Q2 2019 Earnings Call
Greetings and welcome to the Fleetcor technologies second quarter 2019 earnings Conference call.
As a reminder, this conference call is being recorded.
I would like to turn the conference over to our host.
Mr., Jim Eglseder head of Investor Relations for Fleetcor technologies. Thank you you may begin sir.
Good afternoon, everyone and thank you for joining us today for our second quarter 2019 earnings calls.
With me today are Ron Clarke, our chairman and Chief Executive Officer, and Eric Day, Our Chief Financial Officer.
Following comments, Ron and Eric the operator will announce your opportunity to get into the queue for the Q and a session. It was only then I think you will open for questions.
Our earnings release and supplement can be found under the Investor Relations section of our website at <unk> Dot com.
Throughout this conference call, we will be presenting non-GAAP financial information, including adjusted revenues adjusted net income and adjusted net income per diluted share.
This information is not calculated in accordance with GAAP and may be calculated differently than non-GAAP information that other companies.
Quantitative reconciliations of historical non-GAAP financial information to the most directly comparable GAAP information appears in today's press release and on our website as previously described.
We are also providing updated 2019 guidance on both a GAAP and non-GAAP basis, along with reconciliations.
Finally, before we begin our formal remarks I need to remind everyone that part of our discussion today will include forward looking statements.
This includes forward looking statements about our guidance and outlook, new products and fee initiatives and expectations regarding business development and acquisitions.
They are not guarantees of future performance and therefore, you should not put undue reliance upon them.
These results are subject to numerous risks and uncertainties, which could cause actual results to differ materially from what we expect.
Some of those risks are mentioned in today's press release on form 8-K.
And in our annual report on Form 10-K filed with the Securities and Exchange Commission.
These documents are available on our web site at SCC that golf.
With that out of the way I would like to turn the call over to Ron Clarke, our chairman and CEO Ron.
Okay. Jim Thanks, Good afternoon, everyone and thanks for joining our second quarter earnings call.
Upfront here I'll plan to cover four subjects.
First I'll provide my perspective on our Q2 results.
Second I'll preview our outlook for the second half.
A third I'll report a bit on the continued progress of our beyond strategy and lastly, I'll comment on the acquisition front.
Okay, so onto Q2.
We reported Q2 revenue of 647 million.
Up 11% and 285 in Kashi P.S. also up 11%.
On a constant macro and constant scope basis, well or what we call a like for like basis revenue was up 13% and Kashi P.S. approximately up 13%.
Both revenue and cash EPS results topped our expectations.
Revenue coming in about 7 million better than plan and Kashi P. S six cents higher than the midpoint of our guidance range.
Notably our overall organic revenue growth accelerated nicely to 13% in Q2.
That marks the highest organic revenue growth quarter.
Since we started reporting like for like revenue in 2016, So we're quite pleased.
Inside of that our fuel card organic revenue growth.
It was 9%.
Our three non fuel lines of business all exceptional lodging up 13 toll up 17 corporate pay up 26.
The volume growth in each of those three non fuel lines of business are quite good in lodging, our SMB room nights were up 15%.
In total our active tags, which drive revenue up 7%.
And in corporate pay our virtual card spend.
20%.
So very strong volume growth.
Our trends in the quarter continued quite good our new sales or new bookings up 18% versus prior year, our client or a business retention continued steady at 92%.
Our same store sales came in at minus 1%, but down largely due to softness among the large retailers in our gift segment.
Excluding gift same store would have been what would have been a portion.
Our balance sheet a in a very good place Q2 leverage finished about two times and our July term loan upsizing of 700 million brings our revolver liquidity now to over a $1 billion. So we're well positioned to allocate capital to either acquisitions or buybacks in the second half.
So in summary, you know Q2, probably one of the best quarters in quite some time.
Record organic revenue growth of 13%.
Very strong volume growth in our three non fuel businesses continued positive sales growth and retention trends.
In Q2 profits above the top of our guidance range.
Okay, Let me transition to our outlook for the second half. So today, we're confirming our overall revenue growth guidance of 9% to 11%.
Rest of year and fuel card organic revenue growth in that same range.
We're raising full year 2019, Kashi P.S. guidance to 11 68.
At the midpoint that reflects our six cents.
Q2 beat the guidance.
There are a number of assumptions or kind of moving parts.
Rest of year, we're expecting a bit more on favorable macro there when we spoke last time and a slightly higher share count.
When we spoke last time.
But those will be offset by lower interest expense going forward.
And likely better acquisition contribution.
Driven by the sole deal.
Going forward. So look when you take all these items together together they effectively net to zero in terms of rest of year impact.
Also as a reminder, our rest of year guidance anticipates pretty big increases sequentially.
In both revenues and profits.
Okay, let me transition over to an update of our beyond strategy.
