Q1 2023 Fleetcor Technologies Inc Earnings Call
Good day and welcome to the fleet core technologies.
First quarter 2023 earnings conference call.
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After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on attached on phone to withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like turn the conference over to Jim Eglseder head of Investor Relations. Please go ahead.
Good afternoon, everyone and thank you for joining us today for our first quarter 2023 earnings call.
With me today are Ron Clarke, our chairman and CEO , Tom Panther, our new CFO and Alyssa Vickery, our chief Accounting Officer.
Following their prepared comments, the operator will announce the queue will open for the Q&A session. It is only then that you can get in line for questions.
Please note that our earnings release and supplement can be found under the Investor Relations section of our website at <unk> Dot com.
Now throughout this call we will be covering organic growth as a reminder, this metric neutralizes for the impact of year over year changes in foreign exchange rates fuel prices and fuel 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 on an adjusted basis.
These measures are not calculated in accordance with GAAP and maybe calculated differently than other companies.
Reconciliations of the historical non-GAAP to the most directly comparable GAAP information can be found in today's press release and on our website.
I also need to remind everyone that part of our discussion today may include forward looking statements.
These statements reflect the best information, we have as of today and all statements about our outlook new products and expectations regarding business development and future acquisitions are based on that information.
They are not guarantees 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 also 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 filed with the Securities and Exchange Commission. These documents are available on our website and at SEC Gov.
With that out of the way I will turn the call over to Ron Clarke, our chairman and CEO Brian .
Okay, Jim Thanks, Hi, everyone and thanks for joining our Q1.
Twenty-three earnings call now.
Also joining us.
I hear today is Tom Panther, our new CFO , who is now official so I'm delighted to have Tom here with us.
Upfront here I'll plan to cover four subjects first I'll provide my take on Q1 results.
Second I'll share our updated full year 2023 guidance.
Third discuss progress on our value creation and simplification plan and then last lastly, I'll comment briefly on our newly formed a strategic review Committee.
Okay. Let me, let me turn to our Q1 results, we reported revenue of $901 million about 14% and cash EPS of 380, <unk> that's up 4%.
Both results finished above the top of our guidance range. The Kashi P. S. A 380 clearly weighed down.
Dominantly by higher interest expense.
Constant interest expense for the quarter, our cash EPS would've been 430.
Up 17%, so so our model's intact.
The macro environment did cooperate basically coming in as we anticipated EBITDA for Q1 exceeded $460 million.
Up 17%.
Margins, there up 100 basis points year over year.
We invested incrementally about another hundred basis points of margin.
And a set of capability acquisitions from 2022 are those intended to better position the company for the midterm.
Trends.
In the quarter quite quite good.
Organic revenue growth.
Q1 was up 12% overall that accelerated sequentially.
And is above our 9% to 11% target range the.
Same store sales finished plus 3% so healthy our retention finished at 91%.
Slightly impacted by the credit actions, we took in Q4 to contain credit risk in the micro segment that does drive a bit of involuntary attrition.
Sales performance are absolutely terrific in the quarter up 31%.
Setting new record levels of of new bookings, so look fundamentals.
In a good spot.
I do want to highlight our Brazil.
Performance in Q1, so that business are really doing a nice job of transforming from a toll centric business initially to now a broader vehicle payments business again for both businesses and consumers.
The the vehicle related payments now include not only tolls, but fuel parking and fast food and recently now even a vehicle insurance.
Another super good sales quarter for Brazil, new toll tags, a record level and those were helped by a new bank relationship with Santana, there, which added almost 15% to the overall sales in.
In the call.
We also had terrific fuel transaction growth up 39%.
As we continue to increase the the fueling acceptance sites, but most surprisingly in the quarter is.
Of our approximately 5 million active consumer users there 3 million utilized our new Sam Pryor App mobile app in the quarter.
And that engagement helped drive a almost a 15% attach rate of insurance policy add on sales so consumers coming into the app looking around seeing offers.
It actually transacting with us so we think.
This engagement opens up.
Big time cross sell opportunities.
So look all in all a very good start here to Q1.
<unk> sales revenues profits all of those are above our expectations.
Okay, Yeah, let me shift gears and turn to our updated.
Full year 2023 guidance.
Along with assumptions behind it. So we are revising our full year revenue and cash EPS guidance up.
By our Q1 beat so revenue at the midpoint now 3 billion 840.
In cash EPS at the midpoint now $17.15.
We are expecting our the rest of year environment to be pretty consistent.
With what we forecasted 90 days ago, a few puts and takes but overall on the same place also we've got an early view of April trends and results. So continuing.
To track to our plan I do want to point out that we're expecting rest of year organic revenue growth in the 9% to 11% range inside of that fuel improving to kind of mid single digits on Brazil.
Brazil in lodging in the mid teens and corporate payments are in the high teens, we're expecting our rest of year, our earnings to accelerate a that'll be driven by.
These record levels of sales are flowing into the second half.
Stronger Q2, and Q3 seasonality.
Again, a second half fuel acceleration.
Driven really by the pivot and sales in that business for micro two two a bit up market.
We'll we'll see better operating leverage as we run through the year, our revenues will expand faster than expenses that should result in EBITDA margins in.
In Q4 about a 200 to 250 basis points better than last year.
Second half E. P. S will also improve.
Mostly as we lap the interest expense and higher bad debt higher bad debt levels that we experienced last year.
Finally, we will keep a close eye out for any signs of macro weakness.
