization | 336.6 | 9.0 | % | 322.3 | 9.4 | % | 14.3 | 4.4 | % | |||||||||||||||||||||||||||||
| Other operating, net | 0.8 | — | % | 0.3 | — | % | 0.5 | NM | ||||||||||||||||||||||||||||||
| Operating income | 1,656.9 | 44.1 | % | 1,446.6 | 42.2 | % | 210.2 | 14.5 | % | |||||||||||||||||||||||||||||
| Investment (gain) loss | (0.1) | — | % | 1.4 | — | % | (1.5) | NM | ||||||||||||||||||||||||||||||
| Other (income) expense, net | (16.6) | (0.4) | % | 3.0 | 0.1 | % | 19.6 | NM | ||||||||||||||||||||||||||||||
| Interest expense, net | 348.6 | 9.3 | % | 164.7 | 4.8 | % | 183.9 | 111.7 | % | |||||||||||||||||||||||||||||
| Loss on extinguishment of debt | — | — | % | 1.9 | 0.1 | % | (1.9) | NM | ||||||||||||||||||||||||||||||
| Provision for income taxes | 343.1 | 9.1 | % | 321.3 | 9.4 | % | 21.8 | 6.8 | % | |||||||||||||||||||||||||||||
| Net income | $ | 981.9 | 26.1 | % | $ | 954.3 | 27.8 | % | $ | 27.6 | 2.9 | % | ||||||||||||||||||||||||||
| Operating income by segments: | ||||||||||||||||||||||||||||||||||||||
| Vehicle Payments | $ | 943.4 | $ | 884.5 | $ | 58.9 | 6.7 | % | ||||||||||||||||||||||||||||||
| Corporate Payments | 382.1 | 273.6 | 108.5 | 39.7 | % | |||||||||||||||||||||||||||||||||
| Lodging Payments | 254.3 | 218.6 | 35.6 | 16.3 | % | |||||||||||||||||||||||||||||||||
| Other | 77.1 | 69.9 | 7.2 | 10.3 | % | |||||||||||||||||||||||||||||||||
| Operating income | $ | 1,656.9 | $ | 1,446.6 | $ | 210.2 | 14.5 | % | ||||||||||||||||||||||||||||||
*ColumnsThe sum of the columns and rows may not calculate due to rounding.
NM - not meaningful
Our consolidated revenue increased from $1,831.5revenues were $3,757.7 million in 2016 to $2,249.5 million in 2017,2023, an increase of $418.0 million, or 22.8%.9.6% compared to the prior year. The increase in our consolidated revenuerevenues was due primarily due to:
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environment that negatively impacted revenue growth by 1%. Revenues were also negatively impacted in 2023 by the disposition of our payment programs.Russia business in August 2023 of approximately $50 million, or 1%.
Although we cannot precisely measure the impact of the macroeconomic environment, in total we believe it had a favorable impact on our consolidated revenue for 2017 over 2016 of approximately $33 million. We believe the favorable impact of higher fuel prices and fuel spread margins, primarily in the U.S., had a favorable impact on consolidated revenues in 2017 over in 2016 of approximately $30 million. Additionally, changes in foreign exchange
| Year Ended December 31, | |||||||||||||||
| (Unaudited) | 2017 | 2016 | |||||||||||||
| Revenue by Geography* | Revenues, net | % of total revenues, net | Revenues, net | % of total revenues, net | |||||||||||
| United States | $ | 1,401 | 62 | % | $ | 1,279 | 70 | % | |||||||
| United Kingdom | 237 | 11 | 229 | 13 | |||||||||||
| Brazil | 395 | 18 | 168 | 9 | |||||||||||
| Other | 218 | 10 | 156 | 8 | |||||||||||
| Consolidated revenues, net | $ | 2,250 | 100 | % | $ | 1,832 | 100 | % | |||||||
| Year Ended December 31, | |||||||||||||||
| (Unaudited) | 2017 | 2016 | |||||||||||||
| Revenue by Product Category* | Revenues, net | % of total revenues, net | Revenues, net | % of total revenues, net | |||||||||||
Fuel cards1 | $ | 1,096 | 49 | % | $ | 997 | 54 | % | |||||||
| Corporate payments | 262 | 12 | 180 | 10 | |||||||||||
| Tolls | 327 | 15 | 103 | 6 | |||||||||||
| Lodging | 127 | 6 | 101 | 5 | |||||||||||
| Gift | 194 | 9 | 185 | 10 | |||||||||||
Other1 | 244 | 11 | 266 | 15 | |||||||||||
| Consolidated revenues, net | $ | 2,250 | 100.0 | % | $ | 1,832 | 100 | % | |||||||
Year Ended December 31,8 | |||||||||||||||
| (Unaudited) | 2017 | 2016 | |||||||||||||
| Major Sources of Revenue* | Revenues, net | % of total revenues, net | Revenues, net | % of total revenues, net | |||||||||||
| Customer | |||||||||||||||
Processing and program revenue1 | $ | 1,093 | 49 | % | $ | 809 | 44 | % | |||||||
Late fees and finance charges2 | 141 | 6 | 118 | 6 | |||||||||||
Miscellaneous fees3 | 129 | 6 | 129 | 7 | |||||||||||
| 1,363 | 61 | 1,057 | 58 | ||||||||||||
| Merchant | |||||||||||||||
Discount revenue (Fuel)4 | 303 | 13 | 260 | 14 | |||||||||||
Discount revenue (Nonfuel)5 | 175 | 8 | 157 | 9 | |||||||||||
Tied to fuel-price spreads6 | 220 | 10 | 194 | 11 | |||||||||||
Program revenue7 | 189 | 8 | 164 | 9 | |||||||||||
| Consolidated revenues, net | $ | 2,250 | 100 | % | $ | 1,832 | 100 | % | |||||||
| (Unaudited) | 2017 | 2016 | ||||
| Term loan A | 2.79 | % | 2.05 | % | ||
| Term loan B | 3.28 | % | 3.75 | % | ||
| Domestic Revolver A | 2.88 | % | 2.07 | % | ||
| Foreign Revolver B | 2.05 | % | 1.84 | % | ||
| Foreign Revolver B swing line | 2.01 | % | 1.84 | % | ||
Year ended December 31, 2016 | % of total revenue | Year ended December 31, 2015 | % of total revenue | Increase (decrease) | % Change | ||||||||||||||||
| North America | $ | 1,279.1 | 69.8 | % | $ | 1,232.0 | 72.3 | % | $ | 47.1 | 3.8 | % | |||||||||
| International | 552.4 | 30.2 | % | 470.9 | 27.7 | % | 81.5 | 17.3 | % | ||||||||||||
| Total revenues, net | 1,831.5 | 100.0 | % | 1,702.9 | 100.0 | % | 128.7 | 7.6 | % | ||||||||||||
| Consolidated operating expenses: | |||||||||||||||||||||
| Merchant commissions | 104.3 | 5.7 | % | 108.3 | 6.4 | % | (3.9 | ) | (3.6 | )% | |||||||||||
| Processing | 355.4 | 19.4 | % | 331.1 | 19.4 | % | 24.3 | 7.4 | % | ||||||||||||
| Selling | 131.4 | 7.2 | % | 109.1 | 6.4 | % | 22.4 | 20.5 | % | ||||||||||||
| General and administrative | 283.6 | 15.5 | % | 297.7 | 17.5 | % | (14.1 | ) | (4.7 | )% | |||||||||||
| Depreciation and amortization | 203.3 | 11.1 | % | 193.5 | 11.4 | % | 9.8 | 5.1 | % | ||||||||||||
| Other operating, net | (0.7 | ) | — | % | (4.2 | ) | 0.2 | % | (3.6 | ) | (83.7 | )% | |||||||||
| Operating income | 754.2 | 41.2 | % | 667.5 | 39.2 | % | 86.6 | 13.0 | % | ||||||||||||
| Investment loss | 36.4 | 2.0 | % | 57.7 | 3.4 | % | (21.3 | ) | (37.0 | )% | |||||||||||
| Other expense, net | 3.0 | 0.2 | % | 2.5 | 0.1 | % | 0.5 | 18.2 | % | ||||||||||||
| Interest expense, net | 71.9 | 3.9 | % | 71.3 | 4.2 | % | 0.6 | 0.8 | % | ||||||||||||
| Provision for income taxes | 190.5 | 10.4 | % | 173.6 | 10.2 | % | 17.0 | 9.8 | % | ||||||||||||
| Net income | $ | 452.4 | 24.7 | % | $ | 362.4 | 21.3 | % | $ | 90.0 | 24.8 | % | |||||||||
| Operating income for segments: | |||||||||||||||||||||
| North America | $ | 506.4 | $ | 442.0 | $ | 64.4 | 14.6 | % | |||||||||||||
| International | 247.7 | 225.5 | 22.3 | 9.9 | % | ||||||||||||||||
| Operating income | $ | 754.2 | $ | 667.5 | $ | 86.6 | 13.0 | % | |||||||||||||
| Operating margin for segments: | |||||||||||||||||||||
| North America | 39.6 | % | 35.9 | % | 3.7 | % | |||||||||||||||
| International | 44.8 | % | 47.9 | % | (3.0 | )% | |||||||||||||||
| Total | 41.2 | % | 39.2 | % | 2.0 | % | |||||||||||||||
Consolidated operating expenses
Processing. Processing expenses were $819.9 million in 2023, an increase of 7.2% compared to the prior year. Increases in processing expenses were primarily due to approximately $40 million of expenses related to acquisitions completed in 2022 and 2023,higher variable expenses driven by increased transaction volumes and investments to drive future growth. The increases were partially offset by lower bad debt of $10 million due to our shift away from micro-SMB (small-medium business) clients in the U.S., and lower fuel spread margins, had an unfavorablethe impact on consolidated revenuesof the disposition of our Russia business of approximately $66$3 million. Additionally, changes
Selling. Selling expenses were $340.2 million in foreign exchange rates had2023, an unfavorableincrease of 10.1% compared to the prior year. Increases in selling expenses were primarily associated with approximately $24 million of expenses related to acquisitions completed in 2022 and 2023 and commissions from higher sales volume, partially offset by the impact on consolidated revenuesof the disposition of our Russia business of approximately $43 million due to unfavorable fluctuations in rates in most geographies in 2016 compared to 2015.$4 million.
| Year Ended December 31, | ||||||||||||||
| (Unaudited) | 2016 | 2015 | ||||||||||||
| Revenue by Geography* | Revenues, net | % of total revenues, net | Revenues, net | % of total revenues, net | ||||||||||
| United States | $ | 1,279 | 70 | % | $ | 1,232 | 72 | % | ||||||
| United Kingdom | 229 | 13 | 248 | 15 | % | |||||||||
| Brazil | 168 | 9 | 85 | 5 | % | |||||||||
| Other | 156 | 8 | 138 | 8 | % | |||||||||
| Consolidated revenues, net | $ | 1,832 | 100 | % | $ | 1,703 | 100 | % | ||||||
| Year Ended December 31, | ||||||||||||||
| (Unaudited) | 2016 | 2015 | ||||||||||||
| Revenue by Product Category* | Revenues, net | % of total revenues, net | Revenues, net | % of total revenues, net | ||||||||||
Fuel cards1 | $ | 997 | 54 | % | $ | 992 | 58 | % | ||||||
| Corporate payments | 180 | 10 | 162 | 10 | % | |||||||||
| Tolls | 103 | 6 | 9 | 1 | % | |||||||||
| Lodging | 101 | 5 | 92 | 5 | % | |||||||||
| Gift | 185 | 10 | 170 | 10 | % | |||||||||
Other1 | 266 | 15 | 278 | 16 | % | |||||||||
| Consolidated revenues, net | $ | 1,832 | 100 | % | $ | 1,703 | 100 | % | ||||||
Consolidated operating income
Operating income was $1,656.9 million in foreign exchange rates and lower negotiated vendor processing costs.
Other (income) expense, net. Other income, net of $16.6 million in 2016. The decrease is due to favorable reversals2023 was primarily the net gain of various contingent liabilities for tax indemnifications related toapproximately $13.7 million resulting from the disposal of our acquisitionsRussia business during the third quarter of DB Trans S.A. ("DB") and VB in Brazil in 2015.2023.
| (Unaudited) | 2023 | 2022 | ||||||||||||
| Term loan A | 6.49 | % | 3.22 | % | ||||||||||
| Term loan B | 6.84 | % | 3.46 | % | ||||||||||
| Revolving line of credit A & B (USD) | 6.51 | % | 3.62 | % | ||||||||||
| Revolving line of credit B (GBP) | 5.83 | % | 2.06 | % | ||||||||||
| (Unaudited) | 2016 | 2015 | ||||
| Term loan A | 2.05 | % | 1.94 | % | ||
| Term loan B | 3.75 | % | 3.75 | % | ||
| Domestic Revolver A | 2.07 | % | 1.95 | % | ||
| Foreign Revolver B | 1.84 | % | 2.36 | % | ||
| Foreign Revolver B swing line | 1.84 | % | 2.29 | % | ||
Provision for income taxes. The provision for income taxes increased from $173.6and effective tax rate were $343.1 million and 25.9% in 20152023, compared to $190.5$321.3 million and 25.2% in 2016, an increase of $17.0 million, or 9.8%.the prior year. The increase in the provision for income taxes from 2015 to 2016 was driven primarily driven by the increase in book earnings for 2016 as compared to 2015.income before income taxes, higher foreign withholding taxes and less excess tax benefit on stock option exercises. The increase in taxes wasincreases were partially offset by a decreaseadditional foreign tax credits and tax planning impacts in our effectivethe fourth quarter of 2023 that resulted in an $8.2 million benefit that lowered the 2023 tax rate from 32.4% in 2015 to 29.7% in 2016. The decrease in our effective tax rate was primarily due to the adoption of ASU 2016-09, "Compensation-Stock Compensation: Improvements to Employee Share-Based Payment Accounting", which resulted in excess tax benefits being recorded as a reduction of income tax expense during 2016, rather than additional paid in capital as discussed in the summary of significant accounting policies footnote. We also had a non-recurring net gain recorded by our equity method investment, which favorably impacted pre-tax earnings but was not subject to U.S. income taxes and the impact of certain tax planning initiatives that were implemented during 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 are0.6%.
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Net income. For the reasons discussed above, our net income increased from $362.4was $981.9 million in 2015 to $452.4 million in 2016,2023, an increase of $90.0 million, or 24.8%.2.9% compared to the prior year.
Vehicle Payments revenues were $2.0 billion in 2015 to $754.2 million in 2016,2023, an increase of $86.62.8% compared to the prior year. Vehicle Payments revenues increased primarily due to organic growth of 6% driven by new sales growth in our international markets, higher revenue per transaction, as well as the impact of acquisitions, which contributed approximately $14 million or 13.0%. Consolidated operating margin was 39.2% in 2015 and 41.2% in 2016.revenue. The increase in operating incomerevenues was primarily due to acquisitions completed in 2016, $26 million less stock based compensation expense compared to 2015 and organic growth in the business, partially offset by the negativedisposition of our Russia business in August 2023, which lowered revenue by approximately $50 million and softness in our small fleet customers based in the U.S. Our shift away from micro-SMB clients in the U.S. affected our sales and overall results, including lower late fees revenues, which were down 19% from the prior year. The macroeconomic environment also negatively impacted revenues by approximately $32 million, driven primarily by the impact of the macroeconomic environment of approximately $82 million, driven by lower fuel prices and spreads,of $39 million and unfavorable fluctuations in foreign exchange rates.
Vehicle Payments operating income was $943.4 million in 2023, an increase of 6.7% compared to the prior year due to the reasons discussed above and the flow through impact of the disposition of our Russia business, which resulted in lower operating income of approximately $36 million. These unfavorable impacts were partially offset by lower bad debt of approximately $9 million, as we shift away from micro-SMB clients and to higher credit quality customers in the U.S.
Corporate Payments
Corporate Payments revenues were $981.1 million in 2023, an increase of 27.5% compared to the prior year. Corporate Payments revenues increased primarily due to organic revenue growth of 19%, driven by 15% organic growth in spend volume, strong new sales in our AP automation and cross-border solutions, as well as the negative impact of fuel prices internationally. Theacquisitions, which contributed approximately $60 million in revenue.
Corporate Payments operating income was $382.1 million in 2023, an increase of 39.7% compared to the prior year. Corporate Payments operating income and margin increased primarily due to revenue growth and operating leverage and integration synergies, as revenues grew faster than expenses, partially offset by higher selling expenses driven by growth of the business.
Lodging Payments
Lodging Payments revenues were $520.2 million in 2023, an increase of 14.0% compared to the prior year. Lodging Payments revenues increased primarily due to organic revenue growth of 12% driven by our insurance and airline verticals, as well as the impact of acquisitions, which contributed approximately $9 million in revenue. Lodging Payments revenues also grew due to sales success across industry verticals, in addition to higher revenue per room night driven primarily from our distressed passenger product and higher hotel commission revenues. Offsetting this growth was softness in our workforce vertical as the weaker macroeconomic environment is impacting this business, resulting in lower room nights. This growth was also impacted by lower same store sales in airlines and insurance in the second half of 2023 over 2022 due to fewer weather events and airline cancellations.
Lodging Payments operating income was $254.3 million in 2023, an increase of 16.3% compared to the prior year. Lodging Payments operating income and margin increased primarily due to revenue growth and our operating leverage, as revenues grew faster than expenses.
Other
Other revenues were relatively flat at $250.9 million in 2023 compared to the prior year. Other operating income was $77.1 million in 2023, an increase of 10.3% compared to the prior year, with the increase primarily due to our operating leverage and disciplined expense management.
45
Recast Segment Results - Year Ended December 31, 2021
As discussed above, in the fourth quarter of 2023, in order to align with recent changes in fuel price spreadsour strategy and resulting organizational structure and management reporting, we updated our segment structure into three reportable segments: Vehicle Payments, Corporate Payments, Lodging Payments and an Other category. The new Vehicle Payments segment includes the prior Fleet and Brazil segments and results from our Corpay One business, which was negligible.previously reported in the Corporate Payments segment. The segment change did not impact prior period segment results presented for Lodging Payments or the Other category.
The following table sets forth our recast segment results for the year ended December 31, 2021 (in millions, except percentages).
Year Ended December 31, 2021 | % of Total Revenue | |||||||||||||||||||||||||||||||||||||
| Revenues, net: | ||||||||||||||||||||||||||||||||||||||
| Vehicle Payments | $ | 1,690.0 | 59.7 | % | ||||||||||||||||||||||||||||||||||
| Corporate Payments | 598.2 | 21.1 | % | |||||||||||||||||||||||||||||||||||
| Lodging Payments | 309.6 | 10.9 | % | |||||||||||||||||||||||||||||||||||
| Other | 235.9 | 8.3 | % | |||||||||||||||||||||||||||||||||||
| Total revenues, net | $ | 2,833.7 | 100.0 | % | ||||||||||||||||||||||||||||||||||
| Operating income by segments: | ||||||||||||||||||||||||||||||||||||||
| Vehicle Payments | $ | 811.8 | ||||||||||||||||||||||||||||||||||||
| Corporate Payments | 210.3 | |||||||||||||||||||||||||||||||||||||
| Lodging Payments | 149.0 | |||||||||||||||||||||||||||||||||||||
| Other | 71.5 | |||||||||||||||||||||||||||||||||||||
| Operating income | $ | 1,242.6 | ||||||||||||||||||||||||||||||||||||
Liquidity and capital resources
Our principal liquidity requirements are to service and repay our indebtedness, make acquisitions of businesses and commercial account portfolios, repurchase shares of our common stock and meet working capital, tax and capital expenditure needs.
Sources of liquidity. We believe that our current level of cash and borrowing capacity under our Credit Facility and Securitization Facility (each defined below), together with expected future cash flows from operations, will be sufficient to meet the needs of our existing operations and planned requirements for the next 12 months and the foreseeable future, based on our current assumptions. At December 31, 2017,2023, we had approximately $2.2 billion in total liquidity, consisting of approximately $0.8 billion available under our Credit Facility (defined below) and unrestricted cash balances totaled $1,130.9 million, with approximately $217.3 million restricted.of $1.4 billion, a portion of which is required for working capital. Restricted cash primarily represents customer deposits repayable on demand held in the Czech Republic and in our Comdata business in the U.S., as well ascertain geographies with legal restrictions, collateral received from customers for cross-currency transactions in our Cambridgecross-border payments business, which are restricted from use other than to repay customer deposits as well asand secure and settle cross-currency transactions.
cross-border payments business.
We also utilize an accounts receivablethe Securitization Facility to finance a majorityportion of our domestic fuel card receivables, to lower our cost of borrowing and more efficiently use capital. We generate and record accountsAccounts receivable when a customer makes a purchase from a merchant using one ofcollateralized within our card products and generally pay merchants before collecting the receivable. As a result, we utilize the Securitization Facility as a source of liquidityrelate to providetrade receivables resulting primarily from charge card activity in Vehicle Payments and receivables related to our Lodging Payments business in 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.U.S. We also consider the available and undrawn amounts under our Securitization Facility and Credit Facility as funds available for working capital purposes and acquisitions. At December 31, 2017,2023, we had no additional liquidity under our Securitization Facility. At December 31, 2017, we had approximately $615 million available under
We have determined that outside basis differences associated with our Credit Facility.investments in foreign subsidiaries would not result in a material deferred tax liability, and, consistent with our assertion that these amounts continue to be indefinitely invested, have not recorded incremental income taxes for the additional outside basis differences.
46
Cash flows
The following table summarizes our cash flows for the years ended December 31, 2017, 20162023 and 2015.2022.
| Year Ended December 31, | |||||||||||||||||
| (in millions) | 2023 | 2022 | |||||||||||||||
| Net cash provided by operating activities | $ | 2,101.1 | $ | 754.8 | |||||||||||||
| Net cash used in investing activities | $ | (380.7) | $ | (368.3) | |||||||||||||
| Net cash used in financing activities | $ | (898.2) | $ | (311.2) | |||||||||||||
| Year ended December 31, | ||||||||||||
| (in millions) | 2017 | 2016 | 2015 | |||||||||
| Net cash provided by operating activities | $ | 675.7 | $ | 705.9 | $ | 754.6 | ||||||
| Net cash used in investing activities | (497.8 | ) | (1,389.6 | ) | (99.4 | ) | ||||||
| Net cash provided by (used in) financing activities | 251.9 | 754.0 | (648.1 | ) | ||||||||
Operating activities. Net cash provided by operating activities decreased from $705.9was $2,101.1 million in 2016 to $675.72023, an increase from $754.8 million in 2017. Operating2022. The increase in operating cash flows were primarily affected by higher net income, the gain on the sale of our NexTraq business in 2017 (treated as an investing activity) and deferred income taxes resulting from enactment of the Tax Act. Also included in cash flows from operating activities were unfavorable working capital adjustments primarily due to the timing of cash receipts and payments in 2017 over the comparable period in 2016.
Investing activities. Net cash used in investing activities decreasedwas $380.7 million in 2023, an increase from $1.4 billion in 2016 to $497.8$368.3 million in 2017. This decrease2022. The increased use of cash was primarily due to reductionincremental spending on acquisitions completed in cash outlay2023 over the comparable period in 2022, partially offset by net proceeds of $197.0 million received for acquisitions and the proceeds received from the saledisposition of our NexTraq business during the third quarter of 2017.Russian business.
Financing activities.Net cash used in investingfinancing activities increased from $99.4was $898.2 million in 20152023 compared to $1,389.6$311.2 million in 2016.2022. This increase was primarily due to the increase in cash paid for our STP and Travelcard acquisitions completed in 2016.
in 2023 versus 2022.
Capital spending summary
Our capital expenditures increased from $59.0were $153.8 million in 20162023, an increase of 1.6%, compared to $70.1 million in 2017, an increase of $11 million or 18.8%. This increase is primarilythe prior year due to increased spending on strategic projects, including continued investmentthe impact of acquisitions and continued investments in our operating systems, as well as incremental spending related to acquisitions in 2016 and 2017.technology.
FLEETCOR Technologies Operating Company, LLC, and certain of our domestic and foreign owned subsidiaries, as designated co-borrowers (the “Borrowers”), are parties to a $4.33$6.4 billion Credit Agreement (the "Credit Agreement"“Credit Agreement”), with Bank of America, N.A., as administrative agent, swing line lender and local currencyletter of credit issuer, and a syndicate of financial institutions (the “Lenders”), which has been amended multiple times. The Credit Agreement provides for senior secured credit facilitiesfacilities (collectively, the "Credit Facility") consisting of a revolving A credit facility in the amount of $1.285$1.5 billion, a term loan A facility in the amount of $2.69$3.0 billion and a term loan B facility in the amount of $350.0 million$1.9 billion as of December 31, 2017.2023. The revolving credit facility consists of (a) a revolving A credit facility in the amount of $800 million,$1 billion with sublimits for letters of credit and swing line loans and (b) a revolving B facility in the amount of $450$500 million with borrowings in U.S. dollars, euros, British pounds, Japanese yen or other currency as agreed in advance and a sublimit for swing line loansloans. The Credit Agreement also includes an accordion feature for borrowing an additional $750 million in term loan A, term loan B, revolving A or revolving B facility debt and multi-currency borrowingsan unlimited amount when the leverage ratio on a pro-forma basis is less than 3.75 to 1.00. Proceeds from the credit facilities may be used for working capital purposes, acquisitions, and (c) a revolving C facility in the amount of $35 million for multi-currency borrowings in Australian Dollars or New Zealand Dollars.other general corporate purposes.
On January 20, 2017,June 24, 2022, we entered into the secondtwelfth amendment to the Credit Agreement, which establishedAgreement. The amendment replaced the then-existing term loan A with the $3 billion term loan A described above and the then-existing revolving credit facility with the $1.5 billion revolving credit facility described above, resulting in net increases of $273 million and $215 million to the capacities of the term loan A and revolving credit facility, respectively. In addition, the amendment replaced LIBOR for USD borrowings with the SOFR plus a SOFR adjustment of 0.10% for the term loan A and the revolving Credit Facility and extended the maturity date. The maturity date for the new term loan A and revolving credit facilities A and B loan. Interestis June 24, 2027. The term loan B has a maturity date of April 30, 2028. On May 3, 2023, we entered into the thirteenth amendment to the Credit Facility. The amendment replaced LIBOR on the term B loan facility accrues basedwith the Secured Overnight Financing Rate ("SOFR"), plus a SOFR adjustment of 0.10%.
