Q4 2019 Earnings Call
[music].
Greetings and welcome to the Fleetcor technologies fourth quarter 2019 earnings Conference call.
At this time all participants are in listen only mode. A question and answer session will follow.
The presentation, if anyone should require operator systems. During the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
Now turn the conference over to our host Jim Eglseder Senior Vice President of Global Investor Relations. Thank you you may begin.
Good afternoon.
Thank you for joining us today for a fourth quarter 29 <unk> earnings call.
You today, a rock Clark, our chairman and CEO, Eric Dey, our CFO.
Let me comment your brought in Eric you operate or what else you opportunity to get into the queue pretty cute.
It is only then you will open for questions.
Please note our earnings and it's something that can.
He felt under the Investor Relations section on our website at <unk> Dot com.
Throughout this call, we'll be presenting non-GAAP financial information, including adjusted revenues adjusted net income and adjusted net income per diluted share.
This information is not calculated in accordance with gap and maybe calculated differently, but non-GAAP information that other companies.
Reconciliations of historical non-GAAP financial information to the most directly comparable GAAP information appears in today's press release. It on our website. As previously described we're also providing 2020 guidance I thought the GAAP and non-GAAP basis with reconciliations.
Now before you get heart for my remarks, I need to remind everyone that part of our discussion today will include forward.
Looking statements.
This includes forward looking statements about our guidance it out what.
New products initiative and expectations regarding business development and acquisitions.
They are not guarantees of future performance and therefore, you should not put undue reliance upon them.
These results are subject to numerous risks and uncertainties, which could cause actual results to differ.
Materially from what we expect.
Some of those risks I've mentioned today.
In our press release, you had on form 8-K Hunter had your report on form 10-K, that's filed with the Securities Exchange Commission.
Documents are available on our website get it that's you see that golf.
That out of the way I'd like turn the call over to Ron Clark, our chairman and CEO.
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Okay. Jim Thanks, Good afternoon, everyone and appreciate you joining our fourth quarter earnings call.
Upfront here, all playing a cover four subjects.
First a provide my view of our Q4 finish.
Second.
Take a bit of a look back at our full year 2019 highlights.
Third all preview our 2020 <unk> guidance.
And then lastly, I'll outline our priorities over the coming years.
Okay, so while onto the quarter we reported.
Q4 revenue of 699 million.
That's up 9%.
And Threeseventeen and cash E P S.
14%.
Revenue finished I'm a bit better than we had forecasted 90 days ago, I'd say with the exception of gift.
Which came in light of profits also at the high end of our expectations helped a bit by a lower tax rate.
Organic growth good overall finished at 10%.
In Q4, a fuel card growth inside.
Hi to that at 9% for the quarter.
Our three non fuel lines organic growth I quite good.
Tolls up 17.
Lodging up 14, and corporate pay up also up 14.
[noise] trends remained.
Quite good.
What we call new sales or new bookings grew 13% in the quarter.
Client revenue retention.
Staying steady at just over 91% and our same store sales finished at half a point negative impact.
Impacted mainly by the week.
Trucking vertical.
Or beyond strategy or beyond initiatives continued forward progress.
[laughter] toll just a great Q4, the beyond toll or what we call urban tag sales in the quarter 125000.
New tag sold.
In Q4 as a reminder, that's up from 4000 in Q1 about 20.
Thousand in Q2, and I think it was 58000 in Q3, so clearly evidence that the 20 million urban.
User target opportunity is starting to like our our city based upon making fuel and fast food offer.
And the fuel business our beyond the fuel here in the U.S. again continued good progress we added 1300, new companion card account.
To that program, so continuing to grow that in corporate pay you know going beyond our virtual card.
And selling what we call full A.P. outsourcing or 100% of a client's invoices are we closed 4 million and new business in the quarter.
We also continue to process three or four tuck in acquisitions, hoping to make some final decisions on those here in Q1 Silicon summary, a good a good Q4, a good finish organic revenue growth at 10% Kashi.
S up 14, new sales good up 13, a client revenue retention steady 91%.
They were continuing to advance our beyond initiatives.
Okay. Let me, let me transition to a look back at just some of our 2000.
Sales and the 19.
Full year highlights so first profits advanced 12% to 11, 79 and Kashi P. S.
That was well ahead of our initial 2019 guidance of 11 55.
Second organic revenue growth.
Full year growth at 11% Ah that's the highest annual level. Since we began reporting this metric so for full year 19 fuel up 9% corporate pay 20 toll 16 lodging 13, so were quite good.
Third our technology are getting better.
We stabilized a few platforms in 19, we strengthened our I T.
Team with a few new hires.
And we continue to invest more in cyber security.
For our trends again for your trends.
Quite positive new sales up 14% for the full year client revenue retention.
Over 91% for the full year, we broke the billion dollar cash net income threshold and 19.
Operating cash flow above a billion for the first time.
We completed for tuck in acquisitions.
For 450 million, a we continued to advance our beyond initiatives and their contribution to the company.
