Q3 2021 Fleetcor Technologies Inc Earnings Call
[music].
Greetings welcome to the flea core technologies and third quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should acquire operator assistance during the conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I went out to have a conference over to your host Jim Eagle Setter head of Investor Relations you may begin.
Good afternoon, everyone and thank you for joining us today for our third quarter 2021 earnings call.
With me today, Iraq lock, our chairman and CEO and Charles Froind R. C. S O.
Following the prepared comments, the operator will announce the Kubel opened before 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 section of our website, absolutely core dot com.
Now throughout this call, we will be presenting non-GAAP financial information, including adjusted revenues adjusted net income in adjusted net income per diluted share.
This information is not calculated in accordance with GAAP and may be calculated differently that not get the information at other companies.
Reconciliation of historical non-GAAP financial information to the most directly comparable gap information appears in today's press release and on our website as previously described.
I do need to remind everyone that part of our discussion today may include forward looking statements.
These statements reflect the best information with has of today all.
All statements about a recovery outlook, new products and acquisitions and expectations regarding business development. If you track positions are based on that information.
They're not guarantee of future performance that you should not put undue reliance upon that we.
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 the actual results to different materially from what we expect.
Some of those risks are mentioned in today's press release and on form 8-K.
And in our annual report and Form 10-K filed with the Securities and Exchange Commission. These.
These documents are available on our website and it said dot Gov.
So that out of the way I will turn the call over to Ron Clark, our chairman and CEO Huh.
Okay. Jim Thanks, Good afternoon, everyone and thanks for joining R Q3 earnings call.
So upfront here I'd like to run through a four subjects first give you my take on a Q3 results along with the rest of your outlook second take you into a bit deeper dive into our sales were results third give you an update on the three acquisitions that we've completed a year.
To date and.
And then lastly, an early preview of 2022 and beyond.
Alright, So let me let me make the turn to our Q3 results.
We reported that Q3 revenue of 755 million up 29%.
Kashi P. S. A 352 up 25% so both of those all time record highs for the company also the Q3 results annualize finally about 3 billion. So pass a 3 billion, mark and revenue and $14 in cash EPS.
Organic revenue for the quarter are up 17% an inside of that corporate payments business grew 22% organically.
The trends in Q3 quite good sales, finishing at record levels uhm up over 50%.
<unk> Q3 last year and over 30% against the baseline of Q3 19 retention steady as she goes at 93% for the quarter and again, our global fueled card business inside of that also come in at 93%.
Same store sales strengthened plus 5% for the quarter.
Which further adds to the same store sales rebound, we saw in queue to credit losses, low again at three basis points continuing to run below historic levels.
You you may notice our tax rate kind of four points higher than last year [noise] that did shave about 20 cents off.
The 352 that we that we reported for the quarter. So look overall [laughter] pretty pretty pleased with a quarter.
So in terms of rest of year, we're raising guidance today. So revenue guidance at the mid point now 2.795 billion, that's up $30 million from August Kashi P. S. At the midpoint to 13 O. Five that's up 15 cents from August.
This raise versus last time reflects obviously these Q3 results or beat.
The a L E acquisition, which closed September one and a bit more favorable fuel prices all of those off said just a bit by a slower than planned COVID-19 recovery.
If you look at the queue for on its own it anticipates revenue and profit growth up about 20%.
Versus Q4 last year and about 10% against Q4 2019.
Alright, let me, let me make the transition into a bit deeper dive into our sales results. So as I mentioned, new sales or bookings.
Reach record levels in the quarter and are up sequentially significantly in up dramatically over the prior periods. So as I'm sure you're aware sales reflect the the market demand for our solutions, but but are also really the best leading indicator of our future Prof.
Aspects and so crazy record this quarter, we sign up almost 50000 do business clients globally. In Q3, So 50000, new accounts joined the folds or so a record.
Over 50% of all of our global fuel card sales now come to us or our digital channels. So great. Because it's it's very low cost. We we continue to increase our digital advertising spend [noise].
And and and we're enjoying record levels of prospects visiting our web sites.
Interest in E V solutions, increasing so a number of [noise].
Large accounts signing onto R. E V solution. So that included hurts Volkswagen USA Union Pacific lease plan Europe and Siemens.
Brazil toll sales rocked and hook water.
Our urban sales or kind of this city dwellers that that that are lower frequency toll users represented twenty-three percent.
Of all new sales in the quarter, so programs whatever two or three years old now almost a quarter and the active tags for the quarter reached a new milestone 6 million. So 6 million active paying tags now in Brazil, we are planning to launch a new bank J V. This month with the largest.
Hank in Brazil, who will be helping to to promote our products.
We don't talk about it much but our customer acquisition cost is really quite attractive runs about 65%.
Of the of the sales new revenue, so really super important for for a profitable growth.
So let me shift gears and talk a little bit about the three acquisitions [noise] that we've.
[noise] clothes year to date and how they're doing so Roger first stop we've now rebranded Roger to be core pay one which is our entry into the corporate payments S. M V space. So we're underway now, adding new S. M B Bill pay clients.
Through digital channels in accounting channels and have some early returns on cross selling bill pay into our fuel card base. So super early but it looks like about 10% of our fuel card clients that pay our pay their bills with our new core pay one.
Platform are choosing to pay a second you know non fleet Gore Bill with us so effectively becoming bill pay customers.
We're looking at somewhere around 10 to 20000 S. M B Bill pay clients coming online and 20 twenty-two and also interesting we plan to launch what we call or two in one solution before year end that will combine are smart business cards with our bill pay Pal.
<unk> form into one interface, so and S. M b client could potentially pay all of their non payroll expenses with us on a single platform.
