Q4 2022 Fleetcor Technologies Inc Earnings Call
Afternoon, and welcome to the fleet core technology zinc fourth quarter of 2022 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please take note conference specialists by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions to ask a question you May press the start and one. Please note that this event is being recorded Oh now like to turn the conference over to Jim et cetera, Senior Vice President of Investor Relations. Please go ahead.
Good afternoon, everyone and thank you for joining us today for our fourth quarter and full year 2022 earnings call.
With me today, or Ron Clark, our chairman and CEO and Alyssa Vickery, our interim CFL.
Following the prepared comments, the operator will announce that Q will open for the Q&A session. It is only then that you can get in line for questions.
Please note our earnings release and supplement can be found under the Investor Relations section of our website, absolutely core dot com.
Now throughout this call, we will be covering organic revenue growth and as a reminder, this metric neutralizes the impact of European your changes in foreign exchange rates fuel prices Anfield spreads. It also includes pro forma results for acquisitions closed during the two years being compared.
We will also be covering non-GAAP financial metrics, including revenues net income and net income per diluted share all under the just the basis. These.
These measures are not calculated in accordance with gap and may be calculated differently than that of other companies.
Reconciliations of the historical non-GAAP to the most directly comparable gap information can be found in today's press release and on our website.
I do need to remind everyone that part of our discussion today may include forward looking statements. These statements reflect the best information has it today.
All statements about our outlook new products that expectations regarding business development and future acquisitions are based on that information.
They're not guarantee of future performance and you should not put undue reliance upon them. We undertake no 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 in our annual report on Form 10-K, both filed the Securities Exchange Commission. These documents are available on our website and it said dot Gov. So.
So now with that out of the way I will turn the call over to Ron Clark, Our chairman and CEO rock.
Okay G. M. Thanks, good afternoon, everyone and appreciate you joining our queue for now.
2022 earnings call at the top here I'll plan to cover a forest objects. So first I'll provide my take on our queue for results.
I'll recap our full year 2022.
Performance.
<unk> I'll share our initial 2000 twenty-three guidance.
And then lastly, I'll update you on a few at the key priorities that were working.
Okay, Let me make the turn to our queue for result, which exceeded the top end of our guidance range. So are better than we expected we reported revenue of 884 million that's up 10%.
And cash EPS, a four O four that's up nine.
9%.
Our cash EPS was health.
In the quarter via Brazil tax happy.
Which did lower our queue for overall tax rate.
Organic revenue growth coming in at 7% overall.
Side of that our corporate payments business Super good growing 20 per cent of the quarter.
I'm against the prior year, our queue for organic revenue growth was negatively impacted by about 20 to 25 million of one time revenues sitting on the queue for 21, so that reduced.
Organic revenue growth by about 2% to 3% in queue for we do expect Q1, 2000 twenty-three organic growth to return to the 9% to 10% range.
Cash EPS in the quarter pressured.
By both higher bad debts, and significantly higher interest expense and as a result of the rising delinquencies. We're seeing and are you a few business. We did make the decision in queue for the slow what we call our new micro digital sale so are very.
[noise] smallest account.
We also began tightening terms of our existing SNB account.
Both of those things really a cautionary moved to try to control bad that expense here in 2023.
Unfortunately, our credit risk is really narrowly concentrated in what we call. These very small micro accounts.
And also in our newest vintages think 12 to 24 months.
So really impact a pretty small portion of our overall business.
Turning to the truck trends fundamentals in the quarter are quite good <unk>.
Same stores finished plus two for the quarter.
Retention remaining steady at 92% in sales grew 19% in the quarter, Despite our decision to.
Again to slow the micro sales and fuel so look all in all a bit.
Better finish.
Then we unexpected.
And continuing strong trends, helping us here is a roll into twenty-three.
Okay, Let me turn to our full year 20 twenty-two performance along with the progress that we made to to better.
<unk> in the company for the midterm so for the full year 20, twenty-two we reported revenue of 3.4 billion.
At 21% and up almost 600 million over 2021.
Ah cash EPS of 16, 10, that's up 22% versus prior year and Ah.
Fall 85 cents.
A head of our initial Ah 20 twenty-two guidance.
Full year organic revenue growth of 13%.
Full year sales or new bookings growth of 21% and we closed five capability acquisitions.
If you include the Georgi deal on January one.
So really.
Really good really outstanding performance against the primary objectives that we set.
So in addition to to the financial goals you, we really did advance pretty meaningfully are beyond our strategy and twenty-two in which we stand either or both the product set of the business or the customer segment that we serve.
This is helpful. I was because at the that grows the Tam and obviously better positions the business for a raffle longterm growth.
So just a few of our beyond highlights for 2022, so and global fleet a significant progress on R. E V capabilities. You know, we we acquired or European public charging network, we've got mapping and payment applications. We've got.
At home charging software and.
And we've integrated all that to our I C E fueling solution. So so great progress there.
Corporate payments, we added an a P automation software front end to our whole a P payment execution business.
As the company's fastest growing business, so super delighted with that I'm in lodging, we've gone beyond our workforce core workforce business that you knew vertical the airline vertical and the insurance vertical each of those reaching almost $100 million in revenue.
2002.
And then finally in Brazil, we keep expanding our tag fueling solution, we vonda, even more accepting sites now and more users and I think exiting Q4 reached about 10 million annualized transactions fill up the combo and 22 are really good.
Financial performance.
And what I'd call a significant strategic progress so we're quite pleased.
Alright, let me, let me shift gears and make the turn to our 20 twenty-three outlook.
We've worked hard to to build a plan to meet our most important objectives and what is a.
Challenging environment. So here is our 20.
Twenty-three guidance at the mid point.
So revenue with $3.825 billion that would be up 12% or approximately $400 million uhm EBITDA of 2 billion twenty-five that reflects up 15% or up about $260 million and.
And then cash EPS of 17.
Dollars at the mid point that would reflect up 6%.
We're certainly out looking a pre unfavourable macro environment this year with a smidge lower fuel price.
And significantly higher interest rates.
So those two things are expected to reduce our 2000 twenty-three cash EPS by about $1.75.