And then lastly, I'm FLT, our stock had a good year price up.
Over 50%.
In 2019, which is well ahead of the broader market. So all in all a.
Pretty good year.
Let me, let me now make a turn to 2020 and outline our initial guidance.
For the year along with the.
Consider behind it so first off I'd say, we like the set up heading into into 2020, so the macro which was quite challenging and 19 is setting up much better for us.
In 2020, yes, we do expect about a 20 million.
Revenue headwind in 2020.
Most is the result of the of the Brazil FX.
But.
That will be blindly offset by expected lower interest rates in a bit lower tax rate. So.
Really effectively neutralizing the overall.
Our admit on our 2020 profit plants. So good news there.
Our 2019 trends will roll into 2020, so that helps us a last year sales rolling in and steady client retention are beyond contribution again, we're expecting a bit more.
Help in 20 from those initiatives.
The four deals we'll get the full year benefit of our for tuck in acquisitions, we expect to get about 3% cash EPS accretion from those [noise].
And then lastly, our share repurchase we did announce our.
On December.
Yes, our that will reduce our 2020 share count, although offset a bit by incremental interest expense.
Taken together these factors will help support our profit growth plans in 2020.
He turned to our four.
Major businesses.
We're out looking a pretty promising 2020.
And the fuel segment.
We see a bit of a mixed bag.
Yes, some markets I, Russia.
Mexico, Brazil, and Australia, I expect into all the double digit [noise] growers.
In 2020, but the core you asked in UK businesses will rely on help from the beyond fuel initiatives.
They're generating more spend and more revenue from some of our existing clients also expecting.
Continued weakness in the in the truck.
In corporate pay out looking our FX business to have another strong year end 2020, good momentum our core virtual card business has got a couple of new channel or partner opportunities that could be quite big and quite exciting.
And our full a p. business, we expect to be way up this year, both as we implement sales from the prior year and capture the full year benefit of of our network synergies.
Brazil expecting the core toll business to have another.
Other healthy tag volume growth here, that's being supported by a couple of new sales partnerships.
We're expecting further acceleration of our beyond toll or urban our program in 2020.
There are city fueling.
Parking and fast food network continues to expand.
We do expect.
Brazil inflation to be quite a bit lower this year, which will reduce the Brazil revenue growth likely into the lower teens in lodging.
We're looking for the the SMB.
The segment, there that growth to accelerate we've made some pretty significant improvements to our electronic booking capability, making it easier for small business too to use our product.
We've also expanded the network there.
We are planning to capture hotel rates.
She is and some virtual card synergies as we on board.
Our travel Alliance acquisition fully this year, so with that our guidance.
For 2020 is as follows.
Revenue guiding to 2 billion 930.
At the midpoint that reflects an 11% increase.
Organic revenue were guiding in the 9% to 11% range overall.
Fuel expected in the 6% to 8% range and the three non fuel businesses in the low to high teens.
Page.
Sales growth outlook in another 13% to 15% sales growth year op profit growth guiding to 13 55.
Of cash EPS at the midpoint.
That reflects a 15% increase so this.
2020 guidance is consistent.
Well, the midterm targets of 10% revenue growth and 15% to 20% profit growth.
Okay Lastly, let me transition.
Over the how we're thinking about the company's priorities over the mid term so first.
It is our portfolio. So we continue to see greater diversity, the company's now approaching 60% of all revenue outside a fuel. So we're continuing to reposition the company for faster growth. So in addition to where we started.
Employee.
Related expenses like fuel toll and hotel.
We're now expanding into helping businesses, where their employee payroll and benefit related expenses.
And their supplier vendor or payables related expenses. So clearly these two.
Two.
Big expense categories dramatically expand our Tam and runway.
Adjacent view of acquisitions, so we're starting to.
Looking at acquisitions, and a bit of a new light so beyond chasing acquisitions that fit.
Inside of our for serve categories fuel lodging toll and payables were starting to look at some deals that might potentially broaden.
Our client offerings. So for example.
And the payables segment, maybe considering some procurement related.
Software solutions.
That simplify the front end of payables.
So finding ways to help clients a bit more broadly around.
Around the area that we help them whether payments.
Our four major lines of business clearly expect to penetrate.
Those further over the.
Mid term, but as we've we tried to articulate our beyond strategy is hopefully redefining those four segments at how we serve them. So again for example, you know targeting urban or city users in Brazil.
We're targeting airlines versus.
Workforce, our prospects in our lodging business, so really trying to rethink our existing four lines of business too to extend the growth profile and then lastly, we're trying to strengthen just the core capabilities of the company.
Clearly focused on.
Knowledge Jay.
Trying to transform our architecture, we're doubling down on digital and working to build products that make it much easier to do business with our company and people continuing to.
Add invest in people and people quality to put the best.
Team, we can on the field.
So we think these these priorities set the company up really for continued growth over a much longer timeframe.
So look in closing again Q4, we thought quite good good finished the year.
2020, again, we like.
