FLEETCOR Technologies, Inc.

Good afternoon, everyone. And thank you for joining us today for our fourth quarter and full year 2023 earnings call.

With me today are Ron Clarke, our Chairman and CEO; and Tom Panther, our CFO. Following the prepared comments, the operator will announce that the queue will open for the Q&A session.

It is only then you can get in line for questions. Please note, our earnings release and supplement can be found under the Investor Relations section on our Web site at fleetcor.com.

Now throughout this call, we will be covering organic revenue growth. As a reminder, this metric neutralizes the impact of year-over-year changes in foreign exchange rates, fuel prices and fuel spreads.

And it also includes pro forma results for acquisitions and divestitures or scope changes 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 may be calculated differently than at other companies. Reconciliations of the historical non-GAAP to the most directly GAAP information can be found in today's press release and on our Web site.

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.

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. Now the expected results are subject to numerous uncertainties and risks, which could cause actual results to differ materially from what we expect.

Some of those risks are mentioned in today's press release on Form 8-K and in our annual report on Form 10-K filed with the Securities and Exchange Commission. These documents are available on our Web site and at sec.gov.

So with that out of the way, I will turn the call over to Ron Clarke, our Chairman and CEO. Ron?

Okay, Jim. Thanks.

Good afternoon, everyone. And thanks for joining our Q4 2023 earnings call.

Upfront here, I'll plan to cover four subjects; first, I'll provide my take on both Q4 and full year 2023 results; second, I'll share our 2024 priorities and guidance; third, give you a bit of an update on the status of our strategic review; and then lastly, highlight a few pretty exciting new products that we've recently launched. Let me begin with our Q4 results, which frankly were a bit mixed.

We reported revenue of $937 million, up 6%; cash EPS of $444 million, up 10%; and EBITDA of approximately $500 million, up 11%. Q4 revenue did finish a bit weaker than we outlook 90 days ago, but fortunately, our earnings flow through was quite a bit better than expected.

That was helped mainly by credit losses finishing at about half the level of last year. The revenue weakness in the quarter showed up in a few areas.

First, gift cards. So we had some delays in gift card shipments that have been pushed here into Q1.

In lodging, we had a pretty soft distressed passenger vertical in the quarter, mostly because airline cancellations were at a record low level. North America fleet late fees pretty light, that again is a continuation of exiting a lot of micro accounts that we started about a year ago when we tightened credit terms.

Again, fortunately the late fee reduction was essentially washed away by the improvement in credit losses. And then the last year as our corporate payments or payables business with the channel partner business finishing even softer than we had outlook, fortunately there, we think it's bottomed out.

So these kind of weak spots, soft spots are either timing related, weather related, we've kind of reached the end of kind of bottomed out as we head into our 2024 guide. So hopefully, not surprising us again.

The organic revenue growth in Q4, 7% overall, again impacted by the soft spots I just called out. The vehicle payments organic revenue growth 5% for the quarter.

Corporate payments revenue growth 15%, but 20% if you exclude the partner channel. Trends in Q4 also a bit mixed.

Retention, quite good, improved slightly to 92%. Sales grew 12% overall with a terrific performance in corporate payments.

Sales there up over 40%. And what we call same store sales finished 3% down.

Again, we saw the weakness in the workforce lodging and the airline lodging business, and a bit in the UK. Okay.

Let me make the turn to our full year 2023 results, which reached record levels. 2023 revenue of $3.8 billion, up 10%; EBITDA of approximately $2 billion, up 13%; and cash EPS of [$16.92], up 5%.

Trends for full year 2023 quite good. Sales for the full year, up 20% overall.

And again, inside of that corporate payment, sales up about 50%. We did sell 100,000 new B2B clients in 2023.

In terms of organic revenue growth, full year 10%. So that makes three consecutive years of 10% plus organic revenue growth.

And again retention stable at 92%. Additionally, we did advance a number of important strategic initiatives in the year, progressed EV and our understanding of the relative economics of EV versus ICE, so promising results there.

We did clean up our Russia and FTC issues. We did introduce this transformation idea for our fleet business, envisioning it really as a broader vehicle payments related business.

We did close a couple of important acquisitions, one in cross-border, which we fully have integrated and one in parking really to jump start our consumer vehicle payments initiative. So look all-in-all, a pretty successful year.

Okay. Let me make the transition to our 2024 guidance, and start out by outlining our major objectives for the year.

So a few things. First, is always to deliver financial performance that's consistent with our midterm objectives.

Second, we hope to deepen our position in corporate payments through some new acquisitions in that space. Third, we hope to build out our vehicle payments business with proof of successful cross selling and accelerate revenue growth throughout the year.

And then lastly, to succeed with some new product launches and confirm market acceptance for them. So on to our 2024 financial guide.

So revenue at the midpoint of $4.080 billion, that's up 9% on a print basis or 11% excluding Russia. EBITDA of $2.2 billion, that's up 11% or 14% excluding Russia.

And finally, cash EPS at the midpoint of $19.40, up 15% print and up 18% excluding Russia. So let me just say that again, planning ‘24 profits, cash EPS growth of 18% this year excluding Russia.

We are expecting good earnings flow through to EPS. One, revenue will grow faster throughout the year than expense, so that operating leverage will help.

And we do expect to have fewer shares, better FX and a slightly lower tax rate. In terms of revenue and organic growth, we're obviously helped by our Q4 exit rate and the sales from last year growing here into 2024.

We are expecting higher sales levels here in 2024, which will add to revenue. And then we do have a number of cross sell initiatives planned into our client base this year.

So in the fleet business, selling business cards, EV, parking, breakdown services back into the fleet clients. And in Brazil, the toll business, selling insurance, parking, fuel back into the toll base.

