Q4 2020 Fleetcor Technologies Inc Earnings Call
Greetings and welcome to the fleet core technologies fourth quarter 'twenty 'twenty earnings Conference call. As a reminder of this conference call is being recorded I would like to turn the call over to our host Mr.
Jim Eglseder head of Investor Relations for fleet core technologies. Thank you you may begin.
Good afternoon, everyone and thank you for joining us today for our fourth quarter and full year 2020 earnings call.
With me today of Ron Clarke, our chairman and CEO and Charles Brian Our CFO.
Following the prepared comments, the operator will announce the the queue will open for the Q&A session. It is only then that you can get in line for questions.
Please note our earnings release and supplement can be found under the Investor relations sections of our website at <unk> Dot com.
Now throughout this call, we will be presenting non-GAAP financial information, including adjusted revenues adjusted net income and adjusted net income per diluted share. This.
This information is not calculated in accordance with GAAP and maybe calculated differently. The non-GAAP information at other companies.
The reconciliations of historical non-GAAP financial information to the most directly comparable GAAP information appear in today's press release and on our website as previously described.
Now before we begin our formal remarks I need to remind everybody that part of our discussion today may include forward looking statements.
These statements reflect the best information, we have as of today.
All statements about a recovery outlook, new products and acquisitions and expectations regarding business development and future acquisitions are based on that information.
Not guarantees of future performance and you should not put undue reliance upon them the.
These expected results are subject to numerous risks and uncertainties, which could cause actual results to differ materially from what we expect.
Some of those risks are mentioned in today's press release on form 8-K, and in our annual report on form 10-K filed with the SEC and available at SEC Gov.
With that out of the way I would like to turn the call over to Ron Clarke, our chairman and CEO Ron.
Yeah.
Okay. Good afternoon, everyone and thanks for joining our Q4 earnings call upfront here I'll plan to cover four subjects.
First I'll provide my take on our Q4 finish.
Second I'll put a bow on the full year 'twenty 'twenty.
Third I'll share our 20.
'twenty 'twenty, one outlook and lastly, provide a bit of an update.
On our transformation plan.
Which is intended to accelerate the company's growth.
Okay, Let me turn to our Q4 results.
So today, we reported revenue of 617 million, that's down 12% and cash EPS of three of one that's down 5%.
Versus last year.
These results of both better than anticipated.
Volume recovered.
Bit more in the quarter than we forecasted.
And we did manage our operating expenses down 14% against the prior year.
Organic revenue growth overall minus 8%.
But most importantly are the trends in Q4 really quite good.
Sales strength into over 90% of last year's level.
Same store sales or client <unk>.
Volume softness.
Improved to minus 6%.
Loss of 6 million, although helped by a reserve release and retention continued steady at 92% we.
We did have a fantastic beyond highlight in Brazil in the quarter, we added 175000, new urban or city users in Q4.
That represents 30% of all of the new tags, we sold in the quarter.
So [noise] demonstrates there is real demand among the non.
Total segment in Brazil for this RFID per.
<unk> network, including fueling.
Parking and now even fast food locations.
So look the conclusion.
Of Q4 is really in the sequential trends of the business.
If you look at page seven of our earnings supplement you can see that every Q4 metric is.
Is improving from the Q2 LOE.
Our revenue up from 525 million to 617 cash EPS up to 28 to three of one <unk>.
Sales up from 55% to now over 90% of last year's level.
Same store sales volume of getting better.
From minus 17% to minus 6% credit losses from 21 million to six.
And then lastly retention holding steady at 92%.
So to us.
Evidence of the business continues to recover from the earlier year lows.
Okay over to 'twenty 'twenty, so from a financial perspective 12.
Twenty-twenty not our best year revenue finished at approximately 2.4 billion.
That's down 10% versus 19, and Kashi P S, finishing at 11 O nine down 6%.
Against 2019.
Covid AR and the shutdowns did manage the vanquish over $400 million of revenue that we planned in 2020 are really in three ways. So first client softness.
We had a number of COVID-19 impacted clients that that use less of our services.
Covid reset the macro environment in Q2, driving down fuel prices and weakening international currencies.
And then third for Awhile Covid reduced our 2020 new sales.
Mostly due to the market being distracted.
The good news is despite the fact that the Covid is going on that we're still living with Covid is the financial impact on us appear to be lessening.
So we've now recovered in Q4 about half of the client softness.
The revenue loss that we experienced in Q2, so half of it back already.
Post the macro reset we've seen relative stability.
And fuel prices and FX rates.
And lastly, the demand for our services.
Clearly recovering.
As sales reached 90% of prior year levels.
So despite not having the greatest financial performance in 'twenty 'twenty, we did manage to accomplish a few things so credit I'm just delighted with our credit performance.
And Twenty-twenty, Inc.
Expenses tough times, but we did manage expenses down.
Over 10% in Q2, three and four we signed four acquisitions.
In 2020.
Our guys ran I T exceptionally.
Well had the best overall system uptime.
And the history of the company and.
And lastly, we were able to re plan the business in the second half.
We conducted of replanting exercise in the summer and.
In the actuals came in.
A smidge better than the re plan. So reminds us again that fleets of business. You can plan I really do want to give a shout out to all fleet core people, who hung in there and and kept the company going through a very unsettling times.