The set up.
Yeah, we're expecting revenue and profit growth consistent with our long term targets.
And then the future you know again, continuing to transform and repositioned the company for faster growth a widening the sandbox and trying to strength and really our core capabilities.
So with that let me turn the call back over to Eric.
To provide some additional details on the quarter Eric.
Thank you Ron for the fourth quarter of 2019 reported revenue of 698.9 million up 9%.
Compared to 643.4 million in the fourth quarter if 2018.
GAAP net income decreased 22% to 235.5 million or $2.60 per diluted share from 302 million or $3.33 per.
Diluted share in the fourth quarter of 2018.
Included in the fourth quarter of 2019 was a gain of 13 million related to a minority investment.
And in the fourth quarter of 2018 was a gain of 153 million from the sale of the.
Chevron portfolio.
Adjusted net income for the fourth quarter of 2019 increased 14% to 286.4 million compared to 252 billion.
And adjusted net income per diluted share increased 14%.
[noise].
The $3.17 compared to $2.78 in the fourth quarter of 2018.
We experienced several macroeconomic headwinds in the fourth quarter of 2019 compared with the fourth quarter of 2018.
Movements in foreign exchange rates were primarily negative.
With most of the impact from the Brazilian real high.
As a currency was down roughly 7% from the fourth quarter of 2018.
We believe foreign exchange rates negatively impacted revenue during the quarter by approximately 9 million.
In addition fuel prices were lower by approximately 5%.
Compared with the fourth quarter last year.
And although we cannot precisely calculate the impact of these price changes, we believe our revenue, which negatively impacted by approximately 2 million.
And finally fuel spreads had about an $8 million negative impact on the quarter compared with the very good spread set up.
In the fourth quarter of last year.
So in total those changes had a negative impact of approximately 19 million on our fourth quarter revenue compared with the fourth quarter of 2018.
Organic revenue growth in the quarter was 10% overall.
All of our major product categories performed.
During the quarter.
The corporate payments category continues to perform very well on was up 14% organically during the quarter.
The growth in corporate payments was driven by both Cambridge, which grew 20% in the quarter versus very tough comps and the remainder of the corporate payments business, which grew in the mid teens.
Our total business was up 17% organically and our lodging business was up 14%.
And as expected our fuel card business produced 9% organic growth in the quarter.
As always or a number of lot of moving parts to our businesses around the world.
We continued to see some softness in our over the road businesses.
But was offset by some strong performances in some of our international businesses.
Now moving down the income statement.
Total operating expenses for the fourth quarter were 378.1 million compared to 358.7 million in the fourth quarter of 2018.
Approximately.
5%.
The increase was primarily due to acquisition completed in 2019.
As a percentage of total revenues operating expenses were approximately 54% compared to 56% in the fourth quarter of 2018.
Credit losses were 20 million for the fourth.
Quarter, or seven basis points, compared to 21 million or eight basis points in the fourth quarter of 2018.
Depreciation and amortization expense increased 2% the 68.5 million in the fourth quarter of 2019 from 67.2 million in the fourth quarter of 2000.
In an 18.
The increase was primarily due to acquisitions completed in 2019 and additional capex spending.
Interest expense decreased 8% to 35 million compared to 38.2 million in the fourth quarter of 2018.
The decrease in interest expense was due.
Primarily to decreases in LIBOR or partially offset by additional borrowing for share buybacks and acquisitions.
Our effective tax rate for the fourth quarter of 2019 was 21.1%.
Compared to 23.9% for the fourth quarter 2018.
The fourth quarter.
Quarter of 2019 tax rate was lower than the fourth quarter 2018, due primarily to excess tax benefits.
Now turning to the balance sheet.
Ended the quarter with 1.680 billion in total cash.
Approximately 404 million is restricted and consist.
Primarily of customer deposits.
As of December 31st 2019, we had 4 billion outstanding on our term loan and revolver.
At approximately 638 million an undrawn availability.
We also had 971 million borrowed in our securitization facility at the end of the quarter.
In the fourth quarter of 2019, we purchased approximately 2.2 million shares of our stock for 632.5 million.
Resulting in a total share buyback for 2019 of approximately 2.4 million shares for 695 million.
Our total current repurchase authorization remained at 857 million.
As of December 30, Onest 2019, our leverage ratio was 2.43 times, EBITDA, which is well below our covenant level of four times EBITDA as calculated under our credit agreement.
The.
The increase was due to borrowing for share buybacks and acquisitions in 2019.
We intend to use our future excess cash flow temporary pay down the balance on our revolving credit facility and securitization facility.
And maintain liquidity for acquisitions and other corporate purposes.
Finally capex.
During the quarter.
26.5 million.
Now onto the update for the outlook for 2020.
Before I walk you through our 2020 outlook. There are number it puts and takes I want to make sure you have considered as you model the walk from 2019 actuals to our 2000.
And then 20 guidance.
Please refer to our fourth quarter earnings call supplement for a bridge from 2019 2020 revenue and adjusted net income per share.