Second deal this year, a fax, which is a cross border provide a very similar to our Cambridge business Super performance in 21 pro forma revenue growing mid teens EBITDA almost 50%.
Versus prior year, well along on integration, we've already combine the management teams into into one group in or about half way through migrating the apex customers onto the Cambridge I T platform. So hope to retire most of the apex I T system by year end.
[noise] last deal up is Allie, that's the lodging extension for the insurance vertical it helps homeowner insurance plays policyholders into hotels and temporary housing. So he closed that September one about three and a half million ink Roma.
Mental annual a hotel rooms will be added to our lodging business.
Mm underway with the synergy work and early view is about 20 cents accretive to 20 twenty-two. So so far so good really across all all three transactions this year.
Alright. So lastly, let me let me share our view early view of 20, twenty-two and speak a little bit to the beyond twenty-two prospects of the company.
So for next year encouraged by a few things first the run rate. We're exiting 21 was about 3 billion of of annualized revenue and $14 of cash EPS. So nose of the plane is up sales again running at record levels, which will dry.
Five incremental revenue into twenty-two we also expect sales to grow again next year about 20% macros on our side, helping us obviously fuel prices are high FX's.
FX is generally holding so setting up well there and then I mentioned the acquisitions.
Particularly a fax and alley together contributing probably about 50 cents of incremental accretion next year, So I've taken together.
The early 20 twenty-two setup is quite good.
If we look just a little farther out into the midterm. We're kind of also encourage there for for a couple reasons. So first we've expanded via are beyond strategy. The the market segments of the serve market segments in each of our five major lines of business.
So that's laid out on I think page 14 of the of the earning supplement.
So for example in core pay our corporate payments business. We've added cloud based uhm a P solutions to our original virtual card business. So he did that a couple of years ago in the middle market with Nvoicepay and then obviously this year.
And the S M b market with Roger So look much much better position now to attack the the the corporate payments Tam.
And then again, if you look our lodging business initially focused only on workforce or blue collar travelers go into economy hotels. Since we've added two new segments. The airline crew business and now the insurance policyholder business of the fold it really triples.
The opportunity in terms of room nights for the lodging business.
A second thing is we're on a path as I mentioned to combine our card business with our payables business into a single platform, which would do two things first give us differentiation in the marketplace, where we can help clients pay all their nonpayroll expenses with us both.
Walk around purchases and supplier payables from a single account and second could help us turn our fuel card business into a corporate payments business by cross selling our bill pay services to our hundreds of thousands of fuel car clients. So as I mentioned underway there.
So let the the combination of expanding.
You know our served market segments in our existing five businesses along with this idea of joining up our cards and bill pay onto a single platform is is encouraging for us. So look in closing just just a few final wrap up thought so again.
And really good quarter record revenue and profits for Q3, good trend same store sales up sales.
New sales up and retention steady.
Again record sales and very attractive cost of acquisition of new accounts three acquisitions on track against our thesis.
In our early twenty-two setup attractive. So so look all in all it feels like we're in a pretty good place. So with that let me turn the call back over to check to provide some additional details on the quarter Chuck.
Thanks, Ron I'm delighted to share with you some more color on a very solid clean quarter.
For Q3 of 2021, we reported revenue of $755 million up 29%.
<unk> net income of $234 million up 24% and GAAP net income per diluted share of $2.80 up 28%.
Adjusted net income for the quarter, Oran, I increased 22% to $294 million roughly $1.2 billion annualized.
Ni per diluted share increased 25% to $3.52.
Organic revenue growth was 17% driven by a continued strong sales solid retention levels and same store sales recovery.
Looking at organic growth across product categories corporate payments was up 22% in the third quarter highlighted by fully P, which grew over 50% again this quarter.
Poor pay one.
Her small business focused fully P offering crew 78%.
So are fully piece solutions continued to sell well in the market.
Cross border revenue was up 19%, which showed some softness from the lockdowns down under in Australia.
We do believe much of this softness is recoverable, but the timing is hard to predict.
The effects integration is progressing quite well, we've converted more than half of its customers onto our existing cross border payment systems.
You expect to convert the remaining customers before year end.
I'd like to thank our cross border team cause they've worked tirelessly to complete these customer migrations seamlessly while simultaneously operating a growing thriving business.
And within be to be a lot of attention has been paid to new small entrance.
Several of which when you enable with our partner program using our best in class virtual card.
The partners, we enable one the customer relationship do the marketing and take the credit risk. So they keep most of the economics.
We're more of a processor to them. So our take rate is meaningfully lower than when we go direct to customers, which is really where we tend to focus most of our sales and marketing efforts.
So while these partners drive some volume growth they still only represent about 13% of our corporate payments revenue.
Fuel was up organically, 13% year over year with strong retention trends and record digital sales continuing to drive the performance.
We're seeing some softness in same store sales as Australia, New Zealand and parts of Continental Europe are still grappling with Covid related Lockdowns and over the road trucking is facing the driver supply shortage, that's been all over the news.
But despite these headwinds a fuel businesses continued to grow in every geography as a result of our sales efforts and strong retention rates.
Tolls was up 14% compared with last year and showed impressive performance again this quarter growing to above 6 million total tag holders with 5 million consumer tags and a million business tax.
Now just for context, the business had approximately 4.5 million total tag holders when we acquired it back in 2016.
Economic and business activity has returned to relatively normal levels in Brazil.
Which has increased customer mobility and sales traffic through retail and toll locations, helping us to achieve record Q3 sales.
Lodging was particularly strong up 40% with airline monitoring up 61% on the back of the recovery and domestic air travel.
We hope to see more recovery and international airline lodging as borders reopened.
Gift organic growth was twenty-five percent year over year benefiting from continued retailer embrace of the online sales channel.
I'm looking further down the income statement.