Okay, Let me make the turn to 'twenty 'twenty, one and all of Lidar outline our initial guidance for the year, along with the assumptions behind it.
Clearly a higher beta.
And our 'twenty 'twenty, one numbers, but we'd say that our setup is generally positive.
So first you know volume and revenue trends strengthening.
Through 2020, so with the potential to continue that into 'twenty one.
You know sales production improving thus the amount we.
We expect to get of the India revenue from new business and as I mentioned a bit ago.
Very solid client retention and credit trends.
We're also hopeful that we'll get additional.
Client softness recovery in 'twenty one although.
We're the first to admit that that's the that's hard to forecast.
So in our guidance, we're planning to recover about one third of our Q4 exit revenue softness.
That's still outstanding now so if we get that that recovery would provide about 4% to 5% of incremental revenue lift in the second half.
So with that our guidance for 'twenty, one would be as follows.
Revenue of $2.650 billion at the midpoint of.
That reflects an 11% increase overall organic revenue in the same range kind of 9% to 13%.
But I do want to emphasize that that assumes 3% to 4% of softness recovery from today's level.
We're anticipating significant sales growth over 30% this year, which would be a record level of sales for the company and profit guide at the midpoint 12 40 of cash EPS for the core business. We are planning about 10 cents of the.
Dilution from the Roger acquisition.
So that would put our consolidated number at 12 30.
At the midpoint.
Lastly, assuming now of May one close for the eighth ex acquisition.
Accretion could be approximately 20 cents for the year.
So if that happens on time that could take a consolidated cash EPS two to $12 50.
Chuck will speak further about how the guidance rolls out across the quarters, but I do want to point out debt her guidance outlooks Q2, three and four our revenue and profit growth to be back into the the high teens.
Okay, Let me transition out of my last subjects, which is the company's transformation plan.
So really our transformation plan is intended to accelerate growth by doing two things so first the portfolio.
You know deciding what businesses, we want to be in and not be in and constantly reworking that.
To have a more diverse set of our faster growing businesses, but the second way we transformed the company is through our beyond strategy.
Which we do utilize in all four of our major existing businesses. So so in this beyond strategy, we're really trying to do two things.
First identify new segments of the market that we can extend the business into so we ask you know who else can we serve.
And then second we identify additional or.
Or Jason services that we can cross sell a back of the client base.
So if you look at them page.
Page 11 of our earnings supplement you'll see the current beyond initiatives for for each of our four businesses you.
We do continue to make progress against our beyond strategy.
Just an example, the call out.
In our lodging business.
In 2020, we now settled 25% of all proprietary hotel payments with our virtual card.
On which we earn interchange so that's up from literally from zero a few years ago, but today you know we began implementation of maybe our most exciting beyond initiative of all.
With the acquisition of Roger.
So this begins the move of our corporate payments business down market into the SMB space.
Along with the opportunity to offer a full online bill pay to our global SMB fuel car base.
You can see that on pages 11, and 12 of our supplement.
So this single.
Bill pay initiative has the potential to dramatically accelerate growth rates in.
And both of our corporate pay and fuel card businesses.
We feel like it's a pretty unique position that we're in because of the special set of assets that we have so you know of large global SMB.
SMB client base numbering in the hundreds of thousands we've got you know working SMB sales channels you know the historically of acquired 30000.
The new clients per quarter.
We've got scale virtual card processing capability.
We generated over 30 billion and the annualized spend last year.
We've got a very large merchant database that allows us to monetize virtual card and now we've got some modern cloud software to provide the bill pay functionality, along with a pretty cool user interface.
So look.
In conclusion today I'm, hoping to provide just a few takeaways. So Q4 again are not our best quarter from an absolute perspective, but clear evidence of improving trends in the business.
'twenty 'twenty, we did manage to perform better as the year went on and certainly learn some new tricks are around how to manage credit expenses.
The expenses I T even sales in a remote environment.
'twenty one again are set up we think looks pretty good only of slightly unfavorable macro to deal with but improving trends coming into the year and certainly the wildcard that I mentioned of what happens with the incremental softness recovering.
And lastly transformation of our beyond.
On the strategy now progressing providing some traction.
But today's online SMB Bill pay initiative, maybe the biggest of the mall.
So with that let me turn the call back over to Chuck to provide some additional details on the quarter and our outlook Chuck.
Thanks, Ron.
For the fourth quarter of 2020, we reported revenue of $617 million down, 12% GAAP net income down 11% the $210 million and GAAP net income per diluted share down 6% to $2 40 for the quarter was again affected by Covid related business slowdowns, Although we showed improvement over last quarter.
And most of our businesses.
Adjusted net income for the fourth quarter of 2020 decreased 10% to $258 million and adjusted net income per diluted share decreased 5% to $3.01. We continued to manage expenses in line with revenue performance. Please see exhibit one of our press release for a reconciliation of all non-GAAP.
The actual metrics.
Organic revenue in the quarter was down 8% overall, primarily due to the same store sales being down 6% year over year organic revenue neutralizes the impact of year over year changes in foreign exchange rates fuel prices and fuel spreads and includes pro forma results for acquisitions closed mid period.
