Q3 2020 Fleetcor Technologies Inc Earnings Call
[music].
Greeting I walk up to the plate core technologies third quarter Twenty-twenty earnings Conference call. As a reminder, with Coca call is being recorded I would like to turn the conference over to our host Mister Jim I got better part of Investor Relations.
<unk>, Berkeley core technologies. Thank you you may begin.
Cross border acquisition.
Third.
Ill discuss our plans for pivoting the work of the company and getting getting back on off fence and then finally I'll close with some preliminary thoughts on on next year.
Okay. So, let's let's start with our Q3 results. So earlier, we reported Q3 revenue of 585 million that's down 14%.
And cash EPS of 280, that's down 10% versus last year.
We did manage operating expenses down.
9% in Q3 versus last year.
Obviously too to minimize the impact on our bottom line.
The macro not helpful in the quarter primarily.
Weaker Brazilian FX we.
We estimate that it depressed our Q3 print revenue.
By approximately 33 million.
Organic revenue growth.
Overall in the quarter down 12%.
In short of outstanding our Q3 credit losses, finishing lower than last year.
And even 8 million better sequentially than Q2.
So look in summary, Q3, clearly a a better quarter for us than Q2.
Volume's a step rate recovery.
Client softness.
Rebounded client retention even in this in these wacky times ticking up a point.
Sales starting to get back to normal recovering to 80% of last year, we are managing expenses down.
And our credit performance again.
Really strong we're really pleased with credit so all in all a.
An improving performance.
So in terms of transitioning to expectations for Q4.
Really just share a couple of thoughts.
Historically, our fleet cores Q3, and Q4 performance has been pretty similar.
In terms of revenue and earnings because weakness from seasonality or or fewer business days.
As generally offset by the business growth that comes on line throughout the year.
But this quarter me, we're really not sure what to expect.
Whether volumes will further recover.
Or whether they'll just flatten.
And plateau, where they are so we are planning a couple things were going to be.
Manage operating expenses down about 10% to 12% below last year.
And we are forecasting sales to further strengthen.
Hopefully coming in more than 90% of the prior year. So it's a bit of a a bit of a wait and see.
Okay, Let me make the turn to a fax the b to B Cross border.
Payment company that we signed up and announced in September So it's a bit of a Cambridge look alike about two thirds the size of Cambridge and revenue, although far less profitable.
Was a grower growing pre teens.
Recoded.
And its outlooking 2020 performance to be about flat.
With 2019.
The rationale for the deal really.
Pretty straightforward, it's a business that we know and like.
It's a business you know growing on its own with obviously, a big Tam and as we mentioned in the press release a business that's quite complimentary to ours. You know is it strengthens our position.
In Europe, and Asia, So our conviction.
And the FX synergy plan is quite high.
Having just run this drill you know a few years ago of Cambridge.
And so once.
Closed integrated and really fully run rated.
We're expecting accretion and the 25 to 50 cents cash be a cash EPS range. So.
We think a good contributor so in terms of timing, we're still tracking do a Q1.
2021, close obviously subject to come.
Customary regulatory and anti trust approvals.
Okay. My next up the subject is.
Kind of pivoting the work of the company and getting back on off and so like lots of companies we've been quite.
Quite consumed with our Covidien response work lots of energy against that and feeling we're coming out the other side.
And now can kind of redirect our energies to certain things and so the those certain things are one sales super focused on.
Getting sales back.
And you see a bit of the recovery kind of 50%.
Sales production versus last year in Q2, 80%.
This quarter Q3, and hopefully getting to above 90%. So some evidence that that sales performance is returning to normalized levels. We are making investments now in anticipation of next year, adding sales people and making some select digital investments and we.
We have since we talked last reopened credit.
To pre cove, it levels across a lot of our businesses.
In an effort to improve our approval rates.
We're back on the Tech front, we have stepped back up investments intact, particularly around digital.
Tech investments so we've developed and launched a new client you why getting very favorable.
User experience scores back it's it's a mobile.
Centric platform, so really a.
A big improvement in in the client facing front end, we're getting better at using apiay layers too.
Speed interfaces and connections to partners and accounting systems, which helps us with our ERP.
Integrations that contributes a lot of leads and our corporate payments business. So.
Tech back on.
Interestingly, we began to embrace electric vehicle overcharging in Europe.
We've actually added EDI networks in the UK, the Netherlands and Germany.
And these even networks basically complement.
The traditional fueling networks because the clients are keen to have their program their total purchases consolidated.
You know across their mix fleet and they want that data all in one place so.
Surprisingly the economics are kind of okay of levy and.
And mix fleets, it's literally almost neutral to us we continue to get card fees for electric vehicles, we get higher MDR rates when they are in the in the charging network and we even get subscription fees to monitor and report on at home and at work charging so.
Look at least initially here we seem advantaged.
As an integrator or consolidator.
As clients transition.
Their fleets to ebay.
And then in terms of acquisitions.
We're we're back pretty aggressively on the acquisitions front soon.
So in addition to apex, we are chasing a couple.
New deals that are in around our core prepayments space and so comfortable with our liquidity and management capacity to.
To to get after those.
Okay. So so last up today is really.
US looking into next year and the 2021.
So I do want to point out a few signs of optimism.
Later in the call back over to to Chuck to provide some additional detail on the quarter Chuck.