Implying would we be giving a 18 75 cash EPS guide and kind of an apples to apples environment.
Our twenty-three plan does set out a number of pretty important objectives.
To deliver organic growth, 10% plus.
To grow new sales, 15% plus and.
And the diet or control, our operating expenses with a plan to expand margins about 150 basis points for the whole year.
200 basis points exiting 2023.
A major assumptions underlying are 20 twenty-three guidance are first that are 22 acquisitions will add about 2% to 3% two or 20 twenty-three print a revenue growth.
This twenty-three guidance does include Russia, and will until we have certainty of the divestiture.
Guidance assumes that we can manage bad debt equal to the 20 twenty-two level. Although we do think it'll be more elevated in the first half of the second half and then finally, we have not assumed a U S or global recession, but rather bills are twenty-three plan <unk>.
Volumes.
Just based on what we can see and projected from there.
Our confidence in this twenty-three plan our outlook is bolstered by a few things first we've now seen or twenty-two finish good you know better than we thought.
We close the global reach cross border deal. So that did our numbers. We've made expense cuts already so those are behind us we're seeing some recent improvement slight but improvement in both fuel price.
And FX trends.
We just recently implemented to interest rate swaps that will lower.
20, twenty-three interest expense at obviously six right.
And then lastly, we qualified for Brazil tax happy.
That was slightly lower our 20 twenty-three.
Consolidated tax rate.
A bit better than our earlier expectations.
Okay, Let me transition and my last subject, which is an update on some of our important.
Priorities, So Russia, let me, let me start out with Russia.
Still making good progress.
On the sale of our Russia business now we've had lots of interest a number of parties that a bid for the asset and.
And we've recently moved a select group of buyers.
Potential buyers into the into the diligence face timing is probably somewhere Ah late Q too and at this point our plan would be to use the Russia sale proceeds to buyback F. L. T stock if we did that with kind of a mid year close we're looking at about 30.
30 to 35 cents of any ear.
Cash EPS solution.
Okay. Let me turn next to the F T C matter.
Here's to be finally in the in the home stretch we're at a point now where we do expect the court to issue an order likely here sometime in Q1 detailing incremental processes and disclosures that will need to implement so obviously once clear will move quickly.
Me too.
To implement those things, although we we will we will require some time.
I mean, it's just as a reminder of the disclosure enhancements and process changes that we have voluntarily made over the last few years have not had a material impact on our financial performance nor do we believe that this court order will have a material impact on our financial performance going for.
Forward.
The last up E V. Again, you know really good progress on that initiative.
So in the UK, we're now in market with what we call. Our three in one E V solution for commercial fleet clients. So in this case. It include the UK public E V charging network at home charging software and Ah.
Of course, the traditional I C E fueling all of those integrated into one and I think we've got about a thousand of our UK commercial fleet clients using the solution. So.
Doing well they're additionally, we are in the market and Continental Europe with a D V solution really for new customer segments. So beyond commercial fleet. So the new segments would include E. D car manufacturers charged point operators, you know even EEV drivers.
Unfortunately, we are seeing adoption by all three of those customer segments.
Which for US is clearly all incremental.
To our fleet payment business. So look the goal again is to be a big a major player in this transition than I do on a report you know we are officially out of the blocks.
So so in closing.
Again, we finished 20 twenty-two pretty well again positive sales and retention trends that obviously health the setup for this year.
[noise] twenty-two full year financial performance, you know super good, 21% and 22%.
But bottom line way ahead of the initial guide.
Again, we've advanced Mmm last year, a number of important beyond ideas that support the future growth of the company.
Our outlook for twenty-three we think positive.
I'll looking double digit revenue expectations, improving operating margins and EBITDA eh.
Although our <unk> profits for sure will be way down by the the interest rate Spike.
We do expect to clear or Russia, and FTC overhang here in the first half.
The same time, we're going to continue to stake out our physician and the new E V World again big opportunity for Us <unk>.
And lastly, our mid term objectives remain intact, we want to grow cash EPS in the 15 to 20 per cent range.
Once we laugh the 20 twenty-three interest expense headwinds.
So with that let me turn the call back over to Elisa to provide a bit more detail on the quarter Elisa.
Thanks, John first the financial details as mentioned, we post the 10% growth in revenue in the corner. So I had my seven per cent organic rabbits are $57 million, which held out into in N. On it the remaining percentages came from $20 million a macro talent in formula Your income acquisitions made over the past year.
Organic revenue growth was negatively affected by the impact of one of items not expected to repeat from the fourth quarter of 2021, including breathing backlogs card orders accounting for that in the normal course and acquisition squirrels breaks that 2020th <unk> organic or have any grass to meet our double digit targets.
Corporate payments average revenue crashed like 20 per cent driven by continued strong new sales across by a direct and cross border.
Pacifically or direct corporate payments business grew 27% and continues to demonstrate very robust scribe.
Cross border with that 24% and other very good quarter as new sales remain strong activity levels will robust across the alley, all geography, and we completed the full tech integration at eighth at inter or cross border platforms.
<unk> continued to perform well at 14%.
While we've largely lap the airlines have a recovery benefit the airline business was still at 38 per cent in the corner.
Sweet of services, we've bought into this business substantially enlarge as I can and durability of our lodging credit profile over the medium term.
Feel what's up organically two per cent growth in international feel largely off that I softness and are you asked micro SNB customer segment.
And I might ground leming companies with less than five vehicles. So the smallest at the small the economic cost of higher fuel prices inflation and in the case of micro S. M. B checking flower spot rate has negatively affected their ability to manage expenses, including <unk>, which is a result in higher Baghdad.
We've also seen some negative next shift among that migrate chaplain segment is higher margin independent checking volume is living to lower margin volume as those drivers moved to the large or contract carriers.
Micro stagnant generated more than 75 per cent of our U S feel bad that losses, and does the fourth quarter and full year 2022.
Fully selling the branch of the economic headwinds.
Given the higher loss rates of the micro client pregnant that we are experiencing we have significantly tightened credit approval standards and a purpose like targeted a narrow way in order to get ahead of any further stress and that's microsatellite <unk>.