First we are planning for another 9% to 11% organic growth rate year, and adjusted net income growth rate of approximately.
10% at the midpoint of our guidance range.
We expect the corporate payments toll and lodging businesses to grow mid teens in 2020.
And gift and other could be up slightly.
The fuel card category is expected to grow organically into 6% to 8% range.
Growth is expected to be led by continued.
Solid performances in most of our fuel card businesses.
However growth will be tempted by softness or over the road freight businesses as we expect current market conditions to persist in 2020.
Also our 2020 guidance includes the Chevron divestiture impact of approximately 12 million.
Revenue in 2019.
I also want to update you on our latest thinking about the macroeconomic environment.
We expect the macro to negatively impact our revenue and profit for 2020.
We are estimating that the absolute price of fuel will be about the same as a 2019.
Rich.
Foreign exchange rates, if they continue to be at today's level will also have a modest negative impact on revenue.
And spreads will be slightly unfavorable to 2019.
In total we believe these items will create an estimated 20 million revenue headwind and negatively impact Kashi, yes.
By about 10 to 15 cents per share.
Although our share count will be lower in 2019 due to the fourth quarter share buybacks, we had to borrow on our revolver to finance the share buybacks. So in total we expect the net impact of the lower shared an increased borrowing to finance the shares.
They have a negative overall impact for 2020 of about 10 cents per share.
And finally, we expect our tax rate to be the 20% to 22% range slightly lower than the 2019 average tax rate.
There are number of moving parts to the tax calculation, we are expecting additional share based.
Compensation related deductions to favorably impact our tax rate in 2020.
So with that out of the way our guidance for 2020 is as follows.
Total revenues between 2.900 billion and 2 billion at 960 million.
Net income to be between.
The 965 million and 1.005 billion.
Net income per diluted share to be between $10, an 80 cents and $11 in 20 cents.
Adjusted net income to be between 1 billion at 190 million and 1.230 billion.
And adjusted net income per diluted share to be between $13 in 35 cents and $13.75.
$13 at 55 cents at the midpoint.
This guidance represents approximately an 11% growth in revenue and 15% growth in adjusted net income per diluted share for the.
Here at the midpoint of the range.
So in summary, the fundamentals of the business are quite good.
Another year of guiding to 9% to 11% organic revenue growth and 15% normalized adjusted net income per share growth.
For the impacts of divestments and the macro.
Some of the assumptions, we have made in preparing the guidance.
Include the following.
We did fuel prices equal to $2.78 per gallon average in the U.S. for those businesses sensitive to the movement in the retail price fuel.
Market spreads slightly unfavorable to the 2019 average.
Foreign exchange rates equal to the.
One day average as of the week ending January the 19th 2020.
Interest expense of 130 to 140 million.
Fully diluted shares outstanding of approximately 89.5 million shares.
And adjusted tax rate of 20% to 22% and.
And as always no impact related to acquisitions or material new partnership agreements not already disclosed.
Now for the first quarter.
I want to remind everyone that our business has some seasonality and that typically the first quarter is the lowest in terms of both revenue and profit.
First quarter seasonality is.
Impacted by weather holidays in the U.S. and lower business levels in Brazil, due to summer break and the carnival celebration that occurred in the first quarter.
Also the first quarter revenue will be impacted by 10 million unfavorable macro impact, mostly foreign exchange rates when compared to the first quarter of 2019.
Chevron divestiture, which impacted revenue by approximately 8 million.
And the net impact of share repurchases and the associated interest expense Kerry versus prior year.
In total we estimate these items would negatively impact our first quarter net income per share by approximately 15 cents.
Versus the first quarter of 2019.
With that said, we're expecting our.
First quarter 2019, adjusted net income per share to be between $2, a 90 cents and $3.
Additionally, our volumes should build throughout the year and our new initiative should game.
Momentum throughout the year, resulting in higher revenue organic growth and earnings per share in the second through fourth quarters.
With that said operator, we'll open it up for questions.
Thank you.
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Our first question comes from Ramsey of a song with Barclays. Please state your question.
Hi, guys and thanks for taking my question Tonight.
I wanted to ask about the corporate payments segment, it's still healthy growth. There. It came in the the organic growth rate came in below our model I just wanted to kind of dig in a little bit there to see if there's anything.
Has changed in terms of how are you hearing this segment and I guess I'm, particularly going into 2020 is there any any adjustment here long term.
Thinking about the way you know for example, Cambridge and virtual card both contribute to the overall growth rate there.
[laughter], it's Ron so.
A 14%.
Pretty weak.
Payroll card.
Kind of sub category, which is kind of.
So if you pull that out our core corporate it was actually up 18%.
In Q4, and then second in Q4 18, it was a bunch of political spend because it was the two year cycle.
But I'm sure the.
[noise] growth rate in corporate bank.
For making would have been super high so that meet.
Well.
This quarter against the <unk> core.
'cause no political spend.
Yeah.
Q4.