So that we can react quickly if we need to again, our solutions are generally pretty essential pretty at pretty important and demand for our services tends to actually run higher than inflationary times.
Okay, Let me a transition of the progress that we're making.
On our value creation or simplification plan, so we're working across.
Three areas there are first to eliminate overhang related.
Related to the Russia, and FTC case.
We're working to reduce complexity and present a simpler company.
And finally E V a were.
We're working to demonstrate that we can we can you know.
Basically succeed in this energy transition so first up on Russia, we have.
Signed definitive documents now to sell our Russia business to a local firm.
We're awaiting a Russian government approval for the deal and if we can get through the various hoops here are we would expect to close at the end of the end of the quarter. The end of Q2, Tom Panther will provide some additional details on the impact.
The transaction.
Okay next up on the F. T C. K, so not not much new to report here as a reminder, both we and the F. T. C file proposed orders back in February outlining.
Some additional disclosure enhancements that we have been discussing with the court.
So now it's really up to the core where you have to decide you know what the what the conclusions will be and what the order will be.
Given again that these are disclosure related subjects. We continue to believe the court order will not have.
Have a material impact on the go forward financial performance of the company.
Over to simplification, we are evaluating ways to simplify our company.
Three things under consideration.
First we are actively exploring the divestiture now of a few non core assets.
So that's underway.
Second we're considering moving to three reporting segments versus today's five.
And then lastly, we're continuing to evaluate a brand change for the entire company to Corp. A that would better reflect really the broad set of corporate payment solutions that we're offering so expect to make decisions on the simplification ideas over the next 90 days.
Okay, Let me make the turn to E V and reference pages are 11.
12 and 13.
In our earnings supplement.
So we've launched a pretty unique.
Solution that E V solution in the U K, we call it our three in one solution.
So that solution provides.
Our fleet clients with a single program one program, where they can make you know traditional diesel purchases them on road public E V recharging and manage AD.
At home E V recharging and reimbursement so so three in one.
The early indications are that the E V economics could actually be favorable to us. So we looked at a sample 271 clients in the U K.
That had been with us over the last eight quarters and examined the revenue pattern and what you can see.
In the supplement is that the E V revenue per vehicle is actually higher.
And then R. I C E revenue per vehicle so although early days.
I'm really proud of really pretty good news. So the driver here is really the need for businesses to measure and reimburse recharging and potentially in our case a million homes right. The number of users. We have so it will be quite a task.
I also want to point out that we're continuing to pursue the consumer E D payment opportunity, so providing some potential upside to the EV energy transition since we are you know.
No building acquiring EV networks at E V technology.
For the B to B market, we decided to re purpose those capabilities to serve consumers. So underway doing that in Europe . We're building a consumer E V payment business.
We've signed 10 E V vehicle manufacturers and we're serving their new E V consumer buyers.
So when a new E V consumer drives off the lot. They all will be using our E V network.
Payment app, so so out of the blocks there.
Okay, Let me make the turn to my last subject, which is our new strategic review Committee.
Formed to evaluate the portfolio options for the company. So we did retain Goldman Sachs to support the assignment they have shared their preliminary analysis.
And thoughts with both a committee and our board I.
I do want you to know we're taking this portfolio assessment quite seriously and where valuation really all options too.
To potentially increase shareholder value.
I want you to know that I am personally aligned here with shareholders.
Both in terms of the importance of rewriting our multiple but also the urgency of doing so.
So early days, but are you now.
We're digging in and we're evaluating options, we're meeting folks we're sizing Disinterred Gs.
What we're getting at it.
We do expect to have much more to.
To report when when we speak again in 90 days.
So look in closing again Q1 are out of the blocks in a good way are ahead of our expectations. My rest of your guide up I'm, assuming 9% to 11% organic revenue growth with improving margins and earnings.
Working aggressively to close out our Russia in F. T. C. Overhangs begin communicating a hopefully a simpler company and advancing the E V capabilities.
And lastly, as I just said we are just underway.
Evaluating our portfolio separation options. So so a lot going on so with that let me turn the call over.
Over to Tom Panther, our new CFO to provide some additional details on the quarter Tom.
Thanks, Ron it's great to be formally on board and to have joined the fleet core team at such an exciting time.
The last several weeks have been a great opportunity for me to learn the business by spending in depth time with our people to better understand our markets products sales strategies key initiatives technology and much more.
There was more for me to learn but the team has been incredibly helpful. Accelerating my journey up the learning curve.
I'm impressed by the exceptional talent and high caliber capabilities that support the organization.
<unk> has a proven track record of generating strong top line growth and accretive operating leverage right.
I can see why it's able to deliver those sustained high quality results.
I'm looking forward to digging in and helping the company achieve its business strategic and financial objectives, and I am confident in fleet course growth prospects, both organic and inorganic moving forward.
And we need to look no farther than the first quarter resolves to understand why I'm confident in the company's future.
As Ron mentioned, we posted 14% revenue growth in the quarter, including 12% organic growth.
The incremental 2% of reported growth was due to acquisitions made last year.
The macro fuel and FX factors were mostly a push versus prior year.
Revenue of $901 million exceeded our guidance by $19 million, which flow through to our 15th <unk> B and cash EPS of $3.80.
Moving onto the segments I want to point out that we changed our organic growth solution disclosures to match the segment reporting that we implemented last year.
Going forward, both reported and organic results will be disclosed in fleet corporate payments lodging, Brazil and other.
This will be cleaner and eliminate any confusion between segment and solution categories.
We've provided organic growth.