The result was a dragon organic feel growth in the corner when you're taking a balanced approach to new customer demand Xanax Kennedy prioritizing customer segments and industry that are healthier so dry I feel growth in 2023, all while limiting our Baghdad exposure.
We will continue to sell the residual effect of tighter credit and higher losses and that micro stagnant in the first half of 2023, but what expect to clear this ever hang and returned to normal I feel growth rates in the back half of the year. This will likely cost 20 twenty-three feel organic growth to be at the low end of our normal range.
<unk> was that six per cent compared with last year and the impact of strong anything else with masked I almost 5 million of nonrecurring revenue in the fourth quarter of last year.
12 sounds were strong in the current quarter recovering from soccer sales mid year, and helping offset some of the prior year, one time benefit impact.
<unk> to return to its load of <unk> in 2023.
We've made great progress starting out there beyond toll network and now have over 5400 beyond told location, including 2200, feeling patients 2300 parking lot 750 drive through and 150 car washes that except our tag as an additional service to our customers. We are a reseller of insurance from other.
Accompanies two or more than 6 million tag holders in Brazil for home, we have negotiated preferential pricing.
This insurance offering is growing quite fast we saw more than 38000 insurance policies in the corner. We also signed up Santander as I told distribution partner, which is the third largest bank in the country. All in all we're very bullish on the outlet far Brazil business.
Gift organic credit and key for was down 11% ever prior year key for as the card orders that pulled for it and the last two quarters and in queue for prior year did not Ricky.
He does a lumpy nature of card orders between quarters. It is best to look at full your guest organic growth, which was 11% as the newer online card sales programs and at the Bvt program have improved the growth of that business.
Looking further down the income statement operating expenses of $514 million represented an increase of her prior K for primarily data recent acquisitions higher Baghdad and volume related increases we did recognize 5 million an expense associated with reductions to staffing levels and the termination of office space Places as.
<unk> at our expense space for the current challenging environment, we will continue to manage our expenses with a very close eye on our outlet.
Add that expense was $41 million or nine basis points consistent with the third corner 20 twenty-two level I've already talked about what we're doing to manifest suffice it to say, we're very focused on it.
Moving the leather line interest expanse of $74 million and a quarter at 168 per cent over the prior Q4 and 165 million for the full year at 45%. These increases were driven by higher reference rates on our floating rate that as well as incremental borrowings per share repurchases and acquisitions.
Are effective tax rate for the quarter was 24.2% versus 25.6 per cent last year and lower than our guidance. The primary driver was the impact of a pandemic related tax benefit election in Brazil realized for 2022 and a quarter.
Now turning to the balance sheet, we ended the quarter with it for 1.4 billion in unrestricted cash and approximately 600 million available on a revolver. There was 5.7 billion outstanding on our credit facilities, and we had 1.3 billion thyroid on our securitization facility as.
As a reminder earlier in the year, we upsize it extended our credit facility by approximately 500 million and extended the maturity three June 2027 at quite attractive rates.
As of December 30th or leverage ratio with 2.8 times trailing 12 month adjusted EBITDA as calculated in accordance with our credit agreement.
Capital allocation was once again balanced and 2022 and.
In the quarter, we repurchased roughly 600000 shares at an average price of $188 per share.
In total fever, your purchased about 6.2 million shares during 2022 for $1.4 billion.
Guidance for sure Count for 2023 is 5 million shares slower than what we got it to a year ago and total we've bought back 11.7 million shares over the last two years.
We still have a 1.2 billion authorized for future repurchases.
In 2022, we spent 217 million on acquisitions and minority investments excluding global reach on January 1st 20, twenty-three solidifying, our physicians and Edie corporate payments and lodging.
Now, let me share some thoughts on our queue went outlet and are fully your assumption.
Looking ahead, we're expecting Q1 2023 revenue to be between 875 million and $890 million and adjusted net income per sure can be between $3.55 and $3.75.
This is largely data revenue seasonality, where certain businesses such as steel logging in tolls tend to have a lighter first quarters due to weather and holidays S. At the first quarter tends to get the lowest in terms of both revenue and profit for a company.
We have a bit of a preview for the first few weeks of the year and we are tracking to the guidance we are providing.
A note for the full year 2023, we anticipate managing bad that flat to the 2022 levels expecting it will be higher than the first half of the year and then improve entered the second half.
We expect 20 twenty-three net interest expense to be between 312 million and $332 million based on the forward curve as of February 1st 2023, which implies reference rate will peak sometime during the third quarter of 2023.
As we disclose any earnings release and you can see on 521 and 22 of our settlement we entered into a series of interest rate swap agreements to fixed rate on approximately 1.5 billion of our floating rate that.
These spots will provide some relief on our 2023 right and help someone at the downside risk from further rising interest rates the inverted Ford right curve enabled asteroid he's 2023 interest expense and lacking in flower future right over a three year period with these new spots along with our previous outstanding slot we know.
Have fixed interest rate on a total of 2 billion of our fairy up off right that for most of 2023.
Last week, we also entered into a hero cross currency spot to benefit from the lower euro interest rates with an implied interest savings of 1.96% on 500 million of notional debt.
With these various slot we have now managed interest rate and ethics rasp on two and a half billion or 47 per cent of our debt excluding the securitization.
We believe these actions will help mitigate the risk associated with continued increasing interest rates in 2023.
Estimate these swaps to reduce interest expense by approximately $35 million in 2023.
And finally, our tax rate in 2023 is expected to be slightly higher between 26 and 27% as the continued benefit from that Brazil tax holiday is more than offset by higher tax rates in the UK as the UK statutory tax rate increases from 19% to 25% in April of 2023.
The rest of our assumptions can be found in our press release and supplement.
As I complete my prepared remarks, I would like to extend our gratitude to or more than 10000 employees around the world, who helped us deliver such a strong finish to a great ear and who will be the driving force to even greater heights throughout twenty-three.
Thank you for your interest in our company and now operator, we'd like to open the line for questions.
Thank you we will now begin the question and answer session.
To ask a question you repress stars and one on your Touchtone phones.