Our fuel category was down organically about 10% versus Q4 of last year, our domestic fuel businesses were stable to improving in the quarter, whereas the international fuel businesses were affected by the renewed COVID-19 related closures, especially in western Europe.
The corporate payments category was down approximately 6% in the fourth quarter.
The six points of decline was again driven by the 100, most effective customers we discussed last quarter.
The lower spending on our teeny product drove another two points of organic drag.
Virtual card volumes were up 12% for the quarter, which was an improvement from flat last quarter as continued political spend and the benefit of new customers offset the drag from the highly effective customers.
Cross border or FX related volumes were down 1% as payment volumes are still being affected by lower invoice levels, specifically in manufacturing and wholesale trade.
Full AP continued to perform very well with volume up 14% new sales of fully P were very strong as full year 2020 sales were more than double 2019 results.
We continue to invest here and have enabled the 10, new ERP integrations in 'twenty and 'twenty with plans for another 10 or so in 2021.
Tolls continued to be our most resilient business and grew organically, 7% in the fourth quarter up 4% from last quarter.
Active toll tags were up 6% in the quarter with urban tags accounting for 25 per cent of all new tags sold during 2020.
The lodging category was down 25% organically in the fourth quarter with 20 points of drag caused by the inclusion of acquired airline lodging businesses in the year ago period.
Our work force lodging business has improved with volumes down in the mid single digits.
The airline margin volumes have also improved in line with flight activity, but still remained well below last year's levels.
Looking further down the income statement, our total operating expenses were down 14% for the fourth quarter of 2000 $20 million to $323 million.
We performed in line with the high end of our target reduction compared with the fourth quarter of 2019.
The decrease was primarily due to lower volume related costs, lower employee related costs, including head count sales commissions bonuses and stock compensation.
We also saw lower Teeny expenses in addition to the impact of foreign exchange rates.
As a percentage of total revenues operating expenses were approximately 52, 4% of roughly 240 basis point improvement from last quarter.
Bad debt expense in the fourth quarter of 2020 was $6 million or two basis points, which includes the reserve release of $5 million.
Bad debt was only four basis points, excluding the reserve release.
Our bad debt levels continue to be good and our aging roll rates remained very favorable the.
There is still uncertainty around the timing level and duration of government stimulus and various responses to increase in COVID-19 cases around the world. So that's still a consideration on our reserve.
Interest expense decreased 13% the $33 million driven primarily by decreases in LIBOR related to the unhedged portion of our debt.
This was partially offset by the impact of additional borrowing for share buybacks earlier in the year.
Our effective tax rate for the fourth quarter of 2020 was 23% with the reduction from last year, driven primarily by incremental excess tax benefit on stock option exercises.
Now turning to the balance sheet.
As of December 31, 2020, we of approximately $1.9 billion of total liquidity consisting of available cash on the balance sheet and our undrawn revolver at quarter end. We ended the quarter just shy of one 5 billion in total cash of which approximately 542 million is restricted and consists primarily of.
<unk> of customer deposits.
We had $3 $6 billion outstanding on our credit facilities and $700 million borrowed in our securitization facility.
We remain committed to a consistent program of capital allocation using our free cash flow for acquisitions and buybacks.
In the quarter, we repurchased roughly 181000 shares in connection with employee sales in.
In total for 2020, we spent $850 million on share buybacks.
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.
For the quarter, we had approximately $23.4 million of capital expenditures and we finished with the leverage ratio of 2.67 times trailing 12 months EBITDA as of December 31.
Now, let me share some thoughts on our outlook.
Looking ahead, we're expecting Q1, 'twenty 'twenty adjusted net income per share to be between $2 60, and $2 80, which at the midpoint is approximately 31 cents per 10% lower than what we reported in Q4 of 2020.
About half of the difference is attributable to revenue seasonality you see while some of our businesses like gift of seasonally strong fourth quarters, most of our businesses have seasonally weak first quarters.
Of course volume related expenses will slightly offset this revenue seasonality impact.
Roughly a third of the difference is due to the normalization of certain expenses. For example in Q4 of 2020, we released $5 million of our bad debt reserve, which we do not expect to repeat in Q1.
As sales performance has continued to recover throughout 2020, we expect bad debt to gradually increase sequentially as those customers balances age.
Additionally, when the impact of the Covid related shutdowns became clearer in 2020, we proactively reduced our annual incentive target payouts by 50% and of crude to those lower targets for the remainder of the year.
As our business has recovered meaningfully we plan to return incentive targets to 'twenty 'twenty, one to normal levels we.
We also expect our effective tax rate in Q1 of 'twenty 'twenty, one to be about 80 to 100 basis points higher than the rate we reported in Q4 of 2020.
Lastly, the acquisition of Roger and incremental sales and marketing investments are slightly dilutive to the quarter sequentially.
Now looking beyond Q1 to full year 'twenty 'twenty, one we feel it's important to help you understand how we're thinking about the outlook and providing some ranges around possible outcomes, even though those ranges are a bit wider than what they had been in the past.
For 'twenty and 'twenty, one we're guiding revenues to be between $2 6 billion and $2 7 billion.
And adjusted net income per diluted share to be between $11.90 and $12.70 inclusive of the Roger acquisition.