Information on this basis for the last eight quarters on slide seven of our earnings supplement and we've provided a map in the appendix. So you can track these classification changes.
Now onto the quarter.
Organic revenue growth was 12% as we delivered results, 2% above guidance, reflecting the strong diversification of our business and the realization of strong sales results from last year across all of our businesses.
This is despite the intentional strategy to pivot our U S fleet sales upmarket.
To mitigate credit exposure.
Our corporate payments revenue grew 19% led by our direct core pay payables business, which was up over 30% driven by continuing strong sales, especially in full AP automation.
Our solutions are selling well in the marketplace and we continue to believe that we have attractive and differentiated offerings that will drive future growth overtime.
Cross border revenue was up 21%, which is normalized for the global reach acquisition in January .
Our cross border team had another very good quarter as new sales and customer wins remained strong while also substantially completing the global reach integration, which is underscored by 90% of the global reach revenue already migrated to our platform.
Wait revenue increased 6% on a reported basis driven by higher volume organically when we isolate the impact of fuel prices fleet grew 3% in line with our expectation.
This reflects the continued drag from the weakness in the micro SMB fleets and the recent change in sales focus to a slightly larger customer.
We're seeing good success from our sales pivot with sales trends continuing to improve and we feel good about our ability to reaccelerate the growth in the back half of the year.
Brazil revenue was up 18% compared to last year as the business continues to perform at an extremely high level.
Our strategy of using the vehicle and now there's some part of mobile app for additional purchases like fuel insurance and certain retail purchases continues to grow which significantly expands the addressable market across b to b and B to C.
We have transformed our Brazil business beyond a single product toll tax business.
It really is the center of an entire vehicle payments ecosystem that continues to grow and we're the only provider that offers this breadth in the market.
We have a highly differentiated value proposition in the marketplace and it is clearly winning share.
Lodging continued to perform well growing 26%. This solid performance highlighted by strong sales across our industry verticals that reflect our success in driving innovation to win new clients and capturing more business from existing clients. In addition revenue per night increased 24%.
Due to customer mix and additional fee based revenue sources as we continue to expand our product capabilities.
Our near term focus is on consolidating our various hotel networks into one in order to enhance the customer experience.
Looking further down the income statement operating expenses were $526 million, representing a 12% increase over the prior year, primarily due to the addition of the global reach operations and the capability acquisitions, we made last year like plug surfing in the EV space.
The remaining increase in operating expense was primarily in corporate payments in lodging, where we generated significant operating leverage.
Bad debt expense was eight basis points.
But more importantly, slightly down sequentially from Q4 'twenty two.
Our delinquency trends give us confidence that we're on the path to lower bad debt expense in the back half of the year, even after giving consideration to a potentially soft macroeconomic cycle.
The EBITA margin in the quarter was 51% 100 basis points better than Q1 'twenty two.
This includes $11 million or about 100 basis points of drag from expenses associated with recent acquisitions, including integrating and building out our AP automation and EV capabilities that we bought last year.
We still expect our full year EBITDA margin to increase approximately 150 basis points compared to last year.
And Q4 to exit the year 200 to 250 basis points higher than Q4 'twenty two.
Remember margins expand throughout the year as we generate revenue growth and realize the benefits of synergies from recent acquisitions.
Interest expense increased by $58 million year over year, driven by higher rates on our debt stack.
The impact of higher interest rates resulted in approximate 49 cent drag on first quarter adjusted EPS.
Our effective tax rate for the quarter was 27, 1% versus 26% last year with the increase driven primarily by increases in tax rates and some international jurisdictions and some onetime discrete items.
We anticipate the quarterly effective tax rate for the rest of the year to be between 26% and 27%.
Now turning to the balance sheet, we ended the quarter with about $1 $3 billion in unrestricted cash and we had $779 million available on our revolver.
There was $5 $5 billion outstanding on our credit facilities.
And we had $1 $3 billion borrowed in our securitization facility.
As of March 31st our leverage ratio was two seven times trailing 12 month adjusted EBITDA as calculated in accordance with our credit agreement.
We made no open market share repurchases in the quarter as we deployed roughly $230 million in capital for three deals including global reach.
While also maintaining our leverage ratio.
I would like to remind you that our first port of call for capital deployment is always accretive acquisitions and then if there's nothing near term, we will evaluate buybacks or debt pay downs as appropriate.
We still have over $1 $2 billion authorized for share repurchases and we believe we have ample liquidity to pursue near term M&A opportunities and continue to buy back shares when it makes sense.
In addition to Ron's overview of our full year guidance, let me give some additional detail, including some thoughts on our Q2 outlook and supporting assumptions, which can be found on slide 14.
For the full year, we now expect GAAP revenues between $382 billion and $3 $86 billion.
Adjusted net income between one point to six $3 billion and 130 $3 billion adjusted.
Adjusted net income per diluted share between $16 95 and.
And $17 35.
And finally EBITDA growth of 15%.
All of these numbers include Russia for the full year.
Assuming a June 30th close of our Russia business, we expect GAAP revenues to be $55 million to $65 million lower resulting in a 30 to 40 cent decline in adjusted EPS based on using the sale proceeds for buybacks over the remainder of the year.
<unk>.
I also want to emphasize that the transaction is subject to approval by the Russian government, which involves an added level of complexity.
For the second quarter, we're expecting revenue to be between $930 million and $950 million and adjusted net income per share to be between $4 and <unk> and $4 22, which at the midpoint is down slightly from what we reported in Q2 of 2022, which is driven by high.
