Q1 2021 Fleetcor Technologies Inc Earnings Call
[music].
Greetings welcome to fleet core technologies first quarter, 2020, One earnings conference call at.
At this time all participants are in a listen only mode.
Then answer session will follow the formal pizza and teaching.
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I'll now turn the conference over to your host Jim Antal Stetter. Thank you you may begin.
Good afternoon, everyone and thank you for joining us today for our first quarter 2021 earnings call.
With me today are Ron Clarke, our chairman and CEO and Charles <unk>, our CFO for.
Following their prepared comments, the operator will announce the queue will open for the Q&A session.
The only thing that you can get in the line for questions.
Please note that our earnings release and supplement can be found on the Investor Relations section of our website at <unk> 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 information is not calculated in accordance with GAAP and may be calculated differently than non-GAAP information on other companies.
Reconciliations of historical non-GAAP financial information for the most directly comparable GAAP information appears in today's press release and on our website as previously described.
I do need to remind everybody that part of our discussion today may include forward looking statements.
These statements reflect the best information we have today.
All statements about a recovery outlook, new products and acquisitions and expectations regarding business development and future acquisitions are based on that information.
They are not guarantees of future performance you should not put undue reliance upon them, we do not undertake any obligation to update any of these statements.
These expected results are subject to numerous uncertainties and risks, 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 on our annual report on form 10-K filed with the Securities and Exchange Commission.
These documents are available on our website and on SEC Gov.
Before we begin I would like to make you aware that over the last few weeks, we posted two short videos to the Investor Relations website.
The first is around our approach and strategy for electric vehicles as discussed by Alan King who was the head of the U K Europe and debt for fuel and heading up that effort for us.
The second is a video providing some insights into our down market for AP product. So you can get a feel for what it is and how it works.
We had mentioned that we will likely spend some more time on these topics in the future and this is an interim step while we continue to work on those efforts.
So now with that out of the way I will turn the call over to Ron Clarke, our chairman and CEO Rob.
Okay, Jim Thanks, Hi, everyone and thanks for joining.
Our first quarter 2021 earnings call. So upfront here are three subjects first.
On my view of Q1 results.
Second I'll share our rest of your outlook.
And then third talk a bit about how we're positioned.
For growth over the midterm.
Okay, Let me turn to Q1 results. So we reported our Q1 revenue of 609 million.
Really kind of spot on our expectations.
Our reported cash EPS of 282.
That's a bit better than our guide are mostly held by a lower credit losses and fewer outstanding shares the macro I'm not much of a factor we really call the macro.
Pretty well versus our guidance.
We did have higher fuel prices, but a bit lower.
Spreads and so really no impact there.
Against the prior year, we reported a revenue decline of 8%.
And an organic revenue decline of 6% on favorable Brazil, FX are hurting our prints and continued weak same store on a client volume softness impacting our organic growth.
Alright, let me make a turned to the trends in the quarter and share with you. What we're seeing so volume sequential volume in Q1 versus Q4 pretty stable as.
As we expected, but we are now beginning to see a bit of an uptick here.
In April so early signs of volume recovery.
Same store sales or what we call client softness are really stuck.
At approximately minus 6%. This continues to reflect a small segment of our client base that is a debt is struggling to recover.
But fortunately you still trying.
Our retention.
Really terrific in Q1, we reported 93% overall retention that's our best result in years.
Credit losses are very low for the quarter, a $2 million that was helped by a 6 million dollar recovery and again lower sales rolling into a into this year, but the real story of Q1 is sales.
So Q1 sales results nothing really nothing short of fantastic.
Consolidated sales finished 7% ahead of last year, yes, 7%.
Ahead of last year, So finally growing again.
If you rewind the sales over the last four quarters.
So sales versus prior year, 55%, 81%, 92% and now 107%.
Inside of that our fuel card businesses, both here in international coming in ahead of the prior year.
<unk> driven mostly by record digital sales. So for Q1, we signed 35000, new business clients worldwide 35000, So a real again on a terrific result, so the summary.
For Q1 I'd call. It an inline result for volume revenue and cash E. P. S.
And I call. It an outstanding result for credit performance, our retention performance and and most importantly sales performance.
Okay, Let me transition to our rest of year 2021 outlook.
Along with the assumptions behind that.
Included in our Q1 earnings supplement on page 12, you'll.
You'll see our updated guidance for the year.
So full year 'twenty, one revenue expectations at the midpoint $2.650 billion, that's unchanged from last time.
Our reasons that were staying put our one Q1 revenue again coming in kind of on plan. Two we've built in significant sequential revenue step up in the in the forward quarters.
Probably in the range of 100 million up from Q1 to Q4. So our Q2 Q3 Q4 revenue guidance now assumes revenue growth in the high teens.
In terms of the COVID-19 recovery in our outlook I'd say, it's a bit mixed.
U S and U K look may be better than our planned outlined but in our case, the Brazil, a COVID-19 situation worse and so on a pushback there in terms of recovery.
On the on the Kashi P. S front, we will flow through our 12 cents Q1 beat.
We'll raise full year 'twenty, one cash EPS guidance at the midpoint to 12 42, So 12 42 for the base business.