We're still faced with substantial uncertainty regarding the pace of economic recovery and the impact it'll have on our financial performance that said, we've developed of 'twenty 'twenty, one budget, which incorporates everything we know now including revenue and expense run rates current macroeconomic environmental factors planned sales.
<unk> and expected attrition impacts.
In addition, our guidance assumes the continued rollout of the vaccines that will allow gradual volume and revenue improvement in the first half of the year with an acceleration in the back half of the year as client softness and new sales performance improved sequentially.
As I mentioned earlier, we expect several expense lines to normalize higher in 'twenty and 'twenty, one compared with 2020.
As our business recovers stock and bonus accruals as well as sales commission expenses will be higher.
<unk> will rise as our sales people get back on the road and volume related expenses will also rise with increased business activity bad debt.
<unk> expense is expected to normalize as we've reopened credit and our sales performance continues to improve.
We're also making incremental investments in sales marketing and I T to support our growth aspirations and to deliver of 'twenty 'twenty. One sales production plan, that's more than 30% higher than 2000 Twenty's results.
We're extremely excited with the Roger acquisition, and a disproportionate share of our incremental sales and marketing investments will be directed towards that business as such the fully loaded acquisition will be an estimated 10 cent drag to adjusted net income per diluted share in 2021.
As we've demonstrated time and again, we do take a balanced approach on expenses and we'll adjust accordingly, if we see revenues begin to deviate from our expectations.
And lastly, we continue to work through the approvals on FX, which had been slowed by Brexit and virus related shutdowns.
Are we still expect the deal to be accretive in 'twenty and 'twenty. One we now believe it is more likely to close in Q2 versus our original expectation of Q1.
And just for clarity apex is not included in the guidance ranges I provided earlier.
And now operator, we'd like to open the line for questions.
Thank you.
He would like to ask a question. Please press star one on your telephone Keypad, Inc.
The information you tell him I indicate your line is in the question queue you.
You May press star two if he would like to remove the question from the queue.
And for participants using speaker equipment and made the necessary to pick up the handset before pressing the star he is.
Our first question is from Sanjay sat karate with <unk>. Please proceed.
Thanks, Good evening.
Thanks for all of the color on the trends in the guidance, but.
Drill down on the guidance of a little bit when I think about the range is on the extreme end could you maybe Charles just talk about sort of what's baked into one end versus the other thanks.
Okay.
Yes, so I appreciate you joining and thanks for the question so in terms of the.
Yes.
I would say that that would be.
Fixed scenario right, so as Ron mentioned.
We are assuming a recovery in terms of the call.
The softness that we've experienced the time.
And the magnitude of that is super hard to suggest if it all came roaring back of our sales were perfect.
Maybe you could get there.
It's a pretty broad range as you can see.
On the downside.
Who knows what's kind of what's going to happen with Covid right.
Things.
The comeback.
Thank you.
Being reasonably.
Reasonably optimistic in that regard given everything that the new says the economy the the vaccines.
The by the administration mentioning thing it was the things will be back in queue. Thank you. It's.
So we're optimistic in that regard, but I would say that the.
The range is broad because we just really don't know.
Got it.
Hey, it's Ron let me just add all of the Chuck's comment, which the second thing would be the sales.
Got it.
Sales of planned increase for 'twenty, one and so the amount of that that we get in the year in revenue both of that.
Backlog in the pace of which that comes in that will also have a pretty big swing.
On the range we gave.
Got it and then Ron Ron you guys are obviously fluctuate quite a bit of liquidity I mean.
Many of you think about the next year, how do you envision the utilizing it.
Yeah.
Yes, I think our philosophy just kind of.
Sure.
Steady as she goes right. Our first use is accretive acquisitions and we're sitting here today with three of four of interesting Act.
The active deals in the pipeline. So that's always our first and highest use.
And then to your point given the the law.
Leverage ratio of stuff, if our stock doesn't trade.
Where we think it should obviously, we've indicated we'll buy stock back.
So acquisitions, one in stock buybacks, depending on the price too.
Thank you.
Our next question is from 10 of the thing hung with J P. Morgan. Please proceed.
Thank you so much of good to catch up I wanted to.
The I guess, the new sales were encouraging youre reinstating guidance. That's also.
Encouraging any way to think about the level of conservatism in the outlook kind of like what Sanjay was asking about the range of I think I understand it but just.
Think of it could be some pent up demand of new.
Sales you know the.
There are clearly improving your.
Excited about this on the SMB Bill pay which makes some sense I'm just trying to understand you know.
Conservatism versus maybe excitement about the the chance to get back to double digit plus growth year.
Hey, Tien Tsin, it's Ron I'd say that we try to build these plans to what we call. The most likely right and then and then figure out how wide of range.
So.
I think the confidence part comes from looking at the trends of Q2, three and four.
You picked it up in my remarks, but we literally got.
Oh.
Between the Q2, and Q4, which is obviously quite significant.
And it's still a pretty big number.
When you look at the total softness we had for all of 2020.
I'd say that there's no precision and as we I think we caveat.
Many ways as we could about the wildcard of.
The comp ratio I'd say the.
We provide range is to try to keep it.
The midpoint so.
We don't know, but I would say kind of in the mid point out of our most likely.