Thank you Ron.
I'm happy to be here on my first earnings call is CFO I'd like to note that in an effort to streamline my prepared remarks, all of my rates of change on a year over year basis, unless otherwise noted.
So let's get into it.
The third quarter of Twenty-twenty was affected by Covid related business slowdowns, but to a lesser degree than what we experienced last quarter as such we reported revenue of $585 million down 14%.
<unk> net income decreased 16% to $189 million and GAAP net income per diluted share decreased 12% to $2.19.
As usual you'll be discussing certain non-GAAP financial metrics, such as adjusted net income and adjusted net income per diluted share in the reconciliation to GAAP numbers is provided in exhibit one of our press release.
Just a net income for the third quarter of Twenty-twenty decreased 14% to $242 million and adjusted net income per diluted share decreased 10% to $2.80.
We're well positioned to bring business back in conjunction with economic recoveries and pleased with our ability to effectively manage expenses and minimize the negative impacts on our bottom line.
From a macro perspective third quarter of Twenty-twenty results reflect the negative year over year impact of approximately $33 million in revenue.
The macro was driven mostly by lower foreign exchange rates, primarily the Brazilian real which we believe had a negative impact of approximately $28 million.
Fuel prices were also down year over year for the quarter, which we estimate had a negative impact on revenue of approximately $9 million, while fuel spreads had an estimated 4 million dollar favorable impact.
Organic revenue in the quarter was down 12% overall, primarily due to the same store sales being down 8%.
Our fuel category was down organically about 11% net of the impact of the unfavorable macro.
There are a lot of moving parts in our fuel businesses around the world, but as you can see on page eight of the supplement volumes in our international businesses have recovered more than volumes in the U S. Fuel businesses generally is the international economies had reopened to a greater degree than here in the U S.
The corporate payments category was down approximately 11% in the third quarter.
Approximately eight points of the decline was driven by significant softness and a small portion of our over 9000 customers.
These 100 customers exhibited the highest percentage year over year decline in revenue during the Covid pandemic.
Lower spending on our teenie product drove the other three points of the organic drag.
You'll notice in the earning supplement that we've included a new slide on page nine to clearly illustrate this point and that aside from those 100 customers and teeny card activity that had been overly affected by covid or corporate payments business is actually flat to last year, so holding up quite well.
Al looking at the corporate payments category by the nature of our offerings virtual card volumes were flat for the quarter, which was an improvement from down 12% last quarter as political spend and the benefit of new customers offset the drag from the highly affected customers.
Cross border or FX related volumes, we're still down in the mid single digit range is payment volumes are still being affected by lower invoice levels, specifically in manufacturing and wholesale trade.
It's important to note here that are cross border business is very different from that of visa and Mastercard, which is mostly focused on consumers were travelling between countries.
Our cross border business is facilitating payment for international trade and not dependent on a recovery and travel.
Fully P continued to perform very well with volume up 20%.
New sales are fully P. We're very strong as we sold more than three X compared with last year due to both direct and reseller wins.
Now moving to tolls, which continues to be our most resilient business and grew organically at 3% in the third quarter stable with last quarter as the subscription based revenue model has not been significantly impacted by the covid driven slowdown in the Brazilian economy.
Active told tags were up 5% in the quarter as our new approaches to tag sales, including selling at the toll classes again and the introduction of art low frequency plans are offsetting the lower sales in the malls and stores.
Parking volumes have declined due to work from home, but fuel and drive through volumes have begun to recover as residents have started to resume normal activities.
The lodging category was down 32% organically in the third quarter with nine points of the drag caused by the inclusion of the acquired airline lodging business and the year ago period.
Our workforce business has outperformed our airline business as we expect workforce to see continued improvement as business activity recovers.
We did see lower margins in the quarter as the large enterprise accounts with lower rates recovered faster than small business accounts.
Additionally, we saw some rate compression as hotels cut prices due to slow business and low occupancy levels, which also affected revenues.
As for the airline lodging business that recovery will likely be slower it is linked to the recovery of the airline industry.
Now moving down the income statement total operating expenses were down 9% for the third quarter of 2000 $20 million to $321 million or target was to reduce expenses in the high single digit range year over year, which is exactly what we delivered.
The decrease was primarily due to lower volume related costs lower employee related costs from reduced headcount lower sales commissions and lower teeny expenses. In addition to the impact of foreign exchange rates.
As a percentage of total revenues operating expenses, where approximately 54.8%.
Roughly 470 basis point improvement from last quarter.
Bad that expense in the third quarter of 2020 was $13.5 million or six basis points compared to $14.6 million or five basis points in the third quarter of 2019.
Bad debt levels continue to be good and our aging roll rates are very favorable.
That said the uncertainty around the timing and level of government stimulus and various responses to increasing covid cases around the world is still a consideration.
Interest expense decreased 14% to $31.4 million driven by decreases in LIBOR related to the unhedged portion of our debt and lower borrowings on our securitization facility as a result of both lower volumes and lower fuel prices in the third quarter.
This was partially offset by the impact of additional borrowings for share buybacks.
Are effective tax rate for the third quarter of 2020 was 19.8% with a reduction from last year, driven primarily by incremental excess tax benefit on stock option exercises.
Now turning to the balance sheet.