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That this type of your policy limit totally for the first question.
And our first question today will confirm Sanjay sat Corona with K V. W. Please go ahead.
Thank you you talked a little bit about this this rising delinquencies among the micro S. Amies I'm just curious.
<unk> was that fairly contained inside a few of the free.
Business or what what are there any other weakness was there any other weakness among the sme's and I'm. Just curious if you think that this might be a leading indicator of more things to come if you'll go up market. I know you guys haven't assumed any additional macro pressures and such.
[noise] Yeah. That's a good question John J E. S. P is the is the short answer a few business really.
U S fuel business, because the the terms and the way, we collect money and bill.
Internationally is fundamentally different the germs, we pull out all the money et cetera. So yeah. The only place that we see the micro and again, we're talking Super-duper small mostly wanted to card accounts and Super Duper, new on the books again, a year or two that.
Portion of the overall shell is about 75%.
The credit losses, so although the credit losses from that group a sizeable the amount of business from that group is does not super size of it. So yeah. That's that's the only place we're seeing it in fact, when we study the cohorts you know that are a bit larger or more mature longer on the books.
It's super Rateable with a trailing at 12 24 months.
So it's super Duper pocket and for some reason.
And you don't think it's a leading indicator or anything.
Historically, yeah. I mean, you guys guess is as good as mine we've been we've been talking about you know macaroni recession for for six months now and we started to look everywhere and we just don't see it we don't see it in volumes, we don't we don't see it in sales.
Is the one place where it's shown up and it started.
Oh, I don't know call. It maybe six months ago kind of September October we saw the delinquency start to step up.
So.
My personal view is that you know.
These are quasi consumer businesses, you know and as the the times ran out and as the savings that to please. It is just more pressure you know on these kind of businesses than than others and so.
Which is what student body right when I when we saw that was it okay.
You know you guys always ask the anchor rope overpayments fast so we get up and go and moved sales dollars.
And implementation dollars away from our tiny.
Fuel business over there until we see see how that plays out okay.
Okay, Great just one one quick follow up for Lissa on you know some of these impacts that happened to the growth rate in the fourth quarter as I look across the different segments. You know there's been a lot of variability in the growth rate I'm, just curious does that affect multiple lines. Those those items, there's one off items.
<unk> a decent amount in our toll is business as well as a little bit and our <unk> those two again.
Okay.
And I would just add you know this is all me and of course it is a savage a feed the.
Via collection.
Yeah, you want went out with <unk>.
You know we view it kind of is more of a bump that <unk> I did try to call out you know bumped in the opening basically that we're out locating this quarter were city and the ZIP back at nine or 10, so really in our minds is cops issue not not a run rate issue.
Got it alright, thank you so much.
Dr.
And our next question will come from Bob supposedly with William Blair. Please go ahead.
Good afternoon.
I appreciate the question. So I mean, your Roger corporate payments business, you know very strong within that you talked about a P being strong, but maybe just maybe a little more color on what the strawberry areas in we're in the quarter and did you see any deceleration significant deceleration in any areas.
No matter what can focus on the S M b market.
Yeah, it's good to always good to hear that you're doing well so.
Close to 20%.
Organic for the quarter for the for the category and that's probably our number for twenty-three you haven't asked me yet, but I stay inside of our overall 10 per cent were out looking really 20 now so some more than what the I T. So really inside of it everything good well, except the channel.
Partner thing you know, we said it before but some of the partners Isabella was horrified ears move some volume to other people to to get different race. So that does this has been flat it all backwards, which means the direct business as a girl probably 25%.
And it's like you know the full AP, where we have every modality missed the fastest growing I think that particular, a lot of business is probably up 40% to 50% in the corner and now we've stopped some software on the Friday and so either I lead volumes up so I I'd say the.
The whole business is doing well again the cross border.
Sales were rock and I'm looking at the page in front of me they were up.
60% sales.
Thank you for we've honestly just ain't none of the process of eating you know another piece of business, which deepens in the geography, So I'd say other than the parkers say, it's firing literally on all cylinders.
Thank you then.
Your investments Nev appreciate the continued no forward looking moves there. If you would can you give any more color and we get this question a lot I'm sure everybody else does it you know the the economics as you have more experience <unk>, you know, especially in Europe , I guess, where you have are you <unk> can you give any color.
Her on the economics of E b versus gas and your confidence and and yeah no not the Super good question. So.
The best place for Us to look really kind of the only place to look for us as the UK right. We've got a big bright commercial athlete business, there and they've been out of the blocks pretty early so we've got all I think about 1200.
Active clients that use both are you know traditional dueling and some amount of a V. I think the average is about 50 per cent penetration E V. Among those account what I know for sure is that the enterprise the bigger cows.
Economics are super favorable to to us as a movie.
The the waves is probably pretty obvious that you get less fees generally from big accounts rises the data negotiate.
But they need the zoo E D things and so the ability to get the wrong enterprise customers over their report that I looked at a sample that 10 or 20 accounts is that something like 50%.
Our revenues among the enterprise I'm guessing that that probably won't be exactly the same story with a super small town. So we will agree to do I told our guys come back probably 90 days in a report out with <unk>.
Provide some actual data on this question because it's it's the million dollar question right for the commercial fleet businesses.
Stuff comes across you know are we are we are different basically the economics I'd say early on it looks like yes, we are but but more to follow.
R E DS growing rapidly.
And your <unk>.
I mean, yeah. It is S.
A new sales are obviously right that makes it very hot or two vehicles the percent E V. As growing up at the base is you know like in the United States I think there's I don't know.
300 million registered vehicles in the new car sales or 18 million a year. So half of the <unk>. It's nine on 300. So it's Super high bought move the the base is is what is what I say, which is again. The other thing is you know is the a D adoption is.
Happening more and consumer and lighter vehicles right versus like 18, wheelers, which is yao the motivation for us to Chase. These you know a car manufacturers any D consumers because there's gonna be way more of those in the coming years that they're gonna be you know heavy trucks.
<unk>.
Thank you.
And our next question will come from a dead color with Wolf Research. Please go ahead.