Okay, and you talked about with Roger Bill pay being potentially pretty big from an opportunity standpoint, so what's the timetable or of the steps to get to a point where it becomes.
Needle moving.
What steps need to take place what should we be tracking.
Yes.
It's a great question I'd say, we'll probably the other odyssey in the Mark.
Yes.
On a standalone basis, and even here in the U S.
The first two things that were on is one of cross selling that product back to our North America base.
And then I'd say 90 days really shouldn't be lost one of our own channels our own gauge at all around the field in fall of people selling it to new prospects.
So by the time, we talk next time, we'll hopefully have some news for you.
Alright, good thanks, we update.
Our next question is from even involved with the bracket the Stanley. Please proceed.
Great. Thanks for taking my question. Good evening, maybe just following up on <unk> question on Roger and thinking about the investment I was just curious if you could speak to the timing for the investment it sounds like it might be somewhat frontloaded and how youre thinking about that that dilution is it's planned over the now I guess relative to <unk> guide versus the full year and then what that envisioned.
For 'twenty 'twenty, two if you're able to sort of frame out the potential contribution from Roger.
Yeah.
Yes.
Some of it is just obviously deal related write we picked up their people 50. So we've got some dilution of happening immediately we are investing.
Now the.
The corporate level to support the acquisition as well as building out those sales channel. So we'll see that ramp up in terms.
Of the contribution for next year.
We modeled it yet.
So you're going to be still a little dilutive to kind of flat until we fully scaled the channels. So we want to obviously see what works before before too much but nonetheless, I would say that the.
Things of that.
It's a very small acquisition millions per month.
Couple of million dollars in terms of revenue so instead of a long way to go.
But we're pouring a lot of sales and marketing of kind of upfront to get it going.
Real debt for us.
The real deal we're investing to retain the people that are there because they have helped us build this product and branding.
Their health to continue.
Lots of extra cost in there as well.
So in terms of the the magnitude of what it could be next year, its really going of Japan.
More reported to the investments.
<unk>.
I appreciate that and then maybe just switching gears towards some of the things you outlined on slide 11, and 12 with the beyond strategies I know you talked to a few of the main the key areas that you're you're directing investment, but clearly it seems like the corporate payments and then the layering that into the fuel business are a couple of the the main areas beyond the the toll business that has it.
Loan growth plan I am curious, how youre thinking about the the lodging business and investment dollar priorities coming out of the pandemic clearly there are going to be some permanent behavior shifts I guess that one strikes me as probably the most obvious area, but I'm curious if you could sort of stack rank for us how youre thinking about.
Beyond as it relates to investment priorities you know you've got a lot of liquidity as has been pointed out, but certainly theres got to be some level of priority that you guys are thinking of.
Yes, Stephen Hey, it's Ron again, so yes, I think you called out right clearly corporate pay would be one.
Fuel would be too because of the size of the business, but it's still 40% zone.
The company.
Lodging the one thing I would say is remember of our.
Fleet core lodging business is work force.
<unk>.
Caller utility guys go onto the new city treat cutters cleaning up and so.
The thing is way back I mean, I looked at the January volume numbers earlier today, and I believe month to month of the thing is down 3% to 5% now year over year.
And so that that lodging business looks completely different than the kind of logic business. We people all of this call.
So.
The airline part of that is a completely different.
Paul to your point that things running kind of 50% of volumes of the year ago, but that's the one I would say has the snap.
The bounce back possibilities of we've caught it took.
Non of money.
Out of that business, particularly out of the airline portion of the business to kind of wait here.
That's kind of snap back but.
It would be number three but we still like and I think we laid out on that page 11 is a couple of interesting verticals beyond work force and beyond Air line that we're looking at debt, we like a lot of leverage everything we have the system the network and stuff. So.
I wanted to clear we like that business, we will we will keep investing and we may buy some additional things of the business, let me be clear, it's not white collar.
Any kind of the lodging business.
Of course, I appreciate all of that.
Yes.
Yeah.
Our next question is from Renzi L. A satellite with Barclays. Please proceed.
Hi, gentlemen, thanks for taking my questions. This evening.
<unk>.
I wanted to ask about Brazil, and that was pretty impressive statistic in terms of how many new users you are signing up I wanted to ask about the the merchant acceptance side of that equation.
Do you kind of have what you need now.
To you know to basically continue building out that product or is there a pipeline of new merchants or verticals in Brazil that you could you could see yourselves kind of getting involved with along the lines of Mcdonald's of Petrobras or these other merchants here of great partnerships with.
Yes, the Ramsey that's a that's a good question I think.
We're mostly focused on the three of four.
The city locations that we mentioned fueling parking and fast food and then condos effectively access right for people.
In the city and so the per.
Plan, we put a fair amount of capital actually of the 'twenty, one plan to build out, particularly the fueling.
Print there because it's the biggest Tam right. The dollar spent on fuel are massive and so the.
The delay was not only COVID-19, but our guys Tinker and came up with two of three different hardware software configurations.
All of the fueling locations that debt.
Improved reliability like Super highs of of targets and the thing that's the right car.
It doesn't make mistakes.
And to dramatically reduce the cost and so all of.
That business is going to be honest super duper hurry up drill.
Even now even in the first half of the year of trying to add stations across the board. So we should see those transaction counts.