Tom, in a bit will provide some more specifics on the 2024 guide and how it rolls out across the year. We also plan to mark the next chapter of the company with the rebranding of FLEETCOR to Corpay and that's scheduled for March.

Okay. Let me make the turn to our strategic review.

So just as a reminder, we did initiate a formal strategic review of our portfolio last spring, and initially focused on the question of whether separating our fleet business from our corporate payments business could unlock value for shareholders. We have run a pretty rigorous process over the last 11 months with a lot of help, particularly from Goldman Sachs.

We fielded numerous inbounds, looked at lots of alternatives and explored some combinations with dance partners. I got to say the review process was quite helpful for us in exploring some really some new structures for the company, and spotlighted the value creation potential of transitioning really our fleet business into a broader vehicle payments business that will serve both businesses and consumers.

So that's a super high priority for us. So look, we're announcing really the conclusion today of the review process at least for the time being we've determined that keeping our fleet business and corporate payments together is the best way forward.

Obviously, we remain open to reconsidering various options to unlock value down the road. But right now, squarely focused on repositioning the vehicle payments business.

My last subject upfront here is new products. We've released four new products into the marketplace this year, each with really terrific potential.

So first, what we call our Corpay One business card, fuel card and virtual card in one, that's targeted to fuel based businesses where the solution includes a business card for the owner, fuel cards for the field drivers and even replaces paper checks with virtual cards. That's all in one account and all in one UI, so pretty exciting.

Second product we call the Comdata Connect Card. It's targeted to small trucking companies.

So it connects the Comdata truck stop fuel discounts and reporting to the companies, the trucking companies’ existing business credit card. So trucking firms here would really get the best of both worlds.

They continue to get the credits and rewards from their existing business card, but combine that with the fuel discounts and reporting of a truck stop card. Look, this also helps us in terms of the credit challenge with small trucking companies.

So hopefully, we can bring on lots of small trucking firms without the credit risk. Third up is a product that we call Corpay Complete.

It's our newest corporate payments product targeted to midsize businesses. And again, this is really a platform build.

So we've combined what we call walk around solutions, business cards and fuel cards, really with a central kind of AP automation solution, again, packaged all in one platform, all in one mobile app. So really we think kind of the modern way really for businesses to manage their all around and business expenses and spend less.

And lastly, in lodging, we have a new product called CLC Choice. So it's really a workforce lodging solution for employers who want really a more friendly and flexible employee travel solution with the idea of being more choice for travelers.

So in this case, travelers could choose virtually any hotel, any room type and even keep rewards points from their favorite hotel brand. So we think the Choice solution will complement really our current control solution and widen the market opportunity there.

So look, we're super excited about these new products have been in the kitchen for quite a while and hopeful that this new set of products will accelerate revenue 1% to 2% over time. Okay.

So look, in conclusion today, 2023 really a record year, record revenue, record earnings; organic revenue growth for the full year up 10%; sales super good, up 20%; stable retention at 92%; made some good moves to position the company better for the midterm; EV progress and our new go forward vehicle payment strategy. 2024, our planning profits or cash EPS up 18% excluding Russia and that's on really an assumption of flat interest expense; launching a set of new products that we have high hopes for; and then beginning really the next chapter for the company as we move to rebrand the company to Corpay in March.

So with that, let me turn the call back over to Tom to provide some additional detail on the quarter. Tom?

Thanks, Ron, and good afternoon, everyone. Here are some additional details related to the quarter and the full year.

Organic revenue growth was 7%, the same as the fourth quarter of last year. Revenue growth was slightly below our expectations due to pockets of softness, mostly in US vehicle payments and lodging, while our corporate payments and international businesses continued to perform well.

The revenue weakness was mostly offset by strong expense discipline, continued improvements in bad debt expense and a lower tax rate, which delivered $4.44 per share in cash EPS within our guidance and up 10% versus last year. Looking at the full year, organic revenue grew 10% and EBITDA increased 13%, which are both in line with our midterm targets.

We also absorbed nearly $200 million of incremental interest expense during the year due to the rate hikes and still posted cash EPS growth of 5%. Normalizing for the higher interest expense, adjusted earnings would have grown 16% for the full year 2023.

Now turning to our segment performance and the underlying drivers of our revenue growth. Corporate payments revenue was up 15% during the quarter and increased 19% for the full year.

For the quarter, our direct business grew 19% and was again led by growth in full AP. Our full suite of high quality payment solutions continues to sell extremely well with sales up 27% this quarter as we signed up customers who are looking to modernize their AP operations.

I'd note that the drag from lower partner channel volumes accelerated in the quarter with channel revenue declining 31%. Excluding the partner channel, revenue grew 20% and spend volumes increased 27% in the quarter, so quite strong on a core basis.

We believe the partner channel volumes have bottomed and volumes and revenue are expected to be flat in 2024. Cross border revenue was up 21%, sales grew 51% and recurring client transaction activity was robust.

We've now fully lapped all the revenue synergies from the GRG acquisition in January 2023. More importantly, our best in class technology, service and products allow us to have market leading retention and client acquisition, which you can see in our results.

We continue to make significant investments in this business through increased sales and marketing resources as well as new product capabilities. Over the last few years, we have transformed this business into becoming the largest non-bank provider of B2B FX payment solutions in the world.

Turning to vehicle payments. Recall, this is the new segment that we introduced on our last earnings call.

It reflects the combination of our fleet and Brazil businesses, along with our new consumer vehicle initiative. Consistent with our goal of creating a simpler company, we have now put all of vehicle related payment solutions in one segment that operates across North America, Brazil and Europe, offering a full suite of vehicle related solutions to both businesses and consumers.