Hey, guys. Thanks, Roger can we go back to the corporate payments segment for a minute again, just because you know there's obviously been a lot of data points in the industry around us M B's.
Having some challenges and a and b to be activity being a little bit more you know having decelerated you don't seem like you're seeing that as much. So maybe a little color on what you are seeing in the marketplace and then more importantly, just medium to long term you know that's obviously an area that we've talked a lot about in terms of convergence of some of the assets to really offer a moralistic solution on the.
The account payable side and combine that with payments you know whether it's in boys paying some of the other other assets you've acquired how has that been progressing just maybe a little update there as well.
Yeah, Hey, Jonathan that's a good question. So the the good news for US is that our corporate famous business is a middle market business.
So our average you know how there would look like <unk>.
Two to 300 million in revenue for the client.
So you know a decent size.
Thighs company, you know credit worthy kind of company. So I'd say, 95% of our corporate payment business is what we all would call the middle market client. So the S. M. B move that we made whatever a year and a half ago was really trying to be upside I was trying to stand.
Add a down market, so give them what's going on with all of our friends and has been made we're lucky. We you know we haven't made as much progress there. So that's the headline we're seeing nothing you know volumes <unk> as you can see the numbers of the revenue is again, if you if you kick out the art pieces compound on the 20th.
5%.
And we're all looking at the same kind of number on the direct business you know here it appear at twenty-three.
On your second question, which is also a super good one is we got all the stuff now I feel like it's you know make it a Thanksgiving dinner is 8 million ingredients to down yeah. All of a sudden Sunday, there's a plane is going to be another six items on the plate well, we were kind of vitamins Saint John but close to dawn, we've got all the stuff we.
Got smart cars, we've got <unk> you automation software, we pay every modality, we've got a global international.
International payment capability, we've got network. So we kind of have this stuff.
Darren to offer the whole package it out to the middle market clients, you were getting more and more clients to buy both are smart cards and our a T stuff cause we're going you know we're in the C. F O office and as you know we moved the branding. So it makes more sense now one company is coming in with a full line. So I would say.
That gets the marketing challenge in front of US we've got the stuff they have Ah an integrated pack and now between the brand and educating sales guys in the market.
I think we're gonna sell way more of the package stuff yeah, as we move forward here Oh.
Okay. Okay.
Timing wise run and then and then just I I actually do have a quick follow up or listen if that's okay. On the revenue growth rate I, maybe I'll just throw it in now which is would we look at the the cadence on revenue growth trends I know, there's some seasonality to it but you know again, you're coming off of the 7% read obviously there were there was one time items that you called out last year.
<unk> quarter.
Just to make sure there's no <unk> did you see any other kind of impediments to that grew three this here beyond macro in terms of one time items that we have to go over or anything else or does that do you see that being pretty clean for a macro adjusted basis.
Yeah, I mean, I would expect that it sure does the macro.
Always four nanogram, undergrad, which neutralize it those items that we wouldn't expect anything meaningful other than athlete, perhaps call out in the same quarter. Prior year. So I would encourage you to look back and <unk>.
Uhm no I mean, I think that we are.
Other than as we spoke into the micro S. M. B customer segment you are.
Fuel.
And I think that's going to be.
The only the only items because you know the Guy Garrett today, It's Veronica and the guide is you know 10 and 12 <unk>.
10% organic at the Bitcoin and add a couple of points with the the role of the acquisitions of the <unk>.
That's what <unk>, that's what <unk>, that's not working.
Oh understood. Thanks, guys.
<unk>.
And our next question will come from <unk> J P. Morgan. Please go ahead.
Thank you so much could to chat and I wanted to ask on the margin outlook I think you'd mentioned up 150, <unk> that'd be 90 days ago your previous two to 300.
<unk> I'm curious what what's changed in the last 90 days is more about investing or changes in picking round cost things.
Things like that <unk>.
Yeah. Good good question Attingent. So yeah. The the the the plan that we land. It is I guess 150, a full year in queue for 200, and the and the short answer is.
<unk> I, just decided to spend more money on the acquired businesses. So if you. If you look at our core off X. So so kick out all the 22 acquisitions. We did it's below 5% I think it's a little bit three or 4%.
But the the pile of acquisitions, we're sending another Idaho 70 or $80 million a.
Year over year, and so a bunch of those are dilutive <unk> E V things. There you know one nine things to integrate like global reach their sales and raspberry and stuff and so that that was the call. The call was really to make sure that we gave in our hearts.
<unk> new asset that we just got so that we can get a return on them. It says we could kind of make all the numbers work you know we we start with the design. We start with you know what is the goal and work our way around it. So I felt like we kind of you know Nathan I'm, only one kind of that as well as on the job you know sales and I teams.
<unk> <unk>, 15%, so growing obviously, you know operating earnings faster so it kind of fit into the envelope. So we made the call to do it gotcha.
Gotcha No <unk> investment to make then just as my quick follow up on the App your.
Your appetite to do deals I know I always ask you this wrong, but just.
From Ah deals perspective, how how does the pipe I look I hope you have a lot going on your spending more on acquired us that's including a movies or more to do in the short run or can we see a little bit of a pause from dealmaking standpoint.
Yeah, you you.
Certainly no as well it should we are never will know slipped out of five lines. So yeah. We we had deals I'd say it is kind of.
My mind, a little bit of good and bad on the deal front I think good is I really am seeing some reset on the valuation side right.
Prices have been down longer I think people that were waiting you know we have waited longer than I see in the <unk> in the you know the bits are looking for the App. So we're looking for so that is obviously the cost of capital. So it raises Ah you know your confidence in your thesis right to pull the trigger to make sure we're generating right.
It returns so I I'd say, there's you know a little bit of tension between though so better maybe valuation outlook, but quite a bit higher cost of capital. So.
We've always issues have not been a financial buyer of things, where we just buy it and absorb it we've always had some view about a double profit. So again, we have you know things in the eye line that we'd like that we think we can make returns on and if we if we can we will.
I think we're probably back to capital allocation with less excited about vivax sitting here again, given the you know the cost of capital. The appreciatively short term maybe longer terms, okay, but short term isn't quite as attractive.
