Fleetcor Technologies (FLT), a payments and business spend company, overstated 2020 non-GAAP adjusted income by more than $100 million. Though it’s commonplace to eliminate inconvenient items from net income, investors relying on the Fleetcor’s non-GAAP calculation— especially for 2020 results— are getting a misleading picture of the company’s financial performance.

Fleetcor would argue that it uses metrics like adjusted net income to eliminate the effect of items it does not consider indicative of core operating performance on a consistent basis. In its 2019 annual report, Fleetcor listed the items it strips out when calculating adjusted non-GAAP net income:

“(a) non-cash stock based compensation expense related to share based compensation awards, (b) amortization of deferred financing costs, discounts and intangible assets, amortization of the premium recognized on the purchase of receivables, and our proportionate share of amortization of intangible assets at our equity method investment, and (c) other non-recurring items, such as the impact of the Tax Act, impairment of investment, asset write-offs, restructuring costs, gains and related taxes due to disposition of assets and a business, loss on extinguishment of debt, legal settlements/litigation, and the unauthorized access impact.”


In its 2020 annual report, Fleetcor added two items it now eliminates from its adjusted net income calculation:

“a) non-cash stock based compensation expense related to share based compensation awards, (b) amortization of deferred financing costs, discounts and intangible assets, amortization of the premium recognized on the purchase of receivables, and our proportionate share of amortization of intangible assets at our equity method investment, and (c) integration and deal related costs, and (d) other non-recurring items, including unusual credit losses occurring largely due to COVID-19, the impact of discrete tax items, impairment charges, asset write-offs, restructuring costs, gains due to disposition of assets and a business, loss on extinguishment of debt, and legal settlements.”

Our analysis of Fleetcor’s footnotes suggest the new items Fleetcor strips out inflated the company’s adjusted net income by $102 million in 2020. In addition to the items it normally strips out, Fleetcor eliminated $12 million in integration and deal related costs, and $90 million in COVID-19 related receivables losses. These items alone, when added back, reduce Fleetcor’s adjusted net income from $962 million to $860 million, or 10.6%. If we add back all of the items Fleetcor strips out, net income is reduced by $258 million, or 26.8% of adjusted net income.

Even those of you who believe Fleetcor is right to strip out the $90 million in unusual credit losses due to a once-in-a-century pandemic likely agree excluding the $12 million in integration and deal related costs is inappropriate. Fleetcor is a serial acquirer— it has bought or invested in 35 companies since 2000— and regularly touts its “expansion through acquisition” strategy. These costs are not unusual. They’re recurring and part of Fleetcor’s business model.

Separately, Fleetcor has been a target of regulators since first being asked to produce documentation in connection with a federal investigation in 2017. In 2019, the Federal Trade Commission (FTC) filed suit against Fleetcor and its Chief Executive Ronald Clarke, accusing the pair of lying to customers when the company promised it would save truck drivers and fleet managers money on fuel costs. The complaint alleges Fleetcor charged hundreds of millions of dollars in hidden fees.

In its latest annual report, Fleetcor strongly hints that the matter may be coming to a favorable end. In its 2019 10-K, Fleetcor characterized the allegations like this:

“The Company continues to believe that the FTC’s claims are without merit.”

In its 2020 10-K, Fleetcor includes new language suggesting any financial penalties as a result of the suit will be relatively small:

“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.”

Even more important to investors is the possibility that the matter may be resolved without a fine. In the prior year’s annual report, Fleetcor listed a variety of potential financial consequences stemming from the suit:

“...including legal fees, fines, penalties, and remediation expenses.”

In its 2020 annual filing, Fleetcor omits the word “fines” and replaces it with a new potential outcome:

“... including legal fees, redress, penalties, and remediation expenses.”

Though similar to “remediation”, the definition of redress is to “make up for” or to “compensate for wrong”. This new language— and an interpretation that Fleetcor may only be required to make alleged victims whole— gains additional traction with another language change we detected. In its 2019 10-K, Fleetcor offered a list of potential resolutions, including losing or settling the matter:

“At this time, in view of the complexity and ongoing nature of the matter, we are unable to estimate a reasonably possible loss or range of loss that we may incur to settle this matter or defend against the lawsuit brought by the FTC.”

In its 2020 10-K, Fleetcor omits “loss” as a possible outcome and adds a new potential outcome investors would likely perceive as extremely favorable:

“At this time, the Company believes the possible range of outcomes includes continuing litigation or discussions leading to a settlement, or the closure of these matters without further action.”