You'll note that we've defined the new segment's KPI as transactions. But given the different products that comprise the segment, we've provided transaction counts by product type such as fleet, tags and parking.

We've also realigned our executive team to support this new segment with Armando Netto, serving as the Group President of North America and Brazil and Alan King, as the Group President over International Fuel, EV and Parking. Vehicle payments organic revenue increased 5% during the quarter with particular strength in Brazil and international fuel markets.

In the UK, more than 30% of all new sales involve a non-fuel product, namely EV or vehicle maintenance. Our EV strategy in the UK is clearly winning as our 3-in-1 product, fuel, on road charging and at home charging, all-in-one app has more than doubled from a year ago.

The results speak for themselves with both EV cards and EV revenue continuing to increase. In addition, we're having great success selling our at home charging solution with a 30% attachment rate to all new sales.

Our charging network also continues to expand and we now offer charging at over 600,000 charge points in Europe. And by the end of March, we will have coverage of nearly 80% of the rapid chargers in the UK, including Tesla, which we signed in the fourth quarter.

In Brazil, we ended the year with nearly 6,000 extended network locations, including 2,500 gas stations, 2,900 parking locations, 750 drive thru restaurants and 270 condos. Total tags were up 7% year-over-year to nearly $7 million, and approximately 37% of customer spend was from our Beyond Toll network.

Sales of insurance policies are up fourfold when we launched in Q4 '22 to nearly $200,000 in Q4 '23. So from zero to $200,000 per quarter in five quarters and now total over 1 million policies.

Our success in Brazil is a tangible proof point of our broader vehicle payments vision to leverage and anchor product used by a large customer base and to then add additional services via mobile app, driving incremental revenue growth. We are leveraging our strong success in the UK to launch our consumer vehicles payment solution in the market.

We have begun selling the parking network that we acquired in the third quarter via PayByPhone to our business customers, and are building the integrations to be able to offer to the over 2 million PayByPhone consumer users in the UK access to our proprietary fuel, EV, insurance, toll and maintenance networks. In the US, softness in small fleet and the impact from our shift away from micro clients continue to affect our sales and revenue results.

Our digital and field sales efforts are improving as we continue to see growth in applications, approvals and starts. As we mentioned last quarter, the shift to higher credit quality clients also impacted late fees, which were down 38% from Q4 '22.

While the decline in late fees is a drag on our revenue growth, it has resulted in a similar decline in bad debt expense, so essentially a wash. Lodging revenue was flat Q4 2022 and for the year, the business grew to 12%.

This quarter was affected by continued softness in our existing workforce customers, which appears to have now stabilized. Certain verticals within the business like airline and insurance can have quarterly revenue growth fluctuations, driven by weather and natural disasters.

Recall, in Q4 of last year, there were significant weather events and airline cancellations, which benefited the airline and the insurance verticals. By comparison, there were no major weather events in Q4 of this year.

And in fact, according to the Department of Transportation, 2023 flight cancellations were the lowest in a decade. And in the fourth quarter, cancellations were down approximately 90% from Q4 '22.

We're experiencing similar results related to insurance claims, which were down approximately 20% in the quarter. Despite the recent soft quarters, we are confident that this business can return to low double digit growth over the coming quarters.

We recently launched new product capabilities that will extend our customer experience and drive new sales. Additionally, we're excited to welcome [Joff Romoff] as the new Group President of Lodging, replacing the retiring Ron Rogers.

[Joff] has extensive hospitality and lodging experience that will be a strong asset to the business. In summary, we're proud of the performance we delivered in 2023.

It clearly demonstrates the growth of our diversified business and the strength of our business model that generated over $1.25 billion of free cash flow. Now looking down the income statement.

Q4 operating expenses of $513 million were flat versus Q4 of last year. Expenses from acquisitions, higher transaction and sales activities and investments to drive future growth were offset by lower bad debt expense and the sale of our Russia business.

Bad debt expense declined $19 million or nearly 50% from last year to $22 million or 3 basis points of spend. Most of the decline was in vehicle payments, which was down $17 million year-over-year as we realize the benefit from our lower exposure to US micro clients.

EBITDA margin in the quarter was 54.2%, a 220 basis point improvement from the fourth quarter of last year. This positive operating leverage is driven by solid revenue growth, lower bad debt expense, disciplined expense management and synergies realized from recent acquisitions.

Interest expense this quarter increased $18 million year-over-year. And the impact of higher interest rates resulted in an approximate $0.27 drag on Q4 adjusted EPS, partially offset by lower debt balances year-over-year.

Our effective tax rate for the quarter was 23.3% versus 24.2% last year, the lower rate related to specific tax planning items. Now turning to the balance sheet.

We are entering 2024 with a balance sheet in excellent shape. We ended the quarter with $1.4 billion in unrestricted cash, up $300 million from 90 days ago, and we had over $800 million available on our revolver.

We have $5.4 billion outstanding on our credit facilities and we had $1.4 billion borrowed under our securitization facility. As of year end, our leverage ratio was 2.4 times trailing 12 months EBITDA, which is at the lower end of our target range.

In January, we upsized our Term Loan A and Revolver A credit facilities by $600 million with no rate concessions and no change in the maturity. This added capital will provide incremental capacity and flexibility for both deals and share buybacks in 2024, which I'll elaborate on in a few minutes.

Our capital allocation in 2023 was once again balanced as we deployed $1.6 billion. In the quarter, we repurchased roughly 600,000 shares at an average price of $2.54 per share or $143 million.

For the year, we repurchased 2.6 million shares for $690 million. We spent $545 million on acquisitions during the year, improving our position in EV, the consumer vehicle payment space and cross border.