As a reminder, the idea quite simple to offer our existing fuel lodging and told clients the opportunity to spend more with us by opening up the network or adding locations in which they can purchase things.
This increases the utility of our card programs to our clients.
And results in incremental spend in revenues for us so beyond fuel here in the U.S., we added 2000.
New beyond fuel clients in Q2 that brings our active beyond fuel client count to about 6700.
This set of beyond few clients contributed approximately 1% to 2% of our incremental revenue growth in the quarter, so starting to be helpful.
I'm still lots to do we're targeting about half of the 100000 eligible.
Existing fuel clients.
And continue to monitor credit trends are quite carefully.
But but it seems clear to us that our fuel card clients do like the idea of making adjacent mobility and supplier purchases on a single business account with us.
Lodging in a in our beyond lodging initiative, we added about 10000.
A new hotel locations to our 15000 proprietary network a couple of months ago.
And in June we captured about 3% of our overall room nights coming from the expanded network. So based on our forecast we're hopeful that the expanded network could add about 2% of incremental revenue growth to our SMB lodging business by a by year end.
In terms of beyond toll our Brazil initiative, we've now nearly tripled our parking a gas station and drive through network from about a thousand locations.
At the time of acquisition in 2016 to over.
2700 locations today, and the adoption and the expanded network is growing.
At Mcdonalds for instance.
We had 65000 transactions in March that grew to 135000 transactions in June and we're expecting approximately 250000 Mcdonald's transactions as we exit December .
So a big big pick up.
Very importantly sales of our new non toll or what we call urban users.
Are also growing we added approximately 18000, new urban user tags in Q2.
That's up significantly from 3500 that we signed in Q1.
So the yeah. The conclusion is our beyond strategy is.
Gaining traction adoption is accelerating and the new revenue contribution in every business.
Growing.
Okay last stop is acquisitions I'll touch on the two transactions that we recently closed envoys pay in Seoul, and also provide a brief update on our acquisition pipeline.
So invoice pay we were delighted to announce that acquisition on our last earnings call.
The primary rationale again for that deal.
Strengthen our position in full APC or integrated payables.
And in which we help clients pay 100% of their monthly supplier invoices and that's via every.
Payment modality card.
AC age even taper check so we've made good progress in the first 90 days that we've owned invoice pay weve advanced the synergies that we outlined at close.
And we expect invoice pay to transition from approximately three cents dilutive in Q2, two accretive in Q4.
Our soul, we closed the sole payroll card acquisition on July 1st.
Souls, a payroll card tuck in its about a one quarter the size of our existing payroll card business.
And has historically grown revenue about 30% annually. So we like it as an add on four out for a couple reasons first it's complimentary to our existing.
Business in that it focuses on SMB accounts.
And it's developed a pretty ratable partner distribution channel with payroll processors to sell more or further penetrate that SMB segment, and then second we expect significant synergies via the combination as we consolidate our tech platform and our existing bank and network relationships. So expect soul to be accretive in 2020.
In terms of pipeline our acquisition pipeline still active we've got three close tuck in opportunities.
One each in our fuel.
Lodging and corporate pay businesses and as I mentioned earlier, we've got plenty of liquidity to pursue them.
So in closing again, a very good Q2 with revenues and profits ahead of our expectations.
Our rest of year outlook is good we're planning sequential step ups in revenues and profits.
Our beyond strategy starting to take hold.
Client adoption accelerating and the revenue contribution becoming more meaningful.
The integration of our two recent acquisitions also progressing nicely, we're capturing synergies and expect both of those deals to be accretive to 2020 earnings.
So with that let me turn the call back over to Eric to provide some additional details on the quarter Eric.
Thank you Ron and good afternoon, everyone.
For the second quarter of 2019, we reported revenue of 647.1 million up 11% compared to 585 million in the second quarter of 2018.
GAAP net income increased 48% to 261.7 million from 176.9 million.
And GAAP net income per diluted share increased 52% to $2, a 90 cents from $1.91 and the second quarter of 2018.
Both of these reported numbers include the impact of a tax benefit associated with the sale of our Masternaut investment.
Which was a benefit to GAAP net income of 65 million and GAAP net income per diluted share of 72 cents per share.
The sale of our investment in Masternaut allow the company to offset the capital loss recognize against the previously recorded capital gain from the sale of Nextraq and the third quarter of 2017.
non-GAAP financial metrics that we will be discussing our adjusted net income and adjusted net income per diluted share.
For which the reconciliation to GAAP numbers is provided in exhibit one of our press release.
Adjusted net income for the second quarter of 2019 increased 8% to 256.7 million compared to 237.8 million in the same period last year.
And adjusted net income per diluted share increased 11% to $2.85 compared to $2.57 in adjusted net income per diluted share in the second quarter of 2018.
Second quarter results reflect a negative year over year impact from the macroeconomic environment of approximately 10 million in revenue.