We ended the quarter with $1.37 billion in total cache of which approximately $582 million is restricted and consists primarily of customer deposits.
As of September 30th 2020, we had $3.8 billion outstanding on our credit facilities and $688 million borrowed in our securitization facility.
I would note that in the quarter, we received commitment to extend our 1 billion dollar securitization facility for another year upon expiration in November so we have plenty of capacity to support future growth.
In total we have approximately $1.6 billion, a total liquidity consisting of available cash on the balance sheet and our undrawn revolver at quarter at.
The primary change in liquidity from last quarter was the termination of the short term 250 million dollar bridge loan we had put in place, which we terminated due to lack of need for the incremental liquidity at this time.
We remain committed to a consistent program of capital allocation using our free cash flow for acquisitions and buybacks in the quarter, we repurchased 1 million shares at an average price of $238, which essentially used the free cash flow we generated in the corner.
We also announced the acquisition of effects for $450 million that round discussed earlier.
Some of you may have thought we forgot how to do M&A. The fleet core way clearly that is not the case, we view this as a classic fleet cordele that you've come to expect from us.
We're disciplined so deals will remain lumpy.
As we've shown we believe that we have ample liquidity to pursue any near term M&A opportunities, while still opportunistically buying back shares when it makes sense like we did this quarter.
I would also note that in October our board of directors increased our share repurchase authorization by $1 billion.
And lastly, we had approximately $18.1 million of Capex in the quarter and finished with a leverage ratio of 2.77 times trailing 12 months EBIT a as of September 30th.
Finally, I want to remind everyone that our businesses are very resilient. They have all declined due to the covid pandemic and they've also recovered substantially from their low points.
But due to the uncertainty we're seeing currently around reopening versus shutdowns globally, we're still not in a position to provide guidance at this point.
We do expect to manage expenses tend to 12% below the fourth quarter of last year in order to balance current profitability with investment for future growth.
Operator will now open it up for questions.
And ladies and gentlemen to register a question you can pass the one followed by the four on your telephone keypad, you will hear a three count prompt you acknowledge your request.
If your question has been answered and you would like to withdraw your registration. Please pass the one followed by the three.
One moment for the first question.
And our first question is from the line of Ramsey.
L S L from Barclays. Please go ahead.
Great. Thanks for taking my question Tonight I appreciate it uhm could you provide some enter quarter common enter quarter trend commentary kind of what you're seeing in the business right now relative to Q3 levels.
Hey, Ramsey this is Charles.
Let's do this evening.
So what we're seeing.
<unk> get our quarters a bit lumpy. So we've got some stuff that they out some stuff that's moving down hard to say kind of consistently what's what's gonna go on air So uhm.
Three I'd say, it's a good step up first you too so please.
With that result, and Frank quite frankly, you know.
It better than what we initially thought back into you too.
In terms of H, a quarter trends hard to really put a put put a better on it there.
Okay fair enough.
Would you also.
Give us some kind.
Updated commentary on what you're seeing in terms of rates of recovery and you're kind of larger versus smaller customers I know that that that differ.
Differential in <unk> recovery was having an impact on kind of revenue yields, but I'm just curious what you're seeing it in your business now in terms of those smaller customers potentially starting to come back a little stronger or or what have you.
Yeah, it's painting.
A business and our fuel business, we have seen a bit work every particularly trucking and a small fleet segment keeping in mind that the small please sit down quite a bit more than a large fleets and coming back faster, but there's still a lot at the level of recovery of the large please.
Lodging space here in the U S. We are still seeing that phenomenon over the small small.
Customers are lagging.
The large customer recovery pretty soon.
Okay, Great I appreciate it thanks a lot.
And our next question is from the line of David Toga with Evercore ISI. Please go ahead.
Thank you good evening or good to see the corporate payments bookings reached 100 per cent of year ago levels could you could you frame for us whether this business might get back to meaningful growth and 2021. This historically has been your best growth engine.
You've called the the bookings performance and yet you know about 100 clients are so are still quite week. So can you help us think about the year ahead, and where you might land in this business.
Hey, it's wrong I think it totally.
Totally on the kind of sick client.
Group that we laid out a supplement.
So the the sick as clients.
<unk>.
You know way way down which is having I think patterns allow you know it minus 11 for the quarter kind of flat without though so clearly the 99 cent people will be a growing business.
21 is we look at the plans.
Wild card is.
How much of that softness that we're seeing still hear a hue three will come back. So that's that's a debate we're having we're obviously watching it closely the checkpoint we start with a little encouraging sign.
Into a corner there in virtual cars look I was getting a little bit healthier. So I'd say you know, it's not a super answer, but I'd say if you if you park.
Sick Porsches for sure you will see you know again mid to high teens growth the rest of that business.
So your point based on the sales and a forecast we have for Q4 is another good one so the the sales are clearly there to grow that.
Got it I appreciate that and then just as a follow up on capital allocation you increase the buyback authorization by a billion in and you're about to complete a effects. How should we think about the year ahead in terms of you know share repurchase versus other meaningful M&A.
I'd say, probably philosophy data is the same as always we do have a number of deals that'll work and I would call. It out in the press release, including a couple that are close and kind of late stage. So we're all always balance and ride the liquidity that we need.
So the deals in front of us versus you know opportunistic on the share price. So.
