The operator introduces the FLEETCOR Technologies, Inc. Third Quarter 2023 Earnings Conference Call and hands it over to James Eglseder, Investor Relations. Eglseder is joined by the Chairman and CEO, Ron Clarke, and the CFO, Tom Panther. The call will cover organic revenue growth and non-GAAP financial metrics. Eglseder reminds listeners that the discussion may include forward-looking statements and that they should not rely on them as guarantees of future performance.

In the second paragraph, the speaker discusses the expected results for the company and the potential risks and uncertainties that could affect them. They mention that some of these risks are outlined in a press release and annual report, and direct listeners to where they can find these documents. The speaker then moves on to discuss the company's Q3 financial results, which were in line with expectations despite a weaker macro environment. They highlight the growth in revenue and cash EPS, and mention the success of their pivot strategy in the North America fuel market.

The trends in the quarter have been positive, with strong demand for products and a 17% increase in new sales. Retention rates remain stable at 91%, but there has been a slight decline in same-store sales. Despite this, Q3 EBITDA reached an all-time high of $529 million with a 54.5% margin increase. The updated Q4 guidance is slightly stronger than the previous one, with a forecasted 10% organic revenue growth and 14% EBITDA growth. Looking ahead to 2024, the macro environment is expected to be neutral to slightly positive, with a projected 9-11% organic revenue growth.

The company is expecting a good year with lower bad debt, stable tax rates, and a simpler company structure. They have decided not to pursue a pure spin or strategic sale, but are still exploring separation options with potential partners. The company's fleet transformation plan aims to accelerate growth in their global Fleet business and re-rate their stock. Slides in the earnings supplement provide more information on their plans.

The plan has three main focuses: BAU, EV, and consumer vehicle payments. Under BAU, the company plans to improve performance through new fleet products and targeting larger market segments. The company also plans to capitalize on the EV transition by offering a 3-in-1 commercial fleet EV-ICE solution. Lastly, the company plans to expand their consumer vehicle payments business by leveraging their existing networks and offering additional vehicle payment solutions. This approach has already been successful in Brazil.

The company is excited about the potential for growth in its fleet/vehicle business, with plans to expand into new markets and target specific verticals. Despite selling off one of its businesses and facing some unfavorable macro conditions, the company is still forecasting strong earnings for 2023. They are also actively discussing separation plans and believe their fleet transformation plan has the potential to accelerate growth for the entire enterprise. The quarter was busy with various business moves and fluctuations in fuel prices and FX rates.

The author discusses the impact of various factors on the company's results, including the sale of the Russia fuel business, the acquisition of PayByPhone, and macro headwinds. The sale of the Russia business resulted in a $12 million decrease in revenue and a $0.06 decrease in cash EPS, while the acquisition of PayByPhone added $2 million in revenue but was $0.01 dilutive to earnings. The author also mentions that higher fuel prices had a negative impact of $9 million on revenue due to a 25% compression in fuel spreads. Additionally, the strengthening of the US dollar in August resulted in an $8 million decrease in revenue. The author recommends using the Oil Price Information Service to track fuel prices and spreads.

In summary, if we had known about certain factors in early August, our revenue and cash EPS would have been slightly lower than reported. However, our earnings still exceeded expectations due to strong expense management and lower bad debt expense. Organic revenue grew by 10%, driven by the diversification of our business and strong sales. Lower fuel prices and FX rates had a negative impact, but our overall revenue still increased by 9%. Corporate Payments revenue was up 20%, driven by strong growth in spend and our comprehensive menu of payment solutions. We also saw growth in our proprietary merchant network and cardable spend.

The company experienced a 19% increase in cross-border revenue, driven by strong sales and recurring client transaction activity. They are the largest nonbank FX provider in the world and have high retention and acquisition rates due to their superior capabilities, service, and products. Their Fleet business saw a 4% organic revenue growth, with strong performance in international markets and the U.K., but some softness in the U.S. due to a shift away from micro clients. Their decision to pivot up market has been EBITDA positive. The company is also excited about the rollout of new products and their recent acquisition of PayByPhone, the world's second largest parking payments platform.

In the third quarter, the company paid $300 million for a company and expects to generate $50 million in revenue next year. Revenue in Brazil grew by 16%, with 35% of customer spend coming from the expanded network. The success in Brazil is proof of the company's vehicle payment strategy. The deployment of free-flow tolling in Brazil has actually increased tag sales. Lodging revenue increased by 10%, with fluctuations due to weather and natural disasters. Sales success was seen across all industry verticals.