Interest expense of approximately $60 million and roughly $20 million of expected macro headwinds from fuel price and FX rates.
Related to our guidance assumptions, we are using $3.99 as our fuel price assumption for the rest of the year.
Our interest expense guidance of $310 million to $330 million is based off an average LIBOR rate of four 9% for the rest of the year.
The rest of our assumptions can be found in our press release and supplement.
Finally, I'd like to thank our 10000 plus employees around the world, who helped deliver a fantastic start to 2023.
This quarter's results and our go forward prospects reinforce the power of our growth oriented diversified business and the strength of our franchise.
Thank you for your interest in fleet core and now operator, we'd like to open the line for questions.
Yeah.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
You're using a speakerphone please pick up your handset before pressing the keys.
But any time your question has been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Our first question comes from Pete Christiansen with Citi. Please go ahead.
Thank you and good evening and welcome welcome aboard here great to have you.
I had two questions here, there's a lot to dig into but.
Ron I guess now with the new segmentation, how should we think about long term kind of normalized growth for for the fleet business now that you.
We've added some some other things to that segment and I know in the past you've talked about the.
The segment being kind of like 4% to 8% does that change with the new classification and perhaps maybe we could also address Brazil in that same thing. Thank you.
Yeah.
It's Ron so I'd say kind of in the.
Base business base.
Allocated.
Sales and marketing investment, we're probably still in that target range kind of mid single digits and I think a couple of wildcards on at R. R E D.
Right is that particularly with the early Q will get into the economics does that help accelerate it.
Along with that consumer lending and then b.
Do we get the cross sell thing.
Hum.
So so I would say.
Card is those two things and those two things come in obviously it could accelerate.
Quite a bit.
Okay. That's helpful.
I mean, I know the bold beats it.
In Brazil, the switching to free flow I know, it's been a benefit to some toll payment administrators here in the U S. When when EZ pass one free flow just just curious your take on how that could impact the business near term. Thank you.
Yes.
That's a good question. So so far it's good news.
Hello.
Pretty early days.
Brazil in terms of trying to make the transition to free flow. So they are actually testing it.
In one region.
So the good news on that front.
So the total operator is hey, there's no more.
Gates and stopping people.
The bad news.
The 20% to 30% of the people that don't have electronic.
Deluge volley way.
Yeah.
So it'll help us.
Tailwind.
Short term because it makes.
Electronics.
Blast right through even more attractive than today, because again, it's it's more difficult.
For people to follow up after the fact, so we're actually seeing that Pete in the test.
So on the one place where they put it and we're.
We're actually doing a bit better so I'd say, the only reason I'm Super excited and I'll, probably take quite a while right. There's a lot to test there's a lot of infrastructure and start to move.
Does that pose payment thing to work out so I don't I don't think it's going to be Super Duper immediately, but I'd say over the midterm.
Yes.
Super helpful. Ron Thank you.
Good to talk to you.
The next question comes from.
Andrew Jeffrey with Twist Securities. Please go ahead.
Andrew.
Ron I Wonder if you can update a little bit on on the selling motion as you move up market and fuel it sounds like you've you've met with some pretty good early success, but can you just kind of elaborate on.
What that looks like can you can you continue to go to market using primarily digital means is it more kind of feet on the street as there are our pricing or yield difference on some of those bigger fleets.
Just wanted to try to understand how that might compare to how the fuel business looks prior.
Yeah, Andrew another another good questions. So 0.1 is.
We already sell up market. So, although we don't say it call. It I don't know 40% of the sales.
Even in the U S business, you're kind of not digital 40 to 50. So we're already kind of in the businesses is 0.1.
Two is I would say even more so internationally.
Wait longer time in the seat there with Universal network. So we sold the bigger path for a lot longer.
Back here in the U S. The two ways that will kind of drift up market is one this week pointing up.
It'll engine.
So we basically kind of rework the algorithm.
Isn't there to look for different kind of.
Search characteristics. So we went through the door. If you will we did it in a way basically to encourage bigger accounts to come to us.
And obviously kind of Sean.
So that's under way, we made that pivot.
Oh call. It last October November so that's already started and started to work and then second what you said.
We're starting to grow now the feet on the street.
Would go into the scene.
And what we're working on is what I mentioned that Pete Andrew a few minutes ago or maybe go into market with not only the fuel card, but going to market with this core pay one.
The corporate payments stopped built into it.
See if that might be a little bit more compelling. So we're kind of in test mode now.
Putting some people again.
Larger prospects and giving them something a little newer kind of interesting to say so.
Just a couple of years.
Okay. That's helpful and then.
I like the the the UK mixed fleet disclosure slide from a revenue standpoint is it safe to assume that.
You see similar unit economics are or maybe think about its contribution margin. In addition to more revenue there.
In other words, there's operating leverage and in those mixed fleet EV offerings.
Yeah, I'd say that's.
Way too early to call right, we've got a tiny tiny little EDI business and set of assets and cost structure. So our.
99% focused at this point is on the revenue side right and figuring out how to serve these these clients and win and I don't know people think it's a big deal but I.
How to talk through the data I'll say to everybody. It is a it is a.
Big deal.
Right.
Company's real clients that we have are willing to pay us.
More money to be more helpful in more places.
And if you look at the chart kind of significantly more money so that is.
Way different than I think we would have thought two years ago getting into other things. So.
What I would say people ought to focus on is the fact that we have it.
I think I'm accurate in saying, we're the only ones Theres no one else that has a three in one and offering that brings all the things together. So I'd say come back you know Andrew a different day to me on that.
