The operator introduces the FLEETCOR Technologies, Inc. Fourth Quarter 2023 Earnings Conference Call and hands the call over to Jim Eglseder, the Investor Relations representative. He is joined by the Chairman and CEO, Ron Clarke, and the CFO, Tom Panther. They will be discussing organic revenue growth and non-GAAP financial metrics. The call will also include forward-looking statements, but these should not be relied upon as guarantees of future performance.

The second paragraph discusses the uncertainties and risks that could affect the expected results, as well as the availability of related documents on the company's website and SEC's website. The CEO, Ron Clarke, then discusses the mixed Q4 results, with revenue and cash EPS up but a weaker finish than expected. He also mentions the delay in gift card shipments, softness in the lodging sector due to low airline cancellations, and a decrease in North America fleet late fees. However, these were offset by improvements in credit losses.

The company experienced some soft spots in their corporate payments and channel partner businesses last year, but they believe these issues have bottomed out as they head into their 2024 guide. In Q4, organic revenue grew by 7%, with vehicle payments growing by 5% and corporate payments growing by 15% (20% without the partner channel). Retention and sales were strong, with 92% retention and 12% sales growth. The full year 2023 results were record-breaking, with revenue of $3.8 billion, EBITDA of $2 billion, and cash EPS of $16.92. Sales for the year were up 20%, with 50% growth in corporate payments. The company also made progress on strategic initiatives, such as EV research and resolving legal issues. They also introduced a transformation plan for their fleet business.

The company has had a successful year, with important acquisitions in cross-border and parking. They aim to continue this success in 2024 by delivering strong financial performance, deepening their position in corporate payments, building out their vehicle payments business, and launching new products. Their 2024 financial guide includes a projected 9% revenue growth and 11% EBITDA growth, with a focus on organic growth and cross-selling initiatives. The company also expects to see higher sales levels and plans to cross-sell additional services to their existing client base.

The company is planning to release a 2024 guide and rebrand as Corpay in March. They have completed a strategic review and have decided to keep their fleet business and corporate payments together, but remain open to exploring options in the future. The company has also released four new products, including the Corpay One business card which combines a business card, fuel card, and virtual card in one account.

The company has introduced four new products, including the Comdata Connect Card for small trucking companies, Corpay Complete for midsize businesses, and CLC Choice for workforce lodging. These products aim to combine existing business credit card rewards with fuel discounts and reporting, provide a platform for managing business expenses, and offer more flexibility and choice for employee travel. The company hopes that these new products will increase revenue by 1% to 2% in the future.

In conclusion, 2023 was a record year for the company with record revenue and earnings. Organic revenue grew by 10%, sales were up by 20%, and retention remained stable at 92%. The company made strategic moves to position itself better for the future, including progress in EV and a new vehicle payment strategy. In 2024, the company plans for profits and cash EPS to increase by 18%, excluding Russia. They also plan to launch new products and rebrand the company to Corpay. The quarter saw organic revenue growth of 7%, slightly below expectations due to softness in certain areas. However, strong expense discipline, improvements in bad debt expense, and a lower tax rate led to a 10% increase in cash EPS. For the full year, organic revenue grew by 10% and EBITDA increased by 13%, in line with midterm targets. Despite absorbing higher interest expense, adjusted earnings would have grown by 16%. Corporate payments revenue was up 15% in the quarter and 19% for the full year.

The company's direct business grew 19% in the quarter, driven by a 27% increase in sales of high quality payment solutions. Revenue from the partner channel declined 31%, but is expected to be flat in 2024. Cross border revenue was up 21%, and the company has fully lapped all revenue synergies from a previous acquisition. The company continues to invest in this business through increased sales and marketing resources and new product capabilities. The vehicle payments segment, which includes fleet, Brazil, and consumer vehicle solutions, has been created as a simpler and consolidated segment. Transaction counts by product type are provided as key performance indicators for this segment.

The company has restructured its executive team to focus on the new segment, with strong revenue growth in vehicle payments in North America, Brazil, and international fuel markets. In the UK, there has been a significant increase in non-fuel product sales, particularly in EVs, and the company's EV strategy is proving successful. The charging network continues to expand in Europe, with coverage of 80% of rapid chargers in the UK. In Brazil, the company has seen a 7% increase in total tags and a significant increase in sales of insurance policies. This success in Brazil is evidence of the company's broader vehicle payments vision, and they are now leveraging their success in the UK to launch a consumer vehicle payment solution in the market.