The company saw a 20% increase in revenue per night, driven by a mix of channels and products, but also experienced softness in the construction and transportation sectors due to the weaker macroeconomic environment. They expect this to rebound once the economic outlook becomes clearer. The company is also planning to move to 3 primary business segments in the fourth quarter. Operating expenses increased by 4%, but bad debt expense decreased by 22%. EBITDA margin improved by 225 basis points, and the company expects it to be 200-250 basis points better than the previous year. Interest expense increased due to higher interest rates and debt from acquisitions. The effective tax rate for the quarter was 26.6%.

The company had $1.1 billion in cash and $660 million available on their revolver at the end of the quarter. They also had $5.6 billion in outstanding credit facilities and $1.4 billion borrowed under their securitization facility. Their leverage ratio was 2.66x trailing 12-month EBITDA. They repurchased 2 million shares for $530 million and have over $700 million authorized for share repurchases. They have enough liquidity for near-term M&A opportunities and will continue to buy back shares. The sale of the Russia business would reduce revenue by $30 million, while the acquisition of PayByPhone would increase revenue by $10 million. The company is expecting a $20 million macro headwind, but with these adjustments, they are still expecting 10% growth in revenue and 11% growth in adjusted net income per share compared to the previous year's fourth quarter.

FLEETCOR expects solid year-over-year revenue and earnings growth in the fourth quarter, despite softening economic conditions. For the full year, they anticipate GAAP revenues between $3.774 billion and $3.804 billion, adjusted net income between $1.252 billion and $1.276 billion, adjusted net income per diluted share between $16.82 and $17.12 per share, and 14% EBITDA growth with a 53% margin. They are considering strategic actions in their Corporate Payments business, such as a spin-off or merger, and are in final discussions with potential partners. They have given a preliminary organic revenue outlook for next year, taking into account various macro variables such as the economy and foreign exchange rates.

The speaker discusses the macro factors and their impact on the company's profit levers, stating that the setup looks more normalized than in previous years. They also mention a $1 billion consumer vehicle payments business that is mostly an organic play, with the key factor being the take rate. The company is currently looking at additional transactions to fill out product lines, but the focus is on cost of sales.

The company's strategy for growth and profitability involves focusing on lighting up big bases rather than spending a lot on marketing. They plan to expand through a combination of a few more deals and mostly organic growth. The recent acquisition in Brazil is expected to have attractive margins and serve as a bellwether for the rest of the portfolio. The company is also working on cleaning up their reporting segments, which will now consist of vehicle, corporate payments, and lodging businesses.

The company is combining Fleet and Brazil into the vehicle payments segment, but there won't be any changes in the margin profile. The Corpay segment has been performing well with strong sales and demand, except for the channel business which is declining. The company's focus now is on marketing and sales to continue growing the direct business.

The company has recently launched a new brand and has increased its staff to drive sales growth. Unlike other companies, their same-store sales have remained stable and there has been no erosion on the supplier level. The company has seen good network expansion and an increase in cardable spend, showing favorable interest from merchants and suppliers. The decision to keep their prepaid business was due to their belief in its potential, despite offers from potential buyers. The company is also actively seeking to sell other non-core assets. The company will provide updates on these efforts in 90 days.

Ronald Clarke, CEO of FleetCor Technologies, answered a question about the company's geographic strategy. He explained that the company's current business is mainly focused in Brazil, the UK, and the US. The company's goal is to expand its consumer payment business in the UK and the US through its PayByPhone idea. Clarke also mentioned that the Lodging segment had a tough year-over-year comparison and is experiencing some softness in the managed services subvertical. It is unclear if this trend will continue into the next quarter.

The company has a project-based segment that includes consulting firms, retail merchandising, and environmental companies. This segment has 300-400 clients and sends teams of people to different locations for a few weeks. In Q2 and Q3, 50 of these clients started to decrease their business, citing reasons like bringing merchandising in-house or using local contractors for construction. This segment saw a 10% decrease in organic growth, while the rest of the business saw growth. The company expects this segment to remain soft in Q4 and hopes for a turnaround in the next year. During the strategic review, the company has set up a team for the next few quarters and is considering the use of share repurchase and leverage levels. They are also considering the trade-off between margin and growth and potentially investing more in sales to accelerate growth.

The company has been busy with its strategic review over the past 6-9 months and has generated a lot of activity and interest. They are still in discussions for potential separations and have identified some potential M&A targets in the same space. Their priorities for capital and leverage remain the same, with a target of 3x leverage and a focus on buying back their stock. They expect to generate around $1.3 billion and will use it for potential deals and stock buybacks. They have also seen an increase in EBITDA margin and plan to continue this trend next year.