In terms of the apex acquisition.
Whole full now to close that that deal on June 1st initially we thought may for so as a result of the one month delay and we're going to take the expected in year apex accretion at the mid point to 18 cents.
Versus 20 previously.
If you combine our the base business and apex are consolidated consolidated EPS outlook at the midpoint would be 12, 60, 12 60 for the full year I do want to add we feel very good about the apex cross border deal they had a.
Great Q1 performance and their management is really holding steady there rest of year forecast.
Alright, let me, let me make a turn over to our last subject today, which is how is fleet core positioned.
For growth in 'twenty, two and beyond so I do want to highlight just a few factors that give us confidence in sustainable growth. So one is the exit rate. So if we hit this rest of year guidance, you know our Q for a step on.
<unk> will be quite strong heading into 'twenty two.
And if we hit our rest of year sales.
Plan again.
That'll pour in year revenues into 2022.
Digital I can't I can't say enough about digital and the investments, we're making in digital selling digital you eyes and customer experience, our new ways of of of underwriting credit and so the digital digital transformation, making a making a big impact on the company.
Third is easy you know are actually embracing E V, particularly in Europe.
Early feedback really really positive there that we may actually be advantaged in selling.
Because of our integrated you know mixed fleet experience as well as this at home are recharging opportunity. It looks real it looks like clients will pay subscriptions to basically measure and reimburse you know employer recharging at home so potentially.
New meaningful our revenue opportunity that is that is non existent today.
A fourth factor.
Our beyond strategy or our entry into new segments.
So as we've discussed before we're extending into new customer segments really in each of our major lines of business. So on corporate pay you know the Roger deal helped us enter the SMB space in lodging a couple of deals last year helped us enter the airline accommodation space.
And in Brazil, we've entered what we call the urban driver space. So in each of these cases, basically we're extending our businesses extending our Tam and the other obviously extending our longer term sales opportunity.
Our fifth factor is brand.
We just introduced.
Our new core pay brand aimed at unifying all of our various corporate payment assets. So this single brand will help our corporate payments business go to market.
With a single identity and hopefully give us an advantage with this broader bundle that we've got.
And then last factors capital you know our balance sheets in terrific shape.
<unk> leverage ratio to on a half times, our liquidity approaching $2 billion.
Again, our plan is to generate a 1 billion plus of annual free cash flow, we have the ability to lever up to three times.
You know target, which would produce circa 8 billion.
And capital to invest in either M&A or buybacks over the forecast period, So obviously upside for us via capital allocation.
So look the the takeaways from today. So one Q1, I'd say again on inline our Q1 financial performance, but an outstanding you know Q1 sales performance rest of year again, we're raising our rest of year.
Our cash E. P. S. At the midpoint to 12 42, that's excluding acquisitions and a 12 60 at the midpoint that is including a fact so.
Tracking to deliver that although again fully aware of the uncertainties and then lastly in terms of positioning we really do feel well positioned.
Well positioned to grow the company next year and beyond again, we expect a strong exit which will pour into 'twenty two our extending each of our businesses into bigger tambs and we've got the available capital.
To drive incremental returns if.
If we manage it well so with that let me turn on the call back over to Chuck to provide some additional details on the quarter.
Thanks, Ron for Q1 of 2021 we've reported revenue of $609 million down 8% GAAP net income up 25% to $184 million and GAAP net income per diluted share up 29% to $2 15.
Included in our Q1 'twenty 'twenty results was the impact of the $90 million, one time loss related to a customer receivable and our cross border payments business, which equated to 74 cents per diluted share as reported last year.
Adjusted net income for the quarter decreased 8% to $242 million and adjusted net income per diluted share decreased 6% to $2.82. As we continue to feel the effects of COVID-19 on our businesses.
Organic revenue growth improved two points sequentially to down 6% on a year over year basis.
We saw improvement in every category, except tolls as Brazil continues to grapple with incremental COVID-19 related shutdowns.
As a reminder, 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 during the two years being compared.
Our fuel category was down organically about 6% year over year, which was a four point improvement from Q4.
The international fuel business growth was a bit better than north American growth as those international markets shut down earlier in the quarter last year, so had easier comps.
The corporate payments category was down 5% in the first quarter, one point better than Q4 as improvements in virtual card and fully P were offset by FX, which was lapping a very strong Q1 last year.
Fully P growth accelerated 14 points sequentially to 21% growth year over year powered by continued strong new sales.
Tolls was up 3% compared with last year, but down four points from Q4 of 2020 due to the aforementioned shutdowns in Brazil.
Looking longer term compared with Q1 of 2019 revenue was up 13% organically.
The laundry category was down 14%, which was an improvement from down 25% last quarter with domestic airline activity recovering faster than we expected.
Gift showed organic growth of 2% year over year is that business felt the effects of COVID-19 earlier in Q1 of 2020 than most of our other businesses.
That said, we've seen real traction in digital card sales and in our B to B sales efforts, where we are selling gift cards to businesses for us as incentives.