I'd say a.
That's a bunch of those do they exist if there's a lot of deals we likely that conviction and we'll we'll spend the money on that and if people trade R. R.
Our stock to a price that that were buyers will will buy back. So the goal is to give us the management the flexibility to make those calls.
Hey, Chuck R. R.
Liquidity or availability still well north of a billion dollars.
Yep. So we do have plenty to go and honestly the ability David to borrow more money. So if capitalism is the main question for us.
Understood Thanks very much.
Yeah go to talk to you.
And our next question is from the line C N thin Wang with J P. Morgan. Please go ahead.
Thank you. Thank you it's good to connect everyone. So I wanted to ask run on the new sales. The bookings also just I'm curious to.
You see some pent up demand there potentially in.
I'm just curious on your confidence in being able to replenish the the pipeline that you get to some kind of new normal and new rhythm on selling in this.
And this during this pandemic as you see it with what's going on in the ground there.
Yeah, I'm not sure on the sales thing it's.
I used to or attention that it's pent up demand I'd say that it's two things one.
That the marketplace. The prospect universe is kind of getting back to listening again, you know the last distracted. So we do we go in and analyze that and that Google analytics package search volumes across all of our categories against baselines and we see in that you know.
Outside in data the planet getting more receptive again to the kinds of things that we offer. So that's 0.1, which is obviously super reported and that point too I think we we finally have the rhythm Nevada Sally.
And few people became four people and we remixed more money to digital and.
We shrunk credit now we've all been credit so I think we Ying and Yang you know in libraries channels and now we've got kind of a sense of how to do it how to play the game as it is now and so this is 80% number which was pretty good lots of places, particularly in corporate day.
Looking at a forecast it it's over 94 Q4 with also get one of the months in the can so I'd say.
All the area that's the one.
I feel like we have more control you know all of them.
For our future for you know we stay in this kind of a place. The fact that we can continue to move that number up as as we roll forward. So so pretty confident.
If I go too because I know in the past you said you can predict when you're coughing you throw in dollars on the on the sales side and you'll get the return I know you're talking about a double digit.
Savings, but.
Does that signal that you are not quite ready to deploy capital towards the sales and marketing point or is that a different discussion.
Yeah. We are the reason I don't know whether disclosures how much detail, we give you, but one of the reasons it looks like there's not.
A step up in sales and marketing is the commission rolls are soft right because of the.
Bad performance in Q2, and that and now just approving performance, but we made the call probably 60 60 days ago to start to step up investments both of the people.
On the recruiting fraud and have a certain kind of new digital campaign. So now it's again, it's the what is the key to the company right. When you get all done with this soft this sickness thing of who's healthy does not.
We still have a business you can plan right whatever you give me that baseline and.
And we we laugh whenever this office or or does it is we got a business that we get around me not to have her set on the job. So we're we're back at that game.
Trying to build a sales plan for next year that keeps the company Rolling you know in that fashion.
And his last quick I mean, when I say that is that's a bunch of words, but but more importantly.
90% 58, and we're forecasting above 90. So there is real evidence is working okay.
Okay No I'm sure. That's the case last quick what I'm, sorry for asking a third one just the Cambridge.
Playbook applied to apex I mean is it is very similar.
I'm pretty confident in getting that level.
<unk>.
You know the normal accretion.
Yeah I mean, we this is.
A thing called down the fairway, but.
Number one that playbook.
Which you know is part of our model for every deal work quite well I mean, I think we reported or four and one of these calls majority that we've more than doubled.
The profitability of Cambridge between 17 and 19.
So the first point is yes, we'll we'll.
Institute that same playbook for eight days, but then the second one is that there's two businesses now.
They look the same so there's a second bite of synergies and the combination that we didn't have obviously in a Cambridge deal. So that's why we gave the range is obviously I'm thinking Institute step the thing make sure we understand it. So we'll we'll run that we started planning for that thing to get the <unk>.
Space and then as we get smarter.
For example, they've got a small business in North America, and a management layer call it'll at 10, 15% of the Cambridge business, we have will clearly assimilate things like that.
I have way stronger positions in Asia, So it sets up.
Really really well both to grow the business and and to make it way more profitable so we like it.
Hi, Thank you for that.
And our next question is from the line of Stephen Wild with Morgan Stanley. Please go ahead.
Great. Thanks for taking my question, maybe coming back to the corporate payments I know has asked a lot about this but from a different angle you guys had previously said I think back in September Charles you were talking about sort of working through some of the backlogs on previous booking in getting those up and running at a faster clip than than perhaps it would typically be done it over sort of 12 month plus.
Period, I'm curious, how we're thinking with a large chunk of the business outside of T. N E being back to pre Covid levels. How are you thinking about the potential for that the hockey stick up now haven't gotten back to even from the onboarding of those volumes.
It seems like there's a natural beneficial mix shift away from T. N E. Just by virtue of the fact that it's subdued and activity. So what are you thinking in terms of the next three to nine months from those faster implementations.
Yeah, that's Steven a super Super Good question, I mean, I think some of the some of the soft. This this year of 2020 is not only sales, but what you said in that business if limitations, because we kind of sell the year before that implement the year after.
And so a number of implementations of that business have been stalled slow is certainly went through the second quarter and are starting to kind of reactivate. So the million dollar question, they're just like.