On January 31, 2024, we entered into the fourteenth amendment to the Credit Agreement. The amendment a) increased the capacity on the Eurocurrency Rate orrevolving credit facility by $275.0 million and b) increased the Base Rate at 2.25% for Eurocurrency Loansterm loan A commitments by $325.0 million. We used the term loan A proceeds to pay down existing borrowings under the revolving credit facility. As a result, the transaction was leverage neutral and at 1.25% for Base Rate Loans. results in a $600 million increase in our availability under the revolving credit facility. The interest rates and maturity terms remain consistent with the existing credit facilities.
Interest on amounts outstanding under the Credit Agreement (other than the term B loan) accrues as follows: for loans denominated in U.S. dollars, based on SOFR plus a SOFR adjustment of 0.10%, in British pounds, based on the British Bankers Association LIBOR Rate (the Eurocurrency Rate)SONIA plus a SONIA adjustment of 0.0326%, in euros, based on the EURIBOR, or in Japanese yen, at the TIBOR plus a margin based on a leverage ratio, or our option (for U.S. dollar borrowings only), the Base Rate (defined as the rate equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the prime rate announced by Bank of America, N.A., or (c) the Eurocurrency RateSOFR plus 1.00%) plus a margin based on a leverage ratio.ratio). In addition, the Company payswe pay a quarterly commitment fee at a rate per annum ranging from 0.20%0.25% to 0.40%0.30% of the daily unused portion of the credit facility.
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At December 31, 2017,2023, the interest rate on the term loan A loan and the domestic revolving A facility was 3.32%6.83%, the interest rate on the foreignterm loan B was 7.21%, the interest rate on the revolving A and B facilityfacilities (USD borrowings) was 2.25%6.83%, and the interest rate on the revolving B facility foreign swing line of credit(GBP borrowings) was 2.22% and the interest rate on the term B loan was 3.57%6.59%. The unused credit facility fee was 0.35%0.25% for all revolving facilities at December 31, 2017.
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 optionthe maturity of one, two, three or nine months after borrowing, dependingthe facility. Borrowings on the termdomestic swing line of the borrowingcredit are due on the facility. Borrowingsdemand, and borrowings on the foreign swing line of credit are due no later than tentwenty business days after such loan is made.
The obligations of the Borrowers under the Credit Agreement are secured by substantially all of the assets of FLEETCOR and its domestic subsidiaries, pursuant to a security agreement and includes a pledge of (i) 100% of the issued and outstanding equity interests owned by us of each Domestic Subsidiary and (2) 66% of the voting shares of the first-tier foreign subsidiaries, but excluding real property, personal property located outside of the U.S., accounts receivables and related assets subject to the Securitization Facility and certain investments required under money transmitter laws to be held free and clear of liens.
At December 31, 2017,2023, we had $2.7$2.9 billion in borrowings outstanding on term loan A, loan, excluding the related debt discount, $349.1 millionnet of discounts, $1.8 billion in borrowings outstanding on term loan B, loan, excluding the related debt discount, $635 millionnet of discounts, and $0.7 billion in borrowings outstanding on the domestic revolving Acredit facility. We have unamortized debt issuance costs of $3.6 million related to the revolving credit facility $28.3 millionas of December 31, 2023 recorded in borrowings outstanding onother assets within the foreign revolving B facility and $6.9 million in borrowings outstanding on the foreign swing line revolving B facility. The Company hasConsolidated Balance Sheets. We have unamortized debt discounts and debt issuance costs of $6.0$19.0 million related to the term A facility and $0.7 million related to the term B facility and deferred financing costsloans as of $5.1 million at December 31, 2017. In August 2017,2023 recorded in notes payable and other obligations, net of current portion within the Company expensed $3.3 millionConsolidated Balance Sheets. As a result of the amortization of debt discounts and capitalized $10.6 million of debt issuance costs, associated with the refinancing of its Credit Facility. The effective interest rate incurred on the term loans was 2.69% and 2.57%6.83% during 2017 and 2016, respectively, related to2023.
During the discount on debt.
As of December 31, 2023, we were in compliance with each of the foreign revolving A facility and $52.7 million oncovenants under the foreign swing line revolving B facility.Credit Agreement.
Securitization Facility
We are a party to a $1.7 billion 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 "Securitization Facility"). On March 23, 2022, we entered into the Fifth time as of November 14, 2014. We refer to this arrangement as the Securitization Facility. There have been several amendmentstenth amendment to the Securitization Facility. The current purchase limit underamendment increased the Securitization Facility is $950 millioncommitment from $1.3 billion to $1.6 billion and replaced LIBOR with SOFR plus a SOFR adjustment of 0.10%. On August 18, 2022, we entered into the eleventh amendment to the Securitization Facility. The amendment increased the Securitization Facility expires on November 14, 2020. The Securitization Facility contains certain customary financial covenants.
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 all financial and non-financial covenant requirements related to our Securitization Facility as of December 31, 2017.2023.
We carefully monitor and manage initial and variation margin requirements for our cross-border solutions, which can result in transitory periods of elevated liquidity needs in cases where the currency market experiences disruption. In order to help mitigate that liquidity risk, we have recently entered into facilities intended to provide additional means to manage working capital needs for our cross-border solutions.
During the year ended December 31, 2023, we entered into two unsecured overdraft facilities with a combined capacity of $105.0 million, which may be accessible via written request and corresponding authorization from the applicable lenders. There is no guarantee the uncommitted capacity will be available to us on a future date. Interest on drawn balances accrues under the agreements at either (a) a fixed rate equal to the lender's reference rate (as defined in the respective agreement) plus 1% or (b) SOFR plus 1.25%. As of December 31, 2023, we had no borrowings outstanding under the uncommitted credit facilities.
During the year ended December 31, 2023, we also entered into a 364-day committed revolving credit facility with a total commitment of $40.0 million. This committed facility matures on October 10, 2024. Borrowings under the new facility will bear interest at the borrower's option at a rate equal to (a) Term SOFR (as defined in the agreement) plus 1.25% or (b) the Base Rate (determined by reference to the greatest of (i) the Federal Funds Effective Rate, at that time, plus 0.50%, (ii) the Prime Rate, at that time, and (iii) Term SOFR (as defined in the agreement) at such time plus 1.00%). As of December 31, 2023, we had no borrowings outstanding under the committed credit facility.
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Cash Flow Hedges
On January 22, 2019, we entered into three interest rate swap contracts. One contract (which matured in January 2022) had a notional value of $1.0 billion, while the two remaining contracts each had a notional value of $500 million. One of the remaining contracts matured on January 31, 2023 and the other matured on December 19, 2023. The objective of these swap contracts was to reduce the variability of cash flows in the previously unhedged interest payments associated with $2.0 billion of unspecified variable rate debt, the sole source of which is due to changes in the LIBOR and/or SOFR benchmark interest rate. At inception, we designated these contracts as hedging instruments in accordance with ASC 815, "Derivatives and Hedging."
During January 2023, we entered into 5 receive-variable SOFR, pay-fixed interest rate swap derivative contracts with a cumulative notional U.S. dollar value of $1.5 billion as shown disaggregated in the table below.
On May 4, 2023, we amended the remaining LIBOR-based interest rate swap with a notional amount of $500 million from one-month term LIBOR of 2.55% to one-month term SOFR of 2.50%, without further changes to the terms of the swap. We applied certain expedients provided in ASU No. 2020-04, Reference Rate Reform (Topic 848), related to changes in critical terms of the hedging relationships due to the reference rate reform, which allowed the change in critical terms without designation of the hedging relationship. This interest rate swap matured in December 2023.
In connectionAugust 2023, we entered into 8 additional receive-variable SOFR, pay-fixed interest rate swap derivative contracts with a cumulative notional U.S. dollar value of $2.0 billion as shown disaggregated in the table below. Further, in December 2023, we entered into 5 additional receive-variable SOFR, pay-fixed interest rate swap derivative contracts with a cumulative notional U.S. dollar value of $500 million as shown disaggregated in the table below.
As of December 31, 2023, we had the following outstanding interest rate swap derivatives that qualify as hedging instruments within designated cash flow hedges of variable interest rate risk (in millions):
| Notional Amount | Fixed Rates | Maturity Date | ||||||||||||
| $250 | 4.01% | 7/31/2025 | ||||||||||||
| $250 | 4.02% | 7/31/2025 | ||||||||||||
| $500 | 3.80% | 1/31/2026 | ||||||||||||
| $250 | 3.71% | 7/31/2026 | ||||||||||||
| $250 | 3.72% | 7/31/2026 | ||||||||||||
| $100 | 4.35% | 7/31/2026 | ||||||||||||
| $250 | 4.40% | 7/31/2026 | ||||||||||||
| $250 | 4.40% | 7/31/2026 | ||||||||||||
| $400 | 4.33% | 7/31/2026 | ||||||||||||
| $250 | 4.29% | 1/31/2027 | ||||||||||||
| $250 | 4.29% | 1/31/2027 | ||||||||||||
| $250 | 4.19% | 7/31/2027 | ||||||||||||
| $250 | 4.19% | 7/31/2027 | ||||||||||||
| $150 | 3.87% | 1/31/2027 | ||||||||||||
| $50 | 3.83% | 1/31/2027 | ||||||||||||
| $50 | 3.85% | 1/31/2027 | ||||||||||||
| $125 | 4.00% | 1/31/2028 | ||||||||||||
| $125 | 3.99% | 1/31/2028 | ||||||||||||
The purpose of these contracts is to reduce the variability of cash flows in interest payments associated with our acquisitionunspecified variable rate debt, the sole source of certain businesses,which is due to changes in the SOFR benchmark interest rate. We have designated these derivative instruments as cash flow hedging instruments, which are expected to be highly effective at offsetting changes in cash flows of the related underlying exposure. As a result, changes in fair value of the interest rate swaps are recorded in accumulated other comprehensive loss. For each of these swap contracts, we owe final paymentspay a fixed monthly rate and receives one month SOFR. We reclassified $39.4 million from accumulated other comprehensive loss resulting in a benefit to interest expense, net for the year ended December 31, 2023 related to the our interest rate swap contracts.
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Net Investment Hedge
In February 2023, we entered into a cross-currency interest rate swap that we designated as a net investment hedge of $29.3our investments in euro-denominated operations. This contract effectively converts $500 million of which $3.6 millionU.S. dollar equivalent to an obligation denominated in euro, and partially offsets the impact of changes in currency rates on our euro-denominated net investments. This contract also creates a positive interest differential on the U.S. dollar-denominated portion of the swap, resulting in a 1.96% interest rate savings on the USD notional.
Hedge effectiveness is payabletested based on changes in the next twelve monthsfair value of the cross-currency swap due to changes in the USD/euro spot rate. We anticipate perfect effectiveness of the designated hedging relationship and $25.7record changes in the fair value of the cross-currency interest rate swap associated with changes in the spot rate through accumulated other comprehensive loss. Excluded components associated with the forward differential are recognized directly in earnings as interest expense, net. We recognized a benefit of $9.0 million in periods beyondinterest expense, net for the year ended December 31, 2023 related to these excluded components. The cross-currency interest rate swap designated as a year.net investment hedge is recorded in other current liabilities at a fair value of $14.5 million as of December 31, 2023.
We terminated our existing net investment hedge on February 1, 2024, which resulted in net cash payments totaling $3.9 million. The loss on the net investment hedge will remain in accumulated other comprehensive loss and will only be reclassified into earnings if and when the underlying euro-denominated net investment is sold or liquidated.
Subsequently, on February 2, 2024, we entered into four new cross-currency interest rate swaps that are designated as net investment hedges of our investments in euro-denominated operations. These contracts effectively convert an aggregate $500 million of U.S. dollar equivalent to an obligation denominated in euro, and partially offset the impact of changes in currency rates on our euro-denominated net investments. These contracts also create a positive interest differential on the U.S. dollar-denominated portion of the swap, resulting in a 1.55% interest rate savings on the USD notional.
Stock Repurchase Program
On August 18, 2023, as part of the Program, we entered an accelerated share repurchase ("ASR") agreement ("2023 ASR Agreement") with a third-party financial institution to repurchase $450 million of our common stock. Pursuant to the 2023 ASR Agreement, we delivered $450 million in cash and received 1,372,841 shares based on a stock price of $262.23 on August 18, 2023. The 2023 ASR Agreement was completed on September 26, 2023, at anywhich time prior to February 1, 2019.we received 293,588 additional shares based on a final weighted average per share purchase price during the repurchase period of $270.04.
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 we may possess. Any repurchases have been and are expected to be funded by a combination of available cash flow from the business, working capital and debt.
Material cash requirements primarily consist of debt obligations and related interest payments, along with lease obligations. Refer to the Debt footnote on page 86 and Leases footnote on page 91 of this Form 10-K for more information.
Deferred income tax liabilities as part of December 31, 2023 were approximately $470.2 million. Refer to Income Taxes footnote on page 89 of this Form 10-K for more information. Deferred income tax liabilities are calculated based on temporary differences between the Program,tax bases of assets and liabilities and their respective book bases, which will result in taxable amounts in future years when the liabilities are settled at their reported financial statement amounts. The results of these calculations do not have a direct connection with the amount of cash taxes to be paid in any future periods. As a result, scheduling deferred income tax liabilities as payments due by period could be misleading, as this scheduling would not relate to liquidity needs. At December 31, 2023, we entered an Accelerated Share Repurchase agreement ("ASR Agreement") with a third-party financial institution to repurchase $250had approximately $63.1 million of our common stock. Pursuantunrecognized income tax benefits related to uncertain tax positions. We cannot reasonably estimate when all of these unrecognized income tax benefits may be settled. We do not expect reductions to unrecognized income tax benefits within the ASR Agreement, we delivered $250 million in cash and received 1,491,647 shares based on a stock price of $142.46 on August 7, 2017. The ASR Agreement was completed on September 7, 2017, at which time the we received 263,012 additional shares based on a final weighted average per share purchase price during the repurchase period of $142.48.
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Critical accounting policiesAccounting Policies and estimatesEstimates, Adoption of New Accounting Standards, and Pending Adoption of Recently Issued Accounting Standards
In applying the accounting policies that we use to prepare our consolidated financial statements, we necessarily make accounting estimates that affect our reported amounts of assets, liabilities, revenue and expenses. Some of these estimates require us to make assumptions about matters that are highly uncertain at the time we make the accounting estimates. We base these assumptions and the resulting estimates on historical information and other factors that we believe to be reasonable under the circumstances, and we evaluate these assumptions and estimates on an ongoing basis. In many instances, however, we reasonably could have used different accounting estimates and, in other instances, changes in our accounting estimates could occur from period to period, with the result in each case being a material change in the financial statement presentation of our financial condition or results of operations. We refer to estimates of this type as critical accounting estimates. Our significant accounting policies are summarized in the consolidated financial statements contained elsewhere in this report. The critical accounting estimates that we discuss below are those that we believe are most important to an understanding of our consolidated financial statements.
See Footnote 2 to the Consolidated Financial Statements, Summary of Significant Accounting Policies.Policies footnote on page 67 of this Form 10-K for additional information.
Revenue recognition and presentation. RevenueWe provide payment solutions to our business, merchant, consumer and payment network customers. Our payment solutions are primarily focused on specific commercial spend or geographically-defined categories, including Vehicle Payments, Corporate Payments, Lodging Payments and Other (stored value cards and e-cards). We provide solutions that help businesses of all sizes control, simplify and secure payment of various domestic and cross-border payables using specialized payment products. We also provide other payment solutions for fleet maintenance, employee benefits and long-haul transportation-related services.
Payment Services
Our primary performance obligation for the majority of our payment solutions (Vehicle Payments, Corporate Payments, Lodging Payments, and Gift, among others) is derivedto stand-ready to provide authorization and processing services (payment services) for an unknown or unspecified quantity of transactions and the consideration received is contingent upon the customer’s use (e.g., number of transactions submitted and processed) of the related payment services. Accordingly, the total transaction price is variable. Payment services involve a series of distinct daily services that are substantially the same, with the same pattern of transfer to the customer. As a result, we allocate and recognize variable consideration in the period we have the contractual right to invoice the customer. For the tolls payment solution, our primary performance obligation is to stand-ready each month to provide access to the toll network and process toll transactions. Each period of access is determined to be distinct and substantially the same as the customer benefits over the period of access. In our cross-border payments business, a portion of revenue is from our merchantexchanges of currency at spot rates, which enables customers to make cross-currency payments.
Gift Card Products and network relationships, as well as from customersServices
Our Gift solutions deliver both stored value cards and partners. We recognize revenue on fees generated throughe-cards (cards), and card-based services primarily in the form of gift cards to commercial fleets, commercial businesses, major oil companies, petroleum marketersretailers. These activities each represent performance obligations that are separate and leasing companies and record revenue netdistinct. Revenue for stored value cards is recognized (gross of the wholesaleunderlying cost of the underlying products and services based onrelated card, recorded in processing expenses within the following: (i) we are notConsolidated Statements of Income) at the primary obligorpoint in the arrangement and we are not responsible for fulfillment and the acceptability of the product; (ii) we have no inventory risk, do not bear the risk of product loss and do not make any changes to the product or have any involvement in the product specifications; (iii) we do not have significant latitude with respect to establishing the price for the product and (iv) the amount we earn for our services is fixed, within a limited range. We recognize revenue from merchant and network relationships, processing and other arrangementstime when persuasive evidence of an arrangement exists, the services have been provided to the customer, the sales price is fixed or determinable and collectability is reasonably assured, as more fully described below.
Other
We also derive revenue from customers and partners from a variety of program fees including transaction fees, card fees, network fees, service fees, report fees and other transaction-based fees, which typically are calculated based on measures such as percentage of dollar volume processed, number of transactions processed, or some combination thereof. Such services are provided through proprietary networks or through the use of third-party networks. Transaction fees and other transaction-based fees generated from our proprietary networks and third-party networks are recognized at the time the transaction is captured. Card fees, network fees and program fees are recognized as we fulfill our contractual service obligations. In addition, we recognizeaccount for revenue from late fees and finance charges, in jurisdictions where permitted under local regulations, primarily in the U.S. and Canada.Canada in accordance with Accounting Standards Codification (ASC) 310, "Receivables". Such fees are recognized net of a provision for estimated uncollectible amounts, at the time the fees and finance charges are assessed. The Company ceasesassessed and services are provided. We cease billing and accruing for late fees and finance charges approximately 30-4030 - 40 days after the customer’s balance becomes delinquent.
Refer to the Revenue footnote on page 74 of this Form 10-K for additional information.
Financial Instruments-Credit Losses. Our current expected credit loss methodology for measurement of credit losses on financial assets measured at amortized cost basis, replaces the previous incurred loss impairment methodology. Our financial assets subject to credit losses are primarily trade receivables. We have recorded $96.8 millionutilize a combination of expenses relatedaging and loss-rate methods to salesdevelop an estimate of equipment withincurrent expected credit losses, depending on the processing expenses linenature and risk profile of the Consolidated Statementsunderlying asset pool,
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based on product, size of Income in 2017. Sales commissions paid to personnelcustomer and historical losses. Expected credit losses are expensed as incurred.
Impairment of long-lived assets, intangiblesgoodwill and investments. We test our long-lived assets for impairment in accordance with relevant authoritative guidance. We evaluate if impairment indicators related to our property, plant and equipment and other long-lived assets are present. These impairment indicators may include a significant decrease in the market price of a long-lived asset or asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group. If impairment indicators are present, we estimate the future cash flows for the asset or asset group. The sum of the undiscounted future cash flows attributable to the asset or group of assets is compared to their carrying amount. The cash flows are estimated utilizing various projections of revenues and expenses, working capital and proceeds from asset disposals on a basis consistent with management’s intended actions. If the carrying amount exceeds the sum of the undiscounted future cash flows, we determine the assets’ fair value by discounting the future cash flows using a discount rate required for a similar investment of like risk and records an impairment charge as the difference between the fair value and the carrying value of the asset group. Generally, we perform our testing of the asset group at the business-line level, as this is the lowest level for which identifiable cash flows are available.
indefinite-lived assets. We complete an impairment test of goodwill at least annually or more frequently if facts or circumstances indicate that goodwill might be impaired. Goodwill is tested for impairment at the reporting unit level, and the impairment test consists of two steps, as well as a qualitative assessment, as appropriate.level. We have performedfirst perform a qualitative assessment of certain of our reporting units. In thisFactors considered in the qualitative assessment we individually considered the following items for each reporting unit where we determined a qualitative analysis to be appropriate: theinclude general macroeconomic conditions, including any deterioration of general conditions, limitations on accessing capital, fluctuations in foreign exchange rates and other developments in equity and credit markets; industry and market conditions, including any deteriorationcost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of our reporting units, sustained decrease in our share price, and other relevant entity-specific events. If we elect to bypass the environment wherequalitative assessment or if we determine, on the basis of qualitative factors, that the fair value of the reporting unit operates, increased competition, changes inis more likely than not less than the products/services and regulator and political developments; cost of doing business; overall financial performance, including any declining cash flows and performance in relation to planned revenues and earnings in past periods; other relevant reporting unit specific facts, such as changes in management or key personnel or pending litigation; events affecting the reporting unit, including changes in the
carrying value of net assets, likelihood of disposal and whether there were any other impairment considerations within the business; the overall performance of our share price in relation to the market and our peers; andamount, a quantitative stress test ofwould be required. We then perform the previously completed step 1 test from the prior year, updated with current year results, weighted-average cost of capital rates and future projections.
We also evaluate indefinite-lived intangible assets (primarily trademarks and trade names) for impairment annually. We also test for impairment if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived intangible asset is below its carrying amount. Estimates critical to our evaluation of indefinite-lived intangible assets for impairment include the discount rate, royalty rates used in our evaluation of trade names projected average revenue growth and projected long-term growth rates in the determination of terminal values.revenue growth. An impairment chargeloss is recorded if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date.
Income taxes. We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. We have elected to treat the Global Intangible Low Taxed Income (GILTI) inclusion as a current period expense.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences become deductible. We evaluate on a quarterly basis whether it is more likely than not that our deferred tax assets will be realized in the future and conclude whether a valuation allowance must be established.
Business combinations. Business combinations completed by us have been accounted for under the acquisition method of accounting. The acquisition methodaccounting, which requires that the acquired assets and liabilities, including contingencies, be recorded at fair value determined as of the acquisition date and changes thereafter reflected in income. For significant acquisitions, we obtain independent third-party valuation studies for certain of the assets acquired and liabilities assumed to assist us in determining fair value. Goodwill represents thedate. The excess of the purchase price over the fair values of the tangible and intangible assets acquired and liabilities assumed.assumed represents goodwill. The results of thethe acquired businesses are included in our results of operations beginning from the completion date of the applicable transaction.
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changes. Acquired technologies are generally valued using the replacement cost method, which requires us to estimate the costs to construct an asset of equivalent utility at prices available at the time of the valuation analysis, with adjustments in value for physical deterioration and functional and economic obsolescence. Trademarks and trade names are generally valued using the "relief-from-royalty" approach. This method assumes that trademarks and trade names have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenues for the related brands, the appropriate royalty rate and the weighted-average cost of capital. This measure of fair value requires considerable judgment about the value a market participant would be willing to pay in order to achieve the benefits associated with the trade name.
While we use our best estimates and assumptions to determine the fair values of the assets acquired and the liabilities assumed, involvesour estimates are inherently uncertain and subject to refinement. As a number of estimates and assumptions that could differ materially fromresult, during the final amounts recorded. The allocationmeasurement period, does not exceedwhich may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed. Upon the conclusion of the acquisition. To the extent additional information to refine the original allocation becomes available during the allocationmeasurement period, the allocation of the purchase price is adjusted. Should information become available after the allocation period, those items are adjusted through operating results. The direct costs of the acquisitionany subsequent adjustments are recorded as operating expenses. Certain acquisitions include contingent consideration related to the performance of the acquired operations following the acquisition. Contingent consideration is recorded at estimated fair value at the date of the acquisition, and is remeasured each reporting period, with any changes in fair value recorded in theour Consolidated Statements of Income. We also estimate the fair valueuseful lives of the acquisition-related contingent consideration using various valuation approaches, as well as significant unobservable inputs, reflecting our assessment of the assumptions market participants would use to value these liabilities.
| Payments due by period(a) | ||||||||||||||||||||
| (in millions) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
| Credit Facility | $ | 3,663.9 | $ | 805.5 | $ | 271.0 | $ | 2,256.2 | $ | 331.2 | ||||||||||
| Securitization Facility | 811.0 | 811.0 | — | — | — | |||||||||||||||
| Estimated interest payments- Credit Facility(b) | 534.1 | 119.5 | 330.8 | 77.0 | 6.8 | |||||||||||||||
| Estimated interest payments- Securitization Facility(b) | 57.0 | 19.5 | 37.5 | — | — | |||||||||||||||
| Operating leases | 92.0 | 19.3 | 26.5 | 20.9 | 25.3 | |||||||||||||||
| Deferred purchase price(c) | 29.3 | 3.6 | 25.7 | — | — | |||||||||||||||
| Other(c) | 18.1 | — | 13.5 | 1.4 | 3.2 | |||||||||||||||
| Total | $ | 5,205.4 | $ | 1,778.5 | $ | 704.9 | $ | 2,355.4 | $ | 366.6 | ||||||||||
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 theeach 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.