Operating expenses were up 30% to $417 million and were 55% of revenue star.
Stable with last year.
The increase was primarily due to higher levels of business activity the effect of currency translation impact on international expenses and acquisitions.
Interest expense decreased 7% to $29 million, primarily due to higher interest income earned on cash balances.
And lower LIBOR rates more than offsetting higher debt and securitization balances.
As Ron mentioned are effective tax rate for the third quarter was higher than expected coming in at 24.1%.
This was due to fewer stock option exercises during the quarter likely due to the low share price, which resulted in minimal access tax benefits.
We currently expect our tax rate in queue for to be back within our full year guidance range.
Now turning to the balance sheet, we ended the quarter with $1.3 billion of unrestricted cash and we also had approximately $650 million of undrawn availability on our revolver.
In total we had $4.6 billion outstanding on our credit facilities and $1.1 billion borrowed on our securitization facility.
As of September 30th or leverage ratio was 2.76 times trailing 12 month adjusted EBITDA is calculated in accordance with our credit agreement.
We used $406 million to repurchase approximately 1.6 million shares during the quarter at an average price of $260 per share.
We still have $1.18 billion a share buyback capacity in our program.
So far this year, we bought back 3.1 million shares and we've closed three deals putting $1.7 billion of capital to work.
On top of that we still have low leverage and ample liquidity for additional deals and or buybacks clearly demonstrating the earnings power and attractiveness of our high margin hi cash flow business.
Looking ahead I would note that you can see our full updated guidance and assumptions and both our press release and supplement.
But before we open it up for questions I would like to inform you that at the most recent board meeting fleet core adopted the Rooney rule for all future board positions.
I would also like to mention that we expect to publish our latest ESG report to our Investor Relations website within the next few weeks and.
And we'd be happy to take your feedback on our ESG efforts. After you've had a chance to review that report.
But that said operator will open it up for questions.
Thank you.
At this time, we will be conducting a question and answer session.
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One moment, please while we pull for questions.
Our first question comes from the line of Darren Peller with Wolf Research you May proceed with your question.
[noise]. Thanks, guys like it's great to see the macro recovery and you guys benefiting there as well as the initiatives you've made especially on the corporate side and I just want to hone in on that segment for them in a given all the acquisitions and and the the rebranding and the efforts on sales focused on really software now. So can you just touch on there.
That in terms of what the different assets are gonna contribute.
Where you saw the opportunity for growth most profound in the next few quarters and then maybe just quickly I saw in the quarter, we're hoping for a little more acceleration now but I.
I think some of this may just be coming over time as the Salesforce marine advocates of smokers, but can you just touch on the current trends.
I think it decelerate on two years back a little bit, but what it could be <unk>. Thanks.
Darren Hayes that's Roger.
Pretty happy with it I say.
Sales continue.
Quite good.
Segment.
The the three areas are direct business, where we go to end clients and our FX business Cross border business.
Two three I think one was the direct businesses was 30% I think it's a the earnings supplement in the garage.
I think hygiene 19.
All the while we're digesting you know that apex acquisitions are pretty busy on that.
Right.
Those those two pieces are 90%.
The business and so they're they're wrong. Good the sales are good to your point, if we get any call. It recovery. That's a fair amount to get back next year, you know where I think we're bullish I think our early you again as high gene So that segment for for 22.
Okay, that's really helpful.
And I mean, just run this is should we think about it being much more of a software focused approach going forward in terms of sales versus you know more pure play virtual card I guess more ruled on rolling together all got that.
Yeah. That's a great question. Yes. Please we started out I think you know a couple of years ago, we bought kind of a full 80 software.
And plugged it into our our back and you know execution stuff. So we moved the myths and dramatically here in 2021, So we're salad and I don't know I think almost.
What we call a T. When we take 100%.
Clients payables.
You know versus virtual card.
Great News is it still a large old car right. When we sell that fall a T underneath that basically has the same engine to your point the same merchant database. The same you know.
Alrighty to earn interchange if you will on that forces. So it sounds better we think it has more value to the client, we generally routine or the economics, there and yet we still have.
I have a bunch of virtual car so.
You'll see more on that I think.
More of the business as usual for that way.
Got it.
Yeah.
Thanks, guys.
Our next question comes from the line of Andrew Jeffrey with Truest. You May proceed with your question.
Hi, Good afternoon would appreciate you you've taken the time Roger the commentary on the digital go to market I think it's particularly intriguing can can you talk a little bit about what the L. T V to cat looks like in your in your fuel business. I think you said, 50% of sales are going through digital channels.
And how we might expect that to inform your consolidated profitability over time.
[noise], Yeah, I think the call out Andrew was for our whole global our entire sales for Q3, we run around 65, okay.
Okay. So some some businesses are are better than that obviously, some horses hang with channel. So that's referencing that the digital channel, which is growing hasn't percent is lower than that 65% line average. So the good news is add to the mix of our total sales moves more and more to digital.
That should improve basically our our cost of acquisition.
And so obviously, we are delighted that more and more of the businesses movie there and the second thing I'd say about that is things that are less dependent on people right hiring training and retaining lots of people slows company's ability right the staff and grow that way so on the digital side.
We're getting pretty good at increasing digital advertising spend now and see the.
The the payback in terms of visitors and flow through conversions. So that's how we need we can step on a bit faster.
You don't get returns faster. So I say this this whole you know <expletive> basically to digital set top super well.
As it relates to the corporate pay economics, longterm I think you're right I mean, I think the big Big idea. We have is we got this giant fuel.
Fuel car client base, I don't 500000, I think or more active clients and they generally are small right we get.
A couple of thousand you know and rabid as they don't get a lot. So.
So the idea of being able to go to that group.
Sell them something else that has the same or more value.