Davis earlier is how many of those implementations will hall will people you know stay with them you know if they agree to do the think three or six months ago and.
They be away from their distractions, where they could work you know and and and all of us to implement the thing. So I think it's the same old bit of the same question, which is we got a book a business.
That we can convert into revenue there, but we need cooperation of the clients you know that have agree so to the extent that there are already have all that to your appointment will accelerate some of the recovery next year, but to the extent that it doesn't that they quit on a thing where they continue to back burner, it and that that will be helpful. So I think we're just seeing now.
Signs in the last month or two of those limitations kind of getting back to to a targeted level.
Very helpful. And then just squeezing in a quick follow up here you mentioned at the beginning of the call getting back to work on the beyond initiatives and you know I think it's pretty straightforward with with the fuel piece in terms of cross selling sort of more attached to the to those customers, but could you speak to the conditions on the ground you're seeing on the Brazil side for beyond and.
You know obviously, there's been quite the disruption from the pandemic there I'm kind of curious what the ability to have those conversations and and get the op taken beyond in Brazil.
Yeah, I think the Brazil on the other ones, we did slow things down mostly around our credit.
Paranoia back when this when this thing first broke so we've odyssey relax that and then D. Just their population getting back out and about right driving around reviewing.
Go on to fast food places going back into the city and the clothes you like we didn't hear in terms of the malls and stuff that it was a real slowdown in the beyond areas right of fueling parking and fast food, that's kinda recover they they kind of reopen the <unk>.
<unk>. So we're seeing those transaction volumes kick back up and we're also seeing it on do sales I think you've heard that a big part of that uhm initiatives to attract people, they're kind of in the city that I told people that want to use those things will obviously, what it is now need to use those things, it's it's not as interesting pet.
So we're seeing it in the last month or two that just resonating again at the activities picked up so I would say it all the way back.
To pre levels, but it is way back from where they were on queue too.
Great I appreciate the the comment.
And our next question is from the line of a fish subtract with Deutsche Bank. Please go ahead.
Thanks for taking my question I also would like to focus on the carpet payment, but I would like to go back to the slight ache, maybe half the volume trends by individuals segment, my understanding was which will card and it fixed with like almost 40 per cent Beach, and then kidney and fully appear 10% each of that business.
So let me do a block them up we don't see the kind of 18% William Decliner 11 put center Avenue weakness.
What <unk> what could we be missing then you think about it.
How about that Ah weakness there.
Yeah sure.
We'll probably gonna have to get back to you on that and just math. This is Jeff I'm happy to do that but I'm not sure that you know we have.
The disconnect.
Say the question Ashish is wrong, but just like out of it again.
H M O and drug <unk> maybe.
A broader question would be best within the segment I understand you talked about some of the weakness and the talking to customers like within this subsegment, whether that any particular areas other than kidney, which has been in there can be beak, which is b like being on the group and that segment.
You said a difference when the volume recovery versus the revenue I mean, I'd say in the virtual card business a lot of it is mix that some of our channel partners that have lower.
Revenue to us per spend all or have recovered more I think of the people that are investing lots of slots in sales and marketing and then obviously we have.
And some series of a sick our clients.
Unfortunately for US you know pay it used to pass more so I would say that probably the biggest delta.
<unk> exhibit would be the mix.
Fair number a pretty large clients on both sides of that that wheel some clients that are going up.
Like healthcare as an example would be like a perfect example.
I'm at Friday, but a dramatic.
Step up Q2 to Q3, you know it was kind of elective surgery and kind of normal.
Hospital staff kind of came back.
<unk> and that health care business away worse, and kind of a more traditional horizontal kind of a business. So that would be the the partners. If you will a wholesale business.
And the health care business have recovered better than some of the other businesses.
<unk>.
That's very helpful cause it ruined and then maybe just on the skill one of the questions that we get a lot from invest doesn't the defense in the group between your feet feel business with this what mix has been reporting in terms of gallon I was wondering if you could just providing color on the difference is it more of the customer mix.
Any color on that friend thanks.
Yeah, I I can't say that the main offices Super strange time and stuff, but I I think you said, what's the most surprising thing Joe US is how well those businesses, both our domestic and international off you'll ever covered I mean the softness.
Recovery I'm not sure I have it in front of me, but literally I think our international business existing clients at all we call same store sales was down 25% or something literally in queue too and recovered a ton again I'll have in front of me, but I think I'd have to 5% picked up on it too.
20 points or something of improvement.
So so that would be something that either of the U S. I think it's improved if it was down 15 or 20 is down you know 10 or something so that that is what I say is the is the biggest thing are are applications are way up again, because that Google outside in the world is more interested in.
Searching again on on fuel cards of Lee cars or or beneficiaries of that although again I think you know with a new business, we're still being a bit more careful a credit with a with a super small accounts, which that'd be in our fuel car business, where we have smaller accounts. So we're so concerned with fraud and stuff so or be.
And our our approval rates are still lower.
An outline of business, but it's it's doing Ashish I think significantly better, particularly the third quarter on the strength of the really again the clients coming back and the forecast from our guys are even more recovery.
They're so so it's it's still it's still unwell.
That's very helpful color. Thank you very much thanks.
And our next question is from the line of Matt O'neill from Goldman Sachs. Please go ahead.