We used the remaining excess cash flows for debt amortization and reducing our revolver balance. As I previously mentioned, our 2024 capital allocation plan is supported by our significant cash and liquidity position.

We have $1.4 billion in unrestricted cash and increased our capacity under our revolver by $600 million, and we expect to generate $1.4 billion in free cash flow during 2024. Our first priority remains M&A and the M&A pipeline is robust.

We'll look to acquire businesses that deepen our position in our three core operating segments. We are also allocating capital for share buybacks during 2024.

In January, the Board increased our repurchase authorization by $1 billion. We now have over $1.6 billion authorized for share repurchases.

We expect to repurchase $800 million of shares throughout the year. We plan to purchase these shares through the open market and will establish a 10b5-1 plan later this month.

Any residual cash flows from earnings will be used to reduce our revolver or build our cash position. Generating so much cash is a high class problem and we plan to leverage this strength to systematically support our EPS growth through M&A and buybacks in 2024.

Now let me share some thoughts on our 2024 full year and Q1 outlook. From an economic perspective, we are not assuming a recession nor meaningful economic improvement in overall business activity.

Our forecast for the year is based on the consensus economic outlook in our markets, which generally calls for modest economic growth and lower interest rates in the second half of the year. We expect fuel prices to be a headwind in the first quarter.

And for the full year, we're anticipating US fuel prices to average $3.65 per gallon, which is a blend of diesel and unleaded. In 2024, we expect cash EPS to grow between 14% and 16%, which is inclusive of the planned buybacks I mentioned previously.

Revenue growth is projected to be between 8% and 10% and EBITDA is expected to increase 10% to 12% with margin expanding to approximately 54%. Keep in mind that these growth rates are inclusive of our Russia business through mid August of last year.

Excluding Russia, cash EPS is growing 17% to 19%, revenue is up 10% to 12% and EBITDA is increasing 13% to 15%, all slightly above our midterm growth targets. We've provided these details in our earnings supplement on Page 20.

Net interest expense is projected to be between $340 million and $370 million, which includes the replacement of a $500 million interest rate swap that matured in December. Roughly 80% of our credit facility is now fixed utilizing swaps, and the blended swap rate is 4.1%.

Also recall that our securitization is a variable rate facility. And finally, our tax rate is expected to be between 25% and 26%.

From a segment perspective, we expect the following organic revenue growth rates; vehicle payments in the mid single digits; corporate payments approximately 20%; lodging payments in the high single digits. Related to the quarters, we expect revenue growth in the first half of the year to be below our full year average due to the continued pockets of softness, a tough comp that includes Russia, as well as a challenging operating environment, including lower fuel prices.

We expect revenue growth to accelerate in the back half of the year as the economic outlook becomes clear. We lap the divestiture of Russia and we realize the benefits of our growth initiatives and new sales.

For the first quarter, we're expecting revenue to grow between 3% and 5% and cash EPS to increase between 6% and 8%, which also reflects higher interest rates. Normalizing for Russia, revenue and cash EPS growth at the midpoint would be 7% and 13% respectively.

The rest of our assumptions can be found in our press release and supplement. Before completing my prepared remarks, I would like to extend our gratitude to our more than 10,000 employees around the world who helped us deliver such a great year and who will be the driving force to even greater heights throughout 2024.

Thank you for your interest in our company. And now, operator, we'd like to open the line for questions.

Two questions for you, Ron. Just curious, you performed pretty well on the credit loss side.

How are you thinking about, at least tactically, about extended credit in 2024 versus last year, particularly after improving the mix of your mid-market clients?

So the model that we've used has gotten a bit better over the last 12 months. And I think I called out credit losses coming in literally about half of the prior year.

So I'd say we're going to kind of open this spigot carefully. And then second, again, that we're pointing to larger prospects, which generally have better credit.

So I guess we have the full year plan just a smidge lower than full year '23, but it should help on the revenue side.

And then Ron, I guess now exiting the strategic review. How should we think about, at least your M&A priorities going forward, any particular areas, horizontal, vertical, just want to get your fresh sense on FLEETCOR soon to be Corpay's M&A priorities going forward?

Glad to be back at kind of the basic buying company. So the primary focus, Pete, is on corporate payments.

So we've got a pipeline of a couple of interesting things in that space. And then the one other area that we're kind of on is this consumer capability, this idea again of getting a big block of consumers that we can market all of our networks to.

So I would say those would be the two short term things to look for.

I wanted to ask about some of the Q4 headwinds that you called out, and just maybe ask -- give us a little more color on what was going on, and the degree to which you're confident that they'll represent sort of transient headwinds rather than more permanent sort of impacts. I know you implied that as we get deeper into '24 that you could see some improvement.

But I'm just curious if you could give us a little more color on what happened in the quarter?

I mean, in a nutshell, Ramsey, I call it, the story of the quarter was same store sales. So I call that it was minus 3%.

and if you went back to our prior transcripts, Q4 of '22 would have been plus 2. So in that 12 month period, basically, we went from plus 2 to minus 3.

So obviously, that's 5 points of organic growth. So that's the whole story.

Retention was good, sales were good, expense controls, credit below the line, everything effectively in Q4 through my lenses was kind of in line stands that one call out. And so I tried to kind of go through it, they obviously were surprising to me since I looked through the guide pretty carefully.

Really it's just two or three pockets that are not new. If you go back and look at what we communicated in '23, we would have talked about lodging having some softness in the base, the partner channel and payables having some softness, the pivot from micro accounts, which shed a bunch of late fees, unfortunately, credit losses.