On the margin side, but there's nothing structurally that would make us think we could be at the same level over time, it's just not wanted.
Okay helpful. Thank you appreciate it.
Yeah.
The next question comes from Sherry <unk>.
<unk> <unk> with Evercore ISI. Please go ahead.
Hey, thanks for.
Taking my question.
Wanted to get a sense on the trends in the month that you saw in the fourth quarter as to was there a sequence was that a sequential decline in the month of March was is what you saw in China in fab or was it highly consistent across all the months and only read across how trends have been in April and <unk>.
He was over at a weakness or strength that you've seen so far thank you.
Yes, Rick it's Ron so.
No I'd say if anything the months are increase in my words, snowball business, where we add more than we lose and I think.
I have in front of me, but March has more work days, so it would've been higher.
Brent.
And I did call out we've had a pretty good peak here in April both you know revenue.
Revenue and other trends and I'd say, it's kind of spot on.
Which obviously fits for the time, so we're still just not see it much in how we build the plan whatever a few months ago and as you can hear from the results in the April comps were kind of tracking.
Right right, where we thought.
Thank you so much out one follow up on corporate.
On corporate payments if I can.
Remember correctly on the last quarter, you had mentioned that the growth will be around 20% north of 20%, but now you have like around high teens, unless I'm wrong over here and so I just wanted to get a sense as to what's causing the difference in outlook for corporate payments.
And I think on page, 19% set of 'twenty.
Yeah, No I thought it was more like a 20 plus percent. So I thought I'd, probably it was more like a yeah.
Yeah.
Kind of prior scripts I would've said high teens.
So 19, I think qualifies high teens and I did say I think it's likely you will see.
And while the next two or three quarters, the thing to take them off the 20%. So again, we try to build that business to run right around the 20% plus or minus so still highly confident.
Thank you so much that's it.
The next question comes from Sanjay Zaccone with cable you definitely you. Please go ahead.
Thanks.
Ron I appreciate the commentary on the strategic review Committee and it seems like Youre onboard I know in the past you've considered divestitures or sales or some of the businesses and the price simply was not compelling enough I'm just curious one.
Has the backdrop changed in terms of that pricing or are you just wanting to make the deal and the name of simplicity simplification and then second maybe you could just talk about.
Core versus noncore somehow how you how you guys are looking at this.
Yes, Hi, Joe Hey on the first.
Part of your question the backdrop has changed.
Value of our earnings right. So historically I would say up until call. It the last year and a half we traded in the.
Mid to high teens, EBIT da kind of next 12 months EBITDA sort of trade it.
All the 10 11 times is the first part of the backdrop. So a price from from a third party that would be you know a lot higher than where we are it would be more interesting to me that one of them. When we traded honestly at 15 to 20 years.
So you know in terms of the SEC.
I'd say, it's really the size of the business is how we think about.
If things that of course are things that are that are big for us.
<unk> leadership positions, we want we would call you know core and so.
All of those are on that would be.
Brazil corporate payments.
Lodging for sure would be businesses that we would view as big in core and have great positions.
But again as I said.
In the opening comments, where when you're trading.
I have a reason at this level, we all shiny movie we are wide open.
Just someone else other than who's in our stock that valuing some or all of the company.
At a more appropriate level and so I just want to make sure people to reroute.
Parking and trying to get feedback you know if we can I E people that would value some or all of the business higher.
Okay.
And then just.
Follow up on the Russia itself I guess can you just elaborate a little bit on what specific approvals are needed for the from the Russian authorities I mean, how much time that takes if this presents a risk.
Okay.
Yes, that's also a good question so.
I don't know, how many months ago somewhere three to six months ago.
Washington Government created.
A separate call. It Agency Commission group whenever it is for this this purpose of international Western companies trying to exit.
And effectively created a sign off requirements all of a sudden antitrust or something oversight and so.
As western companies like Us make deals right sign SBA to sell things then these these go to this this group. This agency. This this committee whatever it is and they are buying on it hey, we're happy to prove this deal or hey, we'd like to see you know this or that.
So that that's what it is we've been told that.
You know, it's it's it's it's a month or two I think it's a function right as the volume of transactions that are in front of the group.
But they have been you know we've looked at the history is as long as they've been established they have been processing.
One way or the other transactions that we do think obviously the buyer there is communicating to us that the RIN conversations Ah witness group. So so it's in some kind of a process.
Risk assets.
I use the word you know there's some hoops so for us.
We know how that Paul has done a mouse with you know.
Not not be accurate. So we havent, we havent agreements and assuming that it gets approved we will transact and our best guess is it's probably in the next 60 days, but I want people on the call. It it is not risk free there's obviously some some chance that.
They would deny the sale or ask for changes in the sale of a theatre unpalatable or so.
Just kind of waiting.
Okay, great. Thank you.
Yeah.
The next question comes from Ken for Husky with Autonomous Research. Please go ahead.
Hi, Good afternoon, Ron and Tom Thanks, Thanks for taking the questions and Tom Congrats on the new role great too great to connect again.
It's it's great to hear the comments on the portfolio review and that you're moving quickly on that on that front. You know there have been some discussions going around that fleet course should consider breaking up the business and maybe ring fence. Some of the things that might be weighing on the multiple so I guess one what is your preliminary analysis pointing to in terms of value creation.
Sure.
As well as any dis synergies that need to be taken into account and I guess, if you were to go through with the potential corporate action what might a separation look like and how should we think about the timing around that.
Yeah can I say.
It's too early really to try to answer that or whatever five or six weeks.