Yeah, Hi ran into thanks, so much for taking my question.
I was hoping I could at first ask just to clarify a little bit further on the.
Re extension of credit I think you mentioned the prepared remarks that you're back to pre covid levels across a lot of the businesses with that still.
Was that sort of a quarter and comment or kind of on average across the quarter I'm just trying to think about how close we are to being back to normal and then as a as a follow up on the the 10% to 12% expense redux.
Reductions that you've discussed as far as balancing profitability.
This year is there any expectation around parsing some of those that would be more permanent as we go forward versus or are they predominantly transitory things isn't this year like <unk> being down as a result of covid et cetera. Thanks.
Yeah.
Let me, Matt it's Ron.
Take take the first half of credit and check and take the expenses I'd say that no. It wasn't.
A green light at the beginning of the quarter, where we turned the thing on it's been very segmented so we.
Mood at different speeds with with different businesses, we've moved and given speeds with existing clients.
Versus new clients and we moved at different speeds for Super small clients like we get a few hard business. So what I said.
And the comment that we were kinda back I'd say, we are we gone back to medium and large clients re extended their their terms days to pay and stuff that we had shortly we've increased some of the credit lines again, so we could get more of a greater share of their business, but we continue to be careful on some of the day.
Beyond because obviously that increases our credit exposure credit limits within a single client right, which we view as a bit more risk and we continue to be cautious on the digital new business, because they're coming in you know not as well as green as if they run through our people and they're small or so.
I'd say it happened you know over the last four or five months and sitting here today, it's probably check I don't know.
80, or 85% back to normal with this beyond and a and a small digital be in a couple of exceptions.
Thanks very helpful.
This is Charles just the other point is would catch some vertical so that we know are still quite challenge due to the pandemic. We just kept them shut for credit purposes.
Things that you would think of right off the bat.
Have you traveled kind of industries were stop focused on them at this moment.
But we are trainable Maggie will be will be C.
Credit losses come in the way they have the last two quarters, we look and we and we see roll rates and all kinds of stuff that he looked at me like I guess, we you know we along with some other people Lady overreacted to the credit risk and and part of it is the essential nature again right.
What we do the people on again programs because it's part of their day to day jobs that might be <unk>.
Philosophy of what our receivables are we have all kinds of stuff on a daily terms daily Daily daily.
Five and stuffy trucking. So our terms are are quite rapid so we've been again, just super fortunate and so we're now trying to lean back towards the grow side is that okay. We're we're open it taken.
Or credit risk now that we see it's control.
And then that off your to your other question on the expenses reductions, what's permanent or not some of this is from volume so as our volumes bounce back whether it's the age is coming back or enhanced sales Saddam Hussein some of that volume based expenses will come back some of it is driven by F X rays so of course.
US on revenue, but we save on expenses and so unless we see the Brazilian real turn around some of that is going to stick around for awhile and we also mentioned.
Is running low and the aging is also.
<unk> well below but it has been historically and so you can see that kind of containment to run at a low rate for some time.
I'd say going forward into next year, we can continue to manage expenses, but look for opportunities as a auto said to shift to grow and get on offense. So we'll look to deploy some of the things that sort of a savings that we have this year to focus more on sales and marketing and get the top line.
On it.
Thank you both appreciate it.
And our next question is from the line of Bob Nepali with William Blair. Please go ahead.
Good afternoon, everybody so.
The corporate payments business seems to be the.
The the key longterm driver to being able to hit the targets you've had historically Ryan what is the key.
Strategically what do you need to add to that business and the opportunity is so large and where are you investing there's a lot of <unk>.
Innovation going on and the corporate payments base, where are you investing what do you need to add.
What are you looking at.
M&A wise would most strategically important to keep that groups to make that business now multiples. The time the size. It is today over the long term.
Yeah, a bar that's run it too it's a good question I think we've described.
This business to you before we looked at it kind of like as a game board so kind of chessboard and it's it's got segments on it. So it's got kind of a small medium and large companies and then it's got obviously different different verticals and stuff and so if you look at the the early days of the corporate pay payables business.
Players are kind of going to have to certain itself. So some guidance focus on some vertical like us even okay constructionist.
Out of our business some people like our Pal Bill Dot com focus on Super small clients and so on so the first thing I'd say is we're acutely.
Aware and focused on those if you look at that game on which ones were capable to be good at today and then what capabilities would we need to be good at some of the sales were not so there's a few vertical that we like that I like a lot that we'd like to be in you know where this.
Connections to ERP, the client references that we need to some opportunities maybe to buy into some of those and then the same on size right. One of the things. We've debated is do we take our full a P.
Product, it's a it's a super good product, but targeted as a mid market and make.
Market Persia, so that we can chase after the 500000 little clients, we have with it so I'd say that that's the.
Are you, saying is y a.
The capabilities to play and more of those segments and then B I think I told you. The prior calls the the running up the value chain like for example, getting good in voice automation. So decline does it have to open 100, invoices and tear them open and somehow get them into their system and then we.
Album pay it but maybe more helpful to you know as they as they pull those invoices and digitize those invoices. So so those are the two games, we're going to get wider and the segments and I'm, hoping you'll hear more about that.
And we'll get kind of brought her in the in the you know the the value chain of the adjacency so a year or two from now you'll see us more of those and those two spot.