<unk> frankly is a bit crazy.
Crazy more attractive you know given this breads are wider arrive between deposit race and and borrowing rates, So I'd say that.
Kind of some of these changes is affecting a bit how're thinking about with a 1.3 billion. Elisa 1.3 billion is the plan change. It. So I'd say my first and foremost is always deal.
We can make make it turns on.
Okay.
<unk>.
Grateful for your thoughts.
And our next question will come from Ramsey also with Barclays. Please go ahead.
Thanks, So much for taking my question I wanted to follow up on on on your response to <unk> question earlier.
Having all the ingredients in place within corporate payments to kind of you know realized that that sort of power. My question is actually brought her across the entire enterprise and maybe all the segments within the segments are you know kind of organizationally technologically well positioned for cross selling or are there still initiatives and capable.
Abilities and linkages.
That need to be made in order to kind of unlock the synergy potential in the in the in the broader enterprise.
Yeah, Hey, Ramsey is <unk>, it's a super Super <unk> a good question I say we're out ahead.
On the synergy and related this in corporate payments and the primary reason is it's a middle market business.
So whenever you go to a client that's got two two to 300 <unk> revenue. It has more needs right. It does more things obviously, it's got a lot of a P. Right. If it's got $2 million to $300 million of revenue. It's obviously got a lot of employee is probably running around you know and vehicles and so you'll see selling.
<unk> for example to our corporate payment that panic lines and fuel runs 10% to 12% of all the spend volume.
<unk> middle market corporate payment cards, which I guess wouldn't wouldn't you know wouldn't be shocking so in that in that area I would say for sure there will be a broad package of services that will all be sold into the same client as you move into the S. O D thing I think we're gonna move.
Organizationally towards a more integrated model like you're saying because the the tech I think frankly as the head of our our Oregon. So we're looking at sorry to consolidate the vehicle related purchases. So if you're sitting in a car you buy fuel or you recharge.
Johnny B or you pay for a toll when you go into a parking spot forever all of those even 92 per cent of our lodging clients drive a company vehicle you know the tree driving truck to the to the actual hotel. So we're in the business mostly of vehicles.
How many vehicles running around and I was helping make the payments and so though that's a way more super related.
And what we've talked about before as though they're just read things.
So you'll see start to organisationally more to looking at that set of solutions as vehicle you know related payments and then the corporate payments again as the thing for the middle market.
That was super helpful makes it makes a ton of sense a quick follow up for me I think on the 2023.
Guidance, you were able to call out in the course of the calls a segment specific expectations for corporate payments and I think I'll list I mentioned something for tolls and fuel would you mind rounding that out and just giving us your expectations for lodging and if applicable gift for the year. So we just first sort of modeling purposes.
Yeah sure. So again, it's it's a bitcoin it'd be 10 overall, so fleet kind of mid single, but weaker first rash strong or second app.
Logging in Brazil mid teens, maybe a smooch below 50 this manager Bob <unk>.
Corporate payments, even with the channel lettuce, I'm Gonna give it up probably 20 you.
You know, maybe north of 20, and obviously weigh in on the 20th you. If you kick out of the channel. So that's the mix the brown suggest.
And again you guys are heard this before you know we're super thoughtful on the design when we saw the Super Micro segment weekend, we just literally reallocate it might just set okay poor in terms of marketing and sales investment more into the middle market you know the John brought up.
Earlier that has you know not a certainly not as many macro kind of risks and basically just kind of you know tread water a little bit until we see more about how this you know micro S. M V segment place out this year. So we're kind of derisking of the plan a bit Italian.
Fantastic. Thank you I appreciate it.
And the next question will come from should <unk> with Evercore Aye, Sir. Please go ahead.
Hey, Thanks, so much for taking my question I have a question on the 22 and do <unk>, especially on the shared <unk>. It says 75 million for the for the full your does that a zoom any sort of my back's, probably your or it does not and if it does not then would there be more upsides to the E.
B S. Assuming that you actually read the buyback throughout the year.
<unk> that's a good question yeah onto your account I'll first thing in our guidance, we never including the impact of potential by next because <unk> I kept on vacation.
Acquisition or a divestiture, we're gonna hold his decision until they makes sense until we cannot build that into guidance.
And then I guess in terms of the sheer account as we run and Uhm. The number you see that we presented in our assumptions is consistent with will be set for the rest of the year and what we printed for 2324.
And and and fairly aligned with what were your thoughts Q3, and what you can ask me on the keyboard number.
Yes, Regal in Enron or default.
Default is always just elaborate.
We plan to generate 1.3.
Free cash flow and our models assume that we just you know reduce debt.
It should be run through the year and then to the extent that we we take money to do it by back in Q2 will update the guidance to reflect that different use of capital.
<unk>. Thank you so much.
And the next question will come from Jeff Kent, well with Wells Fargo. Please go ahead.
Hey, Thanks, and congrats on the results. Roger This is a follow up on Dan's question earlier in your prepared remarks, you said that in 2022 you added.
And a P automation software front into your whole you know apron execution business and we all know what that is <unk> what have you been doing there. So my question is.
What does that mean that your execution bear on the front end going forward would impact others.
That you've been partnering with over the years in any way or does that mean that you're trying to cop you capture those volumes on the front and can you just help us understand Mister How's your there and how to think about that going forward.
Sure Ma'am I'm not positive I'll pick it up to questions you can just rephrase it for me.
Yeah. So we've been you know watching what you did with Roger in court pay and remember that you have.
Com data as well so we're trying to figure out if there's some you know competitive angle to what you're doing on the front and you start to bring that into the picture with how you're going to market <unk>.
Okay.
Yeah, there's there's clearly a competitive angle I think you know historically a P. <unk> a P automation software companies sold a D automation software knock knock I've got software that simplifies your processes, you know automates approval.
<unk>. So you don't lose it hey, that's what we do and then knock knock banks at high I can help you actually execute you know electronic Davis.
For you or or cross border payments and so you know the idea we've been out a long time as well, let's do both let's which we connected them already honestly. So a knock knock we could help you make the process work better and your company is a good time and and and reduce risk of <unk> will pay.