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Revenues, net | $ | 2,250 | $ | 1,832 | $ | 1,703 | ||||||
| Merchant commissions | 113 | 104 | 108 | |||||||||
| Total adjusted revenues | $ | 2,136 | $ | 1,727 | $ | 1,595 | ||||||
| Year Ended December 31,* | ||||||||
| 2017 | 2016 | |||||||
| (Unaudited) | Macro Adjusted1 | Pro forma2,3 | ||||||
| FUEL CARDS | ||||||||
| Pro forma and macro adjusted | $ | 1,068 | $ | 996 | ||||
| Impact of acquisitions/dispositions | — | (7 | ) | |||||
| Impact of fuel prices/spread | 30 | — | ||||||
| Impact of foreign exchange rates | — | — | ||||||
One-time items4 | (2 | ) | 8 | |||||
| As reported | $ | 1,096 | $ | 997 | ||||
| CORPORATE PAYMENTS | ||||||||
| Pro forma and macro adjusted | $ | 260 | $ | 226 | ||||
| Impact of acquisitions/dispositions | — | (47 | ) | |||||
| Impact of fuel prices/spread | 1 | — | ||||||
| Impact of foreign exchange rates | 1 | — | ||||||
One-time items4 | — | — | ||||||
| As reported | $ | 262 | $ | 180 | ||||
| TOLLS | ||||||||
| Pro forma and macro adjusted | $ | 302 | $ | 257 | ||||
| Impact of acquisitions/dispositions | — | (154 | ) | |||||
| Impact of fuel prices/spread | — | — | ||||||
| Impact of foreign exchange rates | 25 | — | ||||||
One-time items4 | — | — | ||||||
| As reported | $ | 327 | $ | 103 | ||||
| LODGING | ||||||||
| Pro forma and macro adjusted | $ | 127 | $ | 105 | ||||
| Impact of acquisitions/dispositions | — | (4 | ) | |||||
| Impact of fuel prices/spread | — | — | ||||||
| Impact of foreign exchange rates | — | — | ||||||
One-time items4 | — | — | ||||||
| As reported | $ | 127 | $ | 101 | ||||
| GIFT | ||||||||
| Pro forma and macro adjusted | $ | 194 | $ | 185 | ||||
| Impact of acquisitions/dispositions | — | — | ||||||
| Impact of fuel prices/spread | — | — | ||||||
| Impact of foreign exchange rates | — | — | ||||||
One-time items4 | — | — | ||||||
| As reported | $ | 194 | $ | 185 | ||||
OTHER5 | ||||||||
| Pro forma and macro adjusted | $ | 243 | $ | 244 | ||||
| Impact of acquisitions/dispositions | — | 23 | ||||||
| Impact of fuel prices/spread | — | — | ||||||
| Impact of foreign exchange rates | 1 | — | ||||||
One-time items4 | — | — | ||||||
| As reported | $ | 244 | $ | 266 | ||||
| FLEETCOR CONSOLIDATED REVENUES | ||||||||
| Pro forma and macro adjusted | $ | 2,194 | $ | 2,013 | ||||
| Impact of acquisitions/dispositions | — | (189 | ) | |||||
| Impact of fuel prices/spread | 30 | — | ||||||
| Impact of foreign exchange rates | 27 | — | ||||||
One-time items4 | (2 | ) | 8 | |||||
| As reported | $ | 2,250 | $ | 1,832 | ||||
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 usecalculate 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. We believe it is useful to exclude non-cash stockshare 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 stockshare 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,acquired; therefore, we have excluded amortization expense from our adjusted net income. Integration and deal related costs represent business acquisition transaction costs, professional services fees, short-term retention bonuses and system migration costs, etc., that are not indicative of the performance of the underlying business. We also believe that adjustedcertain expenses, the impact of discrete tax items, the impact of business dispositions, impairment charges, asset write-offs, restructuring and related costs, losses on extinguishment of debt, and legal settlements and regulatory-related legal fees do not necessarily reflect how our business is performing. We adjust net income for the tax effect of each of these non-tax items using our effective income tax rate during the period, exclusive of discrete tax items. Adjusted net income and adjusted net income per diluted share are appropriate supplemental measures of financial performance and may be useful to investors to understanding our operating performance on a consistent basis.that do not represent and should not be considered as an alternative to net income, net income per diluted share or cash flow from operations, as determined by GAAP. Adjusted net income and adjusted net income per diluted share are not intended to be a substitute for GAAP financial measures, and shouldour calculation thereof may not be usedcomparable to that reported by other companies.
Organic revenue growth is calculated as such.revenue growth in the current period adjusted for the impact of changes in the macroeconomic environment (to include fuel price, fuel price spreads and changes in foreign exchange rates) over revenue in the comparable prior period adjusted to include or remove the impact of acquisitions and/or divestitures and non-recurring items that have occurred subsequent to that period. We believe that organic revenue growth on a macro-neutral and consistent acquisition/divestiture/non-recurring item basis is useful to investors for understanding the performance of FLEETCOR. EBITDA is defined as earnings before interest, income taxes, interest expense, net, other expense (income), depreciation and amortization, loss on extinguishment of debt, investment loss/gain and other operating, net. EBITDA margin is defined as EBITDA as a percentage of revenue.
Management uses adjusted net income, adjusted net income per diluted share, organic revenue growth and EBITDA:
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•as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis;
•for planning purposes, including the preparation of our internal annual operating budget;
•to allocate resources to enhance the financial performance of our business; and
•to evaluate the performance and effectiveness of our operational strategies.
Reconciliation of Non-GAAP Revenue and Key Performance Metric by Segment to GAAP. Set forth below is a reconciliation of organic growth by segment, calculated using pro forma and macro adjusted revenue and transactions to the most directly comparable GAAP measure, revenue, net and transactions (in millions):
| Revenue | Key Performance Indicators | |||||||||||||||||||||||||
| Year Ended December 31,* | Year Ended December 31,* | |||||||||||||||||||||||||
| (Unaudited) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
| VEHICLE PAYMENTS - TRANSACTIONS | ||||||||||||||||||||||||||
| Pro forma and macro adjusted | $ | 2,038 | $ | 1,914 | 649 | 629 | ||||||||||||||||||||
| Impact of acquisitions/dispositions | — | 36 | — | (35) | ||||||||||||||||||||||
| Impact of fuel prices/spread | (53) | — | — | — | ||||||||||||||||||||||
| Impact of foreign exchange rates | 21 | — | — | — | ||||||||||||||||||||||
| As reported | $ | 2,006 | $ | 1,950 | 649 | 595 | ||||||||||||||||||||
| CORPORATE PAYMENTS - SPEND | ||||||||||||||||||||||||||
| Pro forma and macro adjusted | $ | 987 | $ | 830 | $ | 145,571 | $ | 126,076 | ||||||||||||||||||
| Impact of acquisitions/dispositions | — | (60) | — | (9,249) | ||||||||||||||||||||||
| Impact of fuel prices/spread | (1) | — | — | — | ||||||||||||||||||||||
| Impact of foreign exchange rates | (5) | — | — | — | ||||||||||||||||||||||
| As reported | $ | 981 | $ | 770 | $ | 145,571 | $ | 116,827 | ||||||||||||||||||
| LODGING PAYMENTS - ROOM NIGHTS | ||||||||||||||||||||||||||
| Pro forma and macro adjusted | $ | 520 | $ | 466 | 37 | 38 | ||||||||||||||||||||
| Impact of acquisitions/dispositions | — | (9) | — | (1) | ||||||||||||||||||||||
| Impact of fuel prices/spread | — | — | — | — | ||||||||||||||||||||||
| Impact of foreign exchange rates | — | — | — | — | ||||||||||||||||||||||
| As reported | $ | 520 | $ | 457 | 37 | 37 | ||||||||||||||||||||
OTHER1 - TRANSACTIONS | ||||||||||||||||||||||||||
| Pro forma and macro adjusted | $ | 251 | $ | 251 | 1,309 | 1,193 | ||||||||||||||||||||
| Impact of acquisitions/dispositions | — | — | — | — | ||||||||||||||||||||||
| Impact of fuel prices/spread | — | — | — | — | ||||||||||||||||||||||
| Impact of foreign exchange rates | — | — | — | — | ||||||||||||||||||||||
| As reported | $ | 251 | $ | 251 | 1,309 | 1,193 | ||||||||||||||||||||
| FLEETCOR CONSOLIDATED REVENUES | ||||||||||||||||||||||||||
| Pro forma and macro adjusted | $ | 3,796 | $ | 3,460 | Intentionally Left Blank | |||||||||||||||||||||
| Impact of acquisitions/dispositions | — | (33) | ||||||||||||||||||||||||
Impact of fuel prices/spread2 | (54) | — | ||||||||||||||||||||||||
Impact of foreign exchange rates2 | 16 | — | ||||||||||||||||||||||||
| As reported | $ | 3,758 | $ | 3,427 | ||||||||||||||||||||||
| * Columns may not calculate due to rounding. | |||||||||||||||||
1 Other includes Gift and Payroll Card operating segments. | |||||||||||||||||
2 Revenues reflect an estimated $39 million negative impact from fuel prices and approximately $15 million negative impact from fuel price spreads, as well as $16 million positive impact due to movements in foreign exchange rates. | |||||||||||||||||
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Adjusted net income and adjusted net income per diluted share. Set forth below is a reconciliation of adjusted net income and adjusted net income per diluted share to the most directly comparable GAAP measure, net income and net income per diluted share (in thousands, except per share amounts)*:
| Year Ended December 31,* | ||||||||||||||||
| (Unaudited) | 2017 | 20162 | 2015 | |||||||||||||
| Net income | $ | 740,200 | $ | 452,385 | $ | 362,431 | ||||||||||
| Net income per diluted share | $ | 7.91 | $ | 4.75 | $ | 3.85 | ||||||||||
| Stock based compensation | 93,297 | 63,946 | 90,122 | |||||||||||||
| Amortization of intangible assets, premium on receivables, deferred financing costs and discounts | 233,280 | 184,475 | 180,704 | |||||||||||||
| Impairment of investment | 44,600 | 36,065 | 40,000 | |||||||||||||
| Net gain on disposition of business | (109,205 | ) | — | — | ||||||||||||
| Loss on extinguishment of debt | 3,296 | — | — | |||||||||||||
| Non-recurring loss due to merger of entities | 2,028 | — | — | |||||||||||||
| Non-recurring net gain at equity method investment | — | (10,845 | ) | — | ||||||||||||
| Legal settlement | 11,000 | — | — | |||||||||||||
| Restructuring costs | 1,043 | — | — | |||||||||||||
| Total pre-tax adjustments | 279,339 | 273,641 | 310,826 | |||||||||||||
| Impact of 2017 Tax Act | (127,466 | ) | — | — | ||||||||||||
Income tax impact of pre-tax adjustments at the effective tax rate1 | (93,164 | ) | (66,850 | ) | (80,632 | ) | ||||||||||
| Adjusted net income | $ | 798,909 | $ | 659,176 | $ | 592,625 | ||||||||||
| Adjusted net income per diluted share | $ | 8.54 | $ | 6.92 | $ | 6.30 | ||||||||||
| Diluted shares | 93,594 | 95,213 | 94,139 | |||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| (Unaudited) | 2023 | 2022 | ||||||||||||||||||
| Net income | $ | 981,890 | $ | 954,327 | ||||||||||||||||
| Net income per diluted share | $ | 13.20 | $ | 12.42 | ||||||||||||||||
| Stock-based compensation | 116,086 | 121,416 | ||||||||||||||||||
Amortization1 | 233,870 | 238,020 | ||||||||||||||||||
| Loss on extinguishment of debt | — | 1,934 | ||||||||||||||||||
| Integration and deal related costs | 30,660 | 18,895 | ||||||||||||||||||
Restructuring, related and other costs2 | 3,825 | 6,690 | ||||||||||||||||||
| Legal settlements/litigation | 2,750 | 6,051 | ||||||||||||||||||
| Gain on disposition of business | (13,712) | — | ||||||||||||||||||
| Total pre-tax adjustments | 373,479 | 393,006 | ||||||||||||||||||
Income taxes3 | (96,781) | (110,634) | ||||||||||||||||||
| Adjusted net income | $ | 1,258,588 | $ | 1,236,699 | ||||||||||||||||
| Adjusted net income per diluted share | $ | 16.92 | $ | 16.10 | ||||||||||||||||
| Diluted shares | 74,387 | 76,862 | ||||||||||||||||||
1 | ||
2 | ||
3 Includes $9 million adjustment for tax benefit of | ||
EBITDA and EBITDA margin. EBITDA is defined as earnings before interest, income taxes, interest expense, net, other expense (income), depreciation and amortization, loss on extinguishment of debt, investment loss/gain and other operating, net. EBITDA margin is defined as EBITDA as a percentage of revenue.
The following table reconciles EBITDA and EBITDA margin to net income (in millions)*:
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| Net income | $ | 981.9 | $ | 954.3 | |||||||||||||
| Provision for income taxes | 343.1 | 321.3 | |||||||||||||||
| Interest expense, net | 348.6 | 164.7 | |||||||||||||||
| Other (income) expense | (16.6) | 3.0 | |||||||||||||||
| Investment (gain) loss | (0.1) | 1.4 | |||||||||||||||
| Depreciation and amortization | 336.6 | 322.3 | |||||||||||||||
| Loss on extinguishment of debt | — | 1.9 | |||||||||||||||
| Other operating, net | 0.8 | 0.3 | |||||||||||||||
| EBITDA | $ | 1,994.2 | $ | 1,769.2 | |||||||||||||
| Revenues, net | $ | 3,757.7 | $ | 3,427.1 | |||||||||||||
| EBITDA margin | 53.1 | % | 51.6 | % | |||||||||||||
| * Columns may not calculate due to rounding. | |||||||||||||||||
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign currency risk
Foreign Earnings
Our International segment exposesinternational businesses expose us to foreign currency exchange rate changes that can impact translations of foreign-denominated assets and liabilities into U.S. dollars and future earnings and cash flows from transactions denominated in different currencies. RevenueRevenues from our International segment was 36.5%, 30.2%international businesses were 43.2% and 27.7%38.9% of total revenuerevenues for the years ended December 31, 2017, 2016,2023, and 2015,2022, respectively. We measure foreign currency exchange risk based on changes in foreign currency exchange rates using a sensitivity analysis. The sensitivity analysis measures the potential change in earnings based on a hypothetical 10% change in currency exchange rates. Exchange rates and currency positions as of December 31, 2017 were used to perform the sensitivity analysis. Such analysis indicated that a hypothetical 10% change in foreign currency exchange rates would have increased or decreased consolidated operating income during the year ended December 31, 20172023 by approximately $34.2$86.0 million had the U.S. dollar exchange rate increased or decreased relative to the currencies to which we had exposure. When exchange rates and currency positions as of December 31, 2016 and 2015 were used to perform this sensitivitySimilarly, the analysis for the analysisprior year indicated that a hypothetical 10% change in currency exchange rates would have increased or decreased consolidated operating income for the years ended December 31, 2016 and 20152022 by approximately $24.8$68.4 million and $22.5 million, respectively.had the U.S. dollar exchange rate increased or decreased relative to the currencies to which we had exposure.
Unhedged Cross-Currency Risk
With the acquisition of Cambridge in August 2017,our cross-border payment solutions, we have additional foreign exchange risk and associated foreign exchange risk management requirements due to the nature of our internationalcross-border payments provider business. The majority of Cambridge'scross-border payments revenue is from exchanges of currency at spot rates, which enable customers to make cross-currency payments. In addition, Cambridgeour cross-border payment solutions, we also writeswrite foreign currency forward and option contracts for customers to facilitate future payments. The duration of these derivative contracts at inception is generally less than one year. Cambridge aggregates itsWe aggregate foreign exchange exposures arising from customer contracts, including the derivative contracts described above, and hedgeshedge (economic hedge) the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties.
Interest rate risk
We are exposed to changes inthe risk of changing interest rates on our cash investments and on the unhedged portion of our variable rate debt. We invest our excess cash either to pay down our Securitization Facility debt or in securities that we believe are highly liquid and marketable in the short term. These investments are not held for trading or other speculative purposes. Under our $4.325 billion Credit Agreement, the Credit Agreement provides for senior secured credit facilities consisting of a revolving A credit facility in the amount of $1.285 billion, a term loan A facility in the amount of $2.690 billion and a term loan B facility in the amount of $350.0 million asAs of December 31, 2017.2023, and 2022, we had $5.4 billion and $5.7 billion, respectively, of variable rate debt outstanding under our Credit Agreement. See Note 11 of the accompanying consolidated financial statements for information about the Credit Agreement. We use derivative financial instruments to reduce our exposure related to changes in interest rates. As of December 31, 2023, we had a number of receive-variable SOFR, pay-fixed interest rate swap derivative contracts with a cumulative notional U.S. dollar value of $4.0 billion. The revolving credit facility consistsobjective of (a) a revolving A credit facilitythese contracts is to reduce the variability of cash flows in the amountpreviously unhedged interest payments associated with variable rate debt, the sole source of $800.0 million, with sublimits for letterswhich is due to changes in SOFR benchmark interest rate. While these agreements are intended to lessen the impact of credit and swing line loans, (b) a revolving B facility in the amount of $450.0 million for swing line loans and multi-currency borrowings and, (c) a revolving C facility in the amount of $35.0 million for multi-currency borrowings in Australian Dollars or New Zealand Dollars.
Based on the amounts and mix of our fixed and floating rate debt (exclusive of our Securitization Facility)Facility but inclusive of the aforementioned interest rate swaps) at December 31, 2017, 20162023 and 2015,2022, if market interest rates had increased or decreased an average of 100 basis points, our interest expense for the years ended December 31, 2023 and 2022 would have changed by approximately $34.7 million, $27.9$14 million and $26.2$43 million, respectively. We determined these amounts by considering the impact of the hypothetical interest rates on our borrowing costs. These analyses do not consider the effects of changes in the level of overall economic activity that could exist in such an environment.
Fuel price risk
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 decline in retail fuel prices could cause a change 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. The impact of changes in fuel price is somewhat mitigated by our agreements with certain merchants, where the price paid to the merchant is equal to the lesser of the merchant’s cost plus a markup or a percentage of the transaction purchase price. We do not enter into any fuel price derivative instruments.
From our merchant and network relationships, we derive revenue from the difference between the price charged to a fleet customer for a transaction and the price paid to the merchant or network for the same transaction. TheFor certain of our payment products, the price paid to a merchant or network is calculated as the merchant’s wholesale cost of fuel plus a markup. The merchant’s wholesale cost of fuel is dependent on several factors including, among others, the factors described above affecting fuel prices. The fuel price that we charge to our customer is dependent on several factors including, among others, the fuel price
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paid to the fuel merchant, posted retail fuel prices and competitive fuel prices. We experience fuel-pricefuel 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. Accordingly, if fuel-pricefuel price spreads contract, we may generate less revenue, which could adversely affect our operating results. The impact of volatility in fuel spreads is somewhat mitigated by our agreements with certain merchants, where the price paid to the merchant is equal to the lesser of the merchant’s cost plus a markup or a percentage of the transaction purchase price.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |||||
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Report of Independent Registered Public Accounting Firm
To the ShareholdersStockholders and the Board of Directors of FleetCorFLEETCOR Technologies, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of FleetCorFLEETCOR Technologies, Inc. and subsidiaries (the Company) as of December 31, 20172023 and 2016,2022, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2017,2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2018February 29, 2024 expressed an unqualifiedadverse opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
| Valuation of goodwill | ||||||||
| Description of the Matter | At December 31, 2023, the Company’s goodwill was $5.6 billion. As discussed in Note 2 to the consolidated financial statements, the Company completes an impairment test of goodwill at the reporting unit level at least annually or more frequently if facts and circumstances indicate that goodwill might be impaired. For a reporting unit in which the Company concludes, based on a qualitative assessment, that it is more likely than not that the fair value of the reporting unit is less than its carrying amount (or if the Company elects to not perform the qualitative assessment), the Company performs a quantitative impairment test, which involves estimating the fair value of the reporting unit which is measured based upon, among other factors, a discounted cash flow analysis, as well as market multiples for comparable companies. Auditing the Company's estimate of reporting unit fair value involved a high degree of subjectivity as estimates underlying the determination of reporting unit fair value using the discounted cash flow model were based on significant assumptions that are sensitive to change and are affected by expected future market and economic conditions. These assumptions included forecasts for Revenue, net, Earnings before Interest Taxes Depreciation and Amortization (EBITDA), and long-term growth rates as well as the discount rates, which reflected risk-based factors based on the reporting units’ geographical location and business risk. | |||||||
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s review of the significant assumptions described above. For example, we tested controls over management’s review of a quantitatively tested reporting units’ long-term growth rate and discount rate used in the determination of said reporting unit's estimated fair value. To test the estimated fair value of a quantitatively tested reporting unit, our audit procedures included, among others, assessing the methodologies used by the Company and testing the significant assumptions discussed above, inclusive of the underlying data used by the Company in its development of these assumptions. We involved our valuation specialists to assist us with these procedures. Our valuation specialists evaluated management’s estimation of the discount rate used in a reporting unit's fair value calculation, performed a comparison of market multiples to observable transactions, and independently recalculated the discount rate used. We also compared earnings forecasts to historical results, to current industry and economic trends, and performed sensitivity analyses of the significant assumptions to evaluate the changes in the fair value of a reporting unit that would result from changes in the significant assumptions. | |||||||
/s/ Ernst & Young LLP
We have served as the Company‘sCompany's auditor since 2002.
Atlanta, Georgia
60
FLEETCOR Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share and Par Value Amounts)
| December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 1,389,648 | $ | 1,435,163 | ||||||||||
| Restricted cash | 1,751,887 | 854,017 | ||||||||||||
| Accounts and other receivables (less allowance for credit losses of $180,163 at December 31, 2023 and $149,846 at December 31, 2022) | 2,161,586 | 2,064,745 | ||||||||||||
| Securitized accounts receivable—restricted for securitization investors | 1,307,000 | 1,287,000 | ||||||||||||
| Prepaid expenses and other current assets | 474,144 | 465,227 | ||||||||||||
| Total current assets | 7,084,265 | 6,106,152 | ||||||||||||
| Property and equipment, net | 343,154 | 294,692 | ||||||||||||
| Goodwill | 5,644,958 | 5,201,435 | ||||||||||||
| Other intangibles, net | 2,085,663 | 2,130,974 | ||||||||||||
| Investments | 69,521 | 74,281 | ||||||||||||
| Other assets | 248,691 | 281,726 | ||||||||||||
| Total assets | $ | 15,476,252 | $ | 14,089,260 | ||||||||||
| Liabilities and stockholders’ equity | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | 1,624,995 | $ | 1,568,942 | ||||||||||
| Accrued expenses | 356,118 | 351,936 | ||||||||||||
| Customer deposits | 2,397,279 | 1,505,004 | ||||||||||||
| Securitization facility | 1,307,000 | 1,287,000 | ||||||||||||
| Current portion of notes payable and lines of credit | 819,749 | 1,027,056 | ||||||||||||
| Other current liabilities | 320,612 | 303,517 | ||||||||||||
| Total current liabilities | 6,825,753 | 6,043,455 | ||||||||||||
| Notes payable and other obligations, less current portion | 4,596,156 | 4,722,838 | ||||||||||||
| Deferred income taxes | 470,232 | 527,465 | ||||||||||||
| Other noncurrent liabilities | 301,752 | 254,009 | ||||||||||||
| Total noncurrent liabilities | 5,368,140 | 5,504,312 | ||||||||||||
| Commitments and contingencies (Note 15) | ||||||||||||||
| Stockholders’ equity: | ||||||||||||||
Common stock, $0.001 par value; 475,000,000 shares authorized; 128,759,639 shares issued and 71,715,804 shares outstanding at December 31, 2023; and 127,802,590 shares issued and 73,356,709 shares outstanding at December 31, 2022 | 129 | 128 | ||||||||||||
| Additional paid-in capital | 3,266,185 | 3,049,570 | ||||||||||||
| Retained earnings | 8,192,659 | 7,210,769 | ||||||||||||
| Accumulated other comprehensive loss | (1,289,099) | (1,509,650) | ||||||||||||
Less treasury stock (57,043,835 shares and 54,445,881 shares at December 31, 2023 and 2022, respectively) | (6,887,515) | (6,209,324) | ||||||||||||
| Total stockholders’ equity | 3,282,359 | 2,541,493 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 15,476,252 | $ | 14,089,260 | ||||||||||
| See accompanying notes. | ||
61
| December 31, | ||||||||
| 2017 | 2016 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 913,595 | $ | 475,018 | ||||
| Restricted cash | 217,275 | 168,752 | ||||||
| Accounts and other receivables (less allowance for doubtful accounts of $46,031 and $32,506, respectively) | 1,420,011 | 1,202,009 | ||||||
| Securitized accounts receivable—restricted for securitization investors | 811,000 | 591,000 | ||||||
| Prepaid expenses and other current assets | 187,820 | 90,914 | ||||||
| Total current assets | 3,549,701 | 2,527,693 | ||||||
| Property and equipment, net | 180,057 | 142,504 | ||||||
| Goodwill | 4,715,823 | 4,195,150 | ||||||
| Other intangibles, net | 2,724,957 | 2,653,233 | ||||||
| Investments | 32,859 | 36,200 | ||||||
| Other assets | 114,962 | 71,952 | ||||||
| Total assets | $ | 11,318,359 | $ | 9,626,732 | ||||
| Liabilities and stockholders’ equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,437,314 | $ | 1,151,432 | ||||
| Accrued expenses | 238,472 | 238,812 | ||||||
| Customer deposits | 732,171 | 530,787 | ||||||
| Securitization facility | 811,000 | 591,000 | ||||||
| Current portion of notes payable and lines of credit | 805,512 | 745,506 | ||||||
| Other current liabilities | 71,033 | 38,781 | ||||||
| Total current liabilities | 4,095,502 | 3,296,318 | ||||||
| Notes payable and other obligations, less current portion | 2,902,104 | 2,521,727 | ||||||
| Deferred income taxes | 518,912 | 668,580 | ||||||
| Other noncurrent liabilities | 125,319 | 56,069 | ||||||
| Total noncurrent liabilities | 3,546,335 | 3,246,376 | ||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $0.001 par value; 475,000,000 shares authorized; 122,083,059 shares issued and 89,803,982 shares outstanding at December 31, 2017; and 121,259,960 shares issued and 91,836,938 shares outstanding at December 31, 2016 | 122 | 121 | ||||||
| Additional paid-in capital | 2,214,224 | 2,074,094 | ||||||
| Retained earnings | 2,958,921 | 2,218,721 | ||||||
| Accumulated other comprehensive loss | (551,857 | ) | (666,403 | ) | ||||
| Less treasury stock (32,279,077 shares at December 31, 2017; and 29,423,022 shares at December 31, 2016) | (944,888 | ) | (542,495 | ) | ||||
| Total stockholders’ equity | 3,676,522 | 3,084,038 | ||||||
| Total liabilities and stockholders’ equity | $ | 11,318,359 | $ | 9,626,732 | ||||
FLEETCOR Technologies, Inc. and Subsidiaries
Consolidated Statements of Income
(In Thousands, Except Per Share Amounts)
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Revenues, net | $ | 3,757,719 | $ | 3,427,129 | $ | 2,833,736 | ||||||||||||||
| Expenses: | ||||||||||||||||||||
| Processing | 819,908 | 764,707 | 559,819 | |||||||||||||||||
| Selling | 340,157 | 309,082 | 262,118 | |||||||||||||||||
| General and administrative | 603,424 | 584,135 | 485,830 | |||||||||||||||||
| Depreciation and amortization | 336,604 | 322,282 | 284,197 | |||||||||||||||||
| Other operating, net | 753 | 282 | (784) | |||||||||||||||||
| Operating income | 1,656,873 | 1,446,641 | 1,242,556 | |||||||||||||||||
| Investment (gain) loss, net | (116) | 1,382 | (9) | |||||||||||||||||
| Other (income) expense, net | (16,623) | 3,003 | 3,858 | |||||||||||||||||
| Interest expense, net | 348,607 | 164,662 | 113,705 | |||||||||||||||||
| Loss on extinguishment of debt | — | 1,934 | 16,194 | |||||||||||||||||
| Total other expense, net | 331,868 | 170,981 | 133,748 | |||||||||||||||||
| Income before income taxes | 1,325,005 | 1,275,660 | 1,108,808 | |||||||||||||||||
| Provision for income taxes | 343,115 | 321,333 | 269,311 | |||||||||||||||||
| Net income | $ | 981,890 | $ | 954,327 | $ | 839,497 | ||||||||||||||
| Earnings per share: | ||||||||||||||||||||
| Basic earnings per share | $ | 13.42 | $ | 12.62 | $ | 10.23 | ||||||||||||||
| Diluted earnings per share | $ | 13.20 | $ | 12.42 | $ | 9.99 | ||||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||
| Basic shares | 73,155 | 75,598 | 82,060 | |||||||||||||||||
| Diluted shares | 74,387 | 76,862 | 84,061 | |||||||||||||||||
| See accompanying notes. | ||
62
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Revenues, net | $ | 2,249,538 | $ | 1,831,546 | $ | 1,702,865 | ||||||
| Expenses: | ||||||||||||
| Merchant commissions | 113,133 | 104,345 | 108,257 | |||||||||
| Processing | 429,613 | 355,414 | 331,073 | |||||||||
| Selling | 170,717 | 131,443 | 109,075 | |||||||||
| General and administrative | 387,694 | 283,625 | 297,715 | |||||||||
| Depreciation and amortization | 264,560 | 203,256 | 193,453 | |||||||||
| Other operating, net | 61 | (690 | ) | (4,242 | ) | |||||||
| Operating income | 883,760 | 754,153 | 667,534 | |||||||||
| Investment loss | 53,164 | 36,356 | 57,668 | |||||||||
| Other (income) expense, net | (173,436 | ) | 2,982 | 2,523 | ||||||||
| Interest expense, net | 107,146 | 71,896 | 71,339 | |||||||||
| Loss on extinguishment of debt | 3,296 | — | — | |||||||||
| Total other (income) expense | (9,830 | ) | 111,234 | 131,530 | ||||||||
| Income before income taxes | 893,590 | 642,919 | 536,004 | |||||||||
| Provision for income taxes | 153,390 | 190,534 | 173,573 | |||||||||
| Net income | $ | 740,200 | $ | 452,385 | $ | 362,431 | ||||||
| Basic earnings per share | $ | 8.12 | $ | 4.89 | $ | 3.94 | ||||||
| Diluted earnings per share | $ | 7.91 | $ | 4.75 | $ | 3.85 | ||||||
| Weighted average shares outstanding: | ||||||||||||
| Basic shares | 91,129 | 92,597 | 92,023 | |||||||||
| Diluted shares | 93,594 | 95,213 | 94,139 | |||||||||
FLEETCOR Technologies, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In Thousands)
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Net income | $ | 981,890 | $ | 954,327 | $ | 839,497 | ||||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||||||
| Foreign currency translation gains (losses), net of tax | 140,089 | (77,135) | (144,543) | |||||||||||||||||
| Reclassification of accumulated foreign currency translation losses to net income as a result of the sale of a foreign entity (see Note 19) | 120,269 | — | — | |||||||||||||||||
| Net change in derivative contracts, net of tax | (39,807) | 32,101 | 43,085 | |||||||||||||||||
| Total other comprehensive income (loss) | 220,551 | (45,034) | (101,458) | |||||||||||||||||
| Total comprehensive income | $ | 1,202,441 | $ | 909,293 | $ | 738,039 | ||||||||||||||
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Net income | $ | 740,200 | $ | 452,385 | $ | 362,431 | ||||||
| Other comprehensive income (loss): | ||||||||||||
| Foreign currency translation gains (losses), net of tax | 83,165 | (95,592 | ) | (279,303 | ) | |||||||
| Reclassification of foreign currency translation loss to investment, net of tax | 31,381 | — | — | |||||||||
| Total other comprehensive income (loss) | 114,546 | (95,592 | ) | (279,303 | ) | |||||||
| Total comprehensive income | $ | 854,746 | $ | 356,793 | $ | 83,128 | ||||||
See accompanying notes.