Recognizing that the comps to 'twenty 'twenty may not be very helpful. We did add some comparisons to 2019 for organic revenue growth and sales. So you can see how we are trending compared with the most recent pre COVID-19 or quote unquote normal year, that's available in the supplement we provided today.
Looking further down the income statement total operating expenses were down 7% to $343 million, excluding the impact of the one time loss in our cross border payments business last year.
The decrease was primarily due to better bad debt expense lower expenses in Brazil, due to the currency translation impact and lower <unk> costs as travel and the associated expenses are much lower than last year.
As a percentage of total revenues operating expenses, excluding the onetime loss were stable compared with Q1 of 2020 at approximately 56%.
In the quarter bad debt was only $2.5 million or one basis point as it included the benefit of a 6 million dollar recovery for credit loss recorded in the first quarter of last year.
Credit continues to be a bright spot, but we expect our bad debt to normalize as our new sales levels recover and grow.
Interest expense decreased 20% to $29 million due to lower borrowings on our revolver and decreases in LIBOR related to the unhedged portion of our debt.
Our effective tax rate for the first quarter was 21.8%.
Excluding the impact of the one time loss on our cross border payments business last year our.
Our effective tax rate in Q1 of 2020 was 18, 9%.
The increase over last year's adjusted tax rate was due primarily to the level of excess tax benefit on employee stock option exercises relative to pretax income.
Now turning to the balance sheet.
We ended the quarter with $958 million of unrestricted cash and we also had approximately $1 billion of undrawn availability on our revolver.
In total we had $3.5 billion outstanding on our credit facilities.
And $915 million borrowed on our securitization facility.
As of March 31st our leverage ratio was 2.48 times trailing 12 month adjusted EBITDA as calculated in accordance with our credit agreement.
We refinanced our securitization facility at the end of the first quarter less than six months after our last refi.
Recall that our normal three year term expired last fall when credit markets were unfavorable so we entered into a one year note at LIBOR, plus 125 basis points with a 37.5 basis point floor.
Spectrum to refinance again when conditions improved.
Our new securitization has a duration of three years at LIBOR, plus 100 basis points with a floor of zero. So our effective all in rate is approximately 50 basis points better given the current level of LIBOR.
We've also just completed a refinance of our term b credit facility upsizing it to $1.15 billion for a new term of seven years and maintaining the rate of LIBOR plus 175 basis points.
We used the proceeds to pay off our existing term b note pay down the revolver funded the apex acquisition and improve our liquidity position for future capital actions.
Yeah.
We repurchased approximately 640000 shares during the quarter for $170 million on an average price of $266 per share and we have approximately $836 million and repurchase capacity remaining under our current authorization.
Now, let me share some thoughts on our outlook.
We are maintaining our full year revenue guidance of between 2.6 and $2 $7 billion as improvements in some businesses such as domestic airline lodging are being offset by other places like Brazil, and Europe are experiencing incremental virus flare ups and associated Lockdowns.
As we explained last quarter, our full year guidance assumes we recover about one third of our Q4 exit revenue softness during calendar 2021.
And that this recovery would account for about four to five percentage points of revenue growth in the second half.
Within that expectation there was very little recovering impact assumed for Q1 on.
A modest amount for Q2, and then an acceleration into the back half of the year.
While we are seeing some puts and takes between businesses. Our overall outlook remains intact.
You can see our full updated guidance and assumptions in both our press release and our earnings supplement so I won't reiterate them here.
We are raising the midpoint of our adjusted net income per diluted share guidance 12 cents to $12.42 to reflect our first quarter results compared to our expectations.
Looking ahead, we are expecting Q2, 2021 adjusted net income per diluted share to be in the range of $2.80 to $3 per share.
Volumes should build throughout the year with the COVID-19 recovery and our new growth initiatives gaining momentum.
As for apex, the closing is taking longer than we had hoped but.
But we still believe the deal will close by the end of the second quarter as we're nearing the finish line with all of the approvals we need from the various regulators globally.
Because of the delay the in year benefit will be slightly less than what we expected in February but the upside is that we've had more time to refine our integration plans. So we'll hit the ground running at full speed once we do close.
With that said operator, we'll open it up for questions.
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Pause for one moment to poll for questions.
And our first question is from Ramsey El <unk> with Barclays. Please proceed.
Hi, Thanks for taking my question. This evening I was wondering if you could provide us with a little more detail on on the court pay initiatives.
Is this more of kind of a branding exercise or is there sort of tech integration and kind of organizational changes.
You know.
Sort of unifying the sales strategy underneath it all on maybe if you could also just comment on on Roger in your in your good progress with your go to market efforts with that product it would be great.
No Ramsey Hey, it's Ron it's mostly.
Middle market corporate.
Yes.
And then a rebrand the Roger SMB for pay.
So basically for small and middle market will have one branch.
Sure.
Okay Alright.
I also wanted to ask about the the pace of the recovery at the enterprise versus SMB level I know, that's something that you've called out in the past are you starting to see them or even recovery evolve across the business or is it really still the large customers that are that are driving some of the recovery.
That's a great great question and answers.
More EBIT, we're seeing more recovery on.
Now on the SMB group, which is obviously helpful to our revenues.