Honestly could accelerate revenue growth, but your point is a way lower cost of acquisition, then prospecting for new business right going back to all the U I and all the way that we taught towards this decline so Alan I.
Say, it's Super early we just started the that would have an opportunity wanting to make our fuel card business and the synergy the assets of 20 years of doing that.
Pay out and then second drive again.
Of acquisition down at that cross alcohol and it becomes big.
Okay.
Charles would just like to clarify Roger.
65%.
It can cost.
What we call a N S.
Sales expense.
The cost of acquisition.
Divided by annual revenue from client or prospect so.
So.
If someone's gonna generate thousand on revenue for me annually coffee 60 $650 to require that account.
65%.
Which was Charlie.
Okay, and how does that compare to the traditional sales channels.
Yeah, I'd say that would be fairly stable through time some of it goes shift as you have more feels base selling them in the mail.
You've been around.
60% for years.
I left with a spotlight on it cause lots of other people spend lots of money they generate some sales, but you can't have her make a retired so if you. If you saw $100 million has been 65, you are under water. The first year, but then you've got call at $90 million and the average is all the second year with you know 80% flow through you got.
A million dollars flowing through for eight more years.
So that that's the key to profitability and are kind of business is basically this acquisition cost and the retention rate. So we call out because that's how the business actually makes money.
Alright.
Okay very helpful and I think that's an important metric thanks I'll get back in the queue.
Our next question comes from the line of Pete Christiansen with City. You May proceed with your question.
Thank you good evening gowns.
What I was getting a little bit into the large business this quarter.
I know you know.
It was a bunch of natural disasters in the last couple of months wildfires I that someone so forth. Just just wondering you know to what degree that was a contribution factor too similar outsize grilled the larger how she would think about the early business.
During periods of of natural disasters, how does how does that you know that business I guess from a revenue perspective, let me see me thinking about it ranging in these types of period.
Thank you.
Thanks for the question is wrong. So so on the first part of the question he had it bad.
Bad weather and stuff, how the lodging for business in Q3, some the answer so we pick up some decent amount of incremental volume when that happens kind of almost unexpected volume, but the rain on that it's like Super duper, low or sign up with contracts with people like fever and stuff. So.
Lot lots of volume and and and a little bit of renting a contribution.
On the a L E side I say it helps again, a little bit the villages that we did in that business is surprisingly over incredibly long cycle.
90%, plus I guess over the five or 10 years, we looked at is not a hurricane or natural disaster related is.
My brakes and your Housewives.
He left the candle onto the bathroom in the house burned down.
So it's it's it's.
Oh, that's just way more calm.
You know kind of every day, which is why we went ahead with a business is just way more ratably take you know all the hundreds of millions of homes or apartments.
Goes wrong with them it displaces people so.
Obviously the.
Sure.
Six on on a pretty good so I'd say for both business is it helps really just at the large.
That's that's helpful and then <unk>.
<unk> your comments on the fuel card business see a little bit of incremental softness which is understandable what's going on abroad.
In some areas, but just wondering if you could characterize the competitive market, perhaps for for larger fleet type deal and how that's kind of one of the I guess as we come out of Covid, Let me see.
<unk> <unk> competition intensify our.
Are there big opportunities ahead do you think just wondering.
Fremont on that thank you.
Yeah, I'd say probably is anything it's it's lesson during call with them and I think we called out for at least a few quarters now the overall fuel guard retention rate, which is I think it's up I don't have it in front of me, but it's certainly up dramatically in the last couple of years versus where it was.
You know a couple of years ago, and I think I called out that it remained at 93% to the corner and so.
I would say you know the Covid basically people shifted the other priorities and do an RFP.
Was it.
The the top one so the only thing I would say cause I think it's misunderstood is the real competition for US we study when wins and losses, if your old car, So where do we get the 35000, new accounts that came on board this quarter and where the 10000 that we lost in the answer.
Cause it's not our friends wax.
Basically business cards and other other forms of payment mostly business card. For example, so so that so the real competition for us globally and a few of our business is really other means of payment.
Okay. Thanks.
Our next question comes from the line of Ramsey Elissalde with Barclays. You May proceed with your question Heidi.
Hi, gentlemen, thank you for taking my question Tonight.
I I wanted to ask about the new sales bookings growth, which was a an impressive number.
Was this the result of any kind of changes you've made in your approach in terms of the sales organization.
Or and also could you help us think through and maybe even remind us of the algorithm by which those bookings will eventually convert to revenue maybe something about timing or.
How'd that actually operate.
[noise] yeah.
So.
I agree I tried to put a bit of a spotlight on it for the corner because it's it's a record territory to write you know the 150000 accounts. So I started with a platform 20 years ago, So sign up 50000.
Businesses and a quarter is good and then second.
19, baseline I think I called out our bookings dollars were up 30%. So forget the week off against the normal quarter. A couple of years ago was way up so the headline is our company sales way up.
Headline one.
And in part D as to why they why they way up I think it's the location we made into digital so start and I don't know four or five years ago, We did a bunch of things to get way better at digital marketing and selling obviously not the least of which is.
Tech staff that we bill to be able to follow businesses and everywhere. They crawl around and then what what they do to advertising figuring out where to spend and who the target money against again to visit our site optimizing our site to get conversion rates in sales you know the bottom.
<unk>.
Two applications going and and where someone could go on our site and literally or the program and gift cards in a couple of days and not have to talk to people. So the the reengineering I'd say.
Whole digital machinery has been first of all it was massive but we're getting the returns of it now it's it's it's obviously ramp way the heck up and I think it's another huge step up in our early plans for for 22. So I would say that's the main main driver and we're doing that everywhere, which is.
Way smarter in how we target and how we study where prospects go what they're looking at instead of trying to make up who we think might be interested in our products.