And so, basically, I'd say those three things that I called out were just heavier, weighed on the downside, say, we're looking at kind of 1% to 2% minus same store and it came in at 3%. And so that's really the story of the quarter.

And so the good news, if there is any, is in all three of those cases, it deals like in the data showing even through January, it looks like we've hit the bottom. So the thought process that we have is that we climb out of the same store sales, almost the reverse pattern.

So minus 3, minus 2 basically getting that thing back to positive, because that book of business basically flatlined into '24. So that's basically the perspective on it.

So it's really no new things. It's things that we have seen that basically were a bit heavier in the quarter than we outlooked.

A follow-up from me. I was wondering if you could kind of comment on the closure of the strategic alternatives process and just kind of revisit what kind of a postmortem in essence, why was it so difficult to find the strategic alternatives to execute on, was it lack of at partners, was it a valuation hang up, was it rates?

Where was the friction in the process that kind of prevented you guys from executing on that sort of monetization strategy?

Look, it's a super complicated question, right, which is why we spent 11 months on [Multiple Speakers] too quick with an answer here. But look, the main thing against just with straight [indiscernible] I think we said was uncertainty of the trading range of RemainCo wasn't so much.

We got a great Corporate Payments business, it was really what's the multiple on the RemainCo. So I think that caused us to pivot into this stance partner to -- if we were going to separate things to do something that would have scale and synergies.

And so the short answer to that is we engaged with three or four different partners and it's a combination of either the synergies didn't pan out to be as good as we thought or we couldn't agree relative valuation or one case, maybe social issues around it. So these kinds of combinations, as you guys know, are always quite difficult.

But I did say it seriously, we've learned a lot, we’ve looked at a lot of structures, we've met a bunch of people. And so we will continue to look.

The focus now is back on buying things in our lane and obviously rebuilding this vehicle business some. But we are open a different day to relooking at it again.

So kind of close for now, but not forever.

I was just thinking on the new product side that you're going -- that you laid out here to enhance growth. I think you mentioned around 1 to 2 points over time.

How quickly do you think that can convert into in your sales, do you have the sales engine humming already? Just curious where you are with that.

So I mean the headline of why I called this out is, over the last two or three years, we've done a fair amount of what I’d term capability acquisitions. And really behind the scenes, those have been some tech capability acquisitions, right?

The Corpay One, we bought an AP platform, a software platform called the [indiscernible] at the front end. We bought a European workforce business with a brand new platform.

And so the tech that we got allowed us to spin up kind of some, what I’d call them internally kind of next-gen products that I described at the top. And so we're out selling them now, we've got a pretty robust sales plan for them.

So I would say the convert would be next year. The key thing for us to report this year to you is sales of those products.

And then obviously, next year, as those roll into revenue, basically, we'd expect the acceleration. So the key is what's the reception, does the market like these three or four things that we'll put in front of them.

And then just my follow-up, maybe for you, again, Ron, just thinking about visibility into revenue growth in '24 versus prior years. It feels like there's a little bit more reliance on new products and initiatives.

I know cross-sell is something you've always done, mcros always what it is. But how would you consider the visibility this year versus recent years?

It sounds like most things, some things stay the same and some things are different. So the most important thing for us, as you know, is sales, which is why I call out the growth rate.

And I think I called out for the full year last year 20, that's our target again for 2024, obviously, off of a bigger base. So the first thing is we've had success selling and expect the same here in '24.

Two, is the retention is getting a bit better. And as we flush those micro accounts last year, structurally, that should help retention.

So you take those two things, those underpin, as you know, the basic right new business versus losses is the key to a recurring business. So the wildcard, the bet here has been the softness thing, which, again, entered the year in the plus column and then ended the year in the minus column.

So that thing turning or getting, Tien-Tsin, back to flat, I think, is the most important in the acceleration. But then on top of that, we've got some super new pricing ideas around the technology as the new dynamic pricing, for example, where we could price rooms and lodging different for someone walking into a hotel than someone who prebooks three weeks ago instead of a platform that didn't let us differentiate.

We've got a few new partners that we've signed that we haven't announced that will come on. And then to your point, we've got a big plan around cross-sell, adding a buck for vehicle insurance every time people park if they want it to basically lay the fear of something happen to their car while they park.

So it's a pretty balanced. I'd say it's not super different than the past.

But I would say that the new products and some of the cross-sell should be a little more supportive than historically.

And I think in a strategic view of the way also might help with the focus to, I would think, but I appreciate the update, Ron.

Ron, maybe just go back to -- it's a bit of a follow-up to Tien-Tsin's question just now. But when we think of the vehicle segment and the aspirations for being low double digit growth from what we're now guiding to a mid single digit year, maybe just talk a little bit about the initiatives that you feel are going to really drive that strength?

And it does look like you're having a lot of success, obviously, now with whether it's EV or obviously in Brazil. So I'm assuming it's a combination of all those factors, but any more color on that?

And just a quick follow-up, but also the fourth quarter, I know you had some headwinds on certain variables like you mentioned on the call, credit and it just seems like you would have a better growth in '24 than fourth quarter, just as some of those abate, but yet you're guiding a similar rate of growth for vehicles. So just a little more color on that.

Say the last part, Darrin, where you go on guiding to what is in 24…

Yes, for vehicle segment, mid single digit growth, I would have thought it'd be a little bit better comparing it to a fourth quarter, which I know has some headwinds in it.

So let me take that last part and then my way back to the beginning of your question. So yes, if you looked inside our quarterly role that thing would go from kind of low mid single digit up to 10%.

So the internal plan we have is exactly what you said to the vehicle organic growth rate to accelerate. So the two drivers of that beyond the normal things of retention, which should get better again structurally because we kicked out the micro accounts.