In line with our expectations.
The negative macro impact was primarily due to lower foreign exchange rates when compared with the second quarter of 2018.
Which we believe negatively impacted revenue by approximately 17 million.
Due primarily to unfavorable rates in Brazil in the UK.
Fuel prices were slightly better year over year in the second quarter.
And although we cannot precisely calculate the impact of these changes.
We believe it was a positive 1 million to the quarter.
And finally fuel spreads had about a 6 million favorable impact in the quarter.
Organic revenue growth after adjusting out the impact of the macroeconomic environment and the Chevron de conversion was approximately 13% for the second quarter of 2019.
In all major product categories performed well during the quarter.
Organic growth in our fuel card business was 9%.
Driven by solid growth in most of our fuel card businesses.
Our beyond fuel initiatives contributed about two points of growth.
The corporate payments category continues to perform well and was up 26% organically during the quarter.
The growth in corporate payments.
Was driven by both our cross border business, which grew in excess of 30% in the quarter and our virtual card business, which grew approximately 20%.
Our total business was up 17% organically.
Driven primarily by new toll tag sales rate initiatives and more beyond toll revenue.
Our lodging business was up 13% on a print basis and would have been up approximately 16%. If you adjust out the roughly 1 million in emergency related revenue from the second quarter of 2018.
So all in all another very good quarter for our non fuel business, resulting in very strong organic growth performance in the quarter.
Now moving down the income statement.
Total operating expenses were up 9.2% for the second quarter of 2019 to 349.8 million.
Compared with 320.2 million in the second quarter of 2018.
The increase was primarily due to acquisitions and normal growth in our operations.
As a percentage of total revenues operating expenses were approximately 54.1%.
Compared to 54.7% in the second quarter of 2018.
Including in operating expenses, our credit losses of 18 million for the second quarter of 2019 or seven basis points.
Compared to 14.5 million or six basis points in the second quarter of 2018.
The higher than normal credit losses were due primarily to fraud losses in our U.S. fuel card businesses.
Fuel card fraud should improve as you with fuel stations begin transitioning to chip and pin technology in late 2019 and 2020.
Depreciation and amortization expense increased 3% to 70.9 million in the second quarter of 2019.
From 68.6 million in the second quarter of 2018.
The increase was primarily due to acquisitions completed in 2019.
Interest expense increased 19%.
The 39.5 million compared to 33.2 million in the second quarter of 2080.
The increase in interest expense was due primarily to the impact of additional borrowing for share buybacks throughout 2018.
Recent acquisitions and increases in LIBOR.
Our effective tax rate for the second quarter of 2019 was a negative 1.7% compared to 23.5% for the second quarter of 2018.
And if you adjust out the tax benefit related to the sale of master not our effective tax rate would have been 23.6%.
Now turning to the balance sheet.
We ended the quarter with 1.49 billion in total cash.
Approximately 318 million is restricted and consists primarily of customer deposits.
As of June Thirtyth 2019.
We had 3.614 billion outstanding on our term loans and revolver.
And approximately 478 million in Undrawn availability.
We also at 974 million borrowed in our securitization facility at the end of the quarter.
Subsequent to the ended the quarter, we completed a 700 million upsizing of our term a loan facility.
We will initially use the additional funds to pay down the revolving credit facility and securitization facility.
And we now have approximately 1.2 billion in availability.
We plan to use these funds for acquisitions or future share repurchases of our stock.
As of June Thirtyth 2019, our leverage ratio was 2.1 times EBITDA.
Which is well below our covenant level of four times EBITDA as calculated under our credit agreement.
We intend to use our future excess cash flow to temporarily pay down the balance on our revolving credit facility and securitization facility.
And maintain liquidity for acquisitions and other corporate purposes.
Finally, we spent approximately 17.5 million on capex during the second quarter of 2019.
Now onto the update for the outlook for 2019.
First we are raising our full year revenue guidance 20 million at the mid point.
To reflect our second quarter outperformance and the acquisition of sole financial which closed in early July .
We are also raising our GAAP net income and GAAP net income per diluted share guidance to reflect our second quarter beat and the impact of the master not related tax benefit in the quarter.
In addition to the acquisition of sole financial.
We are also raising our adjusted net income per diluted share guidance by six cents to $11.68 at the mid point to reflect our second quarter results compared to our expectations.
Also we expect a few moving parts in our balance of the year guidance.
For the balance of the year, we expect the macro impact to be slightly worse than our prior guidance.
Due primarily to lower fuel prices and unfavorable foreign exchange rates.
We also expect a slightly higher share count due primarily to an increase in our share price, which impacts the calculation of fully diluted shares.
Partially offsetting these impacts will be favorable interest expense due primarily to interest planning initiatives implemented and lower LIBOR rates.
And the impact of acquisitions, which will be slightly accretive over the balance of the year.