So on your second question on on bookings that.
The answer to it is let's say, we said Hey, we sold you know picking up $100 million a new business in this court to checkpoint what that means is as as you roll forward and that all gets implemented. It's obviously an annualized amount of 100. It wouldn't be 100. This year like we saw it throughout the years.
Example, in that case and so we have very different timings you know in our in our Brazil business, we sell in a Donald Instamatic and our fuel card business, we sell and we get it you know pretty soon and our corporate payments business, what your bigger accounts.
Takes longer so are we basically know our sales if you will a new business for 22 is all sitting in our pipeline to be implemented so that the bookings number turns into an annualized revenue number which is how we build our plan and then the timing of what we call the E meter amount varies.
Across the various businesses behalf.
But the main thing I want to make sure people cause it's it's working I don't want to get lost in the in the details here that the company our company is selling more of everything than it's Arizona.
Great sounds like it's not a not a fluke, but but by design. So that's that's encouraging uhm run I wanted to ask you about your your new compensation contract, which is structured and more of a pay for performance kind of style can you talk about why you pivoted in that direction in terms of structuring your your ear.
<unk> in sort of what gives you confidence about hitting those sort of future hurdle rates.
Yeah, that's that's the.
Interesting question I would say you know basically that you know.
The first 10 years of of the companies like was it a b form where the alignment between investors and managers with Super glare if value gets graded you know the the the the proceeds get get split versus this kind of hey, I, just give you money for showing up and so.
Kind of the DNA I like it I like it the people that they put cabinet Atlanta alongside of me get returns and I get returns and if we don't we don't.
And obviously, there's more leverage in that I've got up as you know a lot of money and so you know getting some money with our contacts stripes not not too interesting. So it's a motivating way to keep me at the Grindstone for a couple of years here to try to get the thing to the to a place and how how do I feel about the confidence.
The way people trade radar sock I feel good we have models come off of the sales retention math.
That we run all the time for your models and I see what the revenue and cash EPS looks like running through our machine and if it's valued fairly recently.
To those targets are there so I look at it and go you know it it sounded priced our earnings reasonably I think we can make the targets and then then I could get paid.
That's very helpful. Thanks, so much.
Our next question comes from the line of me here beat that with Bank of America. You May proceed with your question.
Good afternoon, and thank you for taking my question.
Maybe just to start I just wanted to ask about the gift card business up you know give it already hearing about supply chain issues cause that'd be a tailwind you in full Q, maybe a little bit of a unique opportunity that anything you're hearing if you could just talk about that.
[noise] Yeah, it's it's Ron again, so so yeah. There there are a bit you know on the on the card.
Retailers are ordering cycle. So I would say it looks you know kind of like it's going to come in on our plan and I was just talking to our gift had not long ago, but I'd say a outside for us is probably not so much that.
That the card orders would go up it's really.
Finally, the guy running it and we finally found a way to grow the business So and how long you you bought our company, but I've been trying to sell a business since I bought it.
And all of that.
The Guy has turned it into a business now that we think in the.
Can compound a double digit the way they've done it is.
Instead of just being an administrator an accountant for.
For the Macy's you know gift card account and $100 down the help thank all of our clients now Sal online so they moved over to helping sell online digital.
Gift cards, because they know a lot about it they they get paid extra for a wallet provisioning half the gift cards, there's breakage, where people can't find him any more they're in a draw and so uhm Super technically hired a new private label cards, and a wallet, but our guys came up with a way to do it. So we get paid money from a number of the brands.
Basically provision those electronically and then the guy came up with the idea of selling the content, we have I don't know.
Three or 400 pretty good brands.
Were so taken aback a business <unk> business so they built.
A bit of a revenue and sales dream now taking them for rewards to like companies like ours for example for employees. So.
Two or three new ideas on top of a caught up all chugging along kind of low single digit business has prop that thing up now to be north of 10%. So.
I have went through the guys plan a couple of weeks ago. So I think we finally have a set of ideas that are that are more sustainable to keep growing that business now.
Alright, great and then.
If I could ask about that just about Brazil. You mentioned, you know things are getting back to normal, but you obviously had very good momentum at selling more eggs.
So is that Oh arguments there that you know you might feel a little bit of exponential step function grow with him the revenues, but bag cause those are still meaningful even though like where you were in 2019 and you know you've obviously added a lot of capability is where you can use those bags too.
Yeah that must be you're you're you're looking at a.
<unk>, so so well wait a heck up the sales they're in constant currency, you know and and and.
Hi are way way up I don't have it in front of me versus 19 ship Check's gonna pull it up but.
These are the record levels whenever resolved in Q3 would've been an all time record number of sales and and what what what I said about the recovery it.
Brazil, and the complaint ditch COVID-19 lives in the spring and it was not a R.
And somehow has come out the other side there are there any places that we are here. So what that taught it it's open the stores there where we sell a lot we have chios at hundreds of hours of stores. So stores are open.
Ah mobility back some more people run into the tolls, where we all of US out so the the places basically where we conduct business to try to make sales are kind of reactivated again, which is which is helping drive it and that second I think we said before we've come up with a number of Super new.
Partner or shall ideas.
This one is we've got a couple of big car manufacturers to put the tags now on the vehicles. So when you go in and get your new Volkswagen and drive it out of the dealership. There you look up and there's a sticker already there with a little P. O S thing that says Hey call. This number go to this website were getting like 50.
Per cent or something conversion.
An adoption of these new vehicles rolling out of the dealership. So it's really I can't even tell you how good of a sale story that team has has put together.
<unk>.
A big Big idea for us that we poured a lot of capital into it this year 21, and two double or triple the fueling locations in the fueling transactions are up huge over a year ago now as we take the 6 million vehicles. So we had tags and give them more places to use the tax.
