Corpay, Inc.

Greetings and welcome to the Fleet Core Technologies fourth quarter 2020 earnings conference call. As a reminder, this conference call is being recorded. I would like to turn the call over to our host, Mr. Jim Egglesetter, Head of Investor Relations for Fleet Core Technologies. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining us today for our fourth quarter and full year 2020 earnings call. With me today are Ron Clark, our Chairman and CEO, and Charles Freund, our CFO. Following the prepared comments, the operator will announce that the queue will open for the Q&A session. It is only then that you can get in line for questions. Please note, our earnings release and supplement can be found under the investor relations sections of our website at FleetCorps.com. Now, throughout this call, we will be presenting non-GAAP financial information, including adjusted revenues, adjusted net income, and adjusted net income per diluted shares. This information is not calculated in accordance with GAAP and may be calculated differently than non-GAAP information at other companies. Reconciliations of historical non-GAAP financial information to the most directly comparable GAAP information appear in today's press release and on our website as previously described. Now, before we begin our formal remarks, I need to remind everybody 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 recovery outlook, new products and acquisitions, 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. These expected results are subject to numerous risks and uncertainties which could cause actual results to differ materially from what we expect. Some of those risks are mentioned in today's press release on Form 8K and in our annual report on Form 10K filed with the SEC and available at sec.gov. With that out of the way, I would like to turn the call over to Ron Clark, our chairman and CEO. Ron?

Okay. Good afternoon, everyone, and thanks for joining our Q4 earnings call. Up front here, I'll plan to cover four subjects. First, I'll provide my take on our Q4 finish. Second, I'll put a bow on full year 2020. Third, I'll share our 2021 outlook. And lastly, provide a bit of an update on our transformation plan, which is intended to accelerate the company's growth. Okay, let me turn to our Q4 results. So today we reported revenue of $617 million. That's down 12%. And cash EPS of 301. That's down 5% versus last year. These results both better than anticipated. Volume recovered a bit more in the quarter than we forecasted. And we did manage operating expenses down 14% against the prior year. Organic revenue growth overall minus 8%. But most importantly are the trends in Q4. really quite good. Sales strengthened to over 90% of last year's level. Same-store sales or client volume softness improved to minus 6%. Credit loss is $6 million, although helped by a reserve release, and retention continued steady at 92%. We did have a fantastic beyond highlight in Brazil in the quarter. We added 175,000 new urban or city users in Q4. That represents 30% of all the new tags we sold in the quarter. So demonstrates there's real demand among the non-toll segment in Brazil for this RFID purchasing network, including fueling, parking, and now even fast food locations. So look, the conclusion of Q4 is really in the sequential trends of the business. If you look at page seven of our earnings supplement, you can see that every Q4 metric is improving from the Q2 low. Revenue up from 525 million to 617. Cash EPS up to 28 to 301. Sales up from 55% to now over 90% of last year's level. Same store sales volume getting better from minus 17% to minus 6%. Credit losses from 21 million to 6. And then lastly, retention holding steady at 92%. So to us, evidence that the business continues to recover from the earlier year lows. Okay, over to 2020. So from a financial perspective, 2020, not our best year. Revenue finished at approximately $2.4 billion. That's down 10% versus 2019. and cash EPS finishing at 1109, down 6% against 2019. COVID and the shutdowns did manage to vanquish over 400 million of revenue that we planned in 2020, really in three ways. So first client softness, we had a number of COVID impacted clients that use less of our services. COVID reset the macro environment in Q2, driving down fuel prices and weakening international currencies. And then third for a while, COVID reduced our 2020 new sales, mostly due to the market being distracted. The good news is despite the fact that COVID is going on, that we're still living with COVID, is the financial impacts on us appear to be lessening. So we've now recovered in Q4 about half of the client softness revenue loss that we experienced in Q2, so half of it back already. Post the macro reset, we've seen relative stability in fuel prices and FX rates. And lastly, the demand for our services clearly recovering. as sales reached 90% of prior year levels. So despite not having the greatest financial performance in 2020, we did manage to accomplish a few things. So credit, I'm just delighted with our credit performance in 2020. Expenses, tough times, but we did manage expenses down over 10% in Q2, 3, and 4. We signed four acquisitions. in 2020. Our guys ran IT exceptionally well, had the best overall system uptime in the history of the company. And lastly, we were able to replan the business in the second half. We conducted a replanning exercise in the summer and