Kicking this thing into gear and studying it. So we don't we don't really have a superb forum view I think I kind of said, what I said, which is we're underway. We've run tumbled a bunch of numbers were obviously out talking to people.
So really we're just working our way through the options and as I said would be in a way better spot for a clearer answer to you in 90 days.
Okay, well wait on that Ron I guess that was my follow up can you talk about the trends youre seeing on the corporate payment side I mean, it kind of feels like the current macro slowdown or recession looks a little different than 0809, and maybe businesses might be pulling back ahead of the consumer. So maybe you could just talk about how you're feeling about the spending trends in the <unk>.
Corporate payments segment.
Any puts and takes across the underlying businesses within that segment.
Sure I'd say that I think we report stand in some of the the appendices here and stuff. So it continues to be strong.
Really across the board I think maybe most importantly is the sales are just record levels I mean, our Q1.
Sales in our corporate payments business was not only an all time high was all time high by I don't know, 50% or something so we are.
Pouring money into advertising the brand now and reaching more people. We've got more people on the street. We finally have a really put together a product line. So the I think the fill on the top of the bucket is it is really the best place that it's ever been and so I think it's.
Well I'll get over my skis, it's kind of all systems go the things work in our <unk>.
Outlook is to compound that like I said high teens to 20% and other than the channel thing, which is I don't know 10, 12% of the business now really all of all the other parts of that business are a rock so.
No no warning flags at all.
Great. Thanks, Ron.
Got it.
The next question comes from Trevor Williams. Please go ahead.
Great. Thanks for taking the question I wanted to ask on corporate payments in the cross border business in particular, maybe just higher level. If you could give us a refresher on what differential differentiates you on the cross border and the FX side and now with a fax and global reach just the main benefits you get with that added scale.
And then how that feeds into the durability of the growth that you're seeing there. Thanks a lot.
Yeah. That's that's really Super good question start with the first and most important thing I think I'd say is who do we compete with so how do we get business and and who do we lose business too and the answer is banks and because we mostly serve the middle market.
Its tier two bags. So it's super important that everyone has had the brand.
We're playing a little league, but maybe minor league baseball.
Or versus major League baseball and so we have to be able to get a midsize business to trust us to to make either spot or hedge transactions for them versus a let me call it kind of a tier two bank.
So when you have that context. The answer is we got with everywhere we are.
We have a better network right in terms of basically the destination. If you will of payments more breadth more countries, we have better tax because it's all we do versus a bank you know running or using some third party, but the winter I think travelers to people, we just have more specs.
Right, we have hundreds of people and these different originating markets here, Canada, UK Europe , Australia. It really no FX that have grown up in FX. So I think they really just out and out pitch.
Our representatives that are in these tier two banks and so it's it's a combo of all of those things, but we compete well because honestly who has the book of business would be my answer to you.
Okay got it thanks, and then on the fleet segment and he helped us and how we should think of the cadence of growth over the course of the year as the pivot of new sales to the larger customers as those start to flow through Ron I think you said earlier on you know getting to the mid single digits, but just any way you could put a finer point around.
On timing and just as we're thinking of the next three quarters just progression of growth in fleet would be helpful. Thanks.
So Super quick question I'd tell you think of it as just stepping up so with it.
Called three for the print for Q1, and we're gonna end middle kind of you know 34563567.
Step out basically based on the plan, we built so kind of a point or so acceleration sequentially.
Okay perfect. Thank you.
The next question comes from Bob Napoli with William Blair. Please go ahead.
Okay.
Hi, This is spenser James on for Bob Napoli. Thanks for taking the question the new sales definitely impressed us Ron could you maybe just provide a summary of what's driving the strength in new sales.
The components of that number and what's driving the strength there and then maybe if you could touch on how the digital AD environment might may or may not be impacting new sales motion.
Yeah, I'm not so sure, especially the second part of the question, but the first part I can cover which is yeah. It was.
Crazy good.
<unk> score right.
Tom you guys up 31% and that's in the face of taking the gas off of our North America fleet business right. We used to get on out 10, 15% of the business in that micro segment I just jot it down trying to try to contain so it tells you that the rest of international fleet and all that.
Rest of the businesses grew faster even.
You know the 31% and and I think it's it's a combo of things. One is again, we've stepped up marketing and sales investment, particularly marketing we've been pouring more money in.
In corporate payments into this core pay brand campaign, and so you know that that's helping a lot and then I'd say second I think we're finally getting the hang of digital leads which is generating way more lease and every business. We have a couple of unique campaigns digital campaigns both in sleep.
We call one of them Barbara.
Naming boats or something here.
And one in our lodging business called Sarah and so these campaigns that they kind of create a bit of a personality. In this space have been incredibly successful for us. So I don't want to say the shoot fish in a barrel, but the sales force is getting said with a lot more quality leads calls.
Last year than they were before so it's just all good it's inflationary times. So we are kind of cost reduction products, we have better products and we have we have more people on the street.
Our lead thing is working better. So it's just I mean I would just say to you. It's just it's working what we're doing.
Great. Thank you for the color and then as a follow up maybe an update on credit and fraud trends.
Our fleet business.
Yeah. So I don't know if we elicit print that around so it's it's it's as Minchey bet.
Better sequentially.
Sequentially from Q4, and again based on when.
When we started to take the ashes most most of the benefit.
Terms of improvement is expected in the second half. So we're seeing a lot kind of in our what we call our delinquency roll rate so were staring.