And obviously, sales being good is the new products that I just talked about, right, some extensions in both the core fuel card business and in the trucking business, and to your point, the EV thing working. But the second one is this consumer, it's just all incremental.

So to the extent that we can take 2 million people in the UK and another couple of million people, which we'll talk about soon in Brazil, and add on three or four services that we already have, it's just every dollar there is incremental and pretty profitable. So those are really the two drivers.

The base, same store sales, retention and new sales, which we have a good handle on and then the couple of new things on the new products and the consumers. So look, we're bullish on it.

Obviously, we had a pivot in this vehicle thing and then a bit distracted working on this restructuring. But I think where we're headed now is super clear.

And Darrin, one thing I'd add before Ron get to your other question about longer term vehicle. Keep in mind, the first half of last year had the elevated late fees from the SMB micro clients that we still have on the platform.

So we all start lapping that until you get into late Q2. So that creates a little bit of a grow over challenge when you look at it on an annual basis.

And it's one of the reasons, Darrin, someone send me some text, hey, the revenue looks a little light. And we've effectively taken $20 million, $30 million of late fee revenue out and $20 million to $30 million of credit losses out.

So it's been basically kind of a one-for-one swap, which people out there may not like, but I like the ratability of having lower credit losses. And so to Tom's point, that portfolio shift kind of moved both revenue and expense.

I don't know if there's time for a quick follow-up. Just very quickly on Corpay.

I just want to understand a little bit more on the channel business bottoming out here. And maybe you can explain a little more of what the dynamic is and the underlying drivers, if it's around the channel -- one of the partners if that's finished or its virtual card adoption or anything else, guys?

So if you think about what we call a channel business, it's some third party US customers where we provide virtual card processing. And the basic trend, which started two years ago, is those partners effectively moving from an exclusive relationship with us to nonexclusive.

So I, Ron are used to use you for 100% of my processing, someone told me it's a good idea to have two providers. So over time, I'm going to kind of give you half the business or I'm going to try to haircut your rate.

So effectively, over the last two years, Darrin, we've gone from having, call it, 15 really important partners that we were exclusive with to having 15 partners we’re not exclusive with. So the good news on this one is we have the contracts now four '24 that have us flat with '23.

So our print for that business, which moved its way down during the course of '23, we're out looking effectively flat revenue in that business across into '24. So instead of every quarter saying oh, the Corporate Payments business was great, but hey, the channel business was crummy, hopefully, you'll hear me say that in '24.

The answer will be it will be flat.

So Darrin actually leads right into what I wanted to ask on Corporate Payments. First off very nice to hear about the outlook for 20% growth in 2024.

I wanted to ask -- because in the past, you've talked about sort of a stickiness and resilience that you see with regards to suppliers continuing to accept virtual card payments despite the challenging macro. So maybe can you give us an update on how that sort of resilience has trended since we last spoke three months ago?

Anything changing with the decision process with your suppliers, or any update there would be great?

I'd say not much change. So I think we said it before that acceptance or not acceptance of a virtual card turns really more on the profile of merchants.

Merchants that have obviously higher margins, for example, are more accepting or merchants more need a cash flow because they're paid sooner. So I'd say there's really nothing super new.

Kind of the opt-out rate, if you will, has been pretty steady. And again, who takes the car is really a function of kind of who the merchant is.

So nothing new.

And Nate, we've actually seen card penetration levels tick up a little bit. So at the end of the day, it kind of comes down to the amount of spend that's on a card, and that's moved up as you look at it over a quarterly trend.

That's great to hear about the penetration levels. And so I know there's been a lot of talk about new products throughout the call.

One, I kind of wanted to dig deeper on was the new Corpay Complete products? I know there was a press release that came out at the end of January.

So maybe you can talk about the go-to-market motion there, where you're seeing the sort of synergy potential between the full AP offering, cross border, et cetera, within that Corpay Complete?

I mean, simplistically, Nate, we used to do not knock on a midsized company, hi CFO and hey, we've got some great expense management products here. And mostly, the pitch was kind of menu based or a la carte.

Hey, it looks like you got some drivers, we've got fuel cards. Looks like you need a better control business card, given some of the expenses that are coming in or one that's got automated expense reimbursement.

So historically, that's how we presented things. And so the idea was to be able to have kind of a wrap or rebate or look at the spend of the whole company.

So knock knock, hi CFO, you've got walk around spend, you've got AP spend. I could combine all of that and give you 100 basis points back, 0.5 million a month back and make your life easier.

How does that sound? So we finally have a platform where all those things, the walk around stuff and the AP automation stuff is literally brought together, call it, in terms of one report, one credit underwriting system and stuff.

And so that's the idea that we could present now to a company effectively a package deal, if you will, instead of an a la carte deal. So we just literally been underway, call it, just what you said, call it, a month or so with the first set of leaves in it.

But clearly, it's going to be the future. My hope is even if we sell someone a la carte the first day that they're on the railroad, it's easier to go back, they've learned how to use the UI, they know once we have an account we credit underwritten them and stuff.

And so we think it certainly lends to better add-on sales over time.

I hopped on a little bit late, I apologize if you've answered these questions. But just on the macro assumptions that you guys are using for the year, what kind of macro are you guys assuming sort at the beginning and ending of the year?

So I think in big picture macro, let's start there, and then we can talk a little bit in terms of more detailed macro as it relates to specific to our company. But big picture macro, we're expecting an economic outlook to stay relatively consistent, completely in line with the broad economic guide.

When you look at our three major markets of Brazil, US and UK, we expect in all of those markets to see relatively stable, maybe slightly improving economy as rate cuts in those various markets occur. But we're not expecting any kind of recession and certainly, we're not expecting a GDP kind of gangbuster type year.