So taken in total.
These puts and takes that to zero in terms of financial impact on our balance of the year guidance.
Please refer to our second quarter earnings call supplement for additional information regarding our guidance.
So with that out of the way our guidance is as follows.
Total revenues to be between 2.625 billion and 2.675 billion.
Net income to be between $865 million and 895 million.
Net income per diluted share to be between $9.60, a $9 or 90 cents.
Adjusted net income to be between 1.040 billion and 1.070 billion.
And adjusted net income per diluted share to be between $11.53 and $11.83.
Some of the assumptions we have made in preparing the guidance includes the following.
Weighted fuel prices equal to $2.75 per gallon average in the U.S. for the balance of the year for those business is sensitive to the movement in the retail price of fuel.
Market spreads slightly below the 2018 average.
Foreign exchange rates equal to the seven day average as of July 28 2019.
Interest expense of between 150 million to $160 million.
Approximately 90.3 million fully diluted shares outstanding.
A tax rate of 23% to 24%.
And no impact related to acquisitions or material new partnership agreements not already disclosed.
And finally for the third quarter of 2019, we are expecting adjusted net income per diluted share to be in the range of $3 to $3.10.
And with that said, operator, well open it up for questions.
Thank you.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
[noise].
[noise].
Oh.
Yes.
Our first question comes from the line of.
David Togut with Evercore ISI. Please proceed with your question.
Oh, Thank you congratulations on the acceleration in organic revenue growth.
Thanks, David.
With 13% organic revenue growth for Q2, and with your 2019 guide staying at 9% to 11%.
Is that just conservatism or are you expecting some deceleration in organic revenue growth in the back half of the year.
Hey, Dave This is Eric Yeah, I mean, it's a couple of things one obviously, we expect our business <unk> our businesses continue to perform I'm actually accelerate as we get into the second half it's more like we have tougher comps.
So last year in the second half the year, our businesses accelerated as well so.
We're expecting you know again accelerated growth overall, but then just tougher comps from an organic growth perspective.
Hey, David It's Ron we've also got the the gift in the other which we don't call out.
Looking those to be you know not super great in the second half.
So probably still you know double digit for the non fuel lines you know in that 911 number.
Got it and then any specific assumption on corporate payments in the back half it seems like you're just starting to benefit from the cross border growth they're up 30%.
[noise], yeah, they could probably still start with the two.
And in Q3 and four.
Got it.
And then.
What was the growth rate for the Mastercard fuel card in the second quarter.
Oh I'm sorry, when we got the <unk> looked at up David I think it was in the low 20 percentage as of right now.
It was still a pretty high they're talking about the the combo, David we call it our local business.
I'm looking at the local business was up 13 for Q2, which includes our fuel man business of Mastercard I don't have them split in front of me, but it's it's circa in that range.
Got it just a quick final question, the 18% growth in new sales bookings in the second quarter any key drivers of that acceleration from what we saw in Q1.
[noise] I mean, all I'm looking at the sales stage all were pretty good the the corporate payments again was was blockbuster was up almost 40% over prior year and the Brazil.
I think I mentioned, the new sales channels, there that we that we launched two or three years ago. We're just rock and again, so that's the way way up so I'd say those are the two polling are pulling arrest.
Got it congrats on the strong results.
Thanks Bill.
Our next question comes from the line of Chintan Huang with JP Morgan.
Please proceed with your question.
Hey, good afternoon, so with the revenue accelerating and like you said sort of a high since you started reporting that organic metric I'm curious if you can.
Attributed to any thing it seems like you're hitting on a lot of the right areas is it fair to just say its greater focus across the broader organization with new sales up retention on organic growth accelerating just.
What could you what would you point it you want us to there.
Yes, I think it's a it's a good question, Jason I'd say a couple of things one is its mix. Obviously, so having you know bigger businesses here that have bigger Tams makes you know the the non fuel lines grow and then second to your point, we have had starting with me more focused on innovating because we've done the last big deal.
Right. The last you know 12 to 24 months I think both of those things have brought more focus to the base business.
Cool good to know and then under the bookings front I know, David just ask it I'm curious how much of the bookings could we assign to your beyond initiatives. You had 2% now do you have a target for maybe exit rate could that get much better.
Yeah, we don't actually both keep our our sales are new bookings up per se into the into the beyond bucket yet it's a it's a bit of a.
Manual kind of that.
System, but I'd say again, the hope is for those things to step up call. It another point.
Over the next call it two quarters.
So they're they're building I mentioned in the beyond fuel we're still.
Chasing the first 50000 clients here, we're up to just under 7000 were going to turn our attention to the to the other 50 as we start to move through the second half so.
You know stake to hope hopefully more same on the beyond toll same on the beyond lodging. So it's it's it's definitely picking up I try to get a few stats of of that progress, but clearly as those bases keep getting bigger it'll it'll give intra country anymore.