I see okay.
Second part of it up.
What's the what's the fall.
I'd say.
Hi, James I'd say right in front of me, but if you said hey, what do we think that whole.
Corporate pay business, we'll do that it's embedded in our guidance I'd say we're out looking.
And as Bob quarter, I think it as even here in 19, but we.
Thank you have that.
Yes.
Page.
Okay.
I appreciate that I also wanted to ask about that the FTC lawsuit and see if you had any comment on that any thoughts on timing and just also maybe embedded in your response you could you could.
Address the kind of.
Potential risks if there could be any actual changes to your business practices that come out of this.
Lawsuit as it gets eventually concluded or is this more just an it you know effectively a negotiation about a penalty payment.
Hey, Randy This is Eric I guess first and foremost has been real no changes complaint was filed.
Yep.
So ago.
We really don't have an update on the on the lawsuit itself, even though given the short period.
We have made a number of.
It's around what we think the materiality of its kind of.
Thank you.
Good.
On our business.
Going forward.
Yeah, we have some conversations around around redress, but those are still TBD at this point.
Got it right well thanks for taking my question guys.
Thank you. Our next question comes from Peter Christianson with Citibank. Please state your question.
Good evening, thanks for the opportunity to ask a question.
Right I guess with with any type of business is always a pricing trade off attrition issue that managers need to consider.
I guess, if you're looking across particularly the fuel card business, how do you think about that.
Trade off between pricing and attrition and has that changed.
[noise] sure it.
I'd say that.
We're probably steady as she goes I don't think we're making any any material changes in dual card pricing either either.
Here or rest of the world I think.
The reason for the thing guide down a little bit in 20 years.
Pretty good year I think the full year this year was 9%.
It's a little bit better comp.
Gee really its credit.
Oh I stay with the easy thing.
Fuel.
Hi, good shape.
Hi, guys.
Hi.
So the credit dynamics were worse.
And the fuel card business that we thought so we've had to take.
Some actions basically to tighten credit credit lines to the mountain people goods.
And et cetera, So I'd say that that's for certain part of the race.
Is there any do you have an estimate of what percentage of provisions.
Our cost to fraud.
Say it again.
What percentage of.
Of your provision expenses has been fraudulent charges.
And where has that that mix of you know bankruptcy versus fraud kind of a expenses there how does that trended in recent quarters I don't have it super handy, but I'd say, it's a circuit under 10 million.
What we call fraud, I'd say, the two kinds of fraud or basically application fraud right someone makes up there an actual business and and they never.
And that's fundamentally.
Fraud at the gas station, where someone fundamentally fills up Phil.
Thanks.
If you will so I was wondering we can circle back on it but for sure. Those two numbers are up in 19 over prior years and don't forget as we migrate and next year, our fraud losses are going to decrease over period.
They are minimal after October next year.
Hopefully.
Hi, everybody is converted to the new.
Right.
That's helpful I'll jump back into queue.
Our next question comes from Andrew Jeffrey with Suntrust. Please state your question.
Hi, good afternoon. Thank you for taking the question.
Ron I'm I'm I'm intrigued by.
Your comments with regard to perhaps evolving.
M&A priorities and and opportunities.
Could you talk a little bit more about sort of corporate procurement and what that might look like in terms of augmenting the.
Payable soffer payable software offering.
Already have should we think about that is looking a little bit like.
What what Cooper was doing or just a little color would be helpful.
Thanks.
The headline is we've gotten into the two bigger categories, Andrew the payroll and benefits.
End of the payables so so.
John just employee related.
Aaron software write the clients are using different kinds of software to help them clearly in the payroll benefits administration area and using software in and around payables was its procurement work flow stuff. So.
I think the idea is.
There are some targets messed around that kind of in front of pain payments kind of thing at the end and so I think the thinking we've been doing over the last six months is.
Hey, if we if we bolted on some of that software that's in front of basically the payment.
We create a better bundled experience for the client.
[laughter], it's obvious that those companies might have clients. So my idea.
For us and into the payments, we do so I Wouldnt say, we're ready to pull the trigger but I'd say, it's a it's a concept.
Causing us to explore set a target.
So we didnt really look at six.
Okay, all right it would be interesting to see.
How you proceed and just a point of clarification, if I may around fuel.
I understand OTDR soft and manufacturing had been in recession for a couple of years now are these two year anyway.
The 68% guidance.
You know versus the sort of 9% in 18 does that suggest that that beyond fuel is facing.
Tougher comps are de selling or I want to be just parse out.
How much of that might be a economic same store sales related how much of it is sort of growth.
So over and beyond fuel with a copy out fuel might offset somewhat.
The same store sales weakness.
Yes, a couple of all those things you said, it's a one it's obviously a good comp a good growth rate and 19, two is tracking not only in the U.S., but in Brazil in the UK is is we.
And I think we called it out in our same store sales it was six minute minus 4% to 5%.
Negative ranged in the base in terms of softness so.
It gets quite weak and then I think I mentioned the last one its credit.