You know all the different ways every modality will execute at all you don't need to call your bank or F X specialist or your you know printing company to to print out paper checks will will do the whole thing. So we think that.
It is a huge advantage to have that package to provide you know more value to clients it'd be a seemingly early on generates more leave because historically people have been interested you don't want both sides <unk> and I think you know.
We're we're not the biggest we'd we gotta be one of the biggest non bank you know full a P payers alright. So I I think I think it is a pretty big advantage for us going forward.
Got it okay, great and can I just wanted to.
[noise] alright.
Just sign up on Bob's crushed clearly or you know an E. B and you know I guess the question is is just the payment for you as you know you're you're 60, bringing my company and your <unk>.
<unk> <unk> <unk> <unk> annual revenues coming here. So can you just remind us can you cite that revenue opportunity person he'd be caught you know 235 years that we're all we're all just trying to figure out the substitution effect and you know incremental revenue impacts et cetera et cetera. So how would you phrase that as we think about our models.
Thanks.
[noise] Yeah, that's that's not a super good questions. The first author philosophy, a long time. So the first thing I'd say is you don't want a defence aside so on the commercial side the opportunities the size of our whole business Friday. He went 40 years into the future and we've got a one O 1.5 billion dollar.
Revenue Global fleet business. The hope is we replaced the business 50 year. So that everything was ebay, we'd have a 1.5 billion business plus however, we grow.
Now with that but first I think the bigger opportunity Dear. It is this consumer lighter vehicle thing that we're gonna get to through the E D carmakers and through the new gas station operators, they're called you know charge quite operators. So the big part of our <unk>.
<unk>, we're spending money on is going off as it is and chasing two new segments.
Alright, any part of our business [noise] excuse me today that we think are gonna show up sooner.
The the vehicles work better right. The the light vehicles. So that's I mean.
This is the function of adoption, that's a massive obviously riotous every.
Vehicle is not a commercial fleet you're into there in terms of the tab. So it's a massive massive business.
I think I've said repeatedly our strategy and the thing is to be the network Guy you know our company's build on proprietary networks that have unique data that we picked up and then volume that we have that creates better economics that our idea is to say and we're gonna put together E V acceptance that works, where we collect.
Data, it's interesting decline like what kind of charges or there is the charge or open out by drive there and we think that providing that in some simple way is gonna be you know super interesting and we've got five or 10, Alrighty Big E V carmakers, using our software it or.
Network to try to reduce you know charge anxiety right up a new buyer. So it. It's it's <unk>. The question is just wet how long right before either side you to the commercial side or the or the consumer side you know.
<unk>.
Okay, Great. That's super helpful. Thanks, So much conjecture.
Thank you.
[noise] <unk>.
[noise] <unk>.
Hello.
Yeah.
Oh, Okay, sorry about that I didn't hear the joke. Thanks for the question I appreciate that and clean up here.
The three o'clock business, a little bit you know given given some of the the the pockets of weakness.
Called out on the credit side.
<unk> are you going to sell.
Differently and 23 is how're Ya augmenting your sales strategy there and then there's a follow up on the partner side of the Pew card business. Just wondering if you could she had any color on like R. A P activity or if there's any major contract renewals coming up any help would be great. Sir thanks.
You got a pet also on the first part of the question Hey, what do we do it for selling in 2023. The answer is yes, there'll be some different things. So the first thing we've done which were about 90 days into his were re pointing our digital machine at all the rhythm to larger account.
So the guy that runs our digital sales business tweak the models effectively to point at what I would call a larger and more credit worthy of house, so you'll see that for sure our sales.
<unk> sorry to here in Q1 versus Q4, so that that 0.1 will modify the targeting on our digital <unk> and a number two is I've moved dollars with reallocated dollars <unk> payments business. So it just said, okay I'm not gonna <unk>.
<unk> sales investment or sales as much in a space that has potentially more macro risk. We're gonna we're gonna earmark it at least here in 2023 and in the middle.
We have you know there's more stability if you will in the macro so those are really the two two things we're doing selling wise and again, it's pretty small, but the pile of bad that this micro super-duper Tuesday, but it's not.
Big per se right against the total business right. The total revenue so anyway, that's that point on the second one's there's not much I'd say, it's pretty quiet.
So the other people to play the game of a lotta longterm contracts, both here and in Europe . So there's really nothing on the radar I say significant that were that were looking at in in 2023.
Okay. Thank you know.
And our next question will come from <unk> with credit Suisse. We'd go ahead.
Good afternoon, and thanks for taking my question and I just wanted to touch back on the fuel segment first how did the same store sales come in across the various parts of that business in the quarter and and is looking to 20th 23, what parts of the appeal business gives you confidence.
Making reaccelerate in the back have given a deceleration with me in the last few quarters.
Yeah. So he may I get the less I. That's a good question make sure I got all your question I think you're asking what kind of same store sales on 10 Highway I'm looking now how would how would you get the real celebration a reassuring. So yeah. So everything is there anything else I would say you know we always say.
Saint starts out sort of a massive cough is usually in the minus one plus one range and I would say that and we did see it stopping just a little bit more than that in the fourth quarter to minus two.
As we look into Reacceleration. It really is just reach waking the engine as we head into twenty-three mm.
Pointing that digital ancient too higher credit quality customers and then just refocusing the entire sales engine across the board to target. Those I was just helping your customer bases in seconds.
Yeah, Let me make sure make your clear that you know Wiebold is dreger light or super conscious that how.
How old are these super-duper small accounts, which deteriorating so we said OK, let's stop selling to them. So stop and then <unk> and then circuit because they're delinquency was up at Craig's more in voluntary attrition. So a great volume softness too so basically.
Both of those things happen right you, we're not going to keep this pick it open we're tightening terms. If you look you know shaky and so we did it to make sure that a small little tiny part of our business didn't turn into a bigger problem. So we went right with our eyes wide open doing this thing and and so the.
The answer is we've been for 90 days re pointing the same to bigger fuel account and then moving money to the mid market. So we're happy where it does not have the wrong. We're not worried about buffet again, our plans to have more of it in the second half I think of it as five per cent it'll be 287 or something my first so I can have.