Okay. That's useful then last one just quickly on payroll I mean going back to your roots a little bit there.
Ron just I'm curious is that a bigger focus potentially for the for the company and or is it really just enhancing your corporate payments outlook.
Yeah, it might be we like that space because again, it's another employee you know payment product when I didn't you know payroll processing I Love ATP and you know there's a number of kind of independent assets you know given all this consolidation. So obviously I think feed a bit into that that you know there may be some assets that it could it could get loose here, but we like it I mean this this one we pull the trigger probably liked it because it's really 100% SMB, which we liked the engine and its got a sales model to work with processors payroll processors. So we like the idea of building that payroll card business more in the SMB space than in the mid or large so we just liked it a lot and we could afford it really because of the synergies you know that we could bring being in the business. So its a.
It's a nice little add on it helps us head in the direction that we like.
Okay. Thanks, well done on the results for sure.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Please limit to one question and one follow up and yes. It's the time one moment. Please while we poll for more questions.
Our next question comes from the line of Jim Schneider with Goldman Sachs. Please proceed with your question.
Good afternoon. Thanks for taking my question I was wondering if you maybe throw a little more statistical color on the progress for beyond fuel I believe you said it was two point incremental last quarter I think this quarter. You said it was one two points didn't give us any kind of sense about in terms of the.
The acceptance of the of the clients that are of taking you up on the offer the uplift on spend relative to kind of the the 40% metrics you provided last quarter and just to confirm that additional.
Point or so of acceleration is that kind of statement about exiting this year or more of a statement about 2020. Thanks.
Yeah, Hey, Jim This is Eric as you know we will we continue to add more customers to the base of the beyond.
Fuel bucket so like as an example, if I remember from last call. I think we said we had about 5000 clients there were actually in that beyond using that beyond fuel capability. We've accelerated the acceptance to about 7000 clients at the end of Q2 and again were so I'm looking at.
You know accelerating the acceptance of that too.
About 100000 customers eventually.
So were slowly getting to do that so I think as we get into 2020. You know you will see that are beyond fuel category accelerate by another point yourself.
At least that's our goal at this point.
Yeah, Hey, it's Ron just just to add to it. So when we use the you know the term beyond fuel I think we've we've mentioned before that there are some different use cases that we kind of you know stick on to that umbrella. So for example, a we call internally the companion card when they go back to fuel card clients, we already have and try to add a card right that would let them buy a.
We have a different thing when we try to go to like a construction vertical and sell it to for product one that buys fuel and construction supplies and we may have a third use case when we go out to trucking clients and have the trucking company quit the payroll of the driver literally on the car and then uses a debit card. So every one of those use cases creates incremental spend by the client incremental utility for the client obviously incremental revenue and so the the list off amounts the 40% I referenced in the last call. They vary if you will by those applications. So the companion card probably isn't a 25% range the construction cards proudly.
50, or 60% and the payroll card probably in that in that 40% range. So it varies basically by use case, but the message I think we're trying to leave everybody with is you know it's working.
Right, where we're adding clients were keeping clients.
Each one of the use cases is building and so erics point, there's a lot of compares to the prior period, but I think the the headline is that there's this idea is now working and it's growing and it's actually adding like we're saying you know a couple of points to the growth and my comment was as you get into college. She want it next year, we should think about it going up go another point.
That's great color. Thank you.
And then maybe you can comment on the overall corporate payment side of things and particularly the sales activity, you're seeing there and maybe comment specifically on the kind of sales and lead generation, you're seeing through saying some of your partner suffered channels versus the invoice pay channel.
Itself and maybe just kind of talk about whether you see the opportunity or do you have the desire to kind of acquire additional software assets in that space. Thanks.
Yeah, I mean, I think you know, they're they're all working our own direct business, we're getting much better I think on the marketing side. So we're teeing up.
No more soft ball more leads so that's one of the reasons our direct business is growing I think our channel partner some of the ones that you guys know that are private are really doing super they're investing lots of money and their respective channels. So we're getting the benefit.
Well if their growth.
Same thing on our FX business, you know, we doubled down on the on the sales investment and went after a larger accounts. So we're seeing that now in our sales numbers that even if the if the account the new account count is the same the dollars per account are way up so I'd say that.
You know the the corporate pay you know selling machine is working almost across the board and in this model that we have of working with E. R piece, which is part of the whole invoice pay idea there their core business leverage the eighth you'll ATP accounting stuff you know a car dealers and a couple of big construction packages and so this idea of working with ERP partners in an integrated fashion to preserve our joint clients is working quite well so.
It is literally Jim across the board the selling is working there.
Good to hear thanks, so much.
Our next question comes from the line of Bob Napoli with William Blair. Please proceed with your question.
Thank you and a follow up on the corporate payments.