A bit faster.
Other non volume recovery.
It's good news.
Starting to smooth that alright fantastic. Thanks for taking my questions I appreciate it.
Gotcha.
Our next question is from Pete Christiansen from Citigroup. Please proceed.
Good evening, Hi, gentlemen, nice nice cushion on on the sales.
I was wondering if you could provide us a bit of a breakdown on.
On new sales in the corporate payment segment.
What's the ear to the ground.
On there right now I guess ahead of launching this go to market with core pay and then my follow up is along the lines of Ramsey's question is how should we think about the the main go to market push here.
With core PE is this.
Aligned with the whole you see ex execution strategy in the back and just your sense of timing there would be helpful. Thank you.
Yeah sure. So the first part of the question on the sales. The answer is yes kind of all the segments. So I think I called out for fuel card businesses were ahead of the prior year.
So the corporate payments business.
Strength virtually everywhere, except I would say Brazil.
Brazil was a bit softer than.
Outlook, mostly because of the COVID-19.
Situations, so without exception on really the sales were super terrific. Yeah on the core PE question again, the answer is yes, I mean again as I mentioned earlier.
Unify.
All of the price, which helps in a lot of ways to your point helps not only with you on.
In terms of being able to cross sell and showcase but it also helped on the top of the funnel.
Being able to promote.
Water line of things to prospective clients that are earlier in the cycle.
Because who knows per se, which product may be interesting at that moment. So we think there'll be benefits both.
Engaging our prospects at the top on the final once we got.
Our client on one of the products it would facilitate our ability to cross sell it so and then again.
Comment I mentioned earlier.
Brad.
Got a downmarket in SMB landed in the middle market. So look we hope as we put this thing out.
Pretty seamless.
Whoever is looking at.
Thanks, Ron.
Our next question is from Ken.
<unk> with autonomous research. Please proceed.
Hi, good evening. Thanks for thanks for taking my question.
I just wanted to ask about the corporate payments segment as well.
Can you just talk about your ability to go direct.
The corporate payment customers in the SMB channel because we've heard that churn rates are higher there. So the unit economics.
My non makes sense unless you kind of had that strong brand and history operating in that segment.
So I'm just curious if you could talk about the opportunity there or is this really a.
Our cross sell play into the existing base.
Okay.
It's Ron again, it's a good question.
This is Paul.
We're super excited about being able to take.
A bill pay product back to the hundreds of thousands of clients both here and in Europe, we've actually come up for some creative ways, we think to get that product in front of our existing accounts. So.
That's one but then the second one to your point is.
Yes, we will go out directly to SMB prospects and.
Clearly digital is now become I don't think 60% of our fuel card sales are getting lots of new smaller accounts via that channel and we have a lot of other.
Assets, Inc, corporate pay to be able to monetize it for example on the back end without merchant.
Our network in terms of putting some of the payments through virtual card. So we think that we can go out with pretty attractive for.
Pozos, if you will out of the prospective accounts.
I'll make a bunch of money if you will on the back end. So we'll go out.
Both ways, both existing clients and perspective.
Okay. That's really helpful. And then I guess, maybe just as a quick follow up I think you mentioned that there were some lower <unk> expense in the quarter I mean, what's the expectation to put some of those expenses back into the P&L now that sales are bouncing back.
Yeah, Ken This is Charles what I would say is that.
Always we balance our investment expenses with revenue.
We continue to perform and grow well be adding some of that expense will be reopening travel fairly soon here, so that'll start to flow through.
Mostly to support sales growth and then as the volume does recover there will be some.
Throughput on that.
On the expense on and processing.
Okay. Thank you.
Yes.
Our next question is from John Coffey with Susquehanna Financial Group. Please proceed.
Taking my question.
My guess is the fourth or fifth question on corporate payments, but it's a short one.
I see the year on your revenues in the quarter. It looks like you actually had sequential growth.
In corporate payments and I was wondering I think in the call last quarter. You mentioned there was a lot of political driven spend in Q4, which probably would would it seem like our other there are a one time thing that would have really elevated Q4's revenue is a bit and I guess I thought maybe you would have seen a little bit of a decline there going into Q1 is there any like one factor you would see.
That really drove this sequential growth in corporate payments.
Yeah, Hey, John it's Rob.
So for good question.
Yes is the short answer everything you said was right we did have a.
Nice spike in Q4 from the political it's really this fall AEP. If you recall, we bought a company just about two years ago called invoice pay.
It does.
AEP automation kind of fall.
AP outsourcing if you will our payments and so that business is just going gangbusters.
That answer.
We I think going back to the baseline in 2019 more than doubled.
And in revenue on that business and I think we've got a plan.
Now this year in 'twenty, one like 60 or 70% of the pace of that business. So that business was picking up for $50 million that plan is now 35 or 40.
So we've got more.
On the buyer sales energy and people basically against that particular product line. So that's what's that's what's creating the delta.
Great. Thank you and by the way as far as corporate payments go with that being said about invoice pay is there a good way to think of the cadence.
Revenues throughout the throughout the year.
Specifically for corporate PE, yes.
Yes.