But I want you to hear we made the decision to do both of these things for cautionary reasons and not get run over later.
Understood. Thanks for all the incremental.
You got it.
And our next question will confirm Andrew Jeffrey with true Security. Please go ahead.
Hey, guys. Thanks for taking the question. This is Julian on for Andrew.
So I have a quick modelling one and then kind of more general one. So is is the logging business like normalized growth rate I would think about that like high teen 20 per cent does that <unk>.
Alright, well <unk> longer than 15 to 2015 and 20, Okay got it. Thank you very much.
And then you know I know you said you're off the block on E V. Obviously airline to really while this quarter 38 per cent off is there anything there kind of maybe I know that you had an in house prior option any any updates there like is that something in the pipeline in terms of deals that you see.
Like are you looking to expand their kind of liberated on that a little bit.
[noise], Yeah, just really <unk> cause I think on the on the airline grow. So one of it is just you know continued recovery right airline was super down. So I think there's still some you know a <unk> long tail colored recovery instilled sitting here today, we still don't in Asia back there still.
More to come if if the Asia volume fix back up but I think the.
The the new things that we'd dominant we bought a company a year ago, I guess really working like I mentioned, we you know I want a couple of a of a couch that we had when we put this app in <unk>, you know distress people right to their hotels instead of queuing up at the line well now we.
Added this all the first contract what's your you'll see in the fall of numbers for basically rebooking simultaneously with a logic. So you're playing gets cancel ear in Atlanta Tonight first you Gotta find a place to sleep and then you gotta figure out how to go well, let's say you're on you know.
Air Canada.
Have any flights are any flights available our tech basically looks.
And books you one other airlines literally as you walk in off the plane, you're getting a hotel and getting re book so the the customer sad that the airlines are getting from having less unhappy people when they get off a plane I think this is gonna be calm cable thing for a couple of error.
<unk> C. A couple that are picking this thing from us early.
This thing we could literally around the table on it. So so this is an example of bringing kind of some tack to kind of an old fashion.
Problem and and it's working.
Got it. Thank you I never <unk> <unk> could you talk to maybe a little bit about your digital marketing, how that's coming along maybe any recent example, that's there.
Yeah, I mean other than the the microbe thing I think the answers it's representing obviously in every business a larger and larger piece for example lodge in which we just talked about I think it's up now about 15% of the sales in that line of business. It was probably 5%.
Two or three years ago, it's it's taken a way bigger chunk of the marketing leaves we used to do old fashioned you know tradeshows for metal markets and things like that so so I'd say that not.
Not only are digital sales that we close on you know compound is it right, but I think the lead sources from digital are also way up again, a lot of as as the world right. We're just change it along with a world making sure that we're in the right places.
Got it thank you very much.
And our next question will confirm Trevor Williams with Jeffrey.
Go ahead.
Great. Thanks, Good afternoon, I guess with with global reach now close just wanted to see if you could give us an update on the revenue mix within corporate payments between F X Cross border virtual car full a P. And then within the 20% <unk> for the year just in any sense for which of those buckets you expect to be the primary.
Contributors I know this is a really good F X year with elevated currency ball. So just kind of how you were thinking of moving pieces within the segment for twenty-three. Thanks.
Yeah. This is Janet I'm in the best way to think about it you know with the cross border is probably gonna be closer to 65%.
I'll go with 25 per cent direction that 10% of <unk> 660 64, yeah.
Oh, a cross border 60.
Perfect for Ya so.
So they're gonna move around a little bit.
I mean your of your questions to build my driver in terms of the grossing having you know markets that are that are pacing interest rate moves differently right like Brazil. It out Super early and then I guess, we the U S got out in Europe is chasing so having you know different timing.
Differential in the rates, obviously, you know <unk> F X volatility. So so that that obviously is helpful run adhere to the end of the beginning of twenty-three.
Okay.
The working right to get you an accurate number will be.
Hey look we're looking at an ear for today at 20% revenue growth organic plus office with a <unk> way higher because we're adding that this deal clearly how's everything dry raspy working I'm, telling you that the channel, which is a pretty small piece less than 10 per cent probably is gone.
Backwards, so everything else has gotta be somewhere in the low to mid twenties to get the entire thing could be 20 per cent. So I don't Wanna sound to hockey on it but it's like all working we're just selling a lot retention is super great. You know when I was at the businesses, obviously spend is growing in the middle market right.
It is a smaller companies falls or opposite bigger pop basically like a trucking in other areas of picking it up so I I I I think that message you guys is at our product line is better and more complete I. Just I just think that this business is kind of <unk>. It really commented was that one out for us.
And it's big finally, right is it it's kind of it's kind of surpassed $1 billion in it was I don't know what it was but a billion dollars a few years ago. So it's it's become a sizeable thing now for the company.
Yeah, that's great and just one more on corporate pay for pay one I think last year, yeah. Any update you can give us there anything last year you were talking about taking more of a measured approach with some of the migrations, but just any update on progress there or just the overall strategic thinking on your plan for it over the next couple of.
Of years in the cross-sell opportunity. Thanks.
Yeah. So that one is really still a work in process because the core business is middle market and I'll say this isn't a co-op with is a pretty small part and so when we took a swing and miss at the cross L. I did we we did not a superstar thing we've really said okay <unk>.
How do we get the product to be right for the sea and and how do we get the distribution it'd be right for the same. So what we've concluded is where you're not gonna Chase super-duper small towns that don't have much a P.
You know that are that are at the very bottom until we were really kind of retooling the product of distribution to be upmarket a bit so still below middle market kind of off of the floor.
Particularly given you know what we're seeing in here in the marketplace that seems like the right call to not rushed into like you know supermicro kind of a P accounts.
So, we'll we'll report wise it hasn't been our highest priority since we we we did this way in the mess yeah on the cross Alba, but we are continuing to work it.
Okay got it thank you.
And we've reached the a lot of time for questions. Today, So we'd like to thank you for attending today's presentation. This will conclude the question and answer session. You may now disconnect your lines at this time.
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