And the last week, we have super good visibility into Q2, which doesn't necessarily impact the credit reserve will take for this quarter, but super does for the following quarter. So we can see that thing really coming down so.
You know I don't we can take it to the bank yet but.
The early warning the really good news signs are that the actions. We've taken are gonna take credit losses down in the second half life might be planned and then same on the fraud side. The fraud side, it's been a combo of what we call application fraud.
We're fully people pretending to be somebody would get not so we basically put in a bit of a new system. It does weigh better at that as a few more variables than it looks at before it says okay. And then the second one is just you know criminal fraud right people you know.
Truck stop putting in skimming and selling cars and stuff and so I think we're down 40%.
In fraud sequentially in those couple of areas.
Partners like the truck stop partners have been helpful. In trying to police that better at the site. So as those numbers get bigger right because fuel prices like Q2, I guess peak last year and I say Q2.
You know it became a more attractive target.
And so it took time I think for us and others to get odd so.
<unk> mission, a mission accomplished yet, but but we're making good progress.
Great to hear thank you for the question.
The next question comes from James Faucette with Morgan Stanley . Please go ahead.
Great. Thanks at AR.
Couple of.
Follow up operational questions here retention, our quarter was really strong I think it was like 91, 2%, but was down about 100 basis points from last quarter and I know you just mentioned kind of a credit actions taken but could you expand if there were any other factors driving that is there seasonality et cetera that we should be aware of and how are you thinking about that for the.
Remainder of the year.
Yeah, James Ron again.
That's it I mean, the reason it shows up there is what we call our involuntary attrition, which is about half of our losses right. So, let's let's use 10% not dirt or had any 10% of our customers you know quite as every year, we quit five of them.
Which means we get uncomfortable with your credit profile.
And so you're not in a customer anymore and so when you go through what we did of having you know a.
A great a heightened attention on these smallish 123 kind of car to pounds.
We took actions basically to cut lines and then pull back payments.
Payment cycles and stuff.
I'm really just obviously the contained losses and so that just translates into us effectively kicking those clients out. So that's it that's the totality of the thing and I want everyone. I'm glad we did it with our eyes just completely wide open and based on what we're seeing are happy that we did in Europe .
Opening comment we're still work for ADP, Virginia, or something so super happy with a consolidated 91% you know revenue retention rate. So no no tiers here.
Got it and then you know just a follow up on there's been a lot of conversation, obviously on segments and strategy et cetera, but.
No promote realignment perspective at least says you've redefined Hum segment definitions any change to how that strategically impacts those businesses or plan go to market et cetera.
That's really Super Good question, Yeah, Let me say, what I think kind of the insight.
And it comes a little bit from how we started a kind of a product centric view of our lines of business versus a market writer or customer centric view and I think the Brazil, guys that I called out.
At the top of the call.
They've proven that if you if you want a range of fine your business has hey, I'm gonna help vehicle related drivers make payments, whether they're a business guy driving around or whether there are consumer driving around all those.
James.
Getting into those shows that the business isn't that consumers believe that our business has the right to offer to provision all of those payments things and having all of those things one account seems like a good idea to them. So I'd say, that's kind of where we're at at the idea would be to basically.
You know stop looking at the thing as Hey, you're driving around and were selling you one thing.
Go to Europe , where now I said talked about the three in one now are selling sleeves, but we're also selling you know old fashion diesel and easy you know why can't we sell parking in total and insurance to those sets of millions of users and stuff and so I think that's the strategic.
Rick.
Turn for US is to think about really the multiple things we could sell to the same customer that makes sense to that and the great News is we have a lot of cases like a you know a real a real case of that and the other thing.
Guess, what people Miss is the phone right the mobile phone.
It's starting to matter like I tell you that 3 million out of 5 million users consumers in Brazil decided to go to our phone app in a month I don't know if that's crazy you guys, but it is to me you know we used to stick a tag on the windshield at now 60% of the people are on their phone and our app.
Looking for staff and so that creates I think an enormous ability again to offer up like the insurance example, more things to the customer base. So we're going to work.
The headline is we're looking at the world or through the lens of our.
Of the customer and what we can offer and then we are you know a product by product.
Got it got it really appreciate the color commentary that Iran.
You got it.
The next question comes from Jeff Cantwell with Wells Fargo. Please go ahead.
Hey, Thanks, so much and just to follow up on some of the questions about.
Core versus noncore, and you're giving us a ton of color on this.
I just wanted to bound somebody else and see if you would agree that this is a fair statement that over the years.
Amongst fleet corporate payments and lodging there would be potentially a number of operational synergies amongst those three segments and so to be clear a follow up question to that would be could you maybe give us some comments on Brazil within the context of core versus noncore, just curious kind of that piece of jewelry business ties in with them.
Thanks, so much.
Yeah, I think Jeff I got it.
Send it to me in some ways.
Brazil is the lead dog is kind of the poster child for really how we should think about the portfolio right.
When we bought that business seven years ago. It was mostly a toll centric business and it's and it's transformed right into like I said, some five or six things to the same in both businesses and consumers have noticed how we're selling E D right to both businesses and consumers. We're just we're just.
Basically repurposing the networks and the TAC well, obviously, that's what Brazil is done right they've got.
You know told him that works adult use they've got fuel networks that they both use they are parking that boat shoes. They have literally taken the same networks attack and so let's stop to the to the two different groups. So I'd say, if anything that business looks more related to just the other thing which is so weird is.
It's in a giant market today fleets not only in the USA. It's in obviously the U K, it's in check as in Germany, and Russia. It's in Australia. It's in Canada, obviously, it's in Brazil honestly, we have a fleet business. It is a geographies of which one of them just happens to be.