So for example.
We get a very large number of our new fuel card accounts digitally now in the U.S. I think it's approaching 75% of all the new accounts, we acquire and so we've had a moderate what we can offer both credit at all and certainly credit for beyond fuel via that channel based on.
The credit.
Experienced so we've got so we decided to.
I'll just go in cautiously I don't want to blow by blow the thing up so we're going and got a slow careful I'll, let the stock we sign up 19 bed and studied a credit dynamics of it and then kind of expand it so it might do better.
Andrew is.
We as we pace our way through the year, but I would we really want it went pretty cautiously on the credit side.
Got it okay. Thank you.
Thank you. Our next question comes from 10 sing along with JP Morgan. Please state your question.
Hi, Thanks, so much just.
Following up an.
His question just some of the beyond side I'm curious is there anyway guys to.
To quantify the impact from the fourth quarter the lift in the fourth quarter and what the assumption would be in in 2020, just for the beyond initiative.
It's kind of.
Percentage range tension as what I'd say and again, we now have something in that.
Great.
Bob.
And all but beyond initiatives finally in 19, it's early in Q4, so they're all planning to.
Okay.
And then come up relatively small basis.
So we could probably dig out come back, but I'd say.
Hey, you know across the board, it's kind of 1% to 2%.
And then when you mention broadening your client offerings and I know you gave payables as an example, but I'm curious.
The tangential stuff that you're willing to look look at how far are you willing to go from the core.
You know to meet this broad and client offering initiative I'm just can you give us a little bit more there how far from the core are you interested in going.
Yes.
Super far.
It would be the headline and so the first one as we were fanatics around model. So we got to liked.
Model.
A lot first separate from what the businesses.
And then second you know it's got to be connected in some way.
Referenced that procurement for example, because I think it's relatively easy to understand that if you're a.
He added that company and get ready to manage without invoices, you've got to have.
Got a set of software either in your ERP or others to keep track of the vendors whether you should have a mall and when you say, there's a lot of worked into before you click pay.
So things like that.
Seem obvious to us is wasted maybe get more interest.
In a broader bonds, but we're.
I kind of go crazy well, just really try to highlight that there's some and chase and things that are close to what we do that we like.
Last one if you don't mind just on the M&A side do you should we think of 20 looking like 19 in terms of doing a few similar sized deals like an invoice pay travaline solar could.
Did we see some bigger deals and.
In 2020 feet heavyweight anything that's holding you back there.
Certainly hope so.
I've got my cheat sheet.
Sitting here.
I mean actually had a review yesterday on it so.
Our sites are said I'm trying to do something.
Baghdad, Eric referenced our balance sheet is probably as good or better place.
Than it's ever been so we are we are eager probably like others on the phone to do something but you know I told you before judge and we're not we're not going to rush is because it's a good thing to do but we're certainly interested.
Cool I appreciate it thanks.
Our next question comes from Sanjay Sakhrani with KBW. Please state your question.
Thank you. My first question is on the investments that are being made.
Can you guys walk us through where those investments are being made and what's driving some of these investments is it that you're being offensive or.
Are there areas, where you think competitively you could do better.
Yes, it's Ron so I'd say.
If you think about the sequential step in and investments is one.
Pro forma roll forward or the acquisitions.
So so some of the expense growth as you roll into 20 is really just 12 months.
Deals the carry lower margins right in our core business I mean number one.
Number two would be just traditional kind of line of business processing surfacing highs of expenses that though.
And with volume growth that we have plan, but the two bigger discretionary ones would be.
<unk> sales.
And when we saw when modeling the last two or three months' the fact that our tax rate.
We'll probably step down about a point we finished around 22.
And change.
For 19, what Eric and I saw the number trending I think we guided 20 to 20 twos you used 21 at the midpoint, we said hey, there's an opportunity maybe just to make a few investment sales Nike. So we we added a bit more.
Really around transformation.
The.
Got it just projects we're trying to.
Better data warehouses little more processing to the cloud improve our aim.
This week and act.
Well down on the wise for customers in terms, how they interact with us. So it's just that it's a series of.
I call it different kinds of IP, obviously, we're spending significantly more in and around cyber security. So.
Its investments of what we call on.
Line of business project investments.
Okay.
Okay.
Just a follow up on all the M&A.
Questions I guess, when we think about broadening the scope of these acquisitions is it because theres not a lot of attractive stuff at the core.
In the valuations just aren't attractive enough or is it more that neither the survival opportunities to get the same types of returns as you have elsewhere.
And it really adds another dimension to your offering.
Yeah, I think it's it's it's really outside is try to look at.
You know the world that our clients and prospects and how they go about doing Joe work at identifying.
Barry and she said.
Software and services it look a lot.
What we do so I'd say the first driver of it is to to try to package things that help clients basically you know do their work and then the second one is what you said it creates obviously.
A bigger.
And box to go work and and obviously again may create some cross selling opportunities.
Any client bases that are in similar area. So it's all the above and.