63
FLEETCOR Technologies, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(In Thousands)
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total | |||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | 126 | $ | 2,749,900 | $ | 5,416,945 | $ | (1,363,158) | $ | (3,448,402) | $ | 3,355,411 | ||||||||||||||||||||||||||
| Net income | — | — | 839,497 | — | — | 839,497 | ||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | (101,458) | — | (101,458) | ||||||||||||||||||||||||||||||||
| Acquisition of common stock | — | — | — | — | (1,355,722) | (1,355,722) | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | 80,071 | — | — | — | 80,071 | ||||||||||||||||||||||||||||||||
| Issuance of common stock | 1 | 48,780 | — | — | — | 48,781 | ||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 127 | 2,878,751 | 6,256,442 | (1,464,616) | (4,804,124) | 2,866,580 | ||||||||||||||||||||||||||||||||
| Net income | — | — | 954,327 | — | — | 954,327 | ||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | (45,034) | — | (45,034) | ||||||||||||||||||||||||||||||||
| Acquisition of common stock | — | — | — | — | (1,405,200) | (1,405,200) | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | 121,416 | — | — | — | 121,416 | ||||||||||||||||||||||||||||||||
| Issuance of common stock | 1 | 49,403 | — | — | — | 49,404 | ||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 128 | 3,049,570 | 7,210,769 | (1,509,650) | (6,209,324) | 2,541,493 | ||||||||||||||||||||||||||||||||
| Net income | — | — | 981,890 | — | — | 981,890 | ||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | 220,551 | — | 220,551 | ||||||||||||||||||||||||||||||||
| Acquisition of common stock | — | (13,212) | — | — | (678,191) | (691,403) | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | 116,086 | — | — | — | 116,086 | ||||||||||||||||||||||||||||||||
| Issuance of common stock | 1 | 113,741 | — | — | — | 113,742 | ||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | 129 | $ | 3,266,185 | $ | 8,192,659 | $ | (1,289,099) | $ | (6,887,515) | $ | 3,282,359 | ||||||||||||||||||||||||||
Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total | |||||||||||||||||||
| Balance at December 31, 2014 | $ | 120 | $ | 1,852,442 | $ | 1,403,905 | $ | (291,508 | ) | $ | (346,397 | ) | $ | 2,618,562 | ||||||||||
| Net income | — | — | 362,431 | — | — | 362,431 | ||||||||||||||||||
| Other comprehensive loss, net of tax of $0 | — | — | — | (279,303 | ) | — | (279,303 | ) | ||||||||||||||||
| Acquisition of common stock | — | — | — | — | (8,119 | ) | (8,119 | ) | ||||||||||||||||
| Issuance of common stock | 1 | 136,475 | — | — | — | 136,476 | ||||||||||||||||||
| Balance at December 31, 2015 | 121 | 1,988,917 | 1,766,336 | (570,811 | ) | (354,516 | ) | 2,830,047 | ||||||||||||||||
| Net income | — | — | 452,385 | — | — | 452,385 | ||||||||||||||||||
| Other comprehensive loss, net of tax of $0 | — | — | — | (95,592 | ) | — | (95,592 | ) | ||||||||||||||||
| Acquisition/return of common stock | — | — | — | — | (187,979 | ) | (187,979 | ) | ||||||||||||||||
| Issuance of common stock | — | 85,177 | — | — | — | 85,177 | ||||||||||||||||||
| Balance at December 31, 2016 | 121 | 2,074,094 | 2,218,721 | (666,403 | ) | (542,495 | ) | 3,084,038 | ||||||||||||||||
| Net income | — | — | 740,200 | — | — | 740,200 | ||||||||||||||||||
| Other comprehensive income, net of tax of $0 | — | — | — | 114,546 | — | 114,546 | ||||||||||||||||||
| Acquisition of common stock | — | — | — | — | (402,393 | ) | (402,393 | ) | ||||||||||||||||
| Issuance of common stock | 1 | 140,130 | — | — | — | 140,131 | ||||||||||||||||||
| Balance at December 31, 2017 | $ | 122 | $ | 2,214,224 | $ | 2,958,921 | $ | (551,857 | ) | $ | (944,888 | ) | $ | 3,676,522 | ||||||||||
See accompanying notes.
64
FLEETCOR Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
| Year Ended Year Ended December 31, | Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||
| Operating activities | |||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 740,200 | $ | 452,385 | $ | 362,431 | |||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||||||||||||||||||||||||||
| Depreciation | 46,599 | 36,456 | 30,462 | ||||||||||||||||||||||||||||||||||||||
| Depreciation | |||||||||||||||||||||||||||||||||||||||||
| Depreciation | |||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 93,297 | 63,946 | 90,122 | ||||||||||||||||||||||||||||||||||||||
| Provision for losses on accounts receivable | 44,857 | 35,885 | 24,629 | ||||||||||||||||||||||||||||||||||||||
| Provision for credit losses on accounts and other receivables | |||||||||||||||||||||||||||||||||||||||||
| Amortization of deferred financing costs and discounts | 6,952 | 7,582 | 7,049 | ||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 211,849 | 161,635 | 159,740 | ||||||||||||||||||||||||||||||||||||||
| Amortization of premium on receivables | 6,112 | 5,165 | 3,250 | ||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets and premium on receivables | |||||||||||||||||||||||||||||||||||||||||
| Deferred income taxes | |||||||||||||||||||||||||||||||||||||||||
| Deferred income taxes | |||||||||||||||||||||||||||||||||||||||||
| Deferred income taxes | |||||||||||||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | 3,296 | — | — | ||||||||||||||||||||||||||||||||||||||
| Deferred income taxes | (247,712 | ) | (28,681 | ) | 30,626 | ||||||||||||||||||||||||||||||||||||
| Investment loss | 53,164 | 36,356 | 57,668 | ||||||||||||||||||||||||||||||||||||||
| Gain on disposition of business | (174,983 | ) | — | — | |||||||||||||||||||||||||||||||||||||
| Other non-cash operating income | (61 | ) | (690 | ) | (4,242 | ) | |||||||||||||||||||||||||||||||||||
| Changes in operating assets and liabilities (net of acquisitions and disposition): | |||||||||||||||||||||||||||||||||||||||||
| Restricted cash | (4,335 | ) | (2,306 | ) | (35,676 | ) | |||||||||||||||||||||||||||||||||||
| Gain on sale of assets/business | |||||||||||||||||||||||||||||||||||||||||
| Gain on sale of assets/business | |||||||||||||||||||||||||||||||||||||||||
| Gain on sale of assets/business | |||||||||||||||||||||||||||||||||||||||||
| Other non-cash operating expense (income), net | |||||||||||||||||||||||||||||||||||||||||
| Changes in operating assets and liabilities (net of acquisitions/disposition): | |||||||||||||||||||||||||||||||||||||||||
| Accounts receivable and other receivables | |||||||||||||||||||||||||||||||||||||||||
| Accounts receivable and other receivables | |||||||||||||||||||||||||||||||||||||||||
| Accounts receivable and other receivables | (431,003 | ) | (338,796 | ) | 40,017 | ||||||||||||||||||||||||||||||||||||
| Prepaid expenses and other current assets | 26,102 | 5,301 | (12,564 | ) | |||||||||||||||||||||||||||||||||||||
| Derivative assets and liabilities, net | |||||||||||||||||||||||||||||||||||||||||
| Other assets | (20,957 | ) | (20,345 | ) | (2,524 | ) | |||||||||||||||||||||||||||||||||||
| Excess tax benefits related to stock-based compensation | — | — | (26,427 | ) | |||||||||||||||||||||||||||||||||||||
| Accounts payable, accrued expenses and customer deposits | 322,346 | 292,019 | 30,023 | ||||||||||||||||||||||||||||||||||||||
| Net cash provided by operating activities | 675,723 | 705,912 | 754,584 | ||||||||||||||||||||||||||||||||||||||
| Investing activities | |||||||||||||||||||||||||||||||||||||||||
Acquisitions, net of cash acquired1 | (705,257 | ) | (1,331,985 | ) | (49,069 | ) | |||||||||||||||||||||||||||||||||||
| Acquisitions, net of cash acquired | |||||||||||||||||||||||||||||||||||||||||
| Acquisitions, net of cash acquired | |||||||||||||||||||||||||||||||||||||||||
| Acquisitions, net of cash acquired | |||||||||||||||||||||||||||||||||||||||||
| Purchases of property and equipment | (70,093 | ) | (59,011 | ) | (41,875 | ) | |||||||||||||||||||||||||||||||||||
| Proceeds from disposal of a business | 316,501 | — | — | ||||||||||||||||||||||||||||||||||||||
| Proceeds from disposal of a business, net of cash disposed | |||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||
| Other | (38,953 | ) | 1,411 | (8,470 | ) | ||||||||||||||||||||||||||||||||||||
| Net cash used in investing activities | (497,802 | ) | (1,389,585 | ) | (99,414 | ) | |||||||||||||||||||||||||||||||||||
| Financing activities | |||||||||||||||||||||||||||||||||||||||||
| Excess tax benefits related to stock-based compensation | — | — | 26,427 | ||||||||||||||||||||||||||||||||||||||
| Proceeds from issuance of common stock | 44,690 | 21,231 | 19,926 | ||||||||||||||||||||||||||||||||||||||
| Borrowings (payments) on securitization facility, net | 220,000 | (23,000 | ) | (61,000 | ) | ||||||||||||||||||||||||||||||||||||
| Proceeds from issuance of common stock | |||||||||||||||||||||||||||||||||||||||||
| Proceeds from issuance of common stock | |||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | (402,393 | ) | (187,678 | ) | — | ||||||||||||||||||||||||||||||||||||
| Deferred financing costs paid and debt discount | (12,908 | ) | (2,272 | ) | — | ||||||||||||||||||||||||||||||||||||
| Proceeds from issuance of notes payable | 780,656 | 600,000 | — | ||||||||||||||||||||||||||||||||||||||
| Borrowings on securitization facility, net | |||||||||||||||||||||||||||||||||||||||||
| Deferred financing costs | |||||||||||||||||||||||||||||||||||||||||
| Proceeds from notes payable | |||||||||||||||||||||||||||||||||||||||||
| Principal payments on notes payable | (423,156 | ) | (118,500 | ) | (103,500 | ) | |||||||||||||||||||||||||||||||||||
| Borrowings from revolver | 1,100,000 | 1,225,107 | — | ||||||||||||||||||||||||||||||||||||||
| Payments on revolver | (1,031,722 | ) | (786,849 | ) | (486,818 | ) | |||||||||||||||||||||||||||||||||||
| Borrowings (payments) on swing line of credit, net | (23,686 | ) | 26,606 | (546 | ) | ||||||||||||||||||||||||||||||||||||
| Payment of contingent consideration | — | — | (42,177 | ) | |||||||||||||||||||||||||||||||||||||
| Other | 457 | (676 | ) | (377 | ) | ||||||||||||||||||||||||||||||||||||
| Net cash provided by (used in) financing activities | 251,938 | 753,969 | (648,065 | ) | |||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||
| Net cash (used in) provided by financing activities | |||||||||||||||||||||||||||||||||||||||||
| Effect of foreign currency exchange rates on cash | 8,718 | (42,430 | ) | (37,022 | ) | ||||||||||||||||||||||||||||||||||||
| Net increase (decrease) in cash | 438,577 | 27,866 | (29,917 | ) | |||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents, beginning of year | 475,018 | 447,152 | 477,069 | ||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents, end of year | $ | 913,595 | $ | 475,018 | $ | 447,152 | |||||||||||||||||||||||||||||||||||
| Net increase in cash and cash equivalents and restricted cash | |||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents and restricted cash, beginning of year | |||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents and restricted cash, end of year | |||||||||||||||||||||||||||||||||||||||||
| Supplemental cash flow information | |||||||||||||||||||||||||||||||||||||||||
| Cash paid for interest | $ | 113,416 | $ | 70,339 | $ | 72,537 | |||||||||||||||||||||||||||||||||||
| Cash paid for interest | |||||||||||||||||||||||||||||||||||||||||
| Cash paid for interest | |||||||||||||||||||||||||||||||||||||||||
| Cash paid for income taxes | $ | 392,192 | $ | 101,951 | $ | 83,380 | |||||||||||||||||||||||||||||||||||
| Non cash investing activity, notes assumed in acquisitions | $ | 29,341 | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| See accompanying notes. | ||
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FLEETCOR Technologies, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 20172023
1. Description of Business
FLEETCOR Technologies, Inc. and its subsidiaries (the Company) is a leading global providerpayments company that helps businesses and consumers better manager their expenses. FLEETCOR's suite of commercialmodern payment solutions. solutions help customers better manage vehicle-related expenses (e.g. fueling, tolls and parking), lodging expenses (e.g. hotel bookings) and corporate payments (e.g. domestic and international vendors). This results in our customers saving time and ultimately spending less. Since its incorporation in 2000, FLEETCOR’s smarter payment and spend management solutions have been delivered in a variety of ways depending on the needs of the customer. From physical payment cards to software that includes customizable controls and robust payment capabilities, FLEETCOR provides businesses and consumers with a better way to pay.
FLEETCOR has been a member of the S&P 500 since 2018 and trades on the New York Stock Exchange under the ticker FLT. We expect to rebrand FLEETCOR to Corpay, Inc. in March 2024, including changing our New York Stock Exchange ticker from FLT to CPAY.
FLEETCOR’s vision is that every payment is digital, every purchase is controlled, and every related decision is informed. Digital payments are faster and more secure than paper-based methods such as checks, and provide timely and detailed data that can be utilized to effectively reduce unauthorized purchases and fraud, automate data entry and reporting, and eliminate reimbursement processes. Combining this payment data with analytical tools delivers insights, which managers can use to better run their businesses. The Company's wide range of modern, digitized solutions generally provides control, reporting, and automation benefits superior to many of the payment methods businesses often use, such as cash, paper checks, general purpose credit cards, as well as employee pay and reclaim processes.
The Company helps businesseshas the following reportable segments: Vehicle Payments, Corporate Payments, Lodging Payments and Other. The Company reports these segments to reflect how we organize and manage our global employee base, manage operating performance, execute on strategic initiatives and contemplate the differing regulatory environments across geographies and solutions.
Our Vehicle Payments solutions are purpose-built to enable our business and consumer customers to pay for vehicle related expenses, while providing greater control and visibility of all sizes control,employee spending when compared with less specialized payment methods, such as cash or general-purpose credit cards. Our Vehicle Payments solutions include fuel, tolls and other complementary products. Our Corporate Payments solutions simplify and secureautomate vendor payments and are designed to help businesses streamline the back-office operations associated with making outgoing payments. Companies save time, cut costs, and manage business-to-business (B2B) payment processing more efficiently with our suite of various domesticcorporate payment solutions, including AP automation, virtual cards, cross-border, and cross-border payables using specializedpurchasing and travel and entertainment cards. Our Lodging Payments solutions help businesses manage their travel-related lodging expenses while in the field, as well as lodging expenses of its customers, such as disrupted passengers in the airline industry. FLEETCOR provides other payments solutions, including gift and payroll card.
Our solutions provide customers with control capabilities including customizable user-level controls, programmable alerts, and detailed transaction reporting, among others. Our customers can use the data, controls and tools to combat employee misuse and fraud, streamline expense administration and potentially lower their operating costs.
We utilize both proprietary and third-party payment products. The Company serves businesses,acceptance networks to deliver our solutions. In our proprietary networks, which tend to be geographically distinct, transactions are processed on applications and operating systems owned and operated by us, and only at select participating merchants with whom we have contracted directly for acceptance. Third-party networks are operated by independent parties, and tend to be more broadly accepted, which is the primary benefit compared with our proprietary networks. Mastercard and VISA are our primary third-party network partners in North America Latin America,and Europe, respectively.
We actively market and Australasia.
2. Basis of Presentation and Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenuesrevenue and expenses during the reporting period.periods. Future events and their effects cannot be predicted with certainty; accordingly, accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the Company’s consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment changes. Actual results couldmay differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of FLEETCOR Technologies, Inc. and all of its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
The Company’s fiscal year ends on December 31. In certain of the Company’s U.K. businesses, the Company records the operating results using a 4-4-5 week accounting cycle with the fiscal year ending on the Friday on or immediately preceding December 31. Fiscal years 2017, 20162023, 2022, and 20152021 include 52 weeks for the businesses reporting using a 4-4-5 accounting cycle.
The Company controlsaccounts for financial assets' expected credit risk by performing periodiclosses in accordance with Accounting Standards Codification (ASC) 326, "Financial Instruments - Credit Losses". The Company’s financial assets subject to credit evaluations of its customers. Payments from customerslosses are generally due within 14 days or less of billing.primarily trade receivables. The Company routinely reviews its accounts receivable balancesutilizes a combination of aging and makes provisions for probable doubtful accounts based primarilyloss-rate methods to develop an estimate of current expected credit losses, depending on the agingnature and risk profile of those balances. Accounts receivable are deemed uncollectible once they age past 90 days and are deemed uncollectible from the customer. The Company also provides an allowance for receivables aged less than 90 days that it expects will be uncollectibleunderlying asset pool, based on product, size of customer and historical collectionslosses. Expected credit losses are estimated based upon an assessment of risk characteristics, historical payment experience, including accounts that have filedand the age of outstanding receivables, adjusted for bankruptcy.forward-looking economic conditions. The allowances for remaining financial assets measured at amortized cost basis are evaluated based on underlying financial condition, credit history, and current and forward-looking economic conditions. The estimation process for expected credit losses includes consideration of qualitative and quantitative risk factors associated with the age of asset balances, expected timing of payment, contract terms and conditions, changes in specific customer risk profiles or mix of customers, geographic risk, economic trends and relevant environmental factors. At December 31, 20172023 and 2016,2022, approximately 96%82% and 95%85%, respectively, of outstanding accounts receivable were current.less than 30 days past due. Accounts receivable deemed uncollectible are removed from accounts
receivable and the allowance for doubtful accountscredit losses when internal collection efforts have been exhausted and accounts have been turned over to a third-party collection agency. Recoveries from the third-party collection agency are not significant.
Business Combinations
Business combinations completed by the Companyus have been accounted for under the acquisition method of accounting. The acquisition methodaccounting, which requires that the acquired assets and liabilities, including contingencies, be recorded at fair value determined as of the acquisition date and changes thereafter reflected in income. For significant acquisitions, the Company obtains independent third-party valuation studies for certain of the assets acquired and liabilities assumed to assist the Company in determining fair value. Goodwill represents thedate. The excess of the purchase price over the fair values of the tangible and intangible assets acquired and liabilities assumed.assumed represents goodwill. Amounts assigned to goodwill are primarily attributable to buyer-specific synergies expected to arise after the acquisition (e.g., enhanced reach of the combined organization and other synergies) and the assembled work force of the acquiree. The results of the acquired businesses are included in the Company’sour results of operations beginning from the completion date of the applicable transaction.
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While the Company uses our best estimates and assumptions to determine the fair values of the assets acquired and the liabilities assumed, involvesour estimates are inherently uncertain and subject to refinement. As a number of estimates and assumptions that could differ materially fromresult, during the final amounts recorded. The allocationmeasurement period, does not exceedwhich may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed. Upon the conclusion of the acquisition. To the extent additional information to refine the original allocation becomes available during the allocationmeasurement period, the allocation of the purchase price is adjusted. Should information become available after the allocation period, those items are adjusted through operating results. The direct costs of the acquisitionany subsequent adjustments are recorded as operating expenses. Certain acquisitions include contingent consideration related to the performance of the acquired operations following the acquisition. Contingent consideration is recorded at estimated fair value at the date of the acquisition, and is remeasured each reporting period, with any changes in fair value recorded in theour Consolidated Statements of Income. The Company also estimates the fair valueuseful lives of intangible assets to determine the period over which to recognize the amount of acquisition-related contingent consideration using various valuation approaches,intangible assets as well as significant unobservable inputs, reflectingan expense. Certain assets may be considered to have indefinite useful lives. The Company periodically reviews the Company’s assessmentindefinite nature of these assets. The Company also periodically reviews the assumptions market participants would useestimated useful lives assigned to value these liabilities.our intangible assets to determine whether such estimated useful lives continue to be appropriate.
Impairment of Long-Lived Assets, Goodwill, Intangibles and Investments
The Company tests its long-lived assets for impairment in accordance with relevant authoritative guidance. The Companyregularly evaluates if impairment indicators related to itswhether events and circumstances have occurred that indicate the carrying amount of property plant and equipment and otherintangible assets with finite lives may not be recoverable. When factors indicate that these long-lived assets are present. Theseshould be evaluated for possible impairment, indicators may include a significant decrease in the market priceCompany assesses the potential impairment by determining whether the carrying amount of asuch long-lived asset or asset group, a significant adverse change inassets will be recovered through the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current-period operating orfuture undiscounted cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with theflows expected from use of a long-lived asset or asset group. If impairment indicators are present, the Company estimates the future cash flows for the asset or asset group. The sum of the undiscounted future cash flows attributable to the asset or asset group is compared toand its carrying amount. The cash flows are estimated utilizing various projections of revenues and expenses, working capital and proceeds from asset disposals on a basis consistent with management’s intended actions.eventual disposition. If the carrying amount exceeds the sum of the undiscounted future cash flows, the Company determines the assets’ fair value by discounting the future cash flows using a discount rate required for a similar investment of like risk and records an impairment charge as the difference between the fair value and the carrying value of the asset group. Generally,is determined not to be recoverable, a write-down to fair value is recorded. Fair values are determined based on quoted market prices or discounted cash flow analyses as applicable. The Company regularly evaluates whether events and circumstances have occurred that indicate the Company performs its testinguseful lives of the asset group at the business-line level, as this is the lowest level for which identifiable cash flows are available.property and equipment and intangible assets with finite lives may warrant revision.
The Company completes an impairment test of goodwill at least annually or more frequently if facts or circumstances indicate that goodwill might be impaired. Goodwill is tested for impairment at the reporting unit level, and the impairment test consists of two steps, as well as a qualitative assessment, as appropriate.level. The Company has performedfirst performs a qualitative assessment of certain of its reporting units. In thisFactors considered in the qualitative assessment the Company individually considered the following items for each reporting unit where the Company determined a qualitative analysis to be appropriate: theinclude general macroeconomic conditions, including any deterioration of general conditions, limitations on accessing capital, fluctuations in foreign exchange rates and other developments in equity and credit markets; industry and market conditions, including any deteriorationcost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of our reporting units, sustained decrease in our share price, and other relevant entity-specific events. If the environment whereCompany elects to bypass the qualitative assessment or if it determines, on the basis of qualitative factors, that the fair value of the reporting unit operates, increased competition, changes in the products/services and regulator and political developments; cost of doing business; overall financial performance, including any declining cash flows and performance in relation to planned revenues and earnings in past periods; other relevant reporting unit specific facts, such as changes in management or key personnel or pending litigation; events affecting the reporting unit, including changes inis more likely than not less than the carrying value of net assets, likelihood of disposal and whether there were any other impairment considerations within the business; the overall performance of our share price in relation to the market and our peers; andamount, a quantitative stress test ofwould be required. The Company then performs the previously completed step 1 test from the prior year, updated with current year results, weighted-average cost of capital rates and future projections.