So.
You said to me you know.
But the free money.
And real acceleration calm it could come from this massive group of people basically just having more places to use the tag in the account that's already on there too.
And you get Pittsburgh transaction right. Thank you.
We get paid.
Are pretty attractive M. D are on the fueling in that example, yes.
Perfect. Thank you.
Our next question comes from the line of Sanjay Soccer Ani with K B W. You May proceed with your question.
Thanks, I wanted to talk about the partner Chow corporate payments makes the Charles touched on when we think about that 13, 14%. It's just a higher profitability contribution because you know your partner is it sort of bearing the expense and then as we think about you know how that.
Percentage is gonna migrate over time.
Do you expect that to go up or down or or you know is there how long are those partner's committed to thanks.
Yeah. So so it's wrong, let me start with with a second part so we probably have I don't know 15.
You know significant kinds of partners in that in that corporate payments grew a call top three or four most important another <unk>.
Eight or 10 and so the.
The contracts generally would run anywhere from probably three to five years, we just redo actually a couple of them with with some of our most important partners. This year in terms of what.
What what do I think I say down would be my answer. So if you look at it I think we put.
You must live in the supplement is a.
Page 15, yeah.
Yeah, you're right I would table yeah take the three pieces of our our corporate payments business partner thing that we're talking about and then the direct business, where we go to the incline and then the cross-border business, where we mostly go to the client. So you can see that those two are growing revenue much faster so the <unk>.
Six itself is ran o'clock will it would make the partner peace smaller I think going forward. So obviously, there's lots of spend there in the back rows bath, but your point they do more of the work. So obviously our rates are much much lower than than in a direct business. So we liked the business.
But obviously, 90% of our corporate payments business is.
As in the directed grasp war.
Okay.
I guess, obviously the chatter out there as you know you have a lot of these fintechs that are competing against you and with you and I'm. Just curious as we think about week course competitive edge I know Ron you talked about how you are putting the the acquisitions together.
To deliver a powerful punch, but I mean do you feel like there's the carpet the competitive intensity has increased in that market in your own or that you've widening your moat in that market I'm just curious to just get a little more color on that because that's obviously been a hot topic of discussion.
Yeah, I think it's a it's a super good question, I think odyssey theirs or people trying to get into power.
Hi processing, whether it's it's virtual or or just traditional Tesla physical car. So I think first off that a lot of the players are getting into more issue for issuing kinds of companies that are in that business right for <unk> for us, but but yes. Some of them are coming into our area, what what I would say back is.
The fallacy is somehow that the pain is.
Oh, the Xyz, Jack has some great Dane knochel fashion flic or out of it.
What I say is what they're missing is it's a it's an immersion network.
You can't monetize virtual cards, if you don't have a virtual hard merchant network ticket process.
And capture those transactions you can process.
The day goes on but but you you have to have the network. So we've had a Colorado a 10 year headstart on everybody and cleansing billing growing that network and then the second one is the whole service dimension of.
Huge pain for you <unk>, a massive group health partners, Yeah, clean up to date and get the stop processed.
So I think those those would be the couple of components that people Miss that this isn't just making a new processing engine in the garage and given it a W. S and I saw that'd be great there's actual real assets.
Assets that we have that cause our partners to stay with US I mean, there was a big thing someone gave it out though I hear two of your clients Bill Dot com an avid abroad. Another providers, we're doing great with that we've renewed the contract or a number of years with one of them were getting more business than ever from from another we're obviously have a great relation.
Ship some of those are targeted like Marquette a thing as an example is targeted to F eyes, which were not even and we're not in the processing business to help F is we thought they would use their own processors and stuff and so I think I have anything else that someone searching for some narrative it.
It isn't there we've got a good business, it's growing the Spanish growing like crazy, but because we make so much more money on the on the direct businesses and they're growing fast.
That mix will cause the apartment thing to be a bit smaller, but I think we're still you know.
I tell Ya Oh, Oh, all the partners about don't ask me the supplier go ask our partners. If they liked the job we're doing I looked at the performance reports I sit and performance reviews with the partners myself personally so from my vantage point, we're doing we're doing quite well.
Thank you.
Our next question will come from the line of Ken <unk>, such ASCII with Autonomous you May proceed with your question.
Hi, good evening, everyone. Thanks, Thanks for taking my question I, just wanted to dig into the into the field card business, a little bit more I mean, it looks like transactions came in weaker than we were expecting and I think you called out international and the driver shortage, but can you provide some some detailed there on on where you're seeing that weakness on the transaction.
Side, and and what's your expectation around the recovery.
Yeah, it's wrong. So so yes, I would say there's a there's good news and that is the good news is.
The bad news is a of the transactions are a little weaker than we thought the good news is they're not worth much so that the two areas of weakness or and trucking again, a particularly large trucking both here and in Europe and you guys have read the press on this that the large trucking firms just don't have driver's Ed.
Not only is it not drivers that quitting and for me going into smaller firms.
Firms now so so our biggest towser effectively just socked in terms of trucks and and transactions, but they're happy because they're they're just raising their their rate.
And then the second one I'd say is really Europe.
Big corporates, there with the white collar book, a business where people haven't gone back to work in Europe, and I don't know if you guys know that has been in Europe lots of people that company cars. So people like us have.
Car and we used to drive around and get reimbursed. So that those are the two areas that are we the good news is we don't get paid anything for those things or we don't get paid very much. So that's why our you know our revenue growth is still is still pretty good the the local business for example, in our partner business or so.
For healthy and even a big part of our UK business, which I'm looking at at strong stayed the same store sales recovery, so areas, where we get paid and we get revenue are actually pretty healthy.
Got it that that's that's really helpful.