Again, we're going to be quite cautious and had a lot of conviction before we pull the trigger but I.
Give everyone a heads up to that software and services adjacent see something that we are looking at so that people could be prepared if we we tell you that.
But just a clarification in terms of the accretion potential of any of these types of deals is it similar to the stuff that you've done before.
For the different thanks.
You know they vary we've looked at.
Fair enough released in the last six months I mean, as you know the box of fine. Thanks for that both revenue growth.
And accretion.
Opportunities all in one are you know not always super easy and I think that's.
On a bit of a guy first the last couple of years not buying.
That are only accretive.
Yes.
From growth prospects. So I'd say, we're trying to we're trying to make sure. We look at deals that have both of those characteristics.
Alright, thank you.
[music].
Thank you are next question comes from Ashish Sabadra with Deutsche Bank. Please state your question.
Thanks for taking my question. So question on the total pretty good momentum there you talked about a pretty good traction on the 20 million notable use that apart Trinity you also mentioned a potential slowdown and tools to.
No deans, which is still pretty healthy.
And I guess, it's mostly because of inflation, but I was just wondering if you can talk about how we should think about dollar been music contribution going forward and.
The team has been from Darwin news there.
Hi.
Thanks.
[noise] She's just right yeah. That's a good question so I.
I guess you get one of them. So he said hey, why why might Brazil organic growth stepped back a little bit from.
Thousand 19, one is what you said that inflation has gone backwards.
In Brazil, so so.
Left that's baked in and I know.
For two.
I think if we are all day.
To acquiring new accounts with longer free trial period, which takes that some of the some of the pricing of the new business down and the reason for that is in some of the competitors banks and Brazil event offering.
Six or 12 month star so they're told programs. So although we believe with a premium brand and network, we want to make sure. We're still getting that business. So that would be that would be the second one.
In terms of the urban thing I mean, let me put into context, how how big.
We think this could be so.
In my opening remarks, I commented that we sold 125000 do urban tags.
Order so call it circa 200000, new users.
That sign up in 2019.
On the planet, probably but my guess is it's somewhere between two and 300000 new urban.
Users planned for 2020, we only sign up about a million new users standard toll users per year.
So the impact as you as you roll that snowfall.
Forward, if we sign up to one or 250000 keysight enough a million that offer starts to get quite meaningful. So I'd say the one thing. We've got evidence up now is that just offer to use an RF I'd convenient paint thing in and around the city at a.
She places, it's something people like and tell you that were able actually communicated and sell it and so now.
Now we got to try to scale that we got to build out the network further which we've got money and four and we've got to keep adding those number of users. So.
We're bullish on it but I think it could be a.
Pretty meaningful number here over the midterm.
That's very helpful.
And then just maybe a follow up question on the investments in digital and sales that's pretty positive how should how are you go to track. The island goes investments Oh, how should we think about their attention as well as Steve spoke English.
For but as you make these investments thanks.
Yes on the sales one I'd say that one is.
Order term we.
You guys know build models to increase sales investment year over year.
Sales production year over year, so that.
That example, I'd say.
Planning I think I commented, 13% to 15% incremental sales production. This year and my guess is we'll probably spend in a low teens incremental sales investment to accomplish that.
T. One is different I said.
Incremental money, we decided to invest.
This year as a bit on traditional for us it's more you know architecture infrastructure.
You know again structural if you will allowing us to do things easier better to make sure.
Ranges and applications to write stops co bases that you know fill all platforms to get stuff running on on old.
Multi single client you know hardware, Angela and do look into a cloud environment with better economics. So.
Say that they're probably a year or two out or returns on on this on this new set of ITC things, but for US I think a key is we have to simplify the technology footprint and application footprint that we haven't so we're making some investment in 2020 to get.
And to do that.
That's very helpful. Thanks.
[noise]. Thank your next.
Our next question comes from George Mihalos with Cowen and company. Please state your question.
Hey, thanks, good good to be on the call guys up maybe just to kind of circle.
Back on on on the corporate payment side.
Ron appreciate your your commentary on growth kind of being in the high teens looking out into 2020 should we expect any change, though in the rates of growth for.
The cross border business versus sort of traditional virtual card kind of putting.
Full file.
Outsourcing to decide and just focusing on those on those two segments were sub segments.
Yeah the.
Hi teams are still includes that payroll card subset, which again is not planned to grow super. So again, if we kind of go that out.
The core corporate pay might do.
Even a bit better.
I'd say, yeah, we probably are thinking about Cambridge, the FX business.
Slower so we've grown that thing, obviously and the couple of years, 20% plus on the top and more on the bottom.
Say that the.
All of our Oh line virtual card idea in our new line full on 80 outsourcing that thing again as planned in the in the high teens, so really both major businesses, both the payables business and the FX business are caught up and then.
And in terms of the growth rate.
Okay very helpful and just just one point of clarification.
With your side said on potentially larger scale M&A.
Well that sort of put a pause or a hold on on buyback activity.