Based on the goodwill asset impairment analysis performed qualitatively and/or quantitatively onas of October 1, 2017,2023, the Company determined that the fair value of each of its reporting units was in excess of the carrying value. No events or changes in circumstances have occurred since the date of this most recent annual impairment test that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
The Company also evaluates indefinite-lived intangible assets (primarily trademarks and trade names) for impairment annually. The Company also tests for impairment more frequently if events and circumstances indicate that it is more likely than not that the fair value of an indefinite-lived intangible asset is below its carrying amount. Estimates critical to the Company’s evaluation of indefinite-lived intangible assets for impairment include the discount rate, royalty rates used in its evaluation of trade names projected average revenue growth and projected long-term growth rates in the determination of terminal values.revenue growth. An impairment chargeloss is recordedrecognized if the carrying amount of an indefinite-lived intangible asset exceeds the estimated fair value on the measurement date. Based on the indefinite-lived intangible asset impairment analyses performed as of October 1, 2023, the Company determined the fair value of each of its indefinite-lived intangible assets was in excess of its carrying amount. No events or changes in circumstances have occurred since the date of this most recent annual impairment analysis that would more likely than not reduce the fair value of an indefinite-lived intangible asset below its carrying amount.
The Company regularlyhas elected the alternative to measure certain investments in equity instruments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes for similar investments of the issuer. The Company reassesses these investments each reporting period to evaluate whether these investments continue to qualify for the alternative measurement at cost minus impairment, rather than requiring measurement at fair value on a recurring basis. The Company evaluates the carrying value of itsfor impairment these equity investments whichwithout readily determinable fair values based on qualitative indicators (e.g., significant deterioration in investee's financial performance, adverse regulation, etc.). Investments classified as trading securities are not carried at fair value for other-than-temporary impairment. The Company estimates the fair value of its investments using a combination of the income approach and the market approach. The income approach utilizes a discounted cash flow model incorporating management’s expectations for future revenue, operating expenses, earnings before interest, taxes, depreciation and amortization, capital expenditures and an anticipated tax rate. The Company discounts the related cash flow forecasts using an estimated weighted-average cost of capital for each reporting unit at the date of valuation. The market approach utilizes comparative market multiples in the valuation estimate. Multiples are derived by relating the value of guideline companies, based on either the market price of publicly traded shareswith any unrealized gain or the prices of companies being acquired in the marketplace, to various measures of their earnings and cash flow. Such multiples are then applied to the historical and projected earnings and cash flow of the Company's investments in developing the valuation estimate.
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Property, Plant and Equipment and Definite-Lived Intangible Assets
Property, plant and equipment are stated at cost and depreciated on the straight-line basis. Definite-lived intangibleIntangible assets with finite lives, consisting primarily of customer relationships, are stated at fair value upon acquisition and are amortized over their estimated useful lives. Customer and merchant relationship useful lives are estimated using historical attrition rates.
The Company develops internal-use software that is used in providing processing and information management services to customers. A significant portion of the Company’s capital expenditures are devoted to the development of such internal-use computer software. Software development costs are capitalized once technological feasibilityapplication development stage of the software has been established. Costs incurred during preliminary project stage prior to establishing technological feasibilitythe application development stage are expensed as incurred. Technological feasibilityApplication development stage is established when the Company has completed all planning, designing, coding and testing activities that are necessary to determine that the software can be produced to meet its design specifications, including functions, features and technical performance requirements. Capitalization of costs ceases when the software is ready for its intended use. Software development costs are amortized using the straight-line method over the estimated useful life of the software. The Company capitalized software costs of $37.4$128.0 million, $33.1$120.5 million and $23.4$76.7 million in 2017, 20162023, 2022 and 2015,2021, respectively. Amortization expense for software totaled $21.8$77.5 million, $17.7$61.3 million and $11.6$46.7 million in 2017, 20162023, 2022 and 2015,2021, respectively.
Income Taxes
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. The Company has elected to treat the Global Intangible Low Taxed Income (GILTI) inclusion as a current period expense.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences become deductible. The Company evaluates on a quarterly basis whether it is more likely than not that its deferred tax assets will be realized in the future and concludes whether a valuation allowance must be established.
Cash, Cash Equivalents, and Restricted Cash
Cash equivalents primarily consist of a) cash on hand, andb) highly liquid investments with original maturities of three months or less. Restricted cash representsless, such as certificates of deposit, treasury bills and money market funds, and c) customer deposits repayable on demand.
demand without legal restrictions. Restricted cash represents a) customer deposits repayable on demand held in certain geographies with legal restrictions contractually set aside to fulfill payment obligations on a customer's behalf, b) collateral received from customers for cross-currency transactions in our cross-border payments business, which are restricted from use other than to repay customer deposits and secure and settle cross-currency transactions, and c) collateral posted with banks for hedging positions in our cross-border payments business. During the third quarter of 2023, the Company disposed of its Russian net assets, including its cash balances. See Note 19 for additional information. Based on our assessment of the capital market conditions and related impact on our access to cash prior to the Russia disposition, we had classified all cash held at our Russia business of $215.8 million at December 31, 2022 to restricted cash.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries as well as intra-entity balances denominated in foreign-currency and designated for long-term investment are translated into U.S. dollars at the rates of exchange in effect at period-end. The related translation adjustments are made directlyrecorded to accumulated other comprehensive income.loss. Income and expenses are translated at the average monthly rates of exchange in effect during the year. Gains and losses from foreign currency transactions of these subsidiaries are included in net income. The Company recognized a foreign exchange loss of $0.2 million, $2.8 millionlosses and $2.4 million for the years ended December 31, 2017, 2016 and 2015 respectively,gains, which are recorded within other (income) expense, net in the Consolidated Statements of Income.Income for the years ended December 31 as follows (in millions):
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Foreign exchange losses | $ | 4.8 | $ | 1.7 | $ | 3.7 | ||||||||||||||
The Company recorded foreign currency gains and losses on long-term intra-entity transactions included as a component of foreign currency translation gains (losses), net of tax, in the Consolidated Statements of Comprehensive Income for the years ended December 31 as follows (in millions):
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| 2023 | 2022 | 2021 | ||||||||||||||||||
| Foreign currency (gains) losses on long-term intra-entity transactions | $ | (29.0) | $ | 205.7 | $ | 44.4 | ||||||||||||||
Derivatives
The Company is exposed to the risk of changing interest rates because its borrowings are notsubject to variable interest rates. In order to mitigate this risk, the Company utilizes derivative instruments. Interest rate swap contracts designated as hedging instruments.cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The majorityCompany hedges interest payments on an unspecified portion of Cambridge's revenueits variable rate debt utilizing derivatives designated as cash flow hedges.
Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded to the derivative assets/liabilities and offset against accumulated other comprehensive loss. Derivative fair value changes that are recorded in accumulated other comprehensive loss are reclassified to earnings in the same period or periods that the hedged item affects earnings, to the extent the derivative is from exchanges of currency at spot rates, which enable customershighly effective in offsetting the change in cash flows attributable to make cross-currency payments. the hedged risk.
In addition, Cambridge alsothe Company's cross-border payments business, it writes foreign currency forwardforwards, option contracts and option contractsswaps for its customers to facilitate future payments. The duration of these derivative contracts at inception is generally less than one year. The Company aggregates its foreign exchange exposures arising from customer contracts, including forwards, options and spot exchanges of currency, and hedges (economic hedge) the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties. The changes in fair value related to these contracts are recorded in revenues, net in the Consolidated Statements of Income.
The Company also utilizes cross-currency interest rate swaps designated as a net investment hedge of its investments in euro-denominated operations, which effectively converts a specified U.S. dollar notional equivalent to an obligation denominated in euro, and partially offsets the impact of changes in currency rates on the Company's euro-denominated net investments. Such contracts also create a positive interest differential on the U.S. dollar-denominated portion of the swap, resulting in interest rate savings on the USD notional.
All cash flows associated with the Company's foreign currency and interest rate swap derivatives are included in cash flows from operating activities in the Consolidated Statements of Cash Flows. Upon settlement of derivatives designated as a net investment hedges, the associated cash flows will be classified as investing activities in the Consolidated Statements of Cash Flows. Refer to Note 16.
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Spot Trade Offsetting
The Company uses spot trades to facilitate cross-currency corporate payments in its cross-border payments business. The Company applies offsetting to spot trade assets and liabilities associated with contracts that include master netting agreements with the same counterparty, as a right of offset exists, which the Company believes to be enforceable. As such, the Company has netted spot trade liabilities against spot trade receivables at the counter-party level. The Company recognizes all spot trade assets, net in accounts receivable and all spot trade liabilities, net in accounts payable, each net at the customer level, in its Consolidated Balance Sheets at their fair value.
The following table presents the Company’s spot trade assets and liabilities at their fair value for the years ended December 31, 2023 and 2022 (in millions):
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Gross | Offset on the Balance Sheet | Net | Gross | Offset on the Balance Sheet | Net | ||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Accounts Receivable | $ | 2,499.9 | $ | (2,373.8) | $ | 126.1 | $ | 2,409.8 | $ | (2,266.0) | $ | 143.8 | |||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||
| Accounts Payable | $ | 2,457.3 | $ | (2,373.8) | $ | 83.5 | $ | 2,332.5 | $ | (2,266.0) | $ | 66.5 | |||||||||||||||||||||||
Stock-Based Compensation
The Company accounts forroutinely grants employee stock options and restricted stock in accordance with relevant authoritative literature.awards/units as part of employee compensation plans. Stock options are granted with an exercise price estimated to be equal to the fair market value of the underlying Company share on the date of grant as authorized by the Company’s board of directors.grant. Options granted have vesting provisions ranging from one to five years, and vesting of the options is generally based on the passage of time, performance or performance.market conditions, or a combination of these. Stock option grants are subject to forfeiture if employment terminates prior to vesting. The Company has selected the Black-Scholes option pricing model for estimating the grant date fair value of stock option awards granted.awards. The Company has considered the retirement and forfeiture provisions of the options and utilized its historical experience to estimate the expected lifeterm of the options. Option forfeitures are accounted for upon occurrence. The Company bases the risk-free interest rate on the yield of a zero coupon U.S. Treasury security with a maturity equal to the expected lifeterm of the option from the date of the grant. Stock-based compensation costExpected volatility is measured at the grant date based on the value of the award and is recognized as expense over the requisite service period based on the number of years for which the requisite service is expected to be rendered.Company's historical volatility.
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, performance or market conditions, or a combination of these. Shares vesting based on the passage of timegenerally have graded vesting provisions of one to threefour years. The fair value of restricted stock where the shares vest based on the passage of time or performance is based on the grant date fair value of the Company’s stock.
The fair value of stock options and restricted stock units granted with market-based vesting conditions is estimated using the Monte Carlo simulation valuation model. The risk-free interest rate and volatility assumptions used within the Monte Carlo simulation valuation model are calculated consistently with those applied in the Black-Scholes options pricing model utilized in determining the fair value of the market-based stock option awards.
For performance-based restricted stock awardsawards/units and performance basedperformance-based stock option awards, the Company must also make assumptions regarding the likelihood of achieving performance goals. If actual results differ significantly from these estimates, stock-based compensation expense and the Company’s results of operations could be materially affected.
Stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the requisite service period based on the number of years over which the requisite service is expected to be rendered.
Deferred Financing Costs/Debt Discounts
Costs incurred to obtain financing net of accumulated amortization, are amortized over the term of the related debt using the effective interest method and are included within interest expense.expense, net. The Company capitalized additional debt issuance costs of $12.9$0.4 million associated with refinancing its Credit Facility and Securitization Facility in 20172023 and $2.3$10.4 million with refinancing its Credit Facility in 2016.2022. At December 31, 20172023 and 2016,2022, the Company had net deferred financing costs of $16.3$5.7 million and $13.1$7.8 million, respectively.respectively, related to the revolver under the Credit Facility and the revolving Securitization Facility, each recorded within prepaid expenses and other current assets, on the Consolidated Balance Sheets. The Company had deferred financing costs and debt discounts of $19.0 million and $23.9 million at December 31, 2023 and 2022, respectively, related to the term notes under the Credit Facility, which were recorded as a discount to the term debt outstanding within the current portion of notes payable and lines of credit and within notes payable and other obligations, less current portion on the Consolidated Balance Sheets.
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Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the total of net income and all other changes in equity that result from transactions and other economic events of a reporting period other than transactions with owners.
Accounts Receivable
The Company maintainsmaintains a $950 million revolving$1.7 billion revolving trade accounts receivable Securitization Facility.securitization facility (as amended from time to time, the "Securitization Facility"). Accounts receivable collateralized within our Securitization Facility primarily relate to trade receivables resulting primarily from charge card activity in the U.S. Pursuant to the terms of the Securitization Facility, the Company transfers in the form of a legal sale certain of its domestic receivables, on a revolving basis, to FLEETCOR Funding LLC (Funding)("Funding"), a wholly-owned bankruptcy remote consolidated subsidiary. In turn, Funding sells,transfers in the form of a legal sale, without recourse, on a revolving basis, up to $950 million ofan undivided ownership interestsinterest in this pool of accounts receivable to aunrelated transferees (i.e., multi-seller banks and asset-backed commercial paper conduit (Conduit)conduits). Funding maintainsretains a residual, subordinated interest in cash flow distribution from the transferred receivables and provides to the transferees an incremental pledge of unsold receivables as a form of over-collateralization in a portionto enhance the credit of the receivables sold to the Conduit.transferred receivables. Purchases by the Conduitbanks and conduits are generally financed with the sale of highly-rated commercial paper.
The Company utilizes proceeds from the sale of its accounts receivablesecuritized assets 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. As the Company maintains certain continuing involvement in the transferred/sold receivables, it does not derecognize the receivables from its Consolidated Balance Sheets. Instead, the Company records cash proceeds and any residual interest received as a Securitization Facility liability.
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 December 31 (in thousands):
| 2017 | 2016 | ||||||||||||||||||||||||||||||||||
| Gross domestic accounts receivables | $ | 661,677 | $ | 529,885 | |||||||||||||||||||||||||||||||
| 2023 | 2023 | 2022 | |||||||||||||||||||||||||||||||||
| Gross domestic unsecuritized accounts receivables | |||||||||||||||||||||||||||||||||||
| Gross domestic securitized accounts receivable | 811,000 | 591,000 | |||||||||||||||||||||||||||||||||
| Gross foreign receivables | 804,365 | 704,630 | |||||||||||||||||||||||||||||||||
| Total gross receivables | 2,277,042 | 1,825,515 | |||||||||||||||||||||||||||||||||
| Less allowance for doubtful accounts | (46,031 | ) | (32,506 | ) | |||||||||||||||||||||||||||||||
| Less allowance for credit losses | |||||||||||||||||||||||||||||||||||
| Net accounts and securitized accounts receivable | $ | 2,231,011 | $ | 1,793,009 | |||||||||||||||||||||||||||||||
A rollforward of the Company’s allowance for doubtful accountscredit losses related to accounts receivable for the years ended December 31 is as follows (in thousands):
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Allowance for credit losses beginning of year | $ | 149,846 | $ | 98,719 | $ | 86,886 | ||||||||||||||
| Provision for credit losses | 125,152 | 131,096 | 37,919 | |||||||||||||||||
| Write-offs | (115,631) | (90,540) | (35,868) | |||||||||||||||||
| Recoveries | 13,596 | 10,320 | 13,459 | |||||||||||||||||
| Impact of foreign currency | 7,200 | 251 | (3,677) | |||||||||||||||||
| Allowance for credit losses end of year | $ | 180,163 | $ | 149,846 | $ | 98,719 | ||||||||||||||
The provision for credit losses and write-offs increased during the years ended December 31, 2023 and December 31, 2022 versus historical periods, as customer spend increased due to new sales and higher fuel prices for 2022 and into 2023. New customers tend to have higher loss rates. Additionally, the Company experienced higher losses among micro-SMB (small-medium business) customers who were more severely impacted by negative economic conditions.
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| 2017 | 2016 | 2015 | ||||||||||
| Allowance for doubtful accounts beginning of year | $ | 32,506 | $ | 21,903 | $ | 23,842 | ||||||
| Provision for bad debts | 44,857 | 35,885 | 24,629 | |||||||||
| Write-offs | (31,332 | ) | (25,282 | ) | (26,568 | ) | ||||||
| Allowance for doubtful accounts end of year | $ | 46,031 | $ | 32,506 | $ | 21,903 | ||||||
Advertising
The Company expenses advertising costs as incurred. Advertising expense was $26.1$64.6 million, $22.2$65.5 million and $19.9$54.8 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.
Earnings Per Share
The Company reports basic and diluted earnings per share. Basic earnings per share is calculated using the weighted average of common stock and non-vested, non-forfeitable restricted shares outstanding, unadjusted for dilution, and net income attributable to common shareholders.
Diluted earnings per share is calculated using the weighted average shares outstanding and contingently issuable shares less weighted average shares recognized during the period. The net outstanding shares have been adjusted for the dilutive effect of common stock equivalents, which consist of outstanding stock options and unvested forfeitable restricted stock units.
Certain disclosures for prior periods have been reclassified to conform with current year presentation, including the presentation of prior year segment disclosures to align with our current segment presentation.
Adoption of Recently IssuedNew Accounting Standards
statements. The SEC staff issued Staff Accounting Bulletin No. 118, "Income Tax Accounting ImplicationsCompany transitioned from LIBOR to the Sterling Overnight Index Average Reference Rate (“SONIA”) plus a SONIA adjustment of 0.0326% for sterling borrowings, the Tax CutsEuro Interbank Offered Rate for euro borrowings, and Jobs Act" ("SAB 118"), which provides guidance on accountingthe Tokyo Interbank Offer Rate for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740.yen borrowings. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.
Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity’s Own Equity
In August 2020, the FASB issued ASU No. 2020-06, "Debt—Debt with Customers (Topic 606)". The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or servicesConversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an amount that reflects the consideration toEntity's Own Equity" ("ASU 2020-06"), which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP and permits the use of either the retrospective or modified retrospective transition method. The update requires significant additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09,address issues identified as amended by ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferrala result of the Effective Date", iscomplexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 also improve the guidance related to the disclosures and earnings per share for convertible instruments and contracts in entity's own equity. The amendments in this update are effective for fiscal years beginning after December 15, 2017,2021, including interim periods with early adoption permitted forwithin those fiscal years beginningand should be applied prospectively to business combinations occurring on or after December 15, 2016. Since the issuance of ASU 2014-09, the FASB has issued additional interpretive guidance, including new accounting standards updates, that clarifies certain pointseffective date of the standard and modifies certain requirements.
amendments. The Company has performed a review of the requirements of the new revenue standard and is monitoring the activity of the FASB and the transition resource group as it relates to specific interpretive guidance. The Company established an implementation team to assess the effects of the new revenue standard in a multi-phase approach. In the first phase, the Company analyzed customer contracts for its most significant contract categories, applied the five-step model of the new standard to each contract category and comparing the results to our current accounting practices. The second phase, which includes quantifying the potential effects identified during the first phase, assessing additional contract categories and principal versus agent considerations, revising accounting policies and considering the effects on related disclosures and/or internal control over financial reporting is ongoing and expected to be concluded during the first quarter of 2018.
Accounting for Derivative Financial InstrumentsContract Assets and Contract Liabilities from Contracts with Customers
In August 2017,October 2021, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to2021-08, Accounting for Hedging Activities"Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805) ("ASU 2021-08"), which amendsrequires an acquirer to account for revenue contracts acquired in a business combination in accordance with Topic 606 as if it had originated the hedge accounting recognitioncontracts. The acquirer may assess how the acquiree applied Topic 606 to determine what to record for the acquired contracts. This update also provides certain practical expedients for acquirers when recognizing and presentation requirementsmeasuring acquired contract assets and contract liabilities from revenue contracts in ASC 815.a business combination. The FASB issued accounting guidance to better align hedge accounting with a company’s risk management activities, simplify the application of hedge accounting and improve the disclosures of hedging arrangements. The guidance isamendments in this update are effective for the Company for reporting periodsfiscal years beginning after December 15, 2018, and2022, including interim periods within those years. Early adoption is permitted.fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The Company'sCompany adopted this ASU on January 1, 2023. The adoption of this ASU is2021-08 did not expected to have a material impact on the Company's results of operations, financial condition, or cash flows.
Segment Reporting
In November 2023, the Financial Accounting Standards Board (FASB) issued ASU No. 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"). The amendments are intended to increase reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The ASU is effective on a retrospective basis for fiscal years beginning after December 15, 2023, and interim periods within fiscal
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years beginning after December 15, 2024, with early adoption permitted. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. We are currently evaluating the impact of this guidance on the disclosures within our consolidated financial statements.
Income Taxes
In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"). The amendments require disclosure of specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold and further disaggregation of income taxes paid for individually significant jurisdictions. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-09 should be applied on a prospective basis, while retrospective application is permitted. We are currently evaluating the impact that this guidance will have on the disclosures within our consolidated financial statements.
3. Revenue
The Company provides payment solutions to our business, merchant, consumer and payment network customers. Our payment solutions are primarily focused on specific commercial spend or geographically-defined categories, including Vehicle Payments, Corporate Payments, Lodging Payments and Other. The Company provides solutions that help businesses of all sizes control, simplify and secure payment of various domestic and cross-border payables using specialized payment products. The Company also provides other payment solutions for fleet maintenance, employee benefits and long-haul transportation-related services.
Payment Services
The Company’s primary performance obligation for the majority of its payment solutions (Vehicle Payments, Corporate Payments, Lodging Payments, and Other) is to stand-ready to provide authorization and processing services (payment services) for an unknown or unspecified quantity of transactions and the consideration received is contingent upon the customer’s use (e.g., number of transactions submitted and processed) of the related payment services. Accordingly, the total transaction price is variable. Payment services involve a series of distinct daily services that are substantially the same, with the same pattern of transfer to the customer. As a result, the Company directly allocates and recognizes variable consideration in the period it has the contractual right to invoice the customer. Similarly, for the toll product within Vehicle Payments, the Company's primary performance obligation is to stand-ready each month to provide access to the toll network and process toll transactions. Each period of access is determined to be distinct and substantially the same as the customer benefits over the period of access.
The Company records revenue for its payment services net of (i) the cost of the underlying products and services; (ii) assessments and other fees charged by the credit and debit payment networks (along with any rebates provided by them); (iii) customer rebates and other discounts; and (iv) taxes assessed (e.g. VAT and VAT-like taxes) by a government, imposed concurrent with a revenue-producing transaction. Variability arising from rebates is generally resolved and/or reset within the reporting period to which the variable consideration is allocated. As such, the Company is able to directly allocate net adjustments against revenue in the reporting period in which they are invoiced and does not materially constrain revenue recognition as a significant reversal of revenue is not probable at invoicing.
The majority of the transaction price the Company receives for fulfilling the Payment Services performance obligation are comprised of one or a combination of the following: 1) interchange fees earned from the payment networks; 2) discount fees earned from merchants; 3) fees calculated based on a number of transactions processed; 4) fees calculated based upon a percentage of the transaction value for the underlying goods or services (i.e. fuel, food, toll, lodging, and transportation cards and vouchers); and 5) monthly access fees.
The Company recognizes revenue when the underlying transactions are complete and as its performance obligations are satisfied. Transactions are considered complete depending upon the related payment solution but generally when the Company has authorized the transaction, validated that the transaction has no errors and accepted and posted the data to the Company’s records.
In the Company's cross-border payments business, a portion of revenue is from exchanges of currency at spot rates, which enables customers to make cross-currency payments. The Company's performance obligation for its foreign exchange payment services is providing a foreign currency payment to a customer’s designated recipient and therefore, the Company recognizes revenue on foreign exchange payment services when the underlying payment is made. Revenues from foreign exchange payment services are primarily comprised of the difference between the exchange rate set by the Company to the customer and the rate available in the wholesale foreign exchange market.
Gift Card Products and Services
The Company’s Gift solutions deliver both stored value cards and e-cards (cards), and card-based services primarily in the form of gift cards to retailers. These activities each represent performance obligations that are separate and distinct. Revenue for stored value cards is recognized (gross of the underlying cost of the related card, recorded in processing expenses within the
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Consolidated Statements of Income) at the point in time when control passes to the Company's customer, which is generally upon shipment.
Card-based services consist of transaction processing and reporting of gift card transactions where the Company recognizes revenue based on the passage of time as it stands ready to process an unknown or unspecified quantity of transactions. As a result, the Company directly allocates and recognizes variable consideration over the estimated period of time over which the performance obligation is satisfied.
Other
The Company accounts for revenue from late fees and finance charges, in jurisdictions where permitted under local regulations, primarily in the U.S., Canada and Brazil, in accordance with ASC 310, "Receivables." Such fees are recognized net of a provision for estimated uncollectible amounts, at the time the fees and finance charges are assessed and services are provided and represent approximately 5% of total consolidated revenues, net for the years ended December 31, 2023 and 2022. The Company ceases billing and accruing for late fees and finance charges approximately 30 - 40 days after the customer’s balance becomes delinquent.
In addition, in its cross-border payments business, the Company writes foreign currency forwards, option contracts and swaps for its customers primarily to facilitate future payments in foreign currencies. The duration of these derivative contracts at inception is generally less than one year. The Company aggregates its foreign exchange exposures arising from customer contracts, including forwards, options and spot exchanges of currency, as necessary, and economically hedges the net currency risks by entering into offsetting derivatives with established financial institution counterparties. The Company accounts for the derivatives in its cross-border payments business in accordance with ASC 815, "Derivatives and Hedging." Revenues earned on the currency spread inherent in the instruments on date of execution, as well as changes in fair value related to these instruments prior to settlement, represented approximately 8% of consolidated revenues, net, for the years ended December 31, 2023 and 2022.
Revenue is also derived from the sale of equipment and cards in certain of the Company’s businesses, which is recognized at the time the device or card is sold and control has passed to the customer. This revenue is recognized gross of the cost of sales related to the equipment and cards in revenues, net within the Consolidated Statements of Income. The Company has recorded $76.3 million, $83.1 million and $76.6 million of expenses related to sales of equipment and cards in processing expenses within the Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021, respectively.