And maybe just my for my follow up I think on on last quarter's call. You provided some preliminary thoughts on 22, I think you talked about $14 an annualized EPS in the second half of this year you have some interest rate had just rolling off and then the contribution from apex in L. E. So lots of moving parts, but maybe.
You can frame for us how you're you're thinking about 2022.
Yeah, that's a it's a it's a good question. So the way I mean I'd say this all the time if if you if you like businesses you can plan you should like.
Our business is the nature of the model that so what we do is we which we're about halfway through we build things off of run right. So we're stary here at work.
October you know volumes and revenues and all of our businesses and I think what I said is hey, when you post 352 or 350, we multiply and we go okay that sounds like <unk> and we got into a number in front of me check. This 350 something for Q4 of his track stop so there's another one so so hey, we start with.
The company is running earning 14 bucks on an annualized basis. Now then we sit there and say, okay. We had sale.
Record levels this year of which call at two thirds of that will be realized in 2022. So we can see what that number is then we have a bigger sales plan for 2022, probably 20% higher and we look at what's in year, there might okay that looks good.
And then we look at the deals that I mentioned that are kind of on top of that which I I think I called altogether call at 50 cents would be kind of my commitment on.
We use capital for so that's that's how we go the math, we take the run rate. We take this year next year sales, we take added things like the the the accretion of deal and that helps us basically target and number that we can get to it.
And we haven't planned a heck of a lot of Covid recovery, obviously spend the.
Weirdest, obviously 12 months this year.
So we have it pretty conservative so far and and you know getting some of that back we spell it probably 100 under 50 million it could literally come back a different day potentially in so that those are the those are the <unk>, what I was trying to say and the other with the macro honestly fuel prices are higher here than.
November then they were you know in.
In January and seemed to be holding and so when you when you roll all that up.
My message is it looks super early but it looks like Ah Yeah, we're really good number and the reason I go through all that math is to get people out of the Doctor and the company some insight into how they ought to think about it that things could happen, but that the company is pretty well positioned to put up with attractive.
Growth number for next year.
Okay, great. Thanks, a lot run.
You too.
Our next question comes from the line of David Toga with Evercore ISI. You May proceed with your question.
Thank you and the corporate payments business works reported a pretty substantial compression and revenue yield in the third quarter year over here can you comment on the revenue yield you're seeing in that business and you know a is there any significant change in or are there any call outs and verticals I E kind of travel versus non travel.
Hey, David It's Ryan it's a it's a good question so I'd go back to.
The slide the gyms within our earnings supplement I think it's page page 15, so again.
Sitting inside our harbor payments. This I think we report about 22% organic growth in what city per cent or something prints for the quarter.
VA. So so obviously, that's the overall number of data, but the pieces of that again are the direct or or N client business that cross border business and then this channel partner business and so harassed. The good news is the two big pieces, which are about 90% I'm looking at the thing are effectively.
Flat, so because we prices Israeli no right erosion.
And that part of our businesses. So all of the right erosion is really just in the mix of partners, where we get you know tax cable rates and we have some artwork I should've are all like Crazy. So is there volumes go up they enjoy a bit better rates are right in the base.
The base rates so.
Cause we don't have the same kind of alliance. If you will on the channel business I think we're a bit more insulated if you will from from right compression there and I mentioned it earlier I'd say the Super positive thing is a mix of that business is go into more for a D and don't forget.
We bought a S. M D company that has higher rates so as we roll in the fall.
Nvoicepay mix.
And this core paying one mixed those have been way higher rate and the existing businesses. So my guess is just kicking it out the channel business icy actually right expansion all in the next couple of years in that business, mostly help from mix.
Understood that's very clear just just as a.
Just as a quick follow up you commented earlier about the difficulty of finding drivers in this environment could you.
Quantify for US what this means for your you know fuel card business in terms of revenue growth in 2022.
[noise], Yeah again, I think I think the driver thing is a is a total.
Trucking vertical issue David I don't think it's it we don't see it obviously is significantly in the trade business is right.
Those people have to be trained in water and whatever they are so we don't we don't see the same kind of style. If you will.
Existing customers and those kinds of businesses so.
And and we see it mostly in the large account trucking business would be the other thing, which we don't make any money on either so I would say that you know who knows my guess is it's not a super easy fix or suddenly large trucking people to get the people. Although you see the pictures of the at the ports.
The need for more tracking so my guess is there'll be more incentives and pressure to try to get more people into the space over the next six to 12 months, but I'd say it doesn't do much Jewish one it's limited only to that trucking vertical too it's limited to the big firms, which don't pay as much.
And at three honestly, it's kind of in our run rate. The softness is really bad in the air for the last couple of quarters, and so I don't see it really getting any worse, mostly because of what I said that I think there's gonna be such a push to try to add people and I think the race I'm going to keep going off to attract people. So I would say it's probably.
Not a super duper impact on our forward thinking for a few of our business.
Understood. Thank you very much.
Always good to talk to you.
Our next question comes from the line of George Maha Those with Cowan you May proceed with your question.
[noise], Hey, guys. Thanks for for taking my questions and for for squeezing me in here, Ron you talked a lot about some of the I guess.
Hiring and and you know weight classes that are impacting the the people side of the business I'm just curious as it relates to the corporate payments business.
I have no clue about that has been impacted at all by any supply.
The customers or was that come up with all your conversations with them.
Yeah for sure I mean again, you know George I say pocketed, when we got a lot bigger customers there and so.
And I've come through this thing kind of unscathed and that others have had big problems. So yes, we have a a select group of clients that are kind of down and stay down and I think the supply chain is a big part of it.
Okay. That's that's helpful. I'm I'm I'm just curious to the extent are you able to quantify that in any sort of capacity will give it any sort of pull around that and then maybe separately for a follow up the minimum credit losses that you're continuing to see is.