Yes, so we're looking at debt businesses also.
Thomas.
Sales there are also quite good sales growth, 18% year over year.
We look at it.
On the sequential growth.
<unk>.
Just one second.
Yes.
But we didn't give the specifics, but I'd say its going up circa.
15% sequentially each quarter.
Alright perfect.
Thank you very much.
Our next question is from David Koning with Baird. Please proceed.
Oh, Yeah, Hey, guys. Thank you.
I guess my first question just on the fuel segment itself you know historically I think sequentially would often be up about five per cent or so.
I guess I'm wondering are we back to kind of normal seasonality I know on a year over year basis, I guess, the one thing to think about spreads benefited $26 million I think last Q2, so just putting those two things in perspective, I guess sequentially, maybe up 5% normally again and then the spread impact are we thinking of that right.
David It's Ron I'm not sure I got the question are you asking.
As we exit this COVID-19.
The timeframe do we think that the fuel card business is a 5% on a normalized grower.
Kick out spreads on COVID-19 is that the question.
Yeah, I'm actually just asking more just sequentially I think in Q2, you used to grow give or take 5% sequentially.
Just kind of typical seasonal patterns and are are we back to kind of a little more normal seasonal pattern now sequentially in Q2, and then separately just thinking about the spread impact.
Yes on the first.
Part I would say EBIT through COVID-19, we saw very similar.
Seasonal patterns to your point historically theres more work days.
In Q2, and Q3, and obviously, they're a bit here.
And certainly here.
U S non stop easily holiday so yes, the answer to.
Seasonality is it's kind of same old same mall and yes, it would be in our in our guidance and stuff.
The way that you just said.
As spreads Chuck you want to take that one.
Our view spreads going into Q2 sequentially.
Relatively flat.
Slightly improved as fuel prices are leveling out.
To your point year over year, they're going to be weighted out Q2 of 2020 kind of record spreads.
In terms of the seasonality sequential revenue within fuel what I'd say is I'd remind you that we do have some COVID-19 recovery plans on our forecast.
So assuming that that comes back we should get a little bit higher than normal.
In terms of sequential growth in that business.
But again a lot of that recovery is still kind of focus for me have some plan for Q2.
We're seeing early early signs in April.
Mentioned.
Sure.
David just a jump one on.
One last thing on the Walmart Chuck said your comment is right. Obviously, if you looked at the fuel prices in Q1.
They would generally uptick in costs throughout the quarter, which on.
The pressure spreads a bit so as we were exiting the quarter and obviously we've seen in April.
What you said is true we will have a bit better.
Overall quarter.
Fuel price stabilized because spreads have kind of normalized to chuck's point so.
Youre right.
This quarter would be better than the full Q1.
Price if fuel prices stay the same then we would expect spreads as they normalize the balance of the year.
Got you Thanks, and just one quick follow up the provisions you've called out I saw on the cash flow statement to the $2 million of credit provisions.
Should we get back to the more $15 million to $20 million per quarter type range in the future or might it stay pretty low for a while.
Yeah, Let me, let me start and then Chuck can pick up I would say that.
Probably short term kind of this quarter may be into next it'll probably continue to run a bit lower.
And that's a function of a couple of things one.
Credit policies, we had in place a lot in 2020 right to be.
Protective.
Assets of the company.
And then too.
The amount of sales we had in 2020 were lower.
Normally no lower than planned and they carry higher losses. So when you have a.
Our mix of less new to existing you'll you'll have lower credit.
Losses, so those type of things will make it a bit better, but I think as you roll forward I think we would probably anticipate we get back more normalized levels. As we opened the credit patches as you will know and again, our sales were way up.
As we said so maybe a little bit kind of short term and then normalizing as we head to the back on the year.
Gotcha. Thank you guys.
Our next question is from Tien sing hung from J P. Morgan. Please proceed.
Hey, Thank you so much right on what I asked about acquisitions and your appetite there and any update we've seen some some of your peers pick up I guess in M&A activity and definitely be some capital raising going on as well on the private side, so, whereas you had out there.
Yes.
Good to hear your voice better sales.
Hey.
Probably like the peers that you call out.
Tell them someone earlier today, we've actually gone back to reel in person meetings I actually did a real life.
M&A call a couple of weeks ago, we met the principals in real life. So.
That's kind of nice to actually.
See people so yeah, I mean honestly one of the reasons that we did.
The refi and upsize the thing is we do have.
Pipeline of deals like I mentioned, we're looking to close and found the same thing here on a few weeks.
And we have a couple of other things close and that we like and so that that was the basis for kind of lifting that liquidity. So it feels better to me I mean, I don't say it's back to.
Normal, but we've got things in the categories. We like we've got some accretive deals, which you know we tend to really light so yes I.
I feel like we're back in really a better place feeling comfortable if you will with some other transactions in front of US okay. Good and other to encourage you on here and I think on the just as a quick follow up I think you guys mentioned same store was sort of still hovering in that down six level.
I'm curious because I get this question on the client side like how much of that is cyclical versus maybe structural.
I know your client base is somewhat.
Diversified, but any observations there on on win.