Revenues from contracts with customers, within the scope of Topic 606, represent approximately 85% and 87% of consolidated revenues, net, for the years ended December 31, 2023 and 2022, respectively.
The Company's remaining revenue primarily represents float revenue earned on invested customer funds in jurisdictions where permitted. Such revenue represented approximately 2% of consolidated revenues, net for the year ended December 31, 2023 and was not significant for the years ended December 31, 2022 or 2021.
Disaggregation of Revenues
The Company provides its services to customers across different payment solutions and geographies. Revenues, net by solution for the years ended December 31 (in millions) are as follows:
| Revenues by Segment | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||
| Vehicle Payments | $ | 2,005.5 | $ | 1,950.0 | $ | 1,690.0 | |||||||||||||||||||||||
| Corporate Payments | 981.1 | 769.6 | 598.2 | ||||||||||||||||||||||||||
| Lodging Payments | 520.2 | 456.5 | 309.6 | ||||||||||||||||||||||||||
| Other | 250.9 | 251.0 | 235.9 | ||||||||||||||||||||||||||
| Consolidated revenues, net | $ | 3,757.7 | $ | 3,427.1 | $ | 2,833.7 | |||||||||||||||||||||||
Revenues, net by geography for the years ended December 31 (in millions) are as follows:
| Revenues by Geography | 2023 | 2022 | 2021 | |||||||||||||||||
| United States (country of domicile) | $ | 2,134.7 | $ | 2,093.9 | $ | 1,785.2 | ||||||||||||||
| Brazil | 525.1 | 442.2 | 368.1 | |||||||||||||||||
| United Kingdom | 441.4 | 363.3 | 321.8 | |||||||||||||||||
| Other | 656.5 | 527.7 | 358.6 | |||||||||||||||||
| Consolidated revenues, net | $ | 3,757.7 | $ | 3,427.1 | $ | 2,833.7 | ||||||||||||||
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Contract Liabilities
Deferred revenue contract liabilities for customers subject to ASC 606 were $45.7 million and $57.7 million as of December 31, 2023 and 2022, respectively. We expect to recognize approximately $31.9 million of these amounts in revenues within 12 months and the remaining $13.8 million over the next five years as of December 31, 2023. The amount and timing of revenue recognition is affected by several factors, including contract modifications and terminations, which could impact the estimate of amounts allocated to remaining performance obligations and when such revenues could be recognized. Revenue recognized for the year ended December 31, 2023, that was included in the deferred revenue contract liability as of January 1, 2023, was approximately $36.4 million.
Costs to Obtain or Fulfill a Contract and/or Customer Incentives
In accordance with ASC 606, the Company capitalizes the incremental costs of obtaining a contract with a customer if the Company expects to recover those costs. The incremental costs of obtaining a contract are those that the Company incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, a sales commission).
Costs incurred to fulfill a contract are capitalized if those costs meet all of the following criteria:
a.The costs relate directly to a contract or to an anticipated contract that the Company can specifically identify.
b.The costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future.
c.The costs are expected to be recovered.
In order to determine the appropriate amortization period for contract costs, the Company considers a combination of factors, including customer attrition rates, estimated terms of customer relationships, the useful lives of technology used by the Company to provide products and services to its customers, whether further contract renewals are expected and if there is any incremental commission to be paid on a contract renewal. Contract acquisition and fulfillment costs are amortized using the straight-line method over the expected period of benefit (ranging from five to ten years). Costs to obtain a contract with an expected period of benefit of one year or less are recognized as an expense when incurred. The amortization of contract acquisition costs associated with sales commissions that qualify for capitalization is recorded as selling expense in the Company’s Consolidated Statements of Income.
Amortization of capitalized contract costs recorded in selling expense was $16.7 million, $15.4 million and $16.0 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Costs to obtain or fulfill a contract are classified as contract cost assets within prepaid expenses and other current assets and other assets in the Company’s Consolidated Balance Sheets. The Company had capitalized contract costs of $19.2 million and $17.1 million within prepaid expenses and other current assets and $44.9 million and $42.9 million within other assets in the Company’s Consolidated Balance Sheets, as of December 31, 2023 and 2022, respectively.
Further, the Company on occasion may make a cash payment to a customer as a contract incentive. We defer these costs as payments to a customer if recoverable and amortize them over the benefit period, including anticipated customer renewals. The amortization of costs associated with cash payments for client incentives is included as a reduction of revenues in the Company’s Consolidated Statements of Income. The Company had deferred customer incentives of $10.0 million and $9.5 million as of December 31, 2023 and 2022, respectively. Amortization of deferred customer incentives was immaterial for the years ended December 31, 2023, 2022 and 2021.
Practical Expedients
ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations; however, as allowed by ASC 606, the Company elected to exclude this disclosure for contracts with performance obligations of one year or less and contracts with variable consideration that is directly allocated to a single performance obligation such as a stand-ready series. As described above, the Company's most significant single performance obligations consist of variable consideration directly allocated under a stand-ready series of distinct days of service. Such direct allocation of variable consideration meets the specified criteria for the disclosure exclusion; therefore, the majority of the aggregate amount of transaction price that is allocated to unsatisfied performance obligations is variable consideration that is not required for this disclosure. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.
The Company elected to exclude all sales taxes and other similar taxes from the transaction price. Accordingly, the Company presents all collections from customers for these taxes on a net basis, rather than having to assess whether the Company is acting as an agent or a principal in each taxing jurisdiction.
In certain arrangements with customers, the Company has determined that certain promised services and products are immaterial in the context of the contract, both quantitatively and qualitatively.
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As a practical expedient, the Company is not required to adjust the promised amount of consideration for the effects of a significant financing component if the Company expects, at contract inception, that the period between when the Company transfers a promised service or product to a customer and when the customer pays for the service or product will be one year or less. As of December 31, 2023, the Company’s contracts with customers contain standard pricing where the timing on control transfer is dependent upon the customer in a stand-ready environment and therefore did not contain a significant financing component.
4. 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.
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The following table presents the Company’s financial assets and liabilities which are measured at fair values on a recurring basis as of December 31, 20172023 and 2016,2022, (in thousands):
| Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value | Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase agreements | $ | 420,838 | $ | — | $ | 420,838 | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Overnight deposits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Overnight deposits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Overnight deposits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Money market | 50,423 | — | 50,423 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Certificates of deposit | 7,417 | — | 7,417 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treasury bills | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | 39,045 | 10 | 39,035 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total cash equivalents | $ | 517,723 | $ | 10 | $ | 517,713 | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash collateral for foreign exchange contracts | $ | 12,540 | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cross-currency interest rate swap | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | $ | 26,888 | $ | 67 | $ | 26,821 | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | 26,888 | $ | 67 | $ | 26,821 | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash collateral obligation for foreign exchange contracts | $ | 10,882 | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchase agreements | $ | 232,131 | $ | — | $ | 232,131 | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Overnight deposits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Overnight deposits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Overnight deposits | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Money market | 50,179 | — | 50,179 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Certificates of deposit | 48 | — | 48 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total cash equivalents | $ | 282,358 | $ | — | $ | 282,358 | $ | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash collateral for foreign exchange contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash collateral obligation for foreign exchange contracts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 anin highly liquid investments, such as, overnight basis in repurchase agreements,deposits, money markets, and certificates of deposit.deposit and Treasury bills, with purchased maturities ranging from overnight to 90 days or less. The value of overnight repurchase agreementsdeposits is determined based upon the quoted market prices for the treasury securities associated with the repurchase agreements.deposit. The value of money market instruments is determined based upon the financial institutions' month-end statement, as these instruments are not tradeabletradable and must be settled directly by us with the respective financial institution. Certificates of deposit and certain U.S. Treasury bills are valued at cost, plus interest accrued. Given the short-term nature of these instruments, the carrying value approximates fair value. Foreign exchange derivative contracts are carried at fair value, with changes in fair value recognized in the Consolidated Statements of Income. The fair value of the Company's derivatives is derived with reference to a valuation from a derivatives dealer operating in an active market, which the Company accepts asapproximates the fair value of these instruments. Interest rate swap derivative contracts are carried at fair value, with changes in fair value recognized in accumulated other comprehensive loss to the extent designated as highly effective cash flow hedges for accounting purposes.
The fair value represents what would be received and or paid by the Companynet settlement if the contracts were terminated as of the reporting date. Cash collateral received for foreign exchange derivatives is recorded within customer deposits in our Consolidated Balance Sheet at December 31, 2017.Sheets. Cash collateral paiddeposited for foreign exchange derivatives is recorded within restricted cash in our Consolidated Balance Sheet at December 31, 2017.Sheets.
78
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 20172023 and 2016.2022.
The Company’s 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 projections of cash flows upon disposition and discount rates. Accordingly, these fair value measurements are in Level 3 of the fair value hierarchy. See footnote 2
The Company's derivatives are over-the-counter instruments with liquid markets. The Company determines the fair values of its derivatives based on quoted market prices for discussion of Masternaut's other than temporary decline insimilar assets or liabilities or pricing models using current market rates. Accordingly, these fair value duringmeasurements are in Level 2 of the year.fair value hierarchy. The amounts exchanged are calculated by reference to the notional amounts and by other terms of the derivatives, such as interest rates, foreign currency exchange rates, commodity rates or other financial indices. See Note 16 for additional information on the fair value of the Company’s derivatives.
The Company regularly evaluates the carrying value of its investments. The carrying value of investments without readily determinable fair values was $69.5 million and $74.3 million at December 31, 2023 and 2022, respectively.
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 basedmarket-based interest rates that reset on a quarterlymonthly basis. These are each Level 2 fair value measurements, except for cash, which is a Level 1 fair value measurement.
On August 3, 2017,18, 2023, as part of the Program, the Company entered an Accelerated Share Repurchaseaccelerated share repurchase ("ASR") agreement ("2023 ASR Agreement") with a third-party financial institution to repurchase $250$450 million of its common stock. Pursuant to the 2023 ASR Agreement, the Company delivered $250$450 million in cash and received 1,491,6471,372,841 shares based on a stock price of $142.46$262.23 on August 7, 2017.18, 2023. The 2023 ASR Agreement was completed on September 7, 2017,26, 2023, at which time the Company received 263,012293,588 additional shares based on a final weighted average per share purchase price during the repurchase period of $142.48.$270.04.
The Company accounted for the 2023 ASR Agreement as two separate transactions: (i) as shares of reacquired common stock for the shares delivered to the Company upon effectivenessexecution of the ASR Agreement and (ii) as a forward contract indexed to the Company's common stock for the undelivered shares. The initial delivery of shares was included in treasury stock at cost and resultsresulted in an immediate reduction of the outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share. The forward contracts indexed to the Company's own common stock met the criteria for equity classification, and these amounts were initially recorded in additional paid-in capital and then reclassified to treasury stock upon completion ofsettlement based on the ASR agreement.final weighted average per share price.
The Company accounts for stock-based compensation pursuant to relevant authoritative guidance, which requires measurement of compensation cost for all stock awards at fair value on the date of grant and recognition of compensation, net of estimated forfeitures, over the requisite service period for awards expected to vest.
The Company has a Stock Incentive PlansPlan (the Plans)"Plan"), pursuant to which the Company’sCompany's board of directors mayis permitted to grant equity to employees and directors. Under the Plan, a maximum of 20.65 million shares of our common stock options or restricted stockis approved to employees. The Company is authorized to issuebe issued for grants of restricted stock and stock options to purchase up to 26,963,150 shares for the years endedoptions. At December 31, 2017, 2016 and 2015, respectively. On May 13, 2013,2023, the Company’s stockholders authorized an increase of 6,500,000re were 3.9 million shares of common stock available for grant pursuantavailable to the 2010 Equity Compensation Plan. Giving effect to this increase, there were 277,821 additional shares remaining available for grantbe granted under the Plans at December 31, 2017.Plan. The Company does not issue shares from treasury stock under the Plan.
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The table below summarizes the expense recognized within general and administrative expenses in the Consolidated Statements of Income related to share-based payments recognizedstock-based compensation for the years ended December 31 (in thousands):
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Stock options | $ | 24,342 | $ | 61,993 | $ | 30,057 | ||||||||||||||
| Restricted stock | 91,744 | 59,423 | 50,014 | |||||||||||||||||
| Stock-based compensation | $ | 116,086 | $ | 121,416 | $ | 80,071 | ||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Stock options | $ | 56,400 | $ | 35,234 | $ | 44,260 | ||||||
| Restricted stock | 36,897 | 28,712 | 45,862 | |||||||||
| Stock-based compensation | $ | 93,297 | $ | 63,946 | $ | 90,122 | ||||||
The tax benefits recorded onupon the exercises of options and vesting of restricted stock based compensation were $48.6$22.1 million, $35.0$25.5 million and $35.7$32.8 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.
The following table summarizes the Company’s total unrecognized compensation cost related to stock-based compensationoutstanding stock awards as of December 31, 20172023 (cost in thousands):
Unrecognized Compensation Cost | Weighted Average Period of Expense Recognition (in Years) | |||||
| Stock options | $ | 84,452 | 1.33 | |||
| Restricted stock | 18,819 | 1.06 | ||||
| Total | $ | 103,271 | ||||
| Unrecognized Compensation Cost | Weighted Average Period of Expense Recognition Remaining (in Years) | |||||||||||||
| Stock options | $ | 70,627 | 2.19 | |||||||||||
| Restricted stock | 40,695 | 0.50 | ||||||||||||
| Total | $ | 111,322 | ||||||||||||
Stock Options
The following summarizes the changes in the number of shares of common stock under optionoptions outstanding for the following periods (shares and aggregate intrinsic value in thousands):
| Shares | Weighted Average Exercise Price | Options Exercisable at End of Year | Weighted Average Exercise Price of Exercisable Options | Weighted Average Fair Value of Options Granted During the Year | Aggregate Intrinsic Value | |||||||||||||||||||||||||||||||||
| Outstanding at December 31, 2020 | 4,964 | $ | 146.69 | 3,994 | $ | 130.37 | $ | 626,107 | ||||||||||||||||||||||||||||||
| Granted | 1,097 | 261.85 | $ | 72.84 | ||||||||||||||||||||||||||||||||||
| Exercised | (592) | 82.50 | 83,686 | |||||||||||||||||||||||||||||||||||
| Forfeited | (22) | 230.14 | ||||||||||||||||||||||||||||||||||||
| Outstanding at December 31, 2021 | 5,447 | 176.52 | 3,798 | 145.18 | 257,707 | |||||||||||||||||||||||||||||||||
| Granted | 649 | 223.66 | $ | 65.23 | ||||||||||||||||||||||||||||||||||
| Exercised | (544) | 94.79 | 64,783 | |||||||||||||||||||||||||||||||||||
| Forfeited | (251) | 230.60 | ||||||||||||||||||||||||||||||||||||
| Outstanding at December 31, 2022 | 5,301 | 188.12 | 3,512 | 159.46 | 113,681 | |||||||||||||||||||||||||||||||||
| Granted | 411 | 222.51 | $ | 66.28 | ||||||||||||||||||||||||||||||||||
| Exercised | (648) | 172.01 | 40,983 | |||||||||||||||||||||||||||||||||||
| Forfeited | (81) | 241.78 | ||||||||||||||||||||||||||||||||||||
| Outstanding at December 31, 2023 | 4,983 | $ | 192.18 | 3,182 | $ | 163.54 | $ | 451,039 | ||||||||||||||||||||||||||||||
| Expected to vest at December 31, 2023 | 952 | $ | 226.20 | |||||||||||||||||||||||||||||||||||
80
| Shares | Weighted Average Exercise Price | Options Exercisable at End of Year | Weighted Average Exercise Price of Exercisable Options | Weighted Average Fair Value of Options Granted During the Year | Aggregate Intrinsic Value | |||||||||||||||||
| Outstanding at December 31, 2014 | 5,131 | $ | 58.71 | 2,370 | $ | 21.75 | $ | 461,770 | ||||||||||||||
| Granted | 654 | 154.56 | $ | 35.32 | ||||||||||||||||||
| Exercised | (586 | ) | 33.97 | 63,863 | ||||||||||||||||||
| Forfeited | (196 | ) | 95.16 | |||||||||||||||||||
| Outstanding at December 31, 2015 | 5,003 | 72.72 | 2,545 | 26.82 | 351,277 | |||||||||||||||||
| Granted | 1,780 | 133.33 | $ | 28.61 | ||||||||||||||||||
| Exercised | (500 | ) | 42.36 | 49,592 | ||||||||||||||||||
| Forfeited | (137 | ) | 140.67 | |||||||||||||||||||
| Outstanding at December 31, 2016 | 6,146 | 91.20 | 3,429 | 55.00 | 309,238 | |||||||||||||||||
| Granted | 2,885 | 145.35 | $ | 32.57 | ||||||||||||||||||
| Exercised | (633 | ) | 71.43 | 76,546 | ||||||||||||||||||
| Forfeited | (367 | ) | 144.51 | |||||||||||||||||||
| Outstanding at December 31, 2017 | 8,031 | $ | 109.78 | 4,029 | $ | 75.80 | $ | 663,815 | ||||||||||||||
| Expected to vest at December 31, 2017 | 8,031 | $ | 109.78 | |||||||||||||||||||
The following table summarizes information about stock options outstanding at December 31, 20172023 (shares in thousands):
| Exercise Price | Options Outstanding | Weighted Average Remaining Vesting Life in Years | Options Exercisable | |||||||||||||||||
| $106.83 – $199.75 | 2,670 | 0.02 | 2,615 | |||||||||||||||||
| $200.41 – $216.18 | 251 | 1.12 | 58 | |||||||||||||||||
| $220.13 – $231.70 | 582 | 0.63 | 219 | |||||||||||||||||
| $235.52 – $251.88 | 265 | 2.49 | 15 | |||||||||||||||||
| $252.50 – $261.27 | 1,151 | 0.04 | 234 | |||||||||||||||||
| $263.21 – $286.86 | 45 | 0.47 | 23 | |||||||||||||||||
| $288.37 – $319.55 | 19 | 0.01 | 17 | |||||||||||||||||
| 4,983 | 3,182 | |||||||||||||||||||
| Exercise Price | Options Outstanding | Weighted Average Remaining Vesting Life in Years | Options Exercisable | |||||
| $10.00 – 58.02 | 2,218 | 0.00 | 2,218 | |||||
| 74.99 – 111.09 | 104 | 0.03 | 90 | |||||
| 114.90 – 138.47 | 2,029 | 0.77 | 577 | |||||
| 140.23-150.74 | 2,593 | 1.60 | 906 | |||||
| 151.16-158.24 | 618 | 1.48 | 195 | |||||
| 165.96-174.35 | 469 | 3.08 | 43 | |||||
| 8,031 | 4,029 | |||||||
The aggregate intrinsic value of stock options exercisable at December 31, 20172023 was $469.8$379.1 million. The weighted average remaining contractual term of options exercisable at December 31, 20172023 was 5.03.0 years.
The fair value of stock option awards granted was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions for grants or modifications during the years ended December 31 as follows:
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Risk-free interest rate | 4.39 | % | 1.65 | % | 0.45 | % | ||||||||||||||
| Dividend yield | — | — | — | |||||||||||||||||
| Expected volatility | 33.73 | % | 34.62 | % | 34.44 | % | ||||||||||||||
| Expected term (in years) | 3.4 | 3.9 | 4.0 | |||||||||||||||||
| 2017 | 2016 | 2015 | |||||||
| Risk-free interest rate | 1.65 | % | 1.08 | % | 1.47 | % | |||
| Dividend yield | — | — | — | ||||||
| Expected volatility | 28.00 | % | 27.29 | % | 27.77 | % | |||
| Expected life (in years) | 3.4 | 3.5 | 4.5 | ||||||
The weighted-average remaining contractual lifeterm for options outstanding was 6.93.7 years at December 31, 2017.2023.
The fair value of stock options granted with market based vesting conditions was estimated using the Monte Carlo simulation valuation model with the following assumptions during the year ended December 31, 2021 as follows. There were no restricted stock sharesperformance options granted with market based vesting conditions in 2017, 2016 and 2015. 2023 or 2022.
| 2021 | |||||||||||
| Risk-free interest rate | 0.59 | % | |||||||||
| Dividend yield | — | ||||||||||
| Expected volatility | 36.10 | % | |||||||||
| Expected term (in years) | 3.3 | ||||||||||
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Restricted Stock
The following table summarizes the changes in the number of shares of restricted stock awards and restricted stock units outstanding for the following periods (shares in thousands):
| Shares | Weighted Average Grant Date Fair Value | |||||||||||||
| Outstanding at December 31, 2020 | 174 | $ | 265.29 | |||||||||||
| Granted | 215 | 272.59 | ||||||||||||
| Cancelled | (38) | 265.76 | ||||||||||||
| Issued | (73) | 258.13 | ||||||||||||
| Outstanding at December 31, 2021 | 278 | 278.57 | ||||||||||||
| Granted | 386 | 229.22 | ||||||||||||
| Cancelled | (83) | 267.53 | ||||||||||||
| Issued | (146) | 283.60 | ||||||||||||
| Outstanding at December 31, 2022 | 435 | 237.68 | ||||||||||||
| Granted | 441 | 213.36 | ||||||||||||
| Cancelled | (24) | 230.11 | ||||||||||||
| Issued | (310) | 235.25 | ||||||||||||
| Outstanding at December 31, 2023 | 542 | $ | 219.61 | |||||||||||
The total fair value of restricted stock awards and restricted stock units vested was $66.6 million, $34.4 million and $20.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.
7. Acquisitions and Equity Method Investments
| Shares | Weighted Average Grant Date Fair Value | ||||||
| Outstanding at December 31, 2014 | 716 | $ | 121.38 | ||||
| Granted | 126 | 151.33 | |||||
| Cancelled | (52 | ) | 135.92 | ||||
| Issued | (293 | ) | 85.40 | ||||
| Outstanding at December 31, 2015 | 497 | 149.40 | |||||
| Granted | 152 | 128.90 | |||||
| Cancelled | (41 | ) | 145.25 | ||||
| Issued | (229 | ) | 151.72 | ||||
| Outstanding at December 31, 2016 | 379 | 140.39 | |||||
| Granted | 238 | 141.99 | |||||
| Cancelled | (48 | ) | 152.95 | ||||
| Issued | (204 | ) | 136.85 | ||||
| Outstanding at December 31, 2017 | 365 | $ | 155.58 | ||||
The aggregate purchase price of $720.8these acquisitions was approximately $436.7 million (inclusive of the $8.5 million previously-held equity method investment in Mina), net of cash acquired of $96.2 million and inclusive of notes payable of $29.3$117 million. During 2017, the Company made investments in other businesses of $39 million.
Acquisition accounting is preliminary for the 2023 acquisitions as the Company is still completing the valuation for goodwill, intangible assets, income taxes, working capital, and contingencies.
82
The following table summarizes the preliminary acquisition accounting, in aggregate, for Cambridgethe 2023 business acquisitions noted above (in thousands):
| Trade and other receivables | $ | 6,004 | |||
| Prepaid expenses and other current assets | 46,472 | ||||
| Other long term assets | 13,302 | ||||
| Goodwill | 382,793 | ||||
| Intangibles | 158,689 | ||||
| Accounts payable | (23,789) | ||||
| Other current liabilities | (129,603) | ||||
| Other noncurrent liabilities | (18,923) | ||||
| Aggregate purchase price | $ | 434,945 | |||
| Restricted cash | $ | 37,666 | |
| Trade and other receivables | 61,801 | ||
| Prepaid expenses and other current assets | 15,190 | ||
| Property and equipment | 7,106 | ||
| Other long term assets | 10,025 | ||
| Goodwill | 500,391 | ||
| Customer relationships and other identifiable intangible assets | 271,793 | ||
| Liabilities assumed | (194,552 | ) | |
| Deferred tax liabilities | (93,364 | ) | |
| Aggregate purchase price | $ | 616,056 | |
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 | |||||||||||||
| Trade Names and Trademarks | 2 to Indefinite | $ | 12,459 | |||||||||||
| Proprietary Technology | 5 to 7 | 11,885 | ||||||||||||
| Customer Relationships | 6 to 20 | 134,345 | ||||||||||||
| $ | 158,689 | |||||||||||||
| Useful Lives (in Years) | Value | |||
| Banking relationships | 20 | $ | 705 | |
| Trade name and trademarks | Indefinite | 35,110 | ||
| Technology | 5 | 16,039 | ||
| Customer relationships - excluding Accounts Payable Solutions | 7-18 | 178,190 | ||
| Customer relationships - Accounts Payable Solutions | 20 | 41,749 | ||
| $ | 271,793 | |||
The aggregate purchase price of these 2022 acquisitions was approximately $197.2 million, net of cash. The Company financed the acquisitions using a combination of existingavailable cash and borrowings under its existing credit facility. The accounting forIn connection with two of these acquisitions, is preliminary as the Company is still completingsigned noncompete agreements of $1.1 million and $1.2 million with certain parties affiliated with the valuation of goodwill, intangible assets, income taxes and evaluation of acquired contingencies.
respective businesses. These noncompete agreements were accounted for separately from the business acquisitions.