Usage of the same grow a lot as we move into the second half.
Okay.
And then on a separate a separate topic.
Wanted to ask generally about the kind of credit aperture across your business and whether it's sort of open back up again I mean, obviously it has to some degree but was there a revenue headwind in the quarter from sort of tighter credit standards, given we're still in a challenging kind of macro environment and how should we think about that in terms of maybe potentially even opening for.
Further as we go forward or is that largely kind of narrative largely sort of played out.
The good question so.
I'll start the answer to that one of we over reacted right towards the thing.
Happened, we kind of pulled pretty far back.
Clearly reduced revenue.
The pullback on existing accounts right trimming lines of accelerating our payment terms and stuff. So we went out of pretty hard.
Now we've reported.
For the year and I think Jackie dimension of the poll of roll rates. So we've got the.
The lowest credit losses.
Certainly as the visit the basis against spend.
And so we rotated back I would say in the fuel card business, we are 100% back so whenever.
Policies, we had pre Covid I would say if you went and looked at our fuel card businesses, we are right back to.
Fully fully open stope out portfolio of it I'd say, the one place where were still being a little cautious in the corporate pay and the reason is the standard for our client there is so significant.
Think about it.
And so we're still we were still being careful the sort of industry sitting in the corporate pay space that have been pretty impacted so I'd say we.
Move that one back but still not all of the way back because it's more high line, what we call internally highlight risk of you know.
A couple of Bj's for some significant amount of money. So I think there's still upside as we roll through 'twenty one as those three of four industries, we're cautious on kind of come back.
Perfect Alright, great. Thanks for your answer.
Yeah.
Our next question is from David to go with Evercore ISI. Please proceed.
Thank you good evening just following up on your comments on corporate pay can you give us some sense of the range as you're thinking about for the <unk> card for 'twenty 'twenty, one that seems to be the biggest swing factor within that business. Since most of the other categories are holding up reasonably well.
Yeah, David Hey.
Good question so the the overall.
Corporate pay business sitting inside of the guidance. We gave is high teens. So if you take the entire line of business sitting in our plans, where we're outlook of high teens of that I think is side of that the Gd, which has now shrunk now is probably in the mid to high <unk>.
Single digits, and if you remember what we call kind of the multi card kind of walk around plastics there.
Hi.
Supplies EBIT fuel and the <unk>.
Moving to use this P cards as a form of of vendor payables.
That line of business, the plastics or multi card I think the last time I looked as to how do about 20% of it now being white collar TD like us.
So fortunately kind of 80% of that business is kind of OK <unk> is buying supplies is paying vendors and so.
It's not kind of it's not going to decline if you will.
And I kind of dragged down really the growth rate is much because because of it shrunk down 2020.
So fortunately it'll have less impact on the total corporate pay business.
This year.
Got it thanks for that and then just the final question on the gift card business is the view that you're going to hang onto that for quite some time.
Just given the cash that you generate from it even though it appears to be a declining business.
Yeah, I'd say the short answer to that is yes, obviously retail is the category was super.
Impacted in 2020 brought our gift card business pretty far down at the opening kind of in Q2.
Price anyway, the thing has come back.
Quite well.
People still honestly, if you listen to the world of gift cards still wondering gift cards of the digital portion of those David has gone way Crazy high and we bought a business a year ago to help our retailers manage online pretty timely as they as they rotated out of more online sales.
So surprisingly that business is getting healthier for sure some of those digital initiatives and so what I'd say is we'll kind of see how this year goes their plan is actually up obviously off of the softness for 'twenty. One so I think we'll probably take it not a peek at the business as we get late into this year.
Understood. Thank you very much.
Good day.
Our next question is from Pete Christiansen with Citigroup. Please proceed.
Thank you good evening gentlemen, thanks for the question.
Just thinking through the the incremental investment on some of the initiatives here can you give us some of the the <unk>.
Non tables for four of your your key goals here and have you considered whether or not given that we are in a recovery year then.
Possibly accelerating some of those investments.
Yes, Pete it's Ron Im not sure.
We're accelerating some of the car.
Every year I think we're doing two things one we're trying to invest in projects that drive growth. So we've kept the capital plan kind of up a bit shaky 20 million chunk I think over over the prior year and then second we made the decision to pour more money into what we call of <unk>.
Or modernization of whatever the word is so what.
We're pretty hard on the on the trail of consolidating some of the apps updating.
Obviously, some of the hardware and software and stuff and so we're pouring money into <unk>.
Simplifying kind of our technology footprint.
While we are obviously still making investments in digital and things like Roger New.
The analytics packages, new mobile interfaces. So we're spending money on things that we should be but also on the transformation side.
Thanks, that's helpful and then.
A little bit of the longer term question here the draw.
From beat on Evs has kind of picked up recently with the board of G M, making some announcements in the by the administration looking to switch over the federal I mean does.
Does this change how you think about the fuel card business longer term and then perhaps on how fleet core intent to manage.
Any any.
Broader changes industry wise there.
Yeah, I mean, I think Pete of bid I think we've been on for all kinds of reason not only easy, but the just Tam and growth rate and long term potential of the company of diversifying things that we do the share of the same model and so what we're at 60%.
Now I guess.
So we're moving anyway, but I said, a little bit of the call. The last time on the E. The thing that you know what.