They'll get back up to speed on the recovery.
Super Good question.
Q2, two comments attention back on the first of all on which I think guidance I mentioned in my opening comment is we had the luxury of seeing.
April.
So I'd say the first thing is we're actually seeing the stock if you will.
And some of that same store staff, so some recovery literally already and some on the line in April and so on.
Expectation my expectation is Q2 here is going to be the borrowing that will move off of that 6% kind of flatline in M. C.
For that right in this quarter and on the second one to your point is we studied it.
No.
For the year and it's just a super narrow.
Set of clients again, so when we go in and look at the.
All of that 6% overall or consolidated softness and you run the distribution you've got one decile debt accounts for 100% of it.
There is that there is a narrow set of clients that are in Super impacted you know multi theater company, whose lie.
<unk> you name it we've got we've got clients that are in Super hard business.
So.
We're seeing again, some that are arent that impacted kind of already on the back in April on my our sense, which is kind of built into our guidance is that some of those that are still significantly down we will start to rebound here in the second half.
Yeah.
And I always appreciate your are.
Your analysis front. Thank you.
Okay.
Our next question is from Sanjay Shukla Ronny with BW. Please proceed.
Thanks, Good evening I know, Ron you mentioned the U S. U K are ahead of expectation, Brazil behind but is.
On the reopening happening anything that you're seeing that sort of stands out for you, especially relative to the pre pandemic trends as they come back.
Nothing other than it's just incredibly pocketed I guess is what I'd say I did call out the UK, but as you know we do have.
Broader business in more countries over there we're on.
On the on the continent for five countries where in Russia.
In Australia, New Zealand and so that to me the fascinating thing is just how different.
The recovery in the softness is across those 567 countries would be the first call out like Russias got on my mouth. They had COVID-19 is booming again in Australia, New Zealand on celebrating the grid. This thing we see a huge rebound there for the U K that borrowing is happening here in the second quarter.
Jack is going backwards. So the first comment is it's incredibly kind of pocketed.
By play and then the second one is really the comment I made to Tianjin, which is.
It's incredibly in our case narrowly focused on a very very small set of clients that again are causing the overall number right at the consolidated number to be negative and so those are the two things, we see and I did mention and I think we're super surprised by that.
<unk>, probably like others, we didn't anticipate that common end of the year that that gain would get.
Worse than that they would they would raise the restrictions and stuff. So that one I'd say for one thing, it's really mostly the surprise to us.
Okay, and then maybe just to follow up on Tien Tsin for question and your answers on the M&A.
Also talked about the significant amount of liquidity or dry powder, you have I guess, how much of that dry powder do you think these deals that you're contemplating would eat up and how long do you envision sort of having this much dry powder around I mean, what would you consider stepping up the buyback if you felt like the inorganic.
These werent there thanks.
Yes, I mean, this particular situation.
We have on transactions, obviously, we announced publicly the apex, saying at what for 50, Chuck Boynton for $50 million.
As I mentioned, we do have a few.
So call. It three deals that are quite late and so the combination of those two things is what caused us to basically upsized.
The facility now so that's kind of a short term thing that we tried out honestly to prepare our liquidity situation for the pipeline that we see but I think longer term, we really don't think about it that way you know deals are bumpy.
We spent a lot of money in a year and sometimes we don't spend a lot and we have enormous.
<unk> for liquidity based on where our leverage ratio is in the cash that we generate so we really I.
They try to think about it short term when we when we see a situation where we've got some stopped lined up and then longer term, we really just focus it honestly on the M&A side, we look for Super attractive things, we have conviction in that back our way and how to pay for it versus the other way around but on on your other comment we don't like our stock.
Price, which obviously theres been times, we don't we'll will obviously increase liquidity and buy back shares. So again I think the headline to you guys as we start by looking out and attractiveness of deals and how we feel about the price of our stock and then work our way back into.
What liquidity.
Yes.
Thank you and I guess, just one im sorry, one quick follow up just the types of deals that you're looking at or are they pretty much bolt on or are they getting into different vertical.
We're actually looking at.
Both we got a couple of.
Deals to use your word bolt ons, we call them any category. So there are transactions that fit inside the four or five categories that we articulate to you guys that we license or they are super accretive.
We've got one thing in particular, we're looking at that as kind of a on.
On a Jason kind of not right in the middle of those for a five.
And kind of mid sized you know half a million got upsized deal. So it's a very interesting set of things that are in front of us.
Okay. Thank you.
Our next question is from George.
Hey, Louis with Cowen and company. Please proceed.
Hi, This is Philip on for George I want to thank you for taking my question. So I think you talked at the beginning of the call about your investment in the U K E V Company Mena.
When you talked about the new subscription at home option I was just wondering is.
That gives me more confidence that the economics around EV in the future will be more comparable to the current fuel car business or what is giving you confidence around your ability to compete and EV vehicles in the future.
Yes, it does spill up it's.
Good question.
So the headline answer is it does it does because we have actual real clients and to your point, we actually have a real software solution that we're that we're implementing and so if you run a company in the UK and have gone to some mixed fleet you've added 20 EV vehicles.