Are you building the invoice automation piece internally or if that's something that you that you need to acquire.
Yeah, I'm not going to answer.
The answer that out of the say, obviously, we always look at the make by so we're analyzing you know all of those options. All I can tell you is we'll have this.
Well, we're we're committed to your point for this space and we're looking at the various ways to get wider in this game and we will be wider and his gang.
HM.
I appreciate it.
And our next question it's from the line of Sun Coffee what Susquehanna. Please go ahead.
Hi, great. Thank you for taking my call one or two questions one of which is fairly basic looking at a slight eight this is a little bit different definitely something that was last quarter. So I was just wondering in this again, maybe obvious the last call him a growth is this sequential growth from Q2 Q3.
<unk> I just want to make sure I understood. The right words or is it some other kind of maybe I don't know it in early October number and then I'll just give you my my second question right off the bat is on the next slide when I look at the at the declines that you see from the 100 most effective customers.
With a law that'd be primarily driven by the teeny cards or would some of this be virtual cards as well. Thank you.
Hey, John is Charles So our slide H, what you're seeing there the volume trends Q2 year over year in Q3 year over year that third columns really the difference between Q2 and Q3, so sequentially alright.
Alright, we improved say as an example in the local fuel business minus 17 to might as well be improved 500 basis points. So you can see any kind of a recovery.
That were same sequentially quarter whatever quarter.
Three this year.
And then in terms of the 100 customers.
So I was just slide nine we're actually explicitly removing any car product and looking at that separately. So the 100, most affected customers would be those that are using our payment products either a virtual card.
Or or cross border and FX searches.
Yeah, Alright July it's fine weather, where make at this point clear why why we put this thing in here again you know.
No one understands is better than you guys.
Covid and shut downs have helped some companies and her some copies and then super hurt some companies the whole distribution.
And why we're trying to give is.
That that.
Partitioning of of of impact sits in our client base. So let me look at the business that we built it's a function of the health of our clients. So just like you know the.
Investments that you guys look at we asked some said it all of our businesses of Super set clients that we didn't know could get so sick.
He was a dual garciaparra bay products and so.
The the softness of the down performance of our company is really as we've said, mostly now just a function of the hell of a narrow group of our clients because we're back selling our attention is fine.
Credits fine and so the other parts of our business. It allows us to go forward.
Fortunately a kind of okay again, so it's it's it's really just the point of it is really just we have in our 800000 blinds ones that were massively impacted by this thing.
<unk> debate.
Alright, Thank you very much.
And our next question comes from the line of George <unk> with Cohen. Please go ahead.
Yeah. Thanks for for taking my question guys run just just just wanted to ask I know, it's early days around sort of you know E V and the like and you talked about some networks overseas I'm I'm I'm just curious on your thoughts about that kind of migrating to the states, maybe how how how far.
How how how how how far behind our we did that playing a bigger role and then just secondly, it sounds like you're at least for now somewhat encouraged on on the economics, just your thoughts around the ability to sustain that.
Yeah, Let me start George was the second.
Question first and then come back to the U S. I would say this is another one a bit like our credit thing probably all of you like Oh she's.
Jewel cards, and Oh, my God, there's going to be electric vehicles, I know they won't have any business or whatever okay. So we're like Oh, My God I wonder when a client that's got 20th plumbing drugs gets two or three electric vehicles, while our business go down 10% or 50%. So what I was really trying to <unk>.
Report now that we're in the game is now.
That example of a mix fleet our business is basically flat.
I'm studying this over the last six months like I.
What what is going on in your guys and the and the answer is that the business wants to know about their vehicles and usage and purchases and.
And what the people are doing frankly, you know across the entire 20th it'll vehicle population that example, and so.
Having a card in a way that the 20 people can still all by and get reported on want a cow.
I guess, we didn't really realize how valuable that was the company and they are willing to pay it and it's still bad car thieves on those three electric bombing trucks and they're obviously you were getting paid for the new networks, we've established and they even want to know when those things you get in charge because they have admin to deal with their employees right their employees.
Want to kind of get reimbursed if you will for at home charging the digits in the in the electricity and stuff and so that the headline for everybody is at least initially while the police are mixed it it's not update we don't do it as a big drag which to me I wanted to tell.
That story, because we think it's it's it's pretty good news.
On the second question I think it's it's as much as governments.
Question is anything like the reason that that some of the countries were in in Europe.
Or had any D. As the government is set it up that way right in terms of incentives and targets and stuff that they've set up so.
Maybe one of those on Tonight or tomorrow year about our government, but I think a lot of it the pace at which the U S will try to catch up I think is going to be.
A function really at the incentives that are put out there how high a priority. It is but again my guess is the behaviors would be probably pretty similar to what we're saying you know network. So I'll get bill that works at work I'll get billed and handle probably copy the same playbook for awhile. So to me it just keeps pushing out the electric.
Vehicle impact on our company.
Okay. That's that's great. That's that's very encouraging.
Charles if I could speak one more in just you know looking at the.
The the full a P business I think he grew 20% in the third quarter. That's good growth, but I think in July volumes were up 27%. So I guess, you're sort of exiting the third quarter in in in the teens anything to kind of call out there in house, maybe we should be thinking about that business near term.
Yeah. So in terms of the the 20 per cent growth.