Over the beginning of the year. Thank you.
[noise].
Huh.
Hey source Eric.
Probably not the reality is we got a lot of liquidity as we stated earlier our balance sheet is it as best place. It's really it's ever been our leverage is low and we got plenty plenty of liquidity basically to pursue both avenues, that's what we want to do.
So I wouldn't say, we're not going to do it.
Thank you.
Our next question comes from David target with Evercore ISI. Please state your question.
Thank you good afternoon, just to expand upon the beyond toll initiative in Brazil.
Recognizing this is a very.
A very different initiatives that would you have in the U.S. with beyond fuel do you have any credit concerns about Brazil as you do about the U.S. in other words, you know is there any break on the growth of this kind of beyond.
Total initiative.
And then related to that I think historically.
You've given out some transaction growth numbers on a the expansion of your Mcdonald's relationship a in Brazil.
Yeah, and then there's that's wrong so yeah on the credit side.
It's a good question I'd say two things one that's some large.
A lot of our do business, we're booking onto a credit card. So literally we're not taking credit risk for I'm going to say call. It two thirds of.
That new business that we're booking and obviously the other third we're screening and determining that it's pretty credit worthy.
So the credit dynamics in that market actually improved believe it or not in 2019 out of the prior year and we've got at modeled it kind of flattish going in 2020, So I'd say that sitting here today, the the credit dynamics or with our are slowing us down on that.
We're slowing us down there is trying to fill out the non fuel network.
As really the governor on speed there.
I see and then Mcdonald's transaction growth any any metrics there for the fourth quarter.
I don't happen from me I know it off and it's planned to be up again.
At 2020, I think we've got I can't remember 75 additional locations that were putting on so it'll be.
Now to would have to 3 million would be my guesstimate without having a piece of paper in front of me.
Understood just a quick final question he is the Mastercard fuel.
Card in the U.S. still giving you differentiated growth versus the more traditional.
Fuel card business and if you have you know if you have the growth rate for that business in the fourth quarter that would be appreciated.
After you just broke up once I could ask David again, if you want.
Historically, you've given out.
Quarterly transaction growth for the Mastercard fuel card.
You know the interchange product and I'm, just curious if that and that product historically has grown faster than the core fuel card business.
That's still the case in the fourth quarter.
[noise].
Parents, you have that yeah, I don't have any exactly in front I mean, we really don't talk about individual lines a business, but its a.
If I recall I think it grow kind of line average in the quarter with growth of the whole fuel sector something in that ballpark.
Hey, David back again, I don't have the number but the cost.
Stepped up this to variety or particularly with.
Field people are falling people to be able to offer you know as a business fuel cards to control you know fuels bad and that also on a well want a cow how act company with payables or help.
Open up the card for some employees for supplies of construction supplies is clearly a winning patch.
Tom exhibit I don't know in the fourth quarter, where in Q2 in Q3 about 25% of all of our new sales for these two for sales where this concept of.
Adding payables and the account or some supplies sometimes with different uses the account as a very interesting offer. So I think the concept in the offer of this expanded product is good.
Understood appreciate all the insights.
But its docket.
Our next question comes from Ryan carry with Bank of America. Please state your question.
Hi, guys. Thanks for taking my question it sounds like underlying trucking environment remains tough, particularly in the U.S. UK <unk> compare that what you're seeing a three Q <unk>. It sounds like it weakened a little bit further first is that fair and then second well these headwinds.
We are likely to persist into 2020 are you expecting we're past the trough for could things get worse before they get better.
Yeah, right, Hey, it's Ron Yeah, I'm looking at is that a piece of paper I'd say the trucking you know based soft as Scott got a little bit worse than Q3.
Actually got worse kind of you know Oh.
All throughout Nike, we kind of planned it on the line that it's gone.
[noise], which again is sop.
Now I don't know I don't think we know the UK is down not not not as much Brazil is also.
Trucking for some reason is down some so.
It has gotten a bit worse or Nike and we're planning it via the negative.
Three to five range in our in our 2029.
Got it Okay, and then just a quick clarification on the beyond initiatives.
One or 2%.
Rental revenue growth contribution from the beyond initiatives inclusive of both fueling toll.
If it is is there any way to break that up into the individual contribution from the fuel side and then from the full side.
Yeah, I think what we should do contingent asset earlier, I think that we should try to put together.
I you know more about having said that where we go kind of line of business by line of business and give you guys. Some color on what the contributions are in a 2020 numbers rather than just throw it out because they do their free in each of our four major categories right. The beyond efforts are.
Our different.
The maturity if you will have them are different and stop and so.
Jim just remind that will take that.
Right as a take away and come back to you guys was something that hopefully as useful.
Thank you for taking my questions.
Thank you.
Ladies and gentlemen, this concludes our question and answer session I'll turn it back to management for closing remarks. Thank you.
Hi, Thanks for joining us today.
Let me know any further questions or anything else.
Thank you and this concludes todays call apartment disconnect have agreed.