The company plans to increase sales and marketing investments while maintaining a target margin of 54% to 55% for the next year. The Fuel+ business card is a new strategy to target customers in the fleet segment, particularly those in field services like HVAC and construction. This strategy combines a business card and fuel card in one and utilizes technology from the company's acquisition of Corpay One.

The company has developed a new business card that combines the features of a bank card and a fuel card, with advanced technology and controls. The product has undergone successful testing and is now being sold in the market. The Corporate Payments segment has seen strong growth due to an increase in volume, driven by new sales and a backlog of implementations.

The company is seeing success in their sales and marketing efforts for their new offerings, resulting in increased revenue and profit margins. They have shifted their focus to larger customers in the Fleet business, which has led to a decrease in credit losses. However, there has been a slight trade-off in late fee revenue. The company is optimistic about the potential for growth in the coming years.

The company has faced challenges in using its digital engine to attract larger accounts. However, they have seen an increase in the card market and are investing in building a field team to target larger clients. The company expects a 25% increase in sales for this line of business next year. The international business is also performing well. The PayByPhone business has been growing at a rate of 20-25% and is expected to continue at this pace, with a projected revenue of $50 million next year. However, the business currently has a low margin and is earning almost nothing. The company is focused on leveraging the potential of PayByPhone to drive growth.

The company plans to increase B2B parking through their app and utilize their networks for EV, service, registrations, and fines. They expect this to have a positive impact on their business by 2024. The CEO also discusses the potential for separation alternatives, such as a merger with another company or spinning off assets into a private entity.

The company is considering different options for its assets, including consolidating and IPO-ing them separately or combining them with another company. The Corporate Payments segment has seen strong organic growth of 20%, with both the AP and cross-border FX components contributing equally. The company expects this growth to continue into next year. A question was asked about the organic growth within the fleet period, and it was mentioned that without Russia, organic growth was relatively flat at 3% for the quarter.

The company saw a 3% growth in the third quarter, driven by strong performance in international markets such as Mexico, Australia, Europe, and the U.K. However, there were also some positive results in the U.S. enterprise segment and over-the-road trucking. The company has shifted its focus to larger fleets, leading to some struggles in the small fleet business. The company is also looking to expand its consumer vehicle payment strategy in the U.S. and the U.K., but acknowledges that there may be unique challenges in these markets compared to Brazil, where they have already seen success.

The success of the company's business in Brazil was largely due to their focus on getting customers onto their phone app, which allowed them to sell additional services like insurance. Now, the company is trying to replicate this success in the UK by leveraging their existing active customer file and offering services related to vehicles, such as EV and car servicing. The key to this strategy is to make the app a one-stop-shop for all the customer's needs, eliminating the need for multiple apps and manual data input.

The company is expecting significant growth in their add-on apps, especially in Brazil where over 60% of customers use multiple products. The CEO gives an example of how the apps can be used for insurance and other services. They are also considering organic growth in 2024, with a target of 9% to 11%. The growth rate for fleet is still being determined, especially with the exclusion of Russia.

The speaker is discussing the growth of the company's fleet business, which historically has grown 7% to 9%. However, due to new products and channels, they are hoping to increase this growth rate in the near term. The speaker also mentions the importance of investing in new opportunities to boost the fleet business and make it more exciting for customers.

The Corporate Payment margins have increased by 400 basis points year-over-year, with synergies from the Global Reach acquisition and positive operating leverage being the main contributing factors. The CEO, Ron, has been with the company for over two decades and it is uncertain what his responsibilities would be in a spin-merge scenario. The company is currently exploring potential partnerships and combinations within the B2B market, with a focus on either finding overlap with another business or taking out costs.

Ron, the speaker, wants to clarify that he is not resting and wants to address the possible outcomes for the company's structures. He mentions the idea of spinning assets into a private entity and having a minority investor, or RMTing it into a public company. He also mentions that they are spending a lot of time on social issues and will be involved in whatever combination they go forward with. In response to a question about cross-border businesses, Ron says that they are not seeing much risk in that area.

The speaker discusses the impact of FX volatility on their business, stating that it has had a minimal effect on their overall growth. They attribute their stability to the sheer volume of clients and spending, as well as the diversity of their business in various countries. The speaker also mentions that the originating currencies in different regions act as a hedge against any weakness in one area. They conclude by stating that they have not seen a significant slowdown in their business due to FX volatility. The conference call then ends.

This summary was generated with AI and may contain some inaccuracies.