Referring to this Friday.
That is volume growth business, we are lapping some synergies that we put in the place.
Though.
Wired the business they had some payments that they were doing but what we did is we basically tie that product to our vendor database.
So we can take a bunch of the payments they were making sure other modality and turn them on to our Mastercard virtual card.
And so we saw a lot of Mastercard spend suddenly come into the system or not laughing those synergies. So what are you gonna see basically in that business going forward is really just organic growth.
Sales pouring in in in this case, it's transaction volume overcoming covid softness in the base.
That big sales that we keep telling you about is layering on and so we're gonna have this kind of call you know high teens 20 kind of growth rate in this business provided the sales continue.
Yeah.
Thank you.
And our next question. It comes send the line of clever Williams. Some cafes. Please go ahead.
Hey, guys. Thanks for taking the question and I just wanted to follow up Charles with you just a little bit on the expense comments you made to to Maths question earlier, I mean, it sounds like.
You guys are gonna start pouring some more fuel on the fire when you start to get more of a reacceleration on the top line.
With that kind of framework I mean should we be thinking that maybe you're incremental margins run a bit lower than the 70% level that we historically thought about when revenue start to come back on the upswing.
No I'd say, we're pretty disciplined and balance so it's not like when you say orange on the fire everything we do is going to be incremental it will be balanced, but what we try to do as a company is shift, but we call calories. So I can make certain investments and back office stuff I can make investments in sales market.
I much prefer the latter versus before and so we're very very disappointing cost control at all of our operations and that way, we can put some disproportionate investment in sales and marketing while still managing the bottom line effectively so I would not anticipate any kind of dramatic changes in that regard it's more of a <unk>.
<unk>, and then and spending versus big incremental investment.
Okay got it that's very helpful and just one other clarification question for me run I mean, you when you're talking about the fourth quarter, you're hoping to get sales up to 90% of last year's level Uhm I just wanted to make sure I'm understanding that comment correctly is that new sales, you're referencing or is that you.
Talking about revenue growth being down, 10% or hopefully a little bit better for the fourth quarter. Thanks.
That's that's new sales forever. So we keep track of what we call.
Annualized new business, we sign up you know 30000 clients and a quarter how much revenue. They create so we have a system that measures that so yeah. So I'd say, hey, we were 50% of new business now Q through at 80, and we hope to be at 90 or 90, plus that's comparing do.
Business, we got in Q3 this year to the amount of new business, we got in Q3 last year.
Got it okay that makes sense, that's why I asked I appreciate it.
Go back to what I said earlier that the toga to ask which is.
Once you know all is this based off this wherever it is this is it but I want to make sure I will get this is the game. If you can get sales right to be more than attrition and we sat retention picked up a point. It is the key to planning this machine running forward. So.
We will lap disarm that's even though we're recovering some so I don't want people to Miss how how important this metric is to us at the end of the revenue growth Gulf War.
Okay got it. Thank you guys. So I appreciate it.
And our final question comes from the line of my here, but yeah with Bank of America. Please go ahead.
Hi, Thank you for squeezing me just had one quick one hopefully on to God on the fuel got pregnant. Thanks for the incremental disclosure on the corporate payment side I was wondering if you could do something similar for US like just you know.
At a high level, maybe on the <unk> site other particular customer of those segments that'll just not recovering while everything else is getting better and then does relatedly Ah Ah roast curious about you'll abuse just in terms of if you don't read parts of Europe, and I got the UK talking about shutting down again or at least putting some kinds of movement restriction.
With how should we were thinking about the headwinds from that for you next quarter. Thank you.
So I'm I'm a fuel card. This isn't your we are still seeing some of that software is still on the small businesses as we mentioned earlier.
Uhm.
So that's that's still wait for that to come back in terms of some of the industry's uhm.
Manufacturing has been a bit slow obviously transportation such public transportation things of that nature or is that a little slow in our local local fuel business.
The Europe stuffed had bounceback more volume exhibit to your point, we're watching the Lockdowns I think in terms of the nature of those locked out they don't seem quite as severe or at least what I've read in the press regarding the how hard they're gonna shut out so we're still wait.
To see what that impact will look like.
So I'd say no to be determined.
Yeah, Let me just just just add to what Chuck said that <unk>. The answer is yes to they're super sick clients like we show a corporate pay we run the distributions of decline. So let's say, we had 100000 clients, we basically put them in layers call at five or six layers, Hey, 25000.
Nevada thousand a row, a 25000 or you know down like five or 10%, Hey, 25000, or down you know, 20% to 30% and then 6000 or down 8% or more so we see the whole distribution of super impacted industry first.
<unk> that were nicked by a we're gonna have one less Palmer because you know some homes won't accept them. So it's not quite as dark as it is in the in the corporate pay business and again, it's Y we've seen actually more recovery. If you will of our same store sales in the fuel business and in the corporate pay because we.
Half retailers and maritime payroll at hotel things that don't move that had been shattered that are in our corporate pay business. So we were just gel a more impacted set of clients effectively sitting in that business.
Thank you.
[noise] and there are no further questions in the queue. At this time I will now turn the call back over for closing remarks.
Nothing further are and.
You need anything else.
Only available so I have a good evening.
Thank you everybody.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect Caroline Thank you and have a great day.
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