With respect to the more narrow macro that affects FLEETCOR, and I think about it in terms of a couple of categories, first, fuel price, average fuel price, diesel and unleaded combined to 3.65, that's a little below where we are today. If you just kind of look at where we are through 2024, we're probably closer to a blended rate of around 3.40.

So that's one of the callouts that we had in terms of the Q1 growth challenge. But we're not prognosticators of oil and the pull-through to fuel.

We just looked at EIA and other providers of those things, and that was the consensus view of how the year would play out. I think as demand increases from a seasonal perspective, you would see that increase.

Spreads generally consistent with last year, that's really hard to predict. It's more based on volatility of fuel price, not just absolute.

So that's kind of in base gas. But we looked at historical trends and done some modeling and we expect spreads to be relatively consistent.

FX, a little bit of a tailwind. If the dollar and rate cuts continue -- the projection is correct and the dollar doesn't strengthen -- have a little bit of strengthening over the last week or so.

But longer term, we expect the dollar to be a little weaker, and so that will help the FX side of our business. And so we think, overall, that will be a slight tailwind to us.

Rates, generally kind of neutral to better. We have modeled out the rate curve based on the latest rate curve out there, so we think rates will be a little bit better.

Certainly, interest expense lapping the headwind from this year in terms of the grow over from '22 will be a significant benefit to us. And then, I guess, finally, taxes, we think will be generally consistent with the full year tax rate in 2023.

So overall, we characterize the macro is kind of neutral from a macro perspective -- big macro perspective and kind of a slight benefit to us with respect to things that have affected us directly.

I got to jump in because I’m clearly the optimist here. Play it off Tom.

But I'd say it's all -- it's shiny days, right, living through 2023 with a $200 million interest expense boat anchor and sitting here at the beginning of the year with half FX and declining interest rates. It feels super great to get earnings print back to 15% or 18% that we can print instead of whatever we printed last year.

So I would say that it's setting up at this moment to be super positive, so we’re super happy with it.

Just a follow-up. Ron, you mentioned sort of the cross-sell initiatives in your prepared remarks.

How much of that can happen over 2024? Is there anything baked in?

And then when can we actually get the contribution in a significant way?

I mean it's happening in different places. I think we've called out before, it's probably 20% of the Brazil sales now in the company are taking add-on products there and selling them back to the core base.

We're underway with that, as I said, with the parking app because we've got millions of consumers. We're back reselling something back into the base of Corporate Payments back into the fuel card base.

So it's clearly in our sales plan. I'd say it's a probably relatively significant number as we get through the year in terms of what we're expecting there.

So it's been a core part of the idea of we've got, as you know, 800,000 business clients and some number of them are pretty big. And so having more things to offer them has always been part of the idea.

So I think it's meaningful this year.

I was looking at Slide 37, and I can see that the Corporate Payments take rate has increased in 2023. So just wanted to get some context as to what's the pricing power over here and can we expect the same trajectory?

I think that's the function of the adjustments that you have done by the segments. So just to get some insights on that.

Sheriq, give page number again, you said 27?

37.

Yes, so a lot of that has to just do with the channel mix. So as Ron mentioned earlier in terms of the way the amount of take rate we have on channel versus the direct business as we saw the channel volume fluctuate in the quarter, that's what's causing the fluctuation in the take rate related to Corporate Payments.

And my follow-up is on the margins. We see that the margins have been grinding higher across all the segments, and especially within the Vehicle Payments and Corporate Payments.

So just to get a sense as to what could be the biggest driver in margins in 2024, like which segment do you expect to be a meaningful contributor?

I don't think it's kind of disproportionate one way or another, just to kind of rounded out to summarize. For the year, we were at 53%.

We were exiting around 54%. And we guided for the full year 2024 to be at 54%, probably exiting a little bit higher than that, as you would expect.

And so it's not really one, there's not a lot of change there. You're talking about, give or take, 100, 150 basis points.

And secondly, I think it's more of the structure of the business that's driving the margin, not necessarily something that we're doing necessarily inside the business to modify the existing business model and the structure. So just as we grow at the levels at which each of the businesses are growing from a revenue and sales perspective and the amount of fixed cost, you're just going to get this natural operating leverage benefit from margin where you'll see that rotate up.

So at the same time, we also want to continue to invest [Multiple Speakers] I guess, fair point. Yes, credit is coming down a little bit, '23 to '24, it would also help the margin.

But the other thing just from the standpoint of just investment, we continue to make significant investments in the company, particularly around sales and marketing. And so we are mindful in terms of the amount of spend that we're putting back into the company to make sure that the sales engine can continue to generate the kind of growth levels that we've historically generated.

I know you give the sample of the UK for unit economics of your EV business. But can you just talk broadly about that, how that's evolved over time and your confidence going forward in that?

So look, I preface it with, it's still early days. I guess, we've been running this analysis for, what, eight quarters or something and have 300 or 400 accounts in it.

So look, we know a paramount. We have real customers that are paying real bills and paying us more.

I'd say to you this conceptually the reason that I think we can get paid the same or more, just to me simplistically is there's just more purchase. So in the fuel business, let's say, in the UK, there's 9,000 gas stations, but we have 1 million drivers there.

So someday, when every guy or gal has an EV, there's going to be 1 million incremental charge points. It's way more than 9,000 public charging points.

And so the ability, again, to help a company make the transition from some old fashion gas stations, some public charging to the 1 million at home, bring that all together and keep it simple is useful and the scope of what they pay for charging and fuel are our fees are peanuts. And so it feels to me like we know what we're doing.