the actuals came in a smidge better than the replan. So reminds us again that fleet's a business you can plan. I really do want to give a shout out to all Fleet Corps people who hung in there and kept the company going through very unsettling times. Okay, let me make the turn to 2021 and outline our initial guidance for the year, along with the assumptions behind it. Clearly a higher beta in our 2021 numbers. but we'd say that our setup is generally positive. Um, so first, you know, volume and revenue trends strengthening, uh, through 2020. So with the potential to continue that into 21, you know, sales production improving, thus, uh, the amount we expect to get, um, of India revenue from new business. And as I mentioned, uh, a bit ago, um, very solid client retention and credit trends. We're also hopeful that we'll get additional client softness recovery in 21, although we're the first to admit that that's hard to forecast. So in our guidance, we're planning to recover about one-third of our Q4 exit revenue softness. that's still outstanding now. So if we get that, that recovery would provide about 4 to 5% of incremental revenue lift in the second half. So with that, our guidance for 21 would be as follows. Revenue of $2,650,000,000 at the midpoint. That reflects an 11% increase. Overall organic revenue in the same range, kind of 9% to 13%. But I do want to emphasize that that assumes 3% to 4% of softness recovery from today's level. We're anticipating significant sales growth over 30% this year, which would be a record level of sales for the company. And profit guide... at the midpoint, 1240 of cash EPS for the core business. We are planning about 10 cents of dilution from the Roger acquisition, so that would put our consolidated number at 1230 at the midpoint. Lastly, assuming now a May 1 close for the AFIX acquisition, accretion could be approximately 20 cents for the year. So if that happens on time, that could take consolidated cash EPS to $1,250. Chuck will speak further about how the guidance rolls out across the quarters, but I do want to point out that our guidance outlooks Q2, 3, and 4 revenue and profit growth to be back into the high teens. Okay, let me transition out of my last subjects which is the company's transformation plan. So really our transformation plan is intended to accelerate growth by doing two things. So first, the portfolio, you know, deciding what businesses we want to be in and not be in and constantly reworking that to have a more diverse set of faster growing businesses. But the second way we transform the company is through our beyond strategy, which we do utilize in all four of our major existing businesses. So in this beyond strategy, we're really trying to do two things. First, identify new segments of the market that we can extend the business into. So we ask, who else can we serve? And then second, we identify additional or adjacent services that we can cross-sell back to the client base. So if you look at page 11 of our earnings supplement, you'll see the current Beyond initiatives for each of our four businesses. You know, we do continue to make progress against our Beyond strategy. You know, just an example to call out, in our lodging business in 2020, we now settled 25% of all proprietary hotel payments with our virtual card in which we earn interchange. So that's up from literally from zero a few years ago. But today, you know, we begin implementation of maybe our most exciting beyond initiative of all with the acquisition of Roger. So this begins the move of our corporate payments business down market into the SMB space along with the opportunity to offer full online bill pay to our global SMB fuel car base. You can see that on pages 11 and 12 of our supplement. So this single bill pay initiative has the potential to dramatically accelerate growth rates in both our corporate pay and fuel car businesses. We feel like it's a pretty unique position that we're in because of the special set of assets that we have. So, you know, a large global SMB client base, you know, numbering in the hundreds of thousands. We've got, you know, working SMB sales channels, you know, that historically have acquired 30,000 new clients per quarter. We've got scaled virtual card processing capability. We generated over $30 billion in annualized spend last year. We've got a very large merchant database that allows us to monetize virtual card. And now we've got some modern cloud software to provide the bill pay functionality along with a pretty cool user interface. So look, in conclusion today, I'm hoping to provide just a few takeaways. So Q4, again, not our best quarter from an absolute perspective, but clear evidence of improving trends in the business. 2020, we did manage to perform better as the year went on and certainly learned some new tricks around how to manage credits. expenses, IT, even sales in a remote environment. 21, again, our setup we think looks pretty good. Only a slightly unfavorable macro to deal with, but improving trends coming into the year and certainly the wild card that I mentioned of what happens with the incremental softness recovery. And lastly, transformation. are beyond strategy now, progressing, providing some traction, but today's online SMB bill pay initiative may be the biggest of them all. So with that, let me turn the call back over to Chuck to provide some additional details on the quarter and our outlook. Chuck?