The following table summarizes the preliminaryfinal acquisition accounting, in aggregate, for the 2022 business acquisitions noted above (in thousands):
| Trade and other receivables | $ | 13,349 | |||
| Prepaid expenses and other current assets | 4,006 | ||||
| Other long term assets | 468 | ||||
| Goodwill | 163,938 | ||||
| Intangibles | 50,145 | ||||
| Accounts payable | (20,542) | ||||
| Other current liabilities | (4,960) | ||||
| Other noncurrent liabilities | (9,191) | ||||
| Aggregate purchase price | $ | 197,213 | |||
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| Trade and other receivables | $ | 37,986 | |
| Prepaid expenses and other | 1,426 | ||
| Property and equipment | 5,745 | ||
| Goodwill | 55,711 | ||
| Other intangible assets | 53,259 | ||
| Liabilities assumed | (32,202 | ) | |
| Deferred tax liabilities | (17,217 | ) | |
| Aggregate purchase prices | $ | 104,708 | |
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 | |||||||||||||
| Trade Names and Trademarks | 2 to Indefinite | $ | 4,705 | |||||||||||
| Proprietary Technology | 5 to 10 | 11,646 | ||||||||||||
| Lodging / Supplier Network | 10 to 20 | 1,402 | ||||||||||||
| Customer Relationships | 5 to 20 | 32,392 | ||||||||||||
| $ | 50,145 | |||||||||||||
Other
| Useful Lives (in Years) | Value | |||
| Trade name and trademarks | 1 | $ | 180 | |
| Technology | 4 | 1,750 | ||
| Customer relationships | 8 | 51,329 | ||
| $ | 53,259 | |||
| Trade and other receivables | $ | 243,157 | |
| Prepaid expenses and other | 5,757 | ||
| Deferred tax assets | 20,644 | ||
| Property and equipment | 44,226 | ||
| Other long term assets | 14,280 | ||
| Goodwill | 663,040 | ||
| Customer relationships and other identifiable intangible assets | 548,682 | ||
| Liabilities assumed | (312,297 | ) | |
| Aggregate purchase price | $ | 1,227,489 | |
Useful Lives (in Years) | Value | |||
| Customer relationships | 8.5-20 | $ | 348,414 | |
| Trade names and trademarks | Indefinite | 154,851 | ||
| Technology | 6 | 45,417 | ||
| $ | 548,682 | |||
| 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 | ||
| Deferred tax liabilities | (5,123 | ) | |
| Liabilities assumed | (42,550 | ) | |
| Aggregate purchase prices | $ | 76,735 | |
Useful Lives (in Years) | Value | |||
| Customer relationships and other identifiable intangible assets | 10-18 | $ | 61,823 | |
| $ | 61,823 | |||
| Trade and other receivables | $ | 521 | ||
| Prepaid expenses and other | 996 | |||
| Property and equipment | 197 | |||
| Goodwill | 9,561 | |||
| Other intangible assets | 39,791 | |||
| Deferred tax liabilities | (2,437 | ) | ||
| Liabilities assumed | (2,331 | ) | ||
| Aggregate purchase prices | $ | 46,298 | ||
Useful Lives (in Years) | Value | |||||
| Customer relationships | 14-20 | $ | 39,791 | |||
| $ | 39,791 | |||||
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 | December 31, 2017 | |||||||||||||||||||
| Segment | ||||||||||||||||||||||||
| North America | $ | 2,640,409 | $ | 534,777 | $ | (92,046 | ) | $ | — | $ | 983 | $ | 3,084,123 | |||||||||||
| International | 1,554,741 | 21,325 | — | 3,752 | 51,882 | 1,631,700 | ||||||||||||||||||
| $ | 4,195,150 | $ | 556,102 | $ | (92,046 | ) | $ | 3,752 | $ | 52,865 | $ | 4,715,823 | ||||||||||||
| December 31, 2022 | Acquisitions1 | Dispositions2 | Acquisition Accounting Adjustments | Foreign Currency | December 31, 2023 | |||||||||||||||||||||||||||||||||
| Segment | ||||||||||||||||||||||||||||||||||||||
| Vehicle Payments | $ | 2,530,391 | $ | 233,240 | $ | (40,857) | $ | 4,389 | $ | 76,827 | $ | 2,803,990 | ||||||||||||||||||||||||||
| Corporate Payments | 1,906,070 | 149,553 | — | (105) | 19,218 | 2,074,736 | ||||||||||||||||||||||||||||||||
| Lodging Payments | 416,044 | — | — | (764) | 1,672 | 416,952 | ||||||||||||||||||||||||||||||||
| Other | 348,930 | — | — | — | 350 | 349,280 | ||||||||||||||||||||||||||||||||
| $ | 5,201,435 | $ | 382,793 | $ | (40,857) | $ | 3,520 | $ | 98,067 | $ | 5,644,958 | |||||||||||||||||||||||||||
1Reflects the recognition of preliminary goodwill related to acquisitions completed by the Company during the year ended December 31, 2023. | ||||||||||||||||||||||||||||||||||||||
2Reflects goodwill derecognized in connection with the disposition of the Company's operations in Russia. See Note 19 for additional information. | ||||||||||||||||||||||||||||||||||||||
| December 31, 2015 | Acquisitions | Acquisition Accounting Adjustments | Foreign Currency | December 31, 2016 | ||||||||||||||||
| Segment | ||||||||||||||||||||
| North America | $ | 2,640,409 | $ | — | $ | — | $ | — | $ | 2,640,409 | ||||||||||
| International | 905,625 | 687,828 | (521 | ) | (38,191 | ) | 1,554,741 | |||||||||||||
| $ | 3,546,034 | $ | 687,828 | $ | (521 | ) | $ | (38,191 | ) | $ | 4,195,150 | |||||||||
| December 31, 2021 | Acquisitions | Acquisition Accounting Adjustments | Foreign Currency | December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Segment | ||||||||||||||||||||||||||||||||||||||
| Vehicle Payments | $ | 2,475,243 | $ | 71,856 | $ | 1,216 | $ | (17,924) | $ | 2,530,391 | ||||||||||||||||||||||||||||
| Corporate Payments | 1,888,875 | 40,387 | 2,933 | (26,125) | 1,906,070 | |||||||||||||||||||||||||||||||||
| Lodging Payments | 364,653 | 46,928 | 4,700 | (237) | 416,044 | |||||||||||||||||||||||||||||||||
| Other | 350,207 | — | — | (1,277) | 348,930 | |||||||||||||||||||||||||||||||||
| $ | 5,078,978 | $ | 159,171 | $ | 8,849 | $ | (45,563) | $ | 5,201,435 | |||||||||||||||||||||||||||||
At December 31, 20172023 and 2016,2022, approximately $988.0$985.9 million and $362.6$945.0 million of the Company’s goodwill is deductible for tax purposes, respectively. Acquisition accounting adjustments recorded in 20172023 and 20162022 are a result of the Company completing its acquisition accounting and working capital adjustments for certain prior year acquisitions.
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Other intangible assets consisted of the following at December 31 (in thousands):
| 2023 | 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | Weighted- Avg Useful Life (Years) | Gross Carrying Amounts | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amounts | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted- Avg Useful Life (Years) | Gross Carrying Amounts | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amounts | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Customer and vendor agreements | 17.0 | $ | 2,698,428 | $ | (605,347 | ) | $ | 2,093,081 | $ | 2,449,389 | $ | (458,118 | ) | $ | 1,991,271 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Customer and vendor relationships | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trade names and trademarks—indefinite lived | N/A | 499,587 | — | 499,587 | 510,952 | — | 510,952 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trade names and trademarks—other | 13.8 | 2,986 | (2,207 | ) | 779 | 2,746 | (2,021 | ) | 725 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Software | 6.0 | 219,019 | (116,654 | ) | 102,365 | 211,331 | (85,167 | ) | 126,164 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Technology | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-compete agreements | 4.5 | 48,221 | (19,076 | ) | 29,145 | 35,191 | (11,070 | ) | 24,121 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other intangibles | $ | 3,468,241 | $ | (743,284 | ) | $ | 2,724,957 | $ | 3,209,609 | $ | (556,376 | ) | $ | 2,653,233 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other intangibles | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other intangibles | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| N/A = Not Applicable | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in foreign exchange rates resulted in a $24.2$32.4 million increaseand $18.4 million decreases to the carrying values of other intangible assets in the yearyears ended December 31, 2017.2023 and 2022, respectively. Amortization expense related to intangible assets for the years ended December 31, 2017, 20162023, 2022, and 20152021 was $211.8$225.4 million, $161.6$227.2 million, and $159.7$205.5 million, respectively. As part ofDue to rebranding activity during the Company's plan to exit the telematics business, on July 27, 2017,year ended December 31, 2022, the Company sold NexTraq, a U.S. fleet telematics business, to Michelin Group, resultingreassessed the useful lives of certain trademarks. This resulted in a $41.8reclassification of $45.6 million reductionfrom indefinite to finite-lived assets as of December 31, 2022. At the time of change in estimate, which was applied prospectively, the net carrying values of other intangible assets.Company tested these trademarks for impairment, which resulted in no impairment charge.
The future estimated amortization of intangiblesintangible assets at December 31, 20172023 is as follows (in thousands):
| 2024 | $ | 216,912 | ||||||
| 2025 | 194,511 | |||||||
| 2026 | 172,952 | |||||||
| 2027 | 165,531 | |||||||
| 2028 | 162,267 | |||||||
| Thereafter | 732,590 | |||||||
| 2018 | $ | 220,506 | ||
| 2019 | 206,174 | |||
| 2020 | 186,259 | |||
| 2021 | 182,156 | |||
| 2022 | 171,177 | |||
| Thereafter | 1,259,098 | |||
Property, plant and equipment, net consisted of the following at December 31 (in thousands):
Estimated Useful Lives (in Years) | 2017 | 2016 | ||||||||||||||||||||||||||||||||||||||||||||
| Estimated Useful Lives (in Years) | Estimated Useful Lives (in Years) | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||
| Computer hardware and software | 3 to 5 | $ | 244,655 | $ | 197,958 | |||||||||||||||||||||||||||||||||||||||||
| Card-reading equipment | 4 to 6 | 25,462 | 25,553 | |||||||||||||||||||||||||||||||||||||||||||
| Furniture, fixtures, and vehicles | 2 to 10 | 18,846 | 15,418 | |||||||||||||||||||||||||||||||||||||||||||
| Buildings and improvements | 5 to 50 | 21,603 | 14,432 | |||||||||||||||||||||||||||||||||||||||||||
| Property, plant and equipment, gross | 310,566 | 253,361 | ||||||||||||||||||||||||||||||||||||||||||||
| Less: accumulated depreciation | (130,509 | ) | (110,857 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Property, plant and equipment, net | $ | 180,057 | $ | 142,504 | ||||||||||||||||||||||||||||||||||||||||||
Depreciation expense related to property and equipment for the years ended December 31, 2017, 20162023, 2022, and 20152021 was $46.6$110.0 million, $36.5$92.0 million, and $30.5$75.6 million, respectively. DepreciationAmortization expense includes $21.8$77.5 million, $17.7$61.3 million, and $11.6$46.7 million for capitalized computer software costs for the years ended December 31, 2017, 20162023, 2022, and 2015,2021, respectively. At December 31, 20172023 and 2016,2022, the Company had unamortized computer software costs of $75.8$268.9 million and $60.2$213.3 million, respectively.
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Write-offs of property, plant and equipment were immaterial for each of the years ended December 31, 2023, 2022, and 2021.
10. Accrued Expenses
Accrued expenses consisted of the following at December 31 (in thousands):
| 2023 | 2022 | |||||||||||||
| Accrued bonuses | $ | 12,696 | $ | 19,975 | ||||||||||
| Accrued payroll and severance | 53,303 | 48,007 | ||||||||||||
| Accrued taxes | 109,323 | 94,557 | ||||||||||||
| Accrued commissions/rebates | 74,519 | 83,190 | ||||||||||||
Other1 | 106,277 | 106,207 | ||||||||||||
| $ | 356,118 | $ | 351,936 | |||||||||||
1Other accrued expenses include several types of amounts due to our merchants, vendors, and other third parties.
| 2017 | 2016 | |||||||
| Accrued bonuses | $ | 15,119 | $ | 15,866 | ||||
| Accrued payroll and severance | 18,500 | 10,704 | ||||||
| Accrued taxes | 63,698 | 104,623 | ||||||
| Accrued commissions/rebates | 47,198 | 43,467 | ||||||
| Other | 93,957 | 64,152 | ||||||
| $ | 238,472 | $ | 238,812 | |||||
The Company’s debt instruments at December 31 consist primarily of term notes, revolving lines of credit and a Securitization Facility as follows (in thousands):
| 2023 | 2022 | |||||||||||||
| Term Loan A note payable (a), net of discounts | $ | 2,882,595 | $ | 2,956,053 | ||||||||||
| Term Loan B note payable (a), net of discounts | 1,840,244 | 1,855,891 | ||||||||||||
| Revolving line of credit facilities (a) | 692,318 | 935,000 | ||||||||||||
| Other obligations (c) | 748 | 2,950 | ||||||||||||
| Total notes payable, credit agreements, and other obligations | 5,415,905 | 5,749,894 | ||||||||||||
| Securitization Facility (b) | 1,307,000 | 1,287,000 | ||||||||||||
| Total debt | $ | 6,722,905 | $ | 7,036,894 | ||||||||||
| Current portion | $ | 2,126,749 | $ | 2,314,056 | ||||||||||
| Long-term portion | 4,596,156 | 4,722,838 | ||||||||||||
| Total debt | $ | 6,722,905 | $ | 7,036,894 | ||||||||||
_____________________
(a)The Company is party to a $6.4 billion Credit Agreement (the "Credit Agreement"), with Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer, and a syndicate of financial institutions (the "Lenders"), which has been amended multiple times. The Credit Agreement provides for senior secured credit facilities (collectively, the "Credit Facility") consisting of a revolving credit facility in the amount of $1.5 billion, a term loan A facility in the amount of $3.0 billion and a term loan B facility in the amount of $1.9 billion as of December 31, 2023. The revolving credit facility consists of (a) a revolving A credit facility in the amount of $1 billion with sublimits for letters of credit and swing line loans and (b) a revolving B facility in the amount of $500 million with borrowings in U.S. dollars, euros, British pounds, Japanese yen or other currency as agreed in advance and a sublimit for swing line loans. The Credit Agreement also includes an accordion feature for borrowing an additional $750 million in term loan A, term loan B, revolving A or revolving B facility debt and an unlimited amount when the leverage ratio on a pro-forma basis is less than 3.75 to 1.00. Proceeds from the credit facilities may be used for working capital purposes, acquisitions, and other general corporate purposes.
On June 24, 2022, the Company entered into the twelfth amendment to the Credit Agreement. The amendment replaced the then-existing term loan A with the $3 billion term loan A described above and the then-existing revolving credit facility with the $1.5 billion revolving credit facility described above, resulting in net increases of $273 million and $215 million to the capacities of the term loan A and revolving credit facility, respectively. In addition, the amendment replaced LIBOR for USD borrowings with the Secured Overnight Financing Rate ("SOFR") plus a SOFR adjustment of 0.10% for the term loan A and the revolving Credit Facility and extended the maturity date. The maturity date for the new term loan A and revolving credit facilities A and B is June 24, 2027. The term loan B has a maturity date of April 30, 2028.
On May 3, 2023, the Company entered into the thirteenth amendment to the Credit Facility. The amendment replaced LIBOR on the term B loan with the Secured Overnight Financing Rate ("SOFR"), plus a SOFR adjustment of 0.10%.
86
| 2017 | 2016 | |||||||
| Term notes payable—domestic(a), net of discounts | $ | 2,993,667 | $ | 2,639,279 | ||||
| Revolving line of credit A Facility—domestic(a) | 635,000 | 465,000 | ||||||
| Revolving line of credit B Facility—foreign(a) | 28,334 | 123,412 | ||||||
| Revolving line of credit B Facility—swing line(a) | 6,879 | 26,608 | ||||||
| Other(c) | 43,736 | 12,934 | ||||||
| Total notes payable and other obligations | 3,707,616 | 3,267,233 | ||||||
| Securitization Facility(b) | 811,000 | 591,000 | ||||||
| Total notes payable, credit agreements and Securitization Facility | $ | 4,518,616 | $ | 3,858,233 | ||||
| Current portion | $ | 1,616,512 | $ | 1,336,506 | ||||
| Long-term portion | 2,902,104 | 2,521,727 | ||||||
| Total notes payable, credit agreements and Securitization Facility | $ | 4,518,616 | $ | 3,858,233 | ||||
On January 31, 2024, the Company entered into the fourteenth amendment to its Credit Agreement. The amendment a) increased the capacity on the revolving credit facility by $275.0 million and b) increased the term loan A commitments by $325.0 million. The Company used the term loan A proceeds to pay down existing borrowings under the revolving credit facility. As a result, the transaction was leverage neutral and results in a $600 million increase in the Company’s availability under the revolving credit facility. The interest rates and maturity terms remain consistent with the existing credit facilities.
Interest on amounts outstanding under the Credit Agreement (other than the term B loan) accrues as follows: For loans denominated in U.S. dollars, based on SOFR plus a SOFR adjustment of 0.10%, in British pounds, based on the British Bankers Association LIBORSONIA plus a SONIA adjustment of 0.0326%, in euros, based on the Euro Interbank Offered Rate (the Eurocurrency Rate)(“EURIBOR”), or in Japanese yen, at the Tokyo Interbank Offer Rate (“TIBOR”) plus a margin based on a leverage ratio (as defined in the agreement), or our option (for U.S. dollar borrowings only), the Base Rate (defined as the rate equal to the highest of (a) the Federal Funds Rate plus 0.50%, (b) the prime rate announced by Bank of America, N.A., or (c) the Eurocurrency RateSOFR plus 1.00%) plus a margin based on a leverage ratio. Interest on the term B loan facility accrues based on the Eurocurrency Rate plus 2.00% for Eurocurrency Loans and at 1.00% for Base Rate Loans.ratio). In addition, the Company pays a quarterly commitment fee at a rate per annum ranging from 0.20%0.25% to 0.40%0.30% of the daily unused portion of the credit facility.
| 2023 | 2022 | ||||||||||
| Term loan A | 6.83 | % | 5.80 | % | |||||||
| Term loan B | 7.21 | % | 6.13 | % | |||||||
| Revolving line of credit A & B (USD) | 6.83 | % | 5.79 | % | |||||||
| Revolving line of credit B (GBP) | 6.59 | % | N/A | ||||||||
| Unused credit facility fee | 0.25 | % | 0.25 | % | |||||||
| N/A = Not Applicable | |||||||||||
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 the optionmaturity of one, two, three or nine months after borrowing, dependingthe facility. Borrowings on the termdomestic swing line of the borrowingcredit are due on the facility. Borrowingsdemand, and borrowings on the foreign swing line of credit are due no later than tentwenty business days after such loan is made.
The Company has unamortized debt issuance costs of $3.6 million and $4.6 million related to the term Brevolving credit facility and deferred financing costsas of $5.1 million at December 31, 2017. In August 2017,2023 and December 31, 2022, respectively, recorded in other assets within the Company expensed $3.3 millionConsolidated Balance Sheets.
As a result of the amortization of debt discounts and capitalized $10.6 million of debt issuance costs, associated with the refinancing of its Credit Facility. The effective interest rate incurred on the term loans was 2.69% and 2.57%6.83% during 2017 and 2016, respectively, related to the discount on debt.2023. Principal payments of $423.2$94.0 million were made on the term loans during 2017.2023.
(b)The Company is party to a $1.7 billion receivables purchase agreement. On March 23, 2022, the Company entered into the tenth amendment to the Securitization Facility. The amendment increased the Securitization Facility commitment from $1.3 billion to $1.6 billion and replaced LIBOR with SOFR plus a SOFR adjustment of 0.10%. On August 18, 2022, the Company entered into the eleventh amendment to the Securitization Facility. The amendment increased the Securitization Facility commitment from $1.6 billion to $1.7 billion, reduced the program fee margin and extended the maturity of the Securitization Facility to August 18, 2025. There is a program fee equal to SOFR plus 0.10% adjustment plus 0.95% or the Commercial Paper Rate plus 0.85% as of December 31, 2023 and December 31, 2022. The program fee was 5.49% plus 0.94% as of December 31, 2023 and 4.48% plus 0.94% as of December 31, 2022. The unused facility fee is payable at a rate of between 0.30% and 0.40% based on utilization as of December 31, 2023 and December 31, 2022. The Company has unamortized debt issuance costs of $2.1 million and $3.2 million related to the revolving Securitization Facility as of December 31, 2023 and December 31, 2022, respectively, recorded in other assets within the Consolidated Balance Sheets.
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.
(c)Other obligations includes a credit facility assumed as part of a business acquisition in 2022.
87
The Company was in compliance with all financial and non-financial covenants at December 31, 2017.2023. The Company has entered into interest rate swap cash flow contracts with U.S. dollar notional amounts in order to reduce the variability of cash flows in the previously unhedged interest payments associated with $4.0 billion of unspecified variable rate debt. Refer to Note 16 for further details.