And more importantly, we have products that they like I think it doubled, Tom, year-over-year. And so I feel better about we've got the right solution, clients like it and clients are paying for it and the they're paying more down than the whole fashion thing.

So I'd say stop ringing the frigid fire alarms. It would be my comment to people, hey, there's a lot of time in front of us.

But I would not be super fray sitting here today.

I want to ask on Lodging. Any more detail you can give on some of the different components within the segment?

It sounds like most of the incremental weakness was on the airline side. But any more color on the other pieces workforce, managed services, insurance, just how those did, especially relative to Q3 would be helpful?

So the Lodging business, as we mentioned in our prepared remarks, it did experience softness. Where our biggest surprise was for the quarter was really more on the airline and the insurance piece.

We actually saw the workforce piece come in about where we had anticipated. And a lot of the expected growth that we had forecasted in the fourth quarter was from what we've seen historically with the level of flight cancellations related to our distressed product where you typically would see a seasonal uptick, there's lots of people in the air with holidays and things like that, and that just didn’t come to fruition.

Similarly, on the insurance side, we saw the decline in the overall insurance. So the decline quarter-over-quarter in Lodging was really more directed towards those two businesses where those types of episodic type things that occur in the fourth quarter just didn't materialize.

Workforce, we continue to see a little bit of softness there. But as Ron had indicated, we feel like that has locked out and expect that to move forward based on new sales and the introduction of some of the new products.

And then just to put a finer point on the assumptions for the macro neutral or the organic guide. In terms of cadence, is the expectation that growth will accelerate progressively over the course of the year?

So like you were saying with vehicle where Q1 low point, 4Q exit rate for '24 should be the high point of organic growth for the year or anything else to call out?

Let me take that and then Tom can add to it. So I mean, conceptually, the main reason is the same store sales.

So if you think about math, right, of how to get to 10%, right, we lose business, right, 8%. We make sales and then we have the same store sales.

And so the bet that we have, which we're seeing in the trends, is it the same store that was plus two four quarters ago and was minus 3 this past quarter will head back to flat. And if that does, obviously, that example lifts the organic thing by 3 points.

So that's A. B, we think the retention, again, will likely tick up because of this micro flush.

When you have more bigger accounts, you structurally just have better retention. And then third, our Corporate Payments business is growing faster and it has higher retention rates than our fuel card business.

So those two things, as we model it will help the back half. And then hopefully, the set of new products and the cross sell stuff, which we're pouring out now that will start to build those add-ons will start to build in the back half.

So that's what makes up the curve as we run through the year.

Just a couple of things. I guess, on the corporate line, you called out the yield mix improvement.

But corporate volumes were down about 15% sequentially, it must have been low yielding volumes that fell off. But what is the mix or what was the falloff in volumes from?

It's just that channel thing that I said before. I mean, that literally was the point of our same store sales reduction.

We would have been 2% if that business was flat. So again, it's just a big partner that gives us lots of volume and no money goes, dates around and goes non-exclusively.

And so, hey, we lose a little bit of revenue and we lose a lot of volume.

But the take rate goes up because obviously, that's a lot of low margin business that we weren't getting. And we also noted that excluding channel, the spend level was north of 25%.

So it's really a channel story that's driving both the volume and the take rate noise that you may be see.

But again, just to -- you said for finer point on the thing, I want to make sure people have heard that we have the business to have contracted, right, for '24. So that helps us relate to you guys that we’ve hit the bottom there, because when I look at what's effectively contracted, inside of the minimums we have, we're kind of done with that dating around, there's no more dating.

If you day one or two people any more I mean that's where it is. So if there's any good news, that's the good news here.

And kind of belt and suspenders it was also some minimums as well, so we also got some protection that while we're under contract, we also have some commitments from a minimum perspective, too.

And just a quick follow-up. Bad debt expense, you called it out, I mean, lowest -- $22 million, lowest in eight quarters or so.

Is your 2024 guidance for that to remain low? And if so, is anything related to reversals, like is it unsustainably low in 2024 or just normalized?

No. I mean I'd say it's fairly normal.

Obviously, it's going to fluctuate from a dollar perspective, as the business grows. We think of it more in terms of basis points of spend or percentage of revenue, because as the business grows, you'd expect the bad debt dollar amount to grow, but not necessarily that rate to necessarily grow.

So I think we'll continue to see good performance in 2024. We have -- plus the micro client that Ron said, we've tuned some of our models, we've gotten to a point where I think we've learned a lot over the last, call it, six quarters, and I think we'll be in a position where we can be a bit more opportunistic in terms of how we manage credit.

And again, just add the point is it helps the flow through into earnings, right? Although, it looks like revenue is light when you take those late fees out, because you're taking out the credit loss expense, basically, you have a decent flow through down to EPS.

So that's one of the reasons that the profit flow through remain pretty good.

It's Mike [indiscernible] on for James. Just one quick one for me.

On the buyback, anything that we should be mindful of just in terms of cadence there? Do you think it will be fairly evenly distributed based on seasonal free cash flow generation or will it be weighted to any particular quarter?

I think we're going to be mindful in terms of market conditions, and we like where the stock price is. As I mentioned, we're flush with liquidity, both on the balance sheet.

And then when we upsized the revolver, we have another $600 million of liquidity. Obviously, we want to use some of that liquidity for M&A.

But you add it all up, we have probably up to $2.5 billion, $3 billion worth of cash that we want to put to work, and we want to put it to work as quickly as possible. So I think the timing is just going to be predicated on the market, the amount of floating stock and those types of things.

But I think we will be looking to be in the market over the course of this quarter and then we'll see how market conditions are as the year plays out.