Is that just a barbecue or or just you know cleaner credit now or do you feel that there is an opportunity to you know loosen credit standards. Even from here just just curious on your how you were thinking about that.
Yeah, So I take the first part gas.
We are one of the easiest things to quantify.
For us is to look at clients, we have let's say clients one through 100 and look at their volumes and revenue enterprise period, Let's say 2019.
232019, and then let's say, we still have those on our clients to go look at their volume and revenue with US and you know Q3 of this year. So that that's the stat, we call same store sales or or you know the the the.
The core client base. So yes, we for corporate payments for every business, we turn that into a revenue number and say, okay. We're foresaw whatever $20 million with clients, usually give us $20 million for two quarters ago than they do now and hey, we watch them to see whether some of that $20 million has come.
King back so we are super clear visibility on the amount of it and the rate of recovery.
Is that it.
Is that one unclear.
[noise] yeah. So just curious if you could if you could sort of ballpark would that impact would be or if you're willing to ballpark would that impact would've been how much faster the grew up with a new settlement.
You want to say anything about that.
Oh yeah.
We look at those pocketed groups so.
And corporate payments top 75.
Look out of last month.
75, most affected clients their volume was still down about half of where it was back in January 2020.
And so we'd like to get just last month. So we continue to track Ron mentioned, it's highly pocketed in certain categories.
Haven't quite reopened yet.
It's about it just.
Percentages about I'd say three 3%.
This quarter versus our plants and we guestimate of those hundred people would come back.
Way in Q3 for two years ago, and they came part of the way back they come back to where we got three points more.
Of growth of the things so it's still a significant thing and you know when the whole maybe we get it back and the guy ready to get back.
On your second question. The credit question, you know I say, yes, yes, and yes.
There's a silver that question, it's it's record lifetime lows of of credit losses first of all because we didn't sell much new business. Obviously 2020. So there wasn't a lot of new business coming on and then between the stimulus in relief and everything else you know people repaid us and stuff and so for sure. We we've opened it out I think.
<unk> said and and the last call last time that we expect those losses to take out a bit in a row range writers, we've onboard a lot more business. This year I Q4 losses will be a bit higher and we're actually doing that juggling question now for 2022, okay.
You know how much do we you know how often do we want to be in credit both with existing account in terms of credit lines. I mean same thing and they are saying I've got 500000, dual-carb clients that have some credit line and the credit lines enough to pay their fuel car Bill what are they come and they want to pay all my Bill all the bills with me and I said, Okay. I'll, let you based on what our credit.
The opportunity to increase credit credit worthy people for our new products is like Super high and so I say, we for sure will rebalance next year towards taken a more.
More risks certainly the the next year and try to make that trade off right between.
Your mental sales or revenue growth and an equal amount of losses, but we'll be careful I want to make sure everyone. On the calls glare, we're not crazy will will step our way and we will study our way and.
We will do more of it.
Very helpful. Thank you.
[noise]. Our next question comes from the line of Bob Napoli with William Blair. You May proceed with your question. Thank you. That's good afternoon, Enron and Tim and Chuck Ah So Roger.
If there's been a lot of questions asked and but it just what business or what what are you. Most excited about over the next few years, which part of parts of your business do you see the most opportunity to to maybe outperform.
No drive upside drive growth.
Hey, Bob it's a it's a great burst I'd say the the most to me the most exciting thing which is coming mostly from the world out. There is this centered she this this platform concept of bringing walk around plastic which is the business we mostly been.
And with payables together.
And so it's a way of creating you know in our case a massive synergy of these businesses, we built over 20 years.
Getting just way more out of them so I.
I gave an example earlier, we're launching wait to sponsor or the beginning of December the same would call at two in one where a client that as a business card of ours are a few old card could also pay bills with us and literally would just be in one place he could use our car and in our credit.
To pay some of his bills, obviously, we'd have access and it was bank account to fund the Bill is rapport, which long is walk around purchases like it does now I don't show all his payables the vendors the way it is now and it would all be in one place so.
That that has the opportunity joining up.
This is that we have patchwork great profit acceleration right, where you don't have to go fish wanted a time right for each new client you can go back to this free gigantic customer base that we built and basically start to join it up and cross sell stuff that's useful to them and.
Tech that we have down makes it look when you look at it it it's just stitched together now so I'd say that again.
Yeah, I tried to Santa thing I'm I'm also excited I know people that will be telling us, but you know we got a lot of legs and the businesses. We have on that page. We we pitches beyond thing and we've added segments everywhere all the businesses, which are adding grows on you know.
Obviously super happy about that but this this integration enjoining happens synergy where the new guys. It has some nice new shiny product. They don't have a 20 year customer base and spend and.
I don't get 50000 semi the nose all year of your guys at sign up 50000 clients and of course, so that's the super exciting thing.
Is can we can we monetize this bigger business.
Profitably would be what I would say is the <unk> the super New you know opportunity for us.
Great. Thank you and Charles just how are you feeling.
Can get margins the ability to expand margins from here over the next few years.
[noise], yeah about I'd say that our model tends to be one where we tried to grow top 10 plus percent and go a little bit of expansion I think.
So we've had for a long time ago will continue on that path. So I'd say well increment our way kind of actually go with that when you do make a little room for select investments, whether it's digital sales Ron mentioned, when we find opportunities to invest we will make those investments.
Always with the mindset will continue to grow the bottom line, a little bit a little bit faster than the top.
Thanks I appreciate it.
See about.
Yeah.
[noise] at this time, we have reached <unk>. We've reached the end of a lot of time for the call.
Thank you everybody for joining today's conference. This concludes today's conference you May disconnecting lines at this time. Thank you for your participation and have a great day.
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