Our perspective on the thing is a its way father out even if the acceleration of the sales.
It's pretty dramatic because of the size of the installed base of the useful life of our model show. The same number of of commercial vehicles. The combustion engine vehicles and 10 years here in the U S.
And in the U K, our two biggest markets in 10 years as of today because of the growth rate.
The sale on again on the light.
But the more important point I mentioned last time is it's less about.
The fuel Inc.
All of the fleet car buying electricity I think what we're learning, particularly in in Europe and in the U K is we're getting paid by our clients as they move to some EV you're paying of card fees for examples the EV vehicles of the same way and there's this new this new opportunity of.
We're going from call. It you know.
150000 gas stations in the United States to having millions of charging points at the.
Employees' homes and so the employers look like they want us to play a role in the hardware software and measuring.
All of those new charge points and all of the reimbursement and so it's early days, but I'd say the guys that do.
Doing what we do of measuring and helping.
The reimburse you know employee expenditures in and around vehicles. We think we're still going to get paid a fair amount of money both in the transition the mix fleets and even when people get already so we're going to have a little bit of a teach in maybe of 90 days on this subject with the takeaway ultimately being.
Hey, its way longer out there for the.
The old combustion engine and D. What fleet of course economics may look like even in a pure EV world.
Thanks, Ron the very thoughtful answer thank you.
Our next question is from.
Survivor with Deutsche Bank. Please proceed.
Thanks for taking my question and congrats on a pretty good result, considering the difficult macro environment we are in.
My question wasn't of the sales Frank pretty good acceleration there going back to 92% you called out for the <unk> I was wondering if you can also talk about the sales growth. The other segment and also as we think about next year in the 30%.
Expectation for the 30% higher compared to the C. R.
You can see more strength.
F N b will be will definitely be one of the ideas, but inc.
The incremental color will be helpful. Thanks.
Yes. This is Charles so yes in terms of the sales performance as Rod had mentioned, we exited Q4 at over 90% of the prior year.
It is mix, so I would say, Brazil had an unbelievable sales year.
The overall and in the fourth quarter really outperform versus prior year. So so they were well well above call. It 15, or so percent above last year. There's still a couple of other businesses that are better lighting, particularly of our North America of fuel business is still catching up it's onward and upward swing, but it just doesn't work.
Cover quite as quickly.
Our lodging business has actually come in kind of right around last year's debt.
Okay. So it's it's.
Mixed I would say.
But nonetheless, it all kind of come.
Come back from Q2 through Q3, and exiting Q4 at a better place and looking forward to next year, we've got pretty robust ambitions of plans were going to have the biggest we are the biggest sales play out of the company's history.
And we're planning to be up 30% versus where we finished this year.
No.
We've got a lot to do but we're pretty pretty excited about a possibility there.
She says it's Roger just to jump onto what John said, the one of the things helping US you know as the market is kind of coming back right. We study.
Searches the other categories and so some of the results. We reported in Q4 is the world just kind of get used to this and kind of getting on with things and so we think as that.
Keeps moving our way where businesses are interested in the kind of things. We do that that helps and then b of course, we're going to invest more.
Other than a more at the more digital spend we've got some new products that we've talked about so we're super excited I mean first of all we've got Super soft comps in Q2, when when sales of almost closed down and so the chucks point. This is a super big deal for 'twenty two.
Most people on the call are interested in this year in 'twenty one of them I had lot of you guys is that if we make the sales plan, which is super big.
Both against the prior year and absolute it is.
Pour all kinds of revenue in the 22, which is part of the softness that we're dealing with the ear in 'twenty one right that we basically took a quarter.
Selling and so you don't get the same way.
The revenue rolling into the forward year.
Don't want people the missed the importance of the sales plan for next year I'd also just comment that when Covid hit.
We took our foot off the accelerator in certain areas right, because we weren't out of poor incremental sales of investment when the market wasn't listening and they were distracted. So we slowed down some of those incremental investments.
Shifting gears now in preparation for a big near year next year and the reopening of the economy. So fingers crossed and so we're investing ahead of that.
No I think that's also putting a little pressure on all of our forward guidance in terms of earnings right, because we're making sales investments again in a big way.
Judy.
Mindful of that.
Yeah, No that's very helpful color.
Sorry, I'm, just maybe a quick follow up question on the.
The SMB Bill pay opportunity, obviously, the large proportion of the lot of players of going after it.
And congrats on the lottery I acquisition.
So I was just maybe a follow up question to all of your questions. There you, obviously have a very warm lead which positions <unk> positions you much better but can you just talk about how long of those sales cycles of implementation times and how do you plan to leverage your existing sales force and the warm leads that you have to maybe accelerate and double down on that opportunity. Thanks.
Yeah. She set out of the Super Good question. So one of the attractive things about the S. M D.
Pay it's what you said it's the.
Instamatic sale and sign up and get going.
You know in the current business of we have today, which is in the middle market.
It has a pretty prolonged kind of implementation cycle, it's almost like a project to get a $200 million company to connect with you and get the emergence of the place and all of that in all of that kind of stuff and so the the first good news is that <unk>.
The revenue that will be more connected and the SMB corporate pay business than they are in the in the middle market.
I think the point that the quest.
