FLEETCOR Technologies, Inc.
Q4 2020 Earnings Call Transcript

Published: 4 Feb 2021

[Operator:]

Greetings and welcome to the FLEETCOR 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 Eglseder, Head of Investor Relations for FLEETCOR Technologies. Thank you. You may begin.

[Jim Eglseder:]

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 Clarke, our Chairman and CEO; and Charles Freund, our CFO.

[Ron Clarke:]

Okay, Jim. Good afternoon, everyone and thanks for joining our Q4 earnings call. Upfront here I'll plan to cover four subjects. First 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 $3.01 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 our 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 of 6 million although helped by a reserve release and retention continued steady at 92%.

[Chuck Freund:]

Thanks, Ron. For the fourth quarter of 2020, we reported revenue of $617 million down 12%. GAAP net income down 11% to $210 million, and GAAP net income per diluted share down 6% to $2.44. The quarter was again affected by COVID-related business slowdowns, although we showed improvement over last quarter in most of our businesses. Adjusted net income for the fourth quarter of 2020 decreased 10% to $258 million and adjusted net income per diluted share decreased 5% to $3.01. We continue to manage expenses in line with revenue performance. Please see Exhibit 1 of our press release for reconciliation of all non-GAAP financial metrics. Organic revenue in the quarter was down 8% overall, primarily due to same-store sales being down 6% year-over-year. Organic revenue neutralizes the impact of year-over-year changes in foreign exchange rates, fuel prices and fuel spreads and includes pro forma results for acquisitions closed mid-period. Our fuel category was down organically about 10% versus Q4 last year, our domestic fuel businesses were stable to improving in the quarter, whereas the international fuel businesses were affected by the renewed COVID-related closures especially in Western Europe. The corporate payments category was down approximately 6% in the fourth quarter. Approximately 6 points of decline was again driven by the 100 most affected customers we discussed last quarter. Lower spending on our T&E product drove another 2 points of organic drag. Virtual card volumes were up 12% for the quarter, which was an improvement from flat last quarter as continued political spend and the benefit of new customers offset the drag from the highly affected customers. Cross border or FX-related volumes were down 1% as payment volumes are still being affected by lower invoice levels, specifically in manufacturing and wholesale trade. Full AP continued to perform very well with volume up 14%. New sales of Full AP were very strong as full year 2020 sales were more than double 2019 results. We continue to invest here and have enabled 10 new ERP integrations in 2020 with plans for another 10 or so in 2021. Tolls continue to be our most resilient business and grew organically 7% in the fourth quarter, up 4% from last quarter. Active toll tags were up 6% in the quarter, with urban tags accounting for 25% of all new tags sold during 2020. The lodging category was down 25% organically in the fourth quarter, with 20 points of drag caused by the inclusion of acquired airline lodging businesses in the year ago period. Our workforce lodging business has improved with volumes down in the mid-single digits. Airline lodging volumes have also improved in line with flight activity, but still remain well below last year's levels.

[Operator:]

Thank you. Our first question is from Sanjay Sakhrani with KBW.

[Sanjay Sakhrani:]

Thanks for all the color on the trends and the guidance. But just to drill down on the guidance a little bit. When I think about the ranges on the extreme end, that you may be Charles just talk about sort of what's baked into one end versus the other. Thanks.

[Chuck Freund:]

Yes, so appreciate you joining and thanks for the question. So in terms of the high-end, I'd say that would be a perfect scenario, right? So as Ron mentioned, we are assuming recovery, in terms of the COVID softness that we've experienced the timing, and the magnitude of that is super hard to suggest. And if it all came roaring back, if our sales were perfect, we maybe could get there. So it's a pretty broad range, as you can see. On the downside, I mean, who knows what's going to happen with COVID, right? So if things were to come back, it could be a problem. We think we're being reasonably optimistic in that regard, given everything that the news says, the economy, the vaccines, Biden administration mentioning things will be back in Q3. So, we're optimistic in that regard. But I'd say that, the range is broad, because we just really don't know.

[Ron Clarke:]

Hey Sanjay, it's Ron. Let me just add on to Chuck's comment, which the second thing would be the sales, that we've got a pretty steep sales plan increase for '21. And so the amount of that that if we get in year in revenue, both the backlog and the pace at which that comes in, that will also have a pretty big swing on the range we gave.

[Sanjay Sakhrani:]

Got it. And then, Ron, you guys are obviously flush with quite a bit of liquidity. I mean, as you sit here and you think about the next year, how do you envision utilizing it? Thanks,

[Ron Clarke:]

Yes. I think our philosophy Sanjay is kind of steady as she goes, right. Our first use is a creative acquisitions. And we're sitting here today with three or four interesting, active deals in the pipeline. So that's always our first and highest use. And then to your point, given the leverage ratio and stuff, if our stock doesn't trade, where we think it should obviously we've indicated we'll buy stock back. So acquisitions, one and stock buybacks depending on the price, two.

[Operator:]

Our next question is from Tien-Tsin Huang with JPMorgan.

[Tien-Tsin Huang:]

I want to say I guess the new sales were encouraging your reinstating guidance that's also encouraging. Any way to think about the level of conservatism in the outlook, kind of like what Sanjay was asking about the range. I think I understand that but just think of it could be some pent-up demand, a new sales, the trends are clearly improving your -- excited about this SMB bill pay, which makes some sense. I'm just trying to understand, conservatism versus maybe excitement about the chance to get back to double-digit plus growth here.