In the third quarter, the company started selling their parking network to business customers and is working on integrating it with their other networks. In the US, sales and revenue were affected by a decrease in small fleet and micro clients, but their digital and field sales efforts are improving. Lodging revenue was flat due to softness in existing customers, but the company expects growth to return in the future. Weather events and airline cancellations in the previous year boosted revenue in certain verticals, but there were no major events this year. The company is confident in their ability to achieve low double digit growth in the future, thanks to new product capabilities.

In 2023, the company welcomed Joff Romoff as the new Group President of Lodging, replacing the retiring Ron Rogers. The company delivered strong performance, generating over $1.25 billion of free cash flow. Operating expenses were flat compared to the previous year, with lower bad debt expense and the sale of a business offsetting other expenses. The company saw a 220 basis point improvement in EBITDA margin due to revenue growth, expense management, and synergies from recent acquisitions. Interest expense increased due to higher interest rates, but the company's effective tax rate was lower due to tax planning. The company's balance sheet is in good shape, with $1.4 billion in unrestricted cash and over $800 million available on their revolver.

In 2023, the company had $5.4 billion outstanding on its credit facilities and $1.4 billion borrowed under its securitization facility. The leverage ratio was 2.4 times trailing 12 months EBITDA, which is at the lower end of the target range. The company upsized its credit facilities by $600 million to provide more flexibility for deals and share buybacks in 2024. In 2023, the company spent $1.6 billion on acquisitions, $690 million on share buybacks, and used remaining excess cash for debt amortization and reducing its revolver balance. The 2024 capital allocation plan includes using excess cash for M&A, with a robust pipeline, and $800 million for share buybacks. The company also plans to use any residual cash flows for reducing the revolver or building its cash position.

The company plans to use its strong cash position to support EPS growth through M&A and buybacks in 2024. They do not anticipate a recession or significant economic improvement in the coming year. Fuel prices are expected to be a challenge in the first quarter, but overall, the company projects a 14-16% growth in cash EPS, 8-10% revenue growth, and a 10-12% increase in EBITDA with a 54% margin. These growth rates are slightly above their midterm targets, excluding their Russia business. Net interest expense is estimated to be between $340 million and $370 million, and the tax rate is expected to be between 25-26%. Organic revenue growth rates for different segments are also provided.

In the first half of the year, revenue growth is expected to be below the full year average due to pockets of softness and a tough comp in Russia. However, growth is expected to accelerate in the second half as the economic outlook becomes clear and the benefits of growth initiatives and new sales are realized. For the first quarter, revenue is expected to grow between 3% and 5%, with cash EPS increasing between 6% and 8%. The company is grateful to its employees for a successful year and expects them to drive further success in 2024. In terms of credit, the company plans to open the spigot carefully and focus on larger prospects with better credit. Overall, the full year plan is slightly lower than the previous year, but should help on the revenue side.

In the paragraph, Ron Clarke, the CEO of FLEETCOR, discusses the company's recent strategic review and its plans for future mergers and acquisitions. He mentions that the company's primary focus will be on corporate payments, but they are also interested in acquiring a large group of consumers. The next question from an analyst asks about some headwinds that were experienced in the fourth quarter, and Clarke explains that the main issue was a decrease in same store sales, resulting in a 5-point decrease in organic growth. He assures that everything else was in line with expectations, except for a few unexpected pockets.

In 2023, the company had communicated about the softness in lodging, partner channel and payables, and the pivot from micro accounts. These factors, along with credit losses, had a heavier impact on the quarter's results than expected. However, there is some good news as data shows a potential turnaround in these areas. The closure of the strategic alternatives process was difficult due to the uncertainty of the trading range of the RemainCo and determining its multiple.

The company has been looking for partners to separate certain aspects of their business in order to achieve scale and synergies. However, they have faced challenges in finding the right partner due to issues with valuation and social concerns. They have learned a lot from this process and will continue to look for opportunities in the future. In the meantime, they are focusing on buying things within their expertise and rebuilding their vehicle business. They have recently made some tech capability acquisitions that have allowed them to develop new products, which they are now selling and expect to see results from next year.

The main focus for the company is reporting sales of new products and initiatives, with an expected acceleration in revenue next year. The success of these products and initiatives will determine revenue growth in 2024. The company also expects improved retention and is implementing new pricing ideas to differentiate and potentially increase revenue. The wildcard is the impact of the softness in the market, which they hope to turn around.