And you want us to help measure and reimbursed that.
And we talked to you about how we're going to get paid for it. The fact that real clients are paying meaningful amounts of subscription.
Does help equalize to your point the economics as this thing assisting converts.
Obviously I Trust day to that on the call is during this transition time, I really love our chances because it creates an advantage right as a company add 10, new EDI things, it's hard for anyone who doesn't already have the incumbency position in data on all the vehicles to go sell.
On the dice on China.
For the mobile solution or something to deal with a tan like why would they ever want that when we do we made.
Made on our card and mobile programs work at all on public EV Recharging places as well as at home and so.
And it kind of a really interesting twist here.
The old fashion to fuel our guidance.
Actually as the advantage because you can't Blink and change out the installed base of all the vehicles in a day.
Hey.
Without obviously flush a lot of value. So I would say is this thing has manifested itself, we're feeling better and better about the economic model for future.
Yeah.
Okay great.
Great color. Thanks for that and then just on a follow up with an infrastructure bill being bandied around at the federal level in Washington.
You have any initial thoughts on how that might help your customers. I know you have a pretty decent exposure to construction customers is that something that youre thinking about impacting 'twenty. One 'twenty two growth are not contemplated yet.
Yes.
Who knows to your point, where that where that bill goes but the answer is yes to your question I mean, we saw it in spades in this in this last day allow the ability in a lot of our clients to be able to pay their invoices and we got scared and credit and found out it was one of our past collection years ever.
So so obviously stimulus money does find its way back into your point.
A large part of our business both here in Europe circa 30% is in various forms of construction so to the extent that the stimulus actually goes to that versus I guess.
The other things that are in the bill in half for help us to your point it has to make the existing clients. We have you know busier.
Obviously result in more revenue to us. So so yes, it would be it would be a happy going into next year for sure.
Okay.
Our next question is from Trevor Williams with Jefferies. Please proceed.
Hey, guys. Good afternoon. Thanks for taking the question on our new sales. So it is good to see the step up in the first quarter getting back above 2019. So if you just think if you continue to see that ramp throughout the year and especially in fuel I mean, how quickly could you see some of those sales sales start to layer on to revenue just thinking about what.
Other there could be some benefit even day numbers this year and if if there could be if there's any impact embedded in the guide or if we should be thinking more about the bulk of new sales as being a 2022 leading indicator.
Yes, I'd say Trevor it's Ron that it's mostly the second thing so we've got.
A lot of experience in the company by category of the <unk>.
Translation of what we call the new bookings or sales or start to roll call right. The recognition of our new accounts.
When it converts to your point and do in year revenue and that conversion rate varies a tremendous amount by the products. We have so for example in fuel cards, it's probably about 50%. If you sold 100 million you get 50 and year.
For Brazil, if you sold the $100 million you might get 60 or 70, but if you saw corporate day in the middle market you might get 20, so the conversion rates vary dramatically by the product category, but what I would say is clearly we're good at math, so we still our 'twenty one plan and guidance.
Anticipating.
Good sales day sales were above what we did plan, but generally that's all cooked into the plan and the and the guidance that we have and so the biggest help is what I said, if we if we make this plan, which would be up over 30% right. As you go into the next quarters like will probably double.
Q2 sales because it was pretty low.
But hopefully be up over 30% for the full year, you've got lots of those categories like corporate pay on that revenue pours into 'twenty. Two so people should listen carefully to the sales numbers, which I did try to call out. They really are early leading indicators are really up 22 revenue.
Okay, No that's really helpful on.
And then Ron you mentioned Youre seeing some uptick in April it sounds like I mean anyway, you guys could give us a sense of how things are trending quarter to date in April or even exited Q1 relative to 2019 to this slide in the deck is really helpful. But just I'm curious if at any of the segments.
If any of them either exited Q1 or quarter to date in April are trending higher relative to 19 than they did on for.
For Q1, just to see where we might get some kind of meaningful sequential acceleration in Q2.
That's another really good question. So again, it's Super early to date has got a hot off the press, but what I mentioned is selectively we see areas where.
Sequentially. The volumes are starting to come back to the bar, if you will and even against the base period of 2019 were seeing growth. So just to call out one like in our international fuel card business for example.
Break into for our market UK, Russia.
Central Europe, and Australia three of those the volumes in April are higher than they were in April of 19, and the one that's not central Europe, where again the COVID-19 restrictions are still in place. So we're seeing same in corporate pay we see areas like for virtual.
Our business is way ahead of its baseline from April of the full AP I think I mentioned is more than double the cross border business is up so a lot of the businesses are now in April ahead of their 19 baseline. There's a handful of stubborn ones that I mentioned there are more.
Sure.
COVID-19 impacted like again central Europe, like the TD card, which for.
People like us to travel on like the airline.
<unk> business that we bought it's coming back, but it's still soft against the prior period. So there's a handful three or four areas that are pretty stubborn and then.
No day 10 areas that we're seeing the same come back so as I said, our view is we're going to see a change in same store. This quarter Q2, and then we plan a pretty significant recovery again in Q3, Q4, which will pour you know revenue and more importantly profit.