Yes, the point that we make as the Super good one which is the missing capability I think Nepali asked me. This in the last call, but I couldn't tell them Hey, Ron what do you Miss and really be of gorilla here in the corporate pay and I didn't want to say the answer is in F. N B killer software App that works for the little company because we have.
The rest of the stuff we.
We apply our times of clients with our sales channels, we've got capital we've got.
Processing capability, we've got the merchant networks to monetize so we.
We obviously clients to celebrate the listen to us and so unlike Rogers I met the pre.
First of all that we're kind of on the role of the Super good product kind of hanging out of the low you take the Super good product and you were debt at end of these sets of things. We have I mean, we are I said it.
Half Kiddingly earmarks of this could be kind of the biggest deal of all.
Because finally, we have of product that matches up of some of our capabilities I mean, no one ever asked me before but how funny the fleet core build the corporate payments business in the middle market when the whole company, whereas the SMB company.
And so it just took us a while to pair up the corporate payments business with the business that we built over the last 20 years.
All of the airline is we've arrived we have it so.
I think you know what.
I'm getting way over the skis here that this is a super big deal Directionally for the company over the next three to five years of just building the.
This thing out where both walk around plastic.
And payable sit in.
By the same client, where we stitch together effectively our fuel card business and our corporate payments business and the same client.
It's not a small idea in our mind, it's a it's the big idea.
That's great Congrats once again.
Our next question is from Bob Napoli with William Blair. Please proceed.
Thank you and good afternoon.
I appreciate the call out there Ron.
Thinking about your boss just speaking about.
Just a quick question I know, we're getting at the end here, but the sales and the increase in sales.
The investment that you're making and is this something that is onetime in nature or is the idea here in conjunction with your transformation too to accelerate growth increase investment in sales.
Net of ramp up the sales growth rate over the over the long term and in line with the transformation and focusing on the higher growth product lines.
Yes, the the.
The short answer the the increment is recurring and then if you looked at our three year plans you'd see.
Similar kind of inquiries, 50% plus in sales in our 'twenty two plan. So yes. It is recurring and I think the second part is it does come at a couple of forms that comes in a the old fashion form of just more scale, so more outbound phone call or more field.
People are more.
Little Google.
Search keywords, but I'd say the the nuance of its different ads, we're gonna make more investment kind of in digital kind of at the top of the funnel. So we're going to spend more money to create more engagement as we have this broader product set now and so having more things to sell I think allows us to spend some money.
Earlier in People's decision cycle than that at the end so.
We tested that in Q4 last year, and it's working and so that that's some decent part of the step up in 'twenty, one kind of a different kind of spend off worse than historically.
Great. Thank you I appreciate it.
Kind of talk to you.
Our next question is from Trevor Williams with Jefferies. Please proceed.
Hey, guys. Good afternoon, I just wanted to ask on expenses. So just maybe for Charles.
Regardless of where you end up in the organic range I mean should we expect expense growth really to look similar to whatever you end up doing on the top line or could there be a level of which you might start to see a little bit more op leverage. So I'm just trying to think about how much we could see flow through the earnings if you do get a big snapback in volumes in the second half.
Yeah.
Yes. So I think you know when you look at our Q1 guidance you see a bit of a reset of certain line items, whether it's the bad debt reserve or our anticipation of bad debt kind of you can always through the quarters and commensurate with our sales performance some of the snapback in terms of G&A right when the world.
The opens up our people are going to travel like others do.
Our bonus accruals of such there's kind of like a REIT level set in this Q1.
And then moving forward from there so that's part of it.
To your point, though when when the volume does come back that's COVID-19 related and that revenue does foreign it'll come in and out of higher margin level.
But offsetting that are some of these incremental investments that Ron mentioned right. We're layering in more sales and marketing for our core products for hiring and a lot of sales marketing for Roger and our cross sell efforts.
So I'd say, it's going to be pretty balanced.
In my view.
We go through the quarters of the year.
Okay got it that's really helpful. And then just a quick clarification on the guide I mean, it looks like you're implying the share count to be roughly flat year over year, So really no buybacks baked in at least to the earnings guide. So just curious if theres any reason in particular, why we shouldnt expect you to be buying back stock.
Next year, if there's just some element of conservatism that's baked in there.
Yeah, Hey, it's Ron so clearly we build plans.
In terms of our capital allocation as though.
What kind of pace the retire debt right take the principal down and so to your point to the extent of the capital allocation results in another transaction and other acquisition when we buy earnings or B, we buyback stock to your point of the capital allocation can take off of our earnings. So the guidance that we have now.
<unk> that the.
Roughly $1 billion of cash flow of basically retired debt during the year.
I guess is that I'm, hoping to hear a year from today the driver that's not what we do to your point of the next 12 months, but since those two decisions are in the future. We plan, what we know which is the is to pay down debt.
Okay got it very helpful. I appreciate it guys. Thank you Youre welcome.
Yeah.
I believe this concludes the question and answer session I would like to turn it back over to management for closing remarks.
Yes, thanks, everybody.
We didn't get your question, but a lot of stuff do you have any incremental questions and we look forward to working together around the corner.
That's all.
Thank you. This does conclude today's conference you may disconnect your lines of the Simon. Thank you for your participation.