Business the invoice pay Ron.
And I guess, knowing you not that surprised that invoice pay is going to be accretive.
Sooner than you thought at the end of year, but it is you know to me. It seems like that opportunity is so large should it be accretive by the end of the year. I mean are the the p. automation piece, how big can that be and.
How are you.
Investing to the level that you should be.
You know to drive that business too much multiples of what it currently is.
Yeah, So I would say Bob back up don't presume that the conversion from a dilutive to accretive is based on clipping, you know sales or marketing or even ICTI investment. It's not we're actually spending more as we move into the second half. It's it's it's simple lay down synergies around contracts for example that they have and merchant.
Acceleration, we can take our five or 600000 merchants and get their card penetration up its easy low hanging fruit money that we are grabbing more than it is that we're we're trying to governor or dial back on the on the investment. So that's 0.1 0.2 is yes really of all the areas I mean, the Tam and trying to monetize this payable to running a P which is again half of the.
The business spend into something that's that's carnival or we can we can get a per transceivers AC age or something it's you know you know this the opportunity is massive so you shouldn't read any any comments about accretion into us not understanding that or us not investing a lot in that.
Okay. Thank you then you mentioned three.
Acquisitions that are I guess in the pipeline that are obviously not guaranteed to close but are they I mean it is on the M&A side should we expect larger transactions or I mean, how are you.
Do you have visibility ahead or.
And do you expect some of those deals to close I guess before the end of the year, whereas.
Going back so again, we try to comment on our pipeline, there's a number of dimensions right. There's a.
The size of the deals there's the timing are they now or later, there's the categories that were in so we try to just provide a little bit of flavor around the near end things things, where we signed term sheets and we're you know we're.
Way along are far along in them. So my my comment on the pipeline as we have.
Three what I would call close in things that will either kind of close the next 90 days, probably or not that are in the you know.
Tuck in kind of size you know hundreds of millions of dollars on a billion on 50.
And then as always we have some some larger transformational things that we're we're exploring that or not is near in so the headline is we've done a couple.
Three Eric I guess year to date kind of three have done all tuck ins I would think you know you should think that probably one or two more of those kind of things would happen you know in the second half and as you know given our leverage ratio and enhance liquidity. We're we're obviously in a good spot.
To go after something larger so we're we're getting to a place we'd had time to focus on the knitting and the basic business and you know were again the tries to.
You know by businesses and improve them. So you should expect that we're continuing to try to do that.
Great. Thanks, Ron Thanks, Eric can Jim appreciate it.
Our next question comes from the line of Ramsey El a fall with.
Barclays. Please proceed with your question.
Hi, guys good evening and thanks for taking my question.
I wanted to ask about the beyond tolls performance in Brazil, I mean, the statistics you threw out about Mcdonnell are the you know the Mcdonald's effectively were really impressive.
And that sub segment to that offering just sort of the the the drive through a QSR business.
<unk>, what should we think about the addressable market. There I mean, those are incredibly impressive results with mcdonalds, how unique is Mcdonald's as a partner in that market and is this the type of thing where we could think of every time that you had.
Multiple.
Merchants like Mcdonald's you know ramping like that.
Yeah Ramsey, it's Ron I think it's you're thinking about it the right way so the the the press that we've had on this.
Idea is hey, we've got these 5 million.
Users and you know parking.
And fueling and drive through or obviously merchants that are pretty interested in our customer base and so I think of it as this first.
Three years that we've owned the thing has been fundamentally piloting you know weve added whatever I mentioned, a couple of thousand incremental locations of parking fueling at mcdonalds and not shockingly, there's more people lined up and every one of those categories.
So in parking we signed up the next biggest parking operator, I think we've added three or four more.
In fueling we've added care for and drive through we've got two more things that are teed up.
That have you know decent kind of dried through footprints, we've even signed a.
Thing, which we haven't announced that we signed with them with Nissan where we're gonna factory install.
The stickers and all their new vehicles and as soon as we sign that and started to talk about it. We now have other manufacturers, they're reaching out you know on the same idea. So I think this this proof of concept you know when you can relay what's happening at a gas station or you know Adam Mcdonald's to the next set of dry through people. You know is the key to get nothing built satellite you know we're trying to give you the message that it's really early but it is again, it's it's working and we expect to keep rolling out.
Great. That's that's that's terrific.
I wanted to ask a a completely separate question about it.
I spent a lot of movement in the industry in terms of alternative networks you got the fed announcement, you've got Mastercard and visa both moving into kind of alternative rails, you've obviously, all the mega mergers you're talking about kind of honest type of capabilities, meaning fasten five serve and potentially even global payments to some degree you alluded in the past that there might be some capabilities that you have in terms of the assets that you possess to run alternative kind of network past, maybe particularly on the corporate payment side or you know can you comment on your kind of most updated thinking along those lines.