And at the end of the second half.
Okay got it no that's good color. Thanks, Ron I appreciate it.
Our next question is from Bob Napoli with William Blair. Please proceed.
Thank you.
Ron.
Just a question on the corporate payments business on a long term on your thoughts on.
Balancing growth with margins and you have a number of high growth.
Public and private companies that are investing very aggressively in.
Looking at margins down the road, where you're generating strong margins today do you have thoughts of.
Aggressive given the Tam and investing more aggressively.
You know at the expense of margins.
To accelerate growth is that something that you've considered or would consider.
Yeah, Hey, Bob It's Ron it's a.
Terrific question, we actually had on our board meeting last week and actually covered this this particular subject competing in this strange time that we're in and I think.
A couple of comments I gave you is one we tried to build plans to invest more differentially more on that business than some of our others to try to target debt business closer to 20% on the top versus kind of turn if you will for the consolidated company. So that's 0.1 debt.
Inherent in our in our base plans.
Our overall profit plan, there's incremental investment to grow faster already and then second I think the conclusion that we got to come on out of the board meeting on this is it depends on the investment.
So if there's a if there's a clear investment we can make that's gone on attractive return profile will be back to you in the buy side with Hey look we're going to slow earnings a bit whatever if we think we can make some some rate return.
But again, it's got to be a return we can execute so hey for tier 100 people intelligent bunch of times Thats hard to add all of those people execution wise and make it work versus if we could pour money into the top of the final on the digital thing, which is one on a lot of other reasons. We did this core pay unification that might be a basis right.
We could spend money effectively and see good return so I think nothing staring us in the pace now we've got lots of money incremental capital I think we're spending in 2000 $25 million of incremental capital above last year and half of that's in corporate pay we are spending more on sales and so if we got the right kind of invest.
And I think the answer is we would we would do it.
Thank you.
And then a question on the lodging business and I don't think we really touch too much on that I was wondering just your thoughts on.
That business I know, it's been a very attractive return business you've been investing in it over the years, but what are you seeing in that business.
Sequentially like through the first quarter into April and then your thoughts on the opportunities to invest in that business over the longer term because I do think you drive some of your higher margins there.
Yes.
Super.
To your point because again, we're pretty specialized right. We're in the work Force segment, you know think blue collar people that drive often cut trees and then in the airline accommodation, where we're connected literally into the airlines system. So we know that the two of US pilots are going to show up somewhere tomorrow. So.
The answer is it's obviously, it's recovering it was one of those businesses for really the most a year ago. So we've gotten a lot of it back already in the work for Si and I'd say, we're probably have other way back in fact, it's the one area that outperformed on.
COVID-19 recovery in the first quarter for each line of business. We plan on a certain amount of softness if you will coming back in the airline business actually came back faster than we planned. So I think it's on track depending what happens over the next couple of months.
Do you have a huge recovery right in the second half than what we were selling a lot like I'm looking at the at the sales we continue to sell a lot on that business. We've got some attractive adjacencies in the business, it's probably our highest margin business. So to your point. There is there's a lot there's a lot to like about it and.
And people should keep their eyes open, we're probably going to do more of it right.
Great. Thank you I appreciate it.
And our final question is from David to that with Evercore ISI. Please proceed.
I appreciate your squeezing me in on a normalized basis post COVID-19 do you expect to resume fleets historic growth model of high single to low double digit organic revenue growth plus a couple of points of acquisition growth and our share repurchase driving 15% to 20% EPS growth.
And if so when do you expect to reestablish that growth model.
Hey, David It's Ron So great question I think I.
Then repetitive on something it's been 10, 13, 1910, 13, 19, which is if we can grow revenues organically, 10%. We can grow operating EBITDA. If you will faster because of the operating leverage and then use the $1 billion of capital to either by earnings or buying shares.
So we've proven guest check over 20 years, we've compounded David at over 20%. So it's a reminder to you and others out there is I think for full year calendar 18, and full year count of 19, the business grew 10% organically in those two most recent years until we hit COVID-19 here.
In 2020, and so my expectation is that we will be back there in certainly in 'twenty, two and part of it is again the setup is just so good in terms of the exit rate. If we get this recovery in the second half and we make the sales that.
We're making the exit rate pouring into 'twenty two.
We will obviously be super attractive and then to your point the deal we've announced a couple we're working on will be as I've mentioned before quite accretive and so it all points I tried to say it is a thing I think the business because of the pain. We took last year is particularly well.
Well set up to get a good number in 'twenty two and then when I say to you is we like our chances after that because we are diversifying the the space right and the business is the fuel card thing Chase and easy.
Watching chase new categories getting into SMB and corporate payments, we're not sitting still just kind of twiddling.
The places that were in David and so I think it's a I think we sit here.
We're optimistic about the future because where.
For comment out where free calling out finally coming out of the woods here.
And kind of see the other side and and that sets up well for us. So I'd say 'twenty two will be better and then and then we like our chances after that.
Thanks, So much I appreciate the detailed insights on.
Always good to talk to you.
We have reached the end of todays conference you may disconnect. Your lines at this time and thank you for your participation.
Okay.
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