The company has signed new partners and plans to cross-sell vehicle insurance to increase revenue. They expect the vehicle segment to have low double digit growth due to initiatives such as EV and Brazil. The fourth quarter had some headwinds, but the company is still guiding for a similar rate of growth in vehicles in 2024.

Ron Clarke discusses the factors driving the company's expected organic growth rate, which is projected to accelerate in the coming quarters. These include the removal of low-performing micro accounts, strong sales, and new products such as extensions in the core fuel card business and the EV market. Additionally, the company plans to capitalize on the consumer market by adding services for existing customers in the UK and Brazil. However, the first half of last year had elevated late fees from SMB micro clients, creating a challenge when comparing year-over-year revenue.

The speaker discusses the company's recent financial performance, specifically mentioning a decrease in late fee revenue and credit losses. They also mention a shift in the portfolio that affected both revenue and expenses. The speaker then addresses the decline in the channel business, attributing it to partners moving to non-exclusive relationships. They state that this trend has now stabilized and they expect flat revenue in this area for the next year.

Nate Svensson asks about the outlook for Corporate Payments and Ron Clarke responds that there has been no significant change in the resilience of suppliers accepting virtual card payments. Tom Panther adds that card penetration levels have increased. Nate also asks about the new Corpay Complete products and Ron explains that they are targeting mid-sized companies with a full AP offering and cross border capabilities.

The company has historically presented their services in a menu-based or a la carte manner, but now they have a platform that combines all services into one package deal. This will make it easier to upsell and add on services in the future. The company is using macro assumptions for the year, but they did not specify the details.

The company expects the overall economy to remain stable, with slight improvements in key markets. They predict fuel prices to decrease slightly and spreads to be consistent. FX is expected to be a slight tailwind, and rates are expected to be neutral to slightly better.

The speaker believes that the company will see a significant benefit from the lapping of interest expenses in 2023. They also expect taxes to remain consistent with the previous year. The overall macro environment is neutral, but the company is optimistic about their future earnings. The speaker also mentions cross-selling initiatives, with 20% of Brazil sales already incorporating add-on products. These initiatives are expected to have a significant impact on the company's sales in 2024, with plans to offer more products to their 800,000 business clients.

During a conference call, Sheriq Sumar from Evercore ISI asked about the increase in take rate for Corporate Payments in 2023 and the drivers of higher margins across all segments. Tom Panther explained that the fluctuation in take rate was due to changes in channel mix, and that there was not one specific segment driving the increase in margins. He also mentioned that the structure of the business was the main factor in driving margins, rather than any specific changes within the business model. Overall, the company expects margins to reach 54% in 2024, with a slight increase towards the end of the year.

The company expects to see a natural operating leverage benefit from margin as each of its businesses grows, and plans to continue investing in sales and marketing to maintain growth levels. They have been running an analysis on the unit economics of their EV business for eight quarters and have 300-400 accounts. The company is confident in the potential for increased revenue from EV charging due to the growing number of EVs on the road.

The speaker discusses the company's ability to help clients transition to electric vehicle charging and mentions the success of their products. They address concerns about the company's performance and provide more detail on the Lodging segment, noting unexpected weakness in the airline and insurance components. The workforce segment performed as expected.

The decline in Lodging was mainly due to a lack of episodic events in the fourth quarter. Workforce also saw some softness, but the company expects this to improve with new sales and products. The company's organic growth is expected to accelerate over the course of the year, with same store sales and retention rates improving in the back half and new products driving growth.

David Koning from Baird asks about the decrease in corporate volumes and the impact on yield mix. Ron Clarke and Tom Panther explain that the decrease is due to a large partner changing their exclusivity and that the business is contracted until 2024. They also note that the bad debt expense has decreased significantly and it is expected to remain low in the future.

Tom Panther and Ron Clarke discuss the performance of reversals and credit loss expense in 2024. They expect good performance and have learned a lot in the past six quarters. They will be more opportunistic in managing credit and this will help with flow through into earnings. The next question is about the buyback and whether it will be evenly distributed or weighted to a particular quarter. Tom mentions they will be mindful of market conditions and have a lot of liquidity for potential M&A.

The company has up to $2.5 billion to invest and wants to do so quickly. The timing of their investments will depend on market conditions and the amount of available stock. They plan to start investing this quarter and will continue to monitor market conditions throughout the year. The conference has now ended.

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