Yeah, I think we said this from the beginning that you know we want to get.
You know merchants digital and so when we sign up a business and they've got a thousand merchants to to pay and we realize it only 200 of those are carnival, let's say on the Mastercard network.
We scratch our heads of it and say Okay. You know what could we do to digitize you know some of the other 800. So this idea of a what we call internally AC age plus or upgrading some rails that provide some incremental data to merchants and maybe some earlier funding and stuff. The merchants, it's something that we're exploring we've built up a bit as a network and I think what we've said is it's a land grab Ramsey now so we're mostly focused on signing up clients and getting the first 200 merchants carnival, but you should think about us over time, and particularly with the invoice pay going back and trying to digitize you know with our own network more of those merchants that are really on served by visa Mastercard.
Great terrific Thats all from me thanks.
Our next question comes from the line of Oscar Turner with Suntrust Robinson Humphrey. Please proceed with your question.
Hey, guys good afternoon.
My questions on fuel.
Oh, the beyond fuel related cards, typically replacing other birds.
And then just wondering if you're seeing existing beyond fuel customers shipped more spin to those cards overtime.
Yeah, that's where it's Ron so on the first part of the question. It's no. So generally we simply not toggle open the card. So we have parameters you know control parameters on the card programs. If your boss and you want us to open up five of your Tan employee cards to buy construction supplies, we can flip a switch and open up five of them and keep the other five.
Locked down or be we can give you a new card for your A.P. had to you is to put you know HCP purchases and leave the same 10 cars that are out in the field. So so the answer is we tend not to replace the cards, we either closed or open them up or or add new cards.
Okay. Thanks, and then just as far as the.
Are you seeing existing customers shift more spend.
Yeah, that's the <unk>.
I think the comment earlier of the different use cases, we have we're picking up anywhere from 25% to 50%.
Incremental spend with the account as they buy or put payroll on at a port construction supplies and put a piece of the total amount of business that we're doing with the client is growing in the 25% to 50% range.
Okay. That's helpful. My follow up is just on I guess, a high level question about.
Growth in margin just given some of the longer term initiatives you're working towards.
Do you think any of those initiatives are attractive enough like maybe it's beyond fuel or tolls.
That you would think about stepping up the marketing spend significantly.
Yeah, I mean, I think it's a it's a it's a really good question. So let me get into kind of a two part answer. This the first one is if anything.
The guidance that that Eric gave for the second half anticipate.
Bath your profit growth. So if you look at our first half.
Print I think our Kashi vs. Brent was nine and I think our macro adjusted friend Bob The French 13, we expect in the guidance that Eric gave you 11 68 BOE both of those numbers to go up I think our print outdoor because 13%, which is a step up in our macro neutral Kashi Gs grows to 17. So the the first headline is.
That sitting inside the guidance. We gave you there's an implied acceleration in our profits in our margins Ah. That's 0.1 0.2 would we spend more if we thought we could sell more the answer is yes.
We would inside of a couple of constraints you know one trying to deliver you know some profit growth.
And number two the practicality of how we could spend the money and how productive the incremental money can be we're not interested in just spending money and and obviously not producing anything and so some forms of our marketing investment you can push a button on like search words, and emails and things like that and then other ones that are people intensive like telesales or field take longer to build you can't just hire 100 brand new people you know in a quarter. So I think the answer is it's it'll probably be somewhere in between you know every year, we step up our sales and marketing investment we step it up faster in in corporate pay and to the extent that we can get this A.P. thing you know going better I think we'll continue to step it up but but again, we won't go overboard I guess is my message.
Okay. That's helpful. Thanks.
Our next question comes from the line of Ryan Cary with Bank of America Merrill Lynch. Please proceed with your question.
Hi, guys. Thanks for taking my question I wanted to ask on the pool business. When we look at the 17% organic growth in the quarter through to parse out the contribution from the legacy toll business versus contribution from beyond pool initiatives.
Well, obviously be until still really I'm trying to get a sense of it is large enough to move the needle.
You repeat the question again, I'm, sorry, when you kind of broke up on us.
Yeah, I'm, just trying to get a sense, if although there's always great momentum behind beyond toll if the growth rate. There is large enough to move the needle for overall total organic revenue growth and if it's not when we could potentially see would kind of be large enough to be a needle mover.
Yeah, I mean, we're stepping up our investment continuously in the beyond toll category as Ron indicated earlier I mean, we now have you know over I think over a million people that have told tags that can actually use those cards to my other things like fuel as an example, and we're also marketing that product to people that are using that that <unk> that the toll product as a.
Other than pull first sort of thing, meaning they want to buy fuel, but they don't really spend a lot on.
In the toll roads or they want to buy fast food and they want to buy parking. So we've got a different universe of customers and as Ron indicated you know what we're starting to partner with some major with a major car brand Nissan who starting to install the toll tags directly.