The contractual maturities of the Company’s notes payable and other obligationstotal debt at December 31, 20172023 were as follows (in thousands):
| 2024 | $ | 824,648 | ||||||
| 2025 | 169,000 | |||||||
| 2026 | 169,000 | |||||||
| 2027 | 2,494,000 | |||||||
| 2028 | 1,778,375 | |||||||
| Thereafter | — | |||||||
| Total principal payments | 5,435,023 | |||||||
| Less: debt discounts and issuance costs included in debt | (19,118) | |||||||
| Total debt | $ | 5,415,905 | ||||||
12. Accumulated Other Comprehensive Loss (AOCL)
The changes in the components of AOCL, net of tax, for the years ended December 31, 2023, 2022 and 2021 are as follows (in thousands):
| Cumulative Foreign Currency Translation | Unrealized (Losses) Gains on Derivative Instruments | Total Accumulated Other Comprehensive (Loss) Income | ||||||||||||||||||
| Balance at December 31, 2020 | $ | (1,296,962) | $ | (66,196) | $ | (1,363,158) | ||||||||||||||
| Other comprehensive (loss) income before reclassifications | (144,543) | 7,394 | (137,149) | |||||||||||||||||
| Amounts reclassified from AOCL | — | 49,747 | 49,747 | |||||||||||||||||
| Tax effect | — | (14,056) | (14,056) | |||||||||||||||||
| Other comprehensive (loss) income, net of tax | (144,543) | 43,085 | (101,458) | |||||||||||||||||
| Balance at December 31, 2021 | (1,441,505) | (23,111) | (1,464,616) | |||||||||||||||||
| Other comprehensive (loss) income before reclassifications | (77,135) | 31,853 | (45,282) | |||||||||||||||||
| Amounts reclassified from AOCL | — | 10,835 | 10,835 | |||||||||||||||||
| Tax effect | — | (10,587) | (10,587) | |||||||||||||||||
| Other comprehensive (loss) income, net of tax | (77,135) | 32,101 | (45,034) | |||||||||||||||||
| Balance at December 31, 2022 | (1,518,640) | 8,990 | (1,509,650) | |||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 140,089 | (14,984) | 125,105 | |||||||||||||||||
| Amounts reclassified from AOCL | 120,269 | (39,401) | 80,868 | |||||||||||||||||
| Tax effect | — | 14,578 | 14,578 | |||||||||||||||||
| Other comprehensive income (loss), net of tax | 260,358 | (39,807) | 220,551 | |||||||||||||||||
| Balance at December 31, 2023 | $ | (1,258,282) | $ | (30,817) | $ | (1,289,099) | ||||||||||||||
| 2018 | $ | 805,512 | ||
| 2019 | 173,927 | |||
| 2020 | 136,197 | |||
| 2021 | 136,337 | |||
| 2022 | 2,121,177 | |||
| Thereafter | 334,466 | |||
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Income before the provision for income taxes is attributable to the following jurisdictions for years ended December 31 (in thousands):
| 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||
| United States | $ | 524,669 | $ | 383,427 | $ | 304,743 | ||||||||||||||||||||||||||||||||||||||||||
| Foreign | 368,921 | 259,492 | 231,261 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 893,590 | $ | 642,919 | $ | 536,004 | ||||||||||||||||||||||||||||||||||||||||||
The provision (benefit) for income taxes for the years ended December 31 consists of the following (in thousands):
| 2017 | 2016 | 2015 | ||||||||||
| Current: | ||||||||||||
| Federal | $ | 303,514 | $ | 147,406 | $ | 82,926 | ||||||
| State | 19,234 | 10,725 | 8,051 | |||||||||
| Foreign | 78,354 | 61,084 | 51,970 | |||||||||
| Total current | 401,102 | 219,215 | 142,947 | |||||||||
| Deferred: | ||||||||||||
| Federal | (255,188 | ) | (18,723 | ) | 36,723 | |||||||
| State | 276 | 1,608 | 1,525 | |||||||||
| Foreign | 7,200 | (11,566 | ) | (7,622 | ) | |||||||
| Total deferred | (247,712 | ) | (28,681 | ) | 30,626 | |||||||
| Total provision | $ | 153,390 | $ | 190,534 | $ | 173,573 | ||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | 155,647 | $ | 166,172 | $ | 118,861 | ||||||||||||||
| State | 25,614 | 34,947 | 31,674 | |||||||||||||||||
| Foreign | 208,532 | 153,388 | 107,751 | |||||||||||||||||
| Total current | 389,793 | 354,507 | 258,286 | |||||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | (46,676) | (36,613) | (12,165) | |||||||||||||||||
| State | (8,088) | (6,066) | (4,540) | |||||||||||||||||
| Foreign | 8,086 | 9,505 | 27,730 | |||||||||||||||||
| Total deferred | (46,678) | (33,174) | 11,025 | |||||||||||||||||
| Total provision | $ | 343,115 | $ | 321,333 | $ | 269,311 | ||||||||||||||
The provision for income taxes differs from amounts computed by applying the U.S. federal tax rate of 35%21% for 2023, 2022, and 2021, respectively, to income before income taxes for the years ended December 31, 2023, 2022, and 2021 due to the following (in thousands):
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||
| Computed “expected” tax expense | $ | 278,251 | 21.0 | % | $ | 267,889 | 21.0 | % | $ | 232,850 | 21.0 | % | ||||||||||||||||||||||||||
| Changes resulting from: | ||||||||||||||||||||||||||||||||||||||
| Change in valuation allowance | 22,447 | 1.7 | 22,399 | 1.8 | 1,378 | 0.1 | ||||||||||||||||||||||||||||||||
| Foreign income tax differential | 14,949 | 1.1 | 566 | — | (10,326) | (0.9) | ||||||||||||||||||||||||||||||||
| State taxes net of federal benefits | 13,857 | 1.0 | 12,745 | 1.0 | 18,352 | 1.7 | ||||||||||||||||||||||||||||||||
| Increase in tax expense due to uncertain tax positions | 14,146 | 1.1 | 8,257 | 0.6 | 8,185 | 0.7 | ||||||||||||||||||||||||||||||||
| Foreign withholding tax | 24,331 | 1.8 | 13,547 | 1.1 | 9,143 | 0.8 | ||||||||||||||||||||||||||||||||
| Change in indefinite reinvestment - Russia | — | — | (9,049) | (0.7) | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | 3,960 | 0.3 | (10,000) | (0.8) | (16,304) | (1.5) | ||||||||||||||||||||||||||||||||
| Sub-part F Income/GILTI | 94,594 | 7.1 | 79,420 | 6.2 | 72,449 | 6.5 | ||||||||||||||||||||||||||||||||
| Foreign tax credits | (98,641) | (7.4) | (73,974) | (5.8) | (63,926) | (5.8) | ||||||||||||||||||||||||||||||||
| Foreign source non-deductible interest | 9,530 | 0.7 | 9,462 | 0.7 | 10,348 | 0.9 | ||||||||||||||||||||||||||||||||
| IRC section 162(m) adjustment | 4,019 | 0.3 | 8,119 | 0.6 | 3,665 | 0.3 | ||||||||||||||||||||||||||||||||
| Brazil tourism tax benefit | (16,311) | (1.2) | (13,810) | (1.1) | — | — | ||||||||||||||||||||||||||||||||
| Interest on net equity deduction | (15,051) | (1.1) | — | — | — | — | ||||||||||||||||||||||||||||||||
| Other | (6,966) | (0.5) | 5,762 | 0.5 | 3,497 | 0.3 | ||||||||||||||||||||||||||||||||
| Provision for income taxes | $ | 343,115 | 25.9 | % | $ | 321,333 | 25.2 | % | $ | 269,311 | 24.3 | % | ||||||||||||||||||||||||||
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| 2017 | 2016 | 2015 | |||||||||||||||||||
| Computed “expected” tax expense | $ | 312,756 | 35.0 | % | $ | 225,022 | 35.0 | % | $ | 187,601 | 35.0 | % | |||||||||
| Changes resulting from: | |||||||||||||||||||||
| Change in valuation allowance | 18,289 | 2.0 | 11,952 | 1.9 | 20,243 | 3.8 | |||||||||||||||
| Foreign income tax differential | (38,695 | ) | (4.3 | ) | (25,533 | ) | (4.0 | ) | (23,718 | ) | (4.4 | ) | |||||||||
| State taxes net of federal benefits | 12,884 | 1.4 | 9,439 | 1.5 | 6,711 | 1.2 | |||||||||||||||
| Foreign-sourced nontaxable income | (8,836 | ) | (1.0 | ) | (13,659 | ) | (1.2 | ) | (10,573 | ) | (2.0 | ) | |||||||||
| IRC Section 199 deduction | (8,844 | ) | (1.0 | ) | (7,731 | ) | (1.2 | ) | (10,221 | ) | (1.9 | ) | |||||||||
| Excess tax benefits related to stock-based compensation | (18,058 | ) | (2.0 | ) | (11,974 | ) | (1.9 | ) | — | — | |||||||||||
| Subpart F income/transition tax - federal only | 195,779 | 21.9 | — | — | — | — | |||||||||||||||
| Foreign tax credit/transition tax - federal only | (113,955 | ) | (12.8 | ) | — | — | — | — | |||||||||||||
| Tax reform - federal rate reduction | (209,966 | ) | (23.5 | ) | — | — | — | — | |||||||||||||
| Other | 12,036 | 1.3 | 3,018 | (0.4 | ) | 3,530 | 0.7 | ||||||||||||||
| Provision for income taxes | $ | 153,390 | 17.2 | % | $ | 190,534 | 29.7 | % | $ | 173,573 | 32.4 | % | |||||||||
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31 are as follows (in thousands):
| 2023 | 2023 | 2022 | |||||||||||||||||||||||||||||||||
| Deferred tax assets: | |||||||||||||||||||||||||||||||||||
| Accounts receivable, principally due to the allowance for credit losses | |||||||||||||||||||||||||||||||||||
| Accounts receivable, principally due to the allowance for credit losses | |||||||||||||||||||||||||||||||||||
| Accounts receivable, principally due to the allowance for credit losses | |||||||||||||||||||||||||||||||||||
| Accrued expenses not currently deductible for tax | |||||||||||||||||||||||||||||||||||
| Lease deferral | |||||||||||||||||||||||||||||||||||
| Interest rate swap | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||||||||||||||
| Income tax credits | |||||||||||||||||||||||||||||||||||
| Net operating loss carry forwards | |||||||||||||||||||||||||||||||||||
| Accrued escheat | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| 2017 | 2016 | ||||||||||||||||||||||||||||||||||
| Deferred tax assets: | |||||||||||||||||||||||||||||||||||
| Accounts receivable, principally due to the allowance for doubtful accounts | $ | 6,752 | $ | 7,148 | |||||||||||||||||||||||||||||||
| Accrued expenses not currently deductible for tax | 442 | 2,647 | |||||||||||||||||||||||||||||||||
| Stock based compensation | 37,274 | 41,415 | |||||||||||||||||||||||||||||||||
| Income tax credits | 376 | 376 | |||||||||||||||||||||||||||||||||
| Net operating loss carry forwards | 41,168 | 45,969 | |||||||||||||||||||||||||||||||||
| Investments | 37,804 | 53,379 | |||||||||||||||||||||||||||||||||
| Accrued escheat | 4,768 | 7,290 | |||||||||||||||||||||||||||||||||
| Fixed assets, intangibles and other | 12,604 | 15,622 | |||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||
| Deferred tax assets before valuation allowance | 141,188 | 173,846 | |||||||||||||||||||||||||||||||||
| Valuation allowance | (59,349 | ) | (76,395 | ) | |||||||||||||||||||||||||||||||
| Deferred tax assets, net | 81,839 | 97,451 | |||||||||||||||||||||||||||||||||
| Deferred tax liabilities: | |||||||||||||||||||||||||||||||||||
| Intangibles—including goodwill | (508,958 | ) | (687,443 | ) | |||||||||||||||||||||||||||||||
| Basis difference in investment in foreign subsidiaries | (39,287 | ) | (48,354 | ) | |||||||||||||||||||||||||||||||
| Intangibles—including goodwill | |||||||||||||||||||||||||||||||||||
| Intangibles—including goodwill | |||||||||||||||||||||||||||||||||||
| Basis difference in investment in subsidiaries | |||||||||||||||||||||||||||||||||||
| Interest rate swap | |||||||||||||||||||||||||||||||||||
| Lease deferral | |||||||||||||||||||||||||||||||||||
| Accrued expense liability | |||||||||||||||||||||||||||||||||||
| Prepaid expenses | (1,605 | ) | (3,644 | ) | |||||||||||||||||||||||||||||||
| Property and equipment, principally due to differences between book and tax depreciation, and other | (49,100 | ) | (24,157 | ) | |||||||||||||||||||||||||||||||
| Withholding taxes | |||||||||||||||||||||||||||||||||||
| Property and equipment and other | |||||||||||||||||||||||||||||||||||
| Deferred tax liabilities | (598,950 | ) | (763,598 | ) | |||||||||||||||||||||||||||||||
| Net deferred tax liabilities | $ | (517,111 | ) | $ | (666,147 | ) | |||||||||||||||||||||||||||||
The Company’s deferred tax balances are classified in its balance sheets as of December 31 as follows (in thousands):
| 2017 | 2016 | |||||||
| Long term deferred tax assets and liabilities: | ||||||||
| Long term deferred tax assets | 1,801 | 2,433 | ||||||
| Long term deferred tax liabilities | (518,912 | ) | (668,580 | ) | ||||
| Net long term deferred taxes | (517,111 | ) | (666,147 | ) | ||||
| Net deferred tax liabilities | $ | (517,111 | ) | $ | (666,147 | ) | ||
| 2023 | 2022 | |||||||||||||
| Long term deferred tax assets and liabilities: | ||||||||||||||
| Long term deferred tax assets | $ | 1,400 | $ | 1,348 | ||||||||||
| Long term deferred tax liabilities | (470,232) | (527,465) | ||||||||||||
| Net deferred tax liabilities | $ | (468,832) | $ | (526,117) | ||||||||||
The valuation allowance for deferred tax assets at December 31, 2017 and 2016 was $59.3 million and $76.4 million, respectively. These valuation allowances relatedrelate to basis differences in equity method investments, capital loss carryforwards, income tax credits, foreign net operating loss carryforwards, and state net operating loss carryforwards. The net change in the total valuation allowance for the years ended December 31, 2017 and 2016 was a decrease of $17.0 million and an increase of $13.8 million, respectively. The valuation decrease from the prior year was due to the U.S. tax rate reduction that resulted from the Tax Act, which was offset by an increase in basis differences related to equity method investments completed in 2014. The increase in 2016 was primarily due to changes in the Company's deferred tax asset related to basis differences in an equity method investment.
| Balances at December 31, 2014 | $ | 27,082 | ||
| Additions | 35,523 | |||
| Balance at December 31, 2015 | 62,605 | |||
| Additions | 13,790 | |||
| Balance at December 31, 2016 | 76,395 | |||
| Additions | 5,332 | |||
| Reduction in valuation allowance due to rate change from Tax Act | (22,378 | ) | ||
| Balance at December 31, 2017 | $ | 59,349 | ||
As of December 31, 2017,2023, the Company had a net operating loss carryforward for state income tax purposes of approximately $590.0$54.0 million that is available to offset future state taxable income through 2029.tax expense, either indefinitely or in some cases subject to expiration in 15 or 20 years. Additionally, the Company had $44.0$80.9 million net operating loss carryforwards for foreign income tax purposes that are available to offset future foreign taxable income. Thetax expense. Most foreign net operating loss carryforwards will not expire in future years.
The Company recognizes interest and penalties on unrecognizedhas provided a valuation allowance against $71.3 million of its deferred tax benefits (including interest and penalties calculated on uncertain tax positions on whichasset related to the net operating losses as it does not anticipate utilizing the losses in the foreseeable future.
In addition, the Company believes it will ultimately prevail) within the provisionhas foreign tax credits for foreign income taxes on continuing operationspurposes in the consolidated financial statements. This policy isamount of $84.5 million. The Company has provided a continuationvaluation allowance against $84.5 million of the Company's policy prior totax credits as it does not anticipate utilizing the adoption ofcredits in the guidance regarding uncertain tax positions. foreseeable future.
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During 20172023 and 2016,2022, the Company had recorded accrued interest and penalties related to the unrecognized tax benefits of $1.3$8.1 million and $5.9$4.4 million, respectively. Accumulated interest and penalties were $30.7 million and $22.7 million on the Consolidated Balance Sheets at December 31, 2023 and 2022, respectively. In accordance with the Company's accounting policy, interest and penalties related to unrecognized tax benefits are included as a component of income tax expense.
A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits includingexcluding interest and penalties for the years ended December 31, 2017, 20162023, 2022, and 20152021 is as follows (in thousands):
| Unrecognized tax benefits at December 31, 2020 | $ | 35,749 | ||||||
| Additions based on tax positions related to the current year | 8,543 | |||||||
| Additions based on tax positions related to the prior year | 5,909 | |||||||
| Deductions based on settlement of prior year tax positions | (2,122) | |||||||
| Deductions based on expiration of prior year tax positions | (1,058) | |||||||
| Unrecognized tax benefits at December 31, 2021 | 47,021 | |||||||
| Additions based on tax positions related to the current year | 7,752 | |||||||
| Additions based on tax positions related to the prior year | 200 | |||||||
| Deductions based on settlement of prior year tax positions | (1,550) | |||||||
| Addition for cumulative federal benefit of state tax deductions | 7,281 | |||||||
| Change due to OCI | (35) | |||||||
| Unrecognized tax benefits at December 31, 2022 | 60,669 | |||||||
| Additions and deductions based on tax positions related to the current year | 8,821 | |||||||
| Additions and deductions based on tax positions related to the prior year | (1,913) | |||||||
| Deductions based on settlements of prior year tax positions | (104) | |||||||
| Deductions based on expiration of prior year tax positions | (4,235) | |||||||
| Change due to OCI | (132) | |||||||
| Unrecognized tax benefits at December 31, 2023 | $ | 63,106 | ||||||
| Unrecognized tax benefits at December 31, 2014 | $ | 18,641 | ||
| Additions based on tax provisions related to the current year | 9,079 | |||
| Additions based on tax provisions related to the prior year | 477 | |||
| Deductions based on settlement/expiration of prior year tax positions | (6,363 | ) | ||
| Unrecognized tax benefits at December 31, 2015 | 21,834 | |||
| Additions based on tax provisions related to the current year | 3,332 | |||
| Additions based on tax provisions related to the prior year | 2,496 | |||
| Deductions based on settlement/expiration of prior year tax positions | (1,507 | ) | ||
| Unrecognized tax benefits at December 31, 2016 | 26,155 | |||
| Additions based on tax provisions related to the current year | 4,143 | |||
| Additions for tax positions due to acquisitions | 9,208 | |||
| Additions based on tax provisions related to the prior year | 1,171 | |||
| Deductions based on settlement/expiration of prior year tax positions | (9,119 | ) | ||
| Unrecognized tax benefits at December 31, 2017 | $ | 31,558 | ||
As of December 31, 2017,2023, the Company had total unrecognized tax benefits of $31.6$63.1 million all of which, $31.6 million, if recognized, would affect its effective tax rate. It is not anticipated that there are any unrecognized tax benefits that will significantly increase or decrease within the next twelve months.
The Company files numerous consolidated and separate income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The statute of limitations for the Company’s U.S. federal income tax returns has expired for years prior to 2014.2015. The statute of limitations for the Company’s U.K.most state income tax returns has expired for years prior to 2015.2020. The statute of limitations has expired for years prior to 2014 for the Company’s Czech Republic income tax returns, 2014 for the Company’s Russian income tax returns, 20122018 for the Company’s Mexican income tax returns, 2012 for the Company’s Brazilian income tax returns, 2012and 2018 for the Company’s Luxembourg income tax returns, 2013returns.
In December 2021, the Organization for Economic Cooperation and Development (“OECD”) enacted model rules for a new global minimum tax framework (“BEPS Pillar Two”), which generally provide for a minimum effective tax rate of 15%. Various governments around the world have enacted, or are in the process of enacting, legislation on this, with certain enactments becoming effective for tax years beginning in January 2024. While we do not anticipate that these rules will have a material effect on our tax provision or effective tax rate, we continue to monitor evolving tax legislation in the jurisdictions in which we operate as such legislation becomes effective.
14. Leases
The Company primarily leases office space, data centers, vehicles, and equipment. Some of our leases contain variable lease payments, typically payments based on an index. The Company’s New Zealand income tax returns,leases have remaining lease terms of one year to thirty years, some of which include options to extend from one to five years or more. The exercise of lease renewal options is typically at the Company's sole discretion; therefore, the majority of renewals to extend the lease terms are not reasonably certain to exercise and 2015 forare not included in Right of Use (ROU) assets and lease liabilities. Variable lease payments based on an index or rate are initially measured using the Company’s Australian income tax returns.index or rate in effect at lease commencement. Additional payments based on the change in an index or rate are recorded as a period expense when incurred. Lease modifications result in remeasurement of the lease liability as of the modification date.
| 2023 | 2022 | |||||||||||||
| ROU assets | $ | 86,579 | $ | 94,064 | ||||||||||
| Short term lease liabilities | $ | 23,476 | $ | 22,661 | ||||||||||
| Long term lease liabilities | $ | 75,796 | $ | 86,671 | ||||||||||
The Company enters into noncancelable operatingdoes not recognize ROU assets and lease agreementsliabilities for equipment, buildingsshort-term leases that have a term of twelve months or less. The effect of short-term leases were not material to the ROU assets and vehicles. The minimum lease paymentsliabilities.
Under ASC 842, the Company discounts future lease obligations by the rate implicit in the contract, unless the rate cannot be readily determined. As most of our leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. In determining the borrowing rate, the Company considers the applicable lease terms, the Company's cost of borrowing, and for leases denominated in a foreign currency, the collateralized borrowing rate that the Company would obtain to borrow in the same currency in which the lease is denominated.
Total lease costs for the noncancelable operatingyears ended December 31, 2023, 2022, and 2021 were $29.7 million, $24.1 million, and $22.6 million, respectively. Variable lease agreementscosts and short-term lease costs were immaterial for all periods presented.
The supplementary cash and non-cash disclosures for the years ended December 31, 2023, 2022, and 2021 are as follows (in thousands):
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Cash paid for operating lease liabilities | $ | 31,388 | $ | 25,403 | $ | 23,803 | ||||||||||||||
| ROU assets obtained in exchange for new operating lease obligations | $ | 22,764 | $ | 31,204 | $ | 29,428 | ||||||||||||||
| Weighted-average remaining lease term (years) | 5.62 | 6.09 | 5.99 | |||||||||||||||||
| Weighted-average discount rate | 5.19% | 3.64% | 3.80% | |||||||||||||||||
| 2018 | $ | 19,343 | ||
| 2019 | 14,362 | |||
| 2020 | 12,132 | |||
| 2021 | 10,661 | |||
| 2022 | 10,195 | |||
| Thereafter | 25,335 | |||
| 2023 | $ | 27,455 | ||||||
| 2024 | 24,566 | |||||||
| 2025 | 19,917 | |||||||
| 2026 | 12,143 | |||||||
| 2027 | 8,870 | |||||||
| Thereafter | 22,203 | |||||||
| Total lease payments | 115,154 | |||||||
| Less imputed interest | 15,882 | |||||||
| Present value of lease liabilities | $ | 99,272 | ||||||
15. Commitments and Contingencies
In the ordinary course of business, the Company is involved in various pending or threatened legal actions, arbitration proceedings, claims, subpoenas, and matters relating to compliance with laws and regulations (collectively, legal proceedings)"legal proceedings"). Based on our current knowledge, management presently does not believe that the liabilities arising from these legal
proceedings will have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, it is possible that the ultimate resolution of these legal proceedings could have a material adverse effect on our results of operations and financial condition for any particular period.
On July 10, 2017, a shareholder derivative complaint was filed against the Company and certain of the Company’s directors and officers in the United States District Court for the Northern District of Georgia ("Federal Derivative Action") seeking recovery from the Company. The District Court dismissed the Federal Derivative Action on October 21, 2020, and the United
92
States Court of Appeals for the Eleventh Circuit affirmed the dismissal on July 27, 2022, ending the lawsuit. A similar derivative lawsuit that had been filed on January 9, 2019 in the Superior Court of Gwinnett County, Georgia (“State Derivative Action”) was likewise dismissed on October 31, 2022.
On January 20, 2023, the previous State Derivative Action plaintiffs filed a new derivative lawsuit in the Superior Court of Gwinnett County, Georgia. The new lawsuit, City of Aventura Police Officers’ Retirement Fund, derivatively on behalf of the Company. The derivative complaintFleetCor Technologies, Inc. v. Ronald F. Clarke and Eric R. Dey, alleges that the defendants issued a false and misleading proxy statement in violation of the federal securities laws; that defendants breached their fiduciary duties by causing or permitting the Company to make allegedlyengage in unfair or deceptive marketing and billing practices, making false and misleading public statements concerning the Company’s fee charges and financial and business prospects;prospects, and that certain defendants breached their fiduciary duties through allegedlymaking improper sales of stock. The complaint seeks unspecifiedapproximately $118 million in monetary damages on behalf of the Company, corporate governance reforms,including contribution by defendants as joint tortfeasors with the Company in unfair and deceptive practices, and disgorgement of profits, benefitsincentive pay and compensation bystock compensation. On January 24, 2023, the defendants, restitution, costs,previous Federal Derivative Action plaintiffs filed a similar new derivative lawsuit, Jerrell Whitten, derivatively on behalf of FleetCor Technologies, Inc. v. Ronald F. Clarke and attorneys’Eric R. Dey, against Mr. Clarke and experts’ fees. On August 18, 2017, the court entered an order deferring the case pending a ruling on the defendants' motion to dismiss the putative shareholder class action, or until otherwise agreed to by the parties.Mr. Dey in Gwinnett County, Georgia. The defendants dispute the allegations in the complaintderivative complaints and intend to vigorously defend against the claims.
FTC Investigation
In October 2017, the Federal Trade Commission ("FTC") issued a Notice of Civil Investigative Demand to the Company for the production of documentation and a request for responses to written interrogatories. After discussions with the Company, the FTC proposed in October 2019 to resolve potential claims relating to the Company’s advertising and marketing practices, principally in its U.S. direct fuel card business within its North American Fuel Card business. The parties reached impasse primarily related to what the Company believes are unreasonable demands for redress made by the FTC.
On December 20, 2019, the FTC filed a lawsuit in the Northern District of Georgia against the Company and Ron Clarke. See FTC v. FLEETCOR and Ronald F. Clarke, No. 19-cv-05727 (N.D. Ga.). The complaint alleges the Company and Clarke violated the FTC Act’s prohibitions on unfair and deceptive acts and practices. The complaint seeks among other things injunctive relief, consumer redress, and costs of suit. The Company continues to believe that the FTC’s claims are without merit. On April 17, 2021, the FTC filed a motion for summary judgment. On April 22, 2021, the United States Supreme Court held unanimously in AMG Capital Management v. FTC that the FTC does not have authority under current law to seek monetary redress by means of Section 13(b) of the FTC Act, which is the means by which the FTC has sought such redress in this case. FLEETCOR cross-moved for summary judgment regarding the FTC’s ability to seek monetary or injunctive relief on May 17, 2021. On August 13, 2021, the FTC filed a motion to stay or to voluntarily dismiss without prejudice the case pending in the Northern District of Georgia in favor of a parallel administrative action under Section 5 of the FTC Act that it filed on August 11, 2021 in the FTC’s administrative process. Apart from the jurisdiction and statutory change, the FTC’s administrative complaint makes the same factual allegations as the FTC’s original complaint filed in December 2019. The Company opposed the FTC’s motion for a stay or to voluntarily dismiss, and the court denied the FTC’s motion on February 7, 2022. In the meantime, the FTC’s administrative action is stayed. On August 9, 2022, the District Court for the Northern District of Georgia granted the FTC's motion for summary judgment as to liability for the Company and Ron Clarke, but granted the Company's motion for summary judgment as to the FTC's claim for monetary relief as to both the Company and Ron Clarke. The Company intends to appeal this decision after final judgment is issued. On October 20-21, 2022, the court held a hearing on the scope of injunctive relief. At the conclusion of the hearing, the Court did not enter either the FTC’s proposed order or the Company’s proposed order, and instead suggested that the parties enter mediation. Following mediation, both parties filed proposed orders with the Court.
On June 8, 2023, the Court issued an Order for Permanent Injunction and Other Relief. The Company filed its notice of appeal to the United States Court of Appeals for the Eleventh Circuit on August 3, 2023. On August 17, 2023, the FTC Commission ordered that the stay of the parallel Section 5 administrative action will remain in place during the pendency of the Eleventh Circuit appeal. The Company has incurred and continues to incur legal and other fees related to this FTC complaint. Any settlement of this matter, or defense against the lawsuit, could involve costs to the Company, including legal fees, redress, penalties, and remediation expenses.
Estimating an amount or range of possible losses resulting from litigation proceedings is inherently difficult and requires an extensive degree of judgment, particularly where, as here, the matters involve indeterminate claims for monetary damages and are in the stages of the proceedings where key factual and legal issues have not been resolved. For these reasons, the Company is currently unable to predict the ultimate timing or outcome of, or reasonably estimate the possible losses or a range of possible losses resulting from, the matters described above.
The Company uses derivatives to facilitate cross-currency corporate payments by writing derivatives to customers within its cross-border solution. The Company writes derivatives, primarily foreign currency forward contracts, option contracts, and swaps, mostly with small and medium size enterprises that are customers and derives a currency spread from this activity.
Derivative transactions associated with the Company's cross-border solution include:
•Forward contracts, which are commitments to buy or sell at a future date a currency at a contract price and will be settled in cash.
•Option contracts, which gives the purchaser the right, but not the obligation, to buy or sell within a specified time a currency at a contracted price that may be settled in cash.
•Swap contracts, which are commitments to settlement in cash at a future date or dates, usually on an overnight basis.
The credit risk inherent in derivative agreements represents the possibility that a loss may occur from the nonperformance of a counterparty to the agreements. Concentrations of credit and performance risk may exist with counterparties, which includes customers and banking partners, as we are engaged in similar activities with similar economic characteristics related to fluctuations in foreign currency rates. The Company performs a review of the credit risk of these counterparties at the inception of
the contract and on an ongoing basis. The Company also monitors the concentration of its contracts with any individual counterparty against limits at the individual counterparty level. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements, but takes action when doubt arises about the counterparties' ability to perform. These actions may include requiring customers to post or increase collateral, and for all counterparties, if the possible terminationcounterparty does not perform under the term of the related contracts.contract, the contract may be terminated. The Company does not designate any of its foreign exchange derivatives as hedging instruments in accordance with ASC 815.
815, "Derivatives and Hedging".
The aggregate equivalent U.S. dollar notional amount of foreign exchange derivative customer contracts held by the Company as of December 31, 20172023 and 2022 (in millions) is presented in the table below. Notional amounts do not reflect the netting of offsetting trades, although these offsetting positions may result in minimal overall market risk. Aggregate derivative notional amounts can fluctuate from period to period in the normal course of business based on market conditions, levels of customer activity and other factors.
| Net Notional | |||||||||||||||||||||||||
| Notional | Notional | ||||||||||||||||||||||||
| 2023 | 2023 | 2022 | |||||||||||||||||||||||
| Foreign exchange contracts: | |||||||||||||||||||||||||
| Swaps | $ | 515.4 | |||||||||||||||||||||||
| Futures, forwards and spot | 3,274.5 | ||||||||||||||||||||||||
| Swaps | |||||||||||||||||||||||||
| Swaps | |||||||||||||||||||||||||
| Forwards | |||||||||||||||||||||||||
| Written options | 2,934.2 | ||||||||||||||||||||||||
| Purchased options | 2,314.1 | ||||||||||||||||||||||||
| Total | $ | 9,038.1 | |||||||||||||||||||||||
The majority of customer foreign exchange contracts are written in major currencies such as the U.S. Dollar,dollar, Canadian Dollar,dollar, British Pound, Europound, euro and Australian Dollar.dollar.
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The following table summarizes the fair value of derivatives reported in the Consolidated Balance SheetSheets as of December 31, 20172023 and 2022 (in millions):
| December 31, 2023 | Fair Value, Gross | Fair Value, Net | |||||||||||||||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||||||||||||
| Derivatives - undesignated: | |||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | $ | 594.9 | $ | 519.4 | $ | 320.2 | $ | 244.7 | |||||||||||||||||||||||||||
| Less: Cash collateral | 39.2 | 180.2 | 39.2 | 180.2 | |||||||||||||||||||||||||||||||
| Total net derivative assets and liabilities | $ | 555.7 | $ | 339.2 | $ | 281.0 | $ | 64.5 | |||||||||||||||||||||||||||
| December 31, 2022 | December 31, 2022 | Fair Value, Gross | Fair Value, Net | |||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Assets | Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives - undesignated: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value, Gross | Fair Value, Net | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives - undesignated: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Over the counter | $ | 80.4 | $ | 68.2 | $ | 39.0 | $ | 26.8 | ||||||||||||||||||||||||||||||||||||||||||||
| Exchange traded | — | 0.1 | — | 0.1 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | 80.4 | 68.3 | 39.0 | 26.9 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cash collateral | 12.5 | 10.9 | 12.5 | 10.9 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Less: Cash collateral | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total net derivative assets and liabilities | $ | 67.9 | $ | 57.4 | $ | 26.5 | $ | 16.0 | ||||||||||||||||||||||||||||||||||||||||||||