Be Brazil, so our lenses are in some ways it might be.
The most related business in the company to our fleet business would be our Brazil business because all it is is another country doing fleet vehicles up.
So I would say that would be a super duper longshore. The only thing is I like businesses that are working just as an aside so the fact that the business is piling in the teens.
And impressed at about 50% of EBITDA line and be down people are giving things away for free and continuing to compound we like that.
So when you I felt like that like a lot of the performance of the business.
Okay. Thanks, very much and my follow up for Tom.
For those of us who have not.
Covered you.
Your prior would you maybe Dave if.
If you don't mind give us a sense of you know how do you think.
Strategically and also you know conceptually about managing the business and so forth, but love to get your thoughts on what your your mindset is that it's actually coming on board here.
Sure Jeff sure, Jeff before the working with you and good to work with many of you on the call that you did cover Evo you might DNA as a finance person he's really to approach it from a business centric perspective.
I've had the benefit over the last month or so being able to participate in a variety of meetings here are really learning the company firsthand and Gannett getting grounded in how the business operates.
Centric to how I and the rest of the team.
Finance banks and supports the business.
Our role is to make sure we bring.
Good information and good advice and ideas to the business.
And we can't do that by just looking at the output of the results.
I've said repeatedly over the course of my career I like focusing on the inputs in order to drive the outputs.
Dialog in the teens dialog with the business is around their kpis and if we can get their focus on their kpis and how those kpis drives the kind of outcomes that we're looking for financially than the comp.
Wins.
So you'll find.
And again the.
Rest of the team very focused on making sure that we understand how the business is operating and how we can help it become more and more successful.
Very focused on.
Things are up and down the income statement and balance sheet. So no real.
Yes there.
It's where the opportunity is is where well focus.
Okay I appreciate all that.
Yes.
The next question comes from Mihir Bhatia with Bank of America. Please go ahead.
Hi, I'm sorry, Thank you for taking squeezing me in here.
I'll just have to do with the consumer EV.
Bill do you kind of mentioned Ron.
Could you maybe expand on that is the idea that the bill.
Please call consumer brand or are you white lately.
I guess.
One of your other comments about Brazil is the thinking that that using E. V. Instead of tools you can do something similar on the consumer side with what they've done in Brazil, using those as well.
We're just fuel.
Yeah, that's a that's a good question so.
As I mentioned at the top the motivation initially here is.
Repurposing assets, we have which are which are networks right in tech, but your comment about you know brand is a good one so the first thing I'd say is some of that build initially will be under other people's brands, where we'll be kind of Intel inside so what I mean by that is think of us going to.
On the EV car manufacturer, you know picks on Volvo Renault somebody who's taken EV cars and they want to give their new their new buyers are an easy way to find public recharging and pay for it and they're going to use our network in Iraq the brand.
And sometimes even the App will get pulled into you know Renault or volvo's way right of communicating so that's one so leveraging kind of the carmakers brand to get to those drivers and then the second one is kind of the C. P O. The gas stations, if you will the charging.
Charged point operators is what they call them same thing we would go to someone that's got 100 odd charge points. It has.
Customers coming in.
Wants them to be able to roll to go to places all of them and they are 100 zoom.
It would be trying to sign those customers off and get them under an app that we would provide them. So that's the first headline is that some amount of our consumer business, where the leverage. These these intermediary brands.
Lastly, I think it is a good idea we have this brand. This company, we bought alcohol plug surfing, which I guess kind of sounds like an E. D brand. So yeah, we're not going to use for sure. The fleet core brand, we want something that's representative.
And so we might invest we may take a market to your point and invest digitally to see if we can build.
You know that brand and add some consumers directly, but but but that's for a different day.
Understood. Thank you and then just switching gears to your and obviously, you're seeing some sales momentum.
You've highlighted but just in general as you sit here today do you think things are getting better or worse relative to three months ago, because there's a lot of conflicting data I guess from the data you are seeing are you seeing any pockets of weakness across your offerings or is it really just the macro.
You'll need outside macro is the big question Mark for you.
Yeah.
I know it's a.
A question on everyones mind, but I guess I'd make a couple of points. So so first is.
Our past internal metric here is what we call same store sales.
Which which basically isolate existing clients in the period that we had in the same period, a year ago, and just asked hey, they get healthier or sicker and the answer is healthier so.
So across our across the globe at least among our clients. They are plus 3% healthier than they were 12 months ago. So that's kind of that's kind of 0.1.
Second point is our company you know that.
Gross you know revenues double digit and gross profits faster.
Isn't super reliant on GDP I don't know what our GDP is here in the U S or in some of our big markets, but let's say, it's one or 2%, we're growing by gaining share right, we sell way more than we lose so the the.
Our growth rate and potential of our company is way more in our control.
Being able to sell away more businesses at the top of the bucket.
Lose less businesses at the bottom.
The existing clients shrank a point or so all of this made for a quarter or two maybe but that's not our game. Our aim is to basically power through you know either happier or a little bit sad or you know GDP kind of environment. So again, we're not we're not seeing much.
Frankly, I think it's the impact you know it's at the locked in for Us.
Understood. Thank you.
Got it.
This does conclude our question and answer session and the conference has also now concluded. Thank you for attending today's presentation. You may all now disconnect.
Or on the streets that excellent alright.
I never saw hinged on the golf it wasn't in the Q&A.
Yes.
Following the.
Got it.
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