You know into the vehicle as its manufacturing, which is obviously going to be a boon for us as well.
So yeah, we were going to start seeing some accelerated growth as acceptance increases overtime.
And as our investment in sales and marketing to steps up overtime. So are you starting to sell more customers. So we're very bullish on you know the that the prospects for that beyond toll category.
Yeah, Ryan it's Ron I'd, just add to what Eric said I'd say, if you said hey in Q2, I'd say, it's probably less than 1% and <unk> and the reason again Simplistically is you know the company. There has really 100% of all the total locations down around whatever 15 20 years and it covers every.
Fun familiar we told me within the land and yet we don't have every parking obviously every gas station or every dr. Giulia piny percentages of gas stations and drive throughs. So I think the question earlier today is the right way to think about it which is this is almost a pilot period, where we're showing that these other networks can matter and can get used in our life by the clients and as those build and we get larger percentages of you know drive thru restaurants in gas stations that that growth rate will have will become obviously way more material. So I'd say this thing will be a bit slower build because we've got to kind of build the network worsen beyond fuel we have the Mastercard network right. It can go up a bit faster because the networks are already there we just have to get clients to spend on it.
This one is we're actually a network builder, which I hope everyone gets as a business Super sustainable thing once you get it up and it creates a great barrier to other people chronic kind of copy US you know hey, I have your Dad's you know toll company now I'm glad you have that bill because we build that plus you know these five things and so that's the game. We're in a race to build a way more interesting network to these mobility people.
Got it and then switching to a kind of a corporate payments side of the business clearly growth of both comdata in Cambridge, we're very strong in the quarter was there any contribution to the growth rate of either from invoice pay which I believe is either an integrated into both are in the process of being integrated or is this more just strong performance of the standalone assets.
Well that's been grew like a weed I mean, the problem is it's small right right. So against the other two businesses you talked about it's it's tiny but I'm in front I think it grew 50% or 100%.
So it's it's you know as a standalone business and obviously, we've got you know way more selling capability to help it. So so that thing is growing you know both top and bottom quickly. It was already grown quickly by the way before we bought it but it is growing faster now, but I'd say most of the headline numbers. We're quoting you were coming from the two core things that you called out just because they are bigger.
Got it but there isn't I know your.
Integrating invoice pay it wasn't like due to the integration that cause the growth rates to expand or accelerate enterprise over the computer Cambridge assets no. Some of it is that it is both again I think we told you that there are some things we've done like on the merchant side and some things we've done with their ERP people and the sales rate. So we put a number of things in already the thing is moved from I think I said minus three to flat to plus two and over the course of sequential quarter. So it's it's moving quite nicely top and bottom. It's just not driving the overall, 26% number that we quoted.
Got it thanks for taking my questions.
Our next question comes from the line of Peter Christensen with Citibank. Please proceed with your question.
Thank you good afternoon, nice outperformance guys Ive two questions first Ron you talked quite a bit last couple of quarters about.
Shifting a lot of marketing towards digital just wanted to see if you had an update on what kind of productivity or efficiency gains that you're seeing on that front end and then could you extend that that strategy onto some of the beyond.
Initiatives as well.
That's a great question Peter Yeah inside of our sales results were which were up eight based teen percent. We had another record global digital contribution I think digital is now in the U.S. surpassed 40% I think it's 42 or 44% of all of our new sales in the U.S. are common digital and then B we started.
Crunch the digital thing is as seamless applications. This then the whole process, we gun's digital so I'd say that.
No we're still early.
In it but between you know, enabling digital piano outreach and then digital applications and as well as the the science around the landing pages in the click through I think that our.
Sophistication in B to B digital is up dramatically going over the last two or three years.
And I'd say, there's still ways to use your question way more room to go and I think we're still trying to sort out how we can invest more in that because unlike the people thing you can step on that faster you know and still keep it productive so.
Getting better more sophisticated it's producing more but I think there's still there's still more runway there.
That's helpful. And then there's there's been some negative press lately I guess on some of the truckers, particularly the shipping side. Just wondering what you guys are seeing on euro TR and any pockets of weakness there.
That would be helpful.
Yeah, it's for sure soft I'd say, we saw some of it in Q1 I'd say, we saw more of it here in Q2, and partly because we have to be on fuel.
Initiative that we call on road initiative there. It's helped our revenue growth in that segment, but I think the underlying same store sales in our trucking business is actually gone negative you know I quoted 1% same store negative globally for our business or or call. It a push Collins zero.
If it kick out or gift card business inside of that I think our trucking was call it minus one or minus two so we're we're seeing you know we're foreseeing really the same kind of softness as the industry is.
Thank you.
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Ladies and gentlemen, that's all the time, we have for questions.
And this.
Mm Hmm, sorry, and just end the call everyone have a great day.
Shocked.