[Ron Clarke:]

Hey, Sanjay. It's Ron, I'd say that, we've tried to build these plans to what we call the most likely, right, and then figure out how wide arrange around it. And so, I think the confidence part comes from looking at the trends Q2, Q3 and Q4. I don't know if you've picked it up in my remarks, but we've literally gotten half of it back between Q2 and Q4, which is obviously quite significant. And it's still a pretty big number, right? When you look at the total softness, we had for all of 2020. So I'd say that, there's no precision in this. I think we caveat this as many ways as we could about the wild card of softness recovery. So I'd say that, we provide ranges to try to keep over the midpoint. So, we don't know, but I say kind of a midpoint out of our most likely.

[Tien-Tsin Huang:]

Okay. And you talked about with Roger bill pay, being potentially pretty big from an opportunity standpoint. So what's the timetable or the steps to get to a point where it becomes needle moving? What steps need to take place? What should we be tracking?

[Ron Clarke:]

Yes. I mean, it's a great question. I'd say, we'll, probably, they're obviously in the market on a standalone basis or even here in the U.S. So the first two things that we're on is one, cross-selling that product, back to our North America base. And then, if I say 90 days, it should be launched with our own channels, our own digital, our own field and phone people selling it to new prospects. So, by the time we talk next time, we hopefully have some news for you.

[Operator:]

Our next question is from Steven Wald with Morgan Stanley.

[Steven Wald:]

Maybe just following up on Tien-Tsin's question on Roger and thinking about the investment. I was just curious if you could speak to the timing for the investment sounds like it might be somewhat front loaded, and how you're thinking about that that dilution as it's planned over, I guess, relative to one 1Q guide versus the full year? And then what that envisions for '22, if you're able to sort of frame out the potential contribution from Roger.

[Chuck Freund:]

Yes. So some of it is just obviously deal related, right, we picked up that . So we've got some dilution happening immediately, we are investing even in advance now at the corporate level just for that acquisition, as well as building out those sales channels. So we'll see that ramp up. In terms of the contribution for next year, I'd say we haven't fully modeled it yet, but it's roughly going to be still a little dilutive to kind of flat until we fully scaled the channels. So we want to obviously see what works before too much in. But nonetheless, I'd say the things about them, it's a very small acquisition, million some odd, couple million in terms of revenue. So it's got a long way to go. But we're pouring a lot of sales and marketing kind of upfront to get it going. It's a real bet for us. It was a real deal. We're investing and retain the people that are there, because they've helped us build this product. And we're going to need their help to continue. So we built some extra costs in there as well. So in terms of the magnitude of what it could be next year, it's really going to depend on how much more we pour into the investments.

[Steven Wald:]

Appreciate that. And then maybe just switching gears towards some of the things you outlined on Slide 11 and 12 with the beyond strategies. I know you talked through, a few of the main the key areas that you're directing investment, but clearly, it seems like the corporate payments and then layering that into the fuel business are a couple of the main areas beyond the total business that has its own growth plan. I'm curious how you're thinking about the lodging business and investment dollar priorities coming out of the pandemic, clearly there are going to be some permanent behavior shifts. I guess that one strikes me is probably the obvious area. But I'm curious if you could sort of stack rank for us how you're thinking about beyond as it relates to investment priorities, you've got a lot of liquidity, as has been pointed out, but certainly there's got to be some level of priority that you guys are thinking of.

[Ron Clarke:]

Yes, Steven. Hey, it's Ron again. So yes, I think you called that right. Clearly, corporate pay would be one and toll would be two because of the size of the business, but it's still 40%, 50% of the company. And lodging, the one thing I would say is remember our FLEETCOR lodging business is workforce, translation, blue collar, utility guys go into a new city, tree cutters cleaning up. And so testing is way back. I mean, I looked at the January volume numbers earlier today and I believe, month-to-month, that thing is down 3% to 5% now, year-over-year. And so that lodging business looks completely different than the kind of lodging business we people on this call are thinking about. So the airline part of that is a completely different call to your point that things run and kind of 50% of volumes of a year ago, but that's the one I say, as the snap, bounce back possibility. So we've caught, it took a ton of money out of that business, particularly out of the airline portion of the business to kind of wait here to see if it's going to snap back. But it would be number three, but we still like it. I think, we lay it on that Page 11. There's a couple of interesting verticals beyond workforce and beyond airline that we're looking at that we like a lot that leverage everything. We have the systems and network and stuff. So what I want to be clear, we like that business. And we will keep investing and we may buy some additional things to the business. Let me be clear, it's not white collar T&E kind of lodging business.

[Operator:]

Our next question is from Ramsey El-Assal with Barclays.

[Ramsey El-Assal:]

I wanted to ask about Brazil. And that was pretty impressive statistic in terms of how many new users you're signing up, wanted to ask about the merchant acceptance side of that equation? Do you kind of have what you need now to basically continue building out that product? Or is there a pipeline of new merchants or verticals in Brazil that you could you could see yourself kind of getting involved with along the lines of McDonald's or Petrobras or these other merchants you have great partnerships with?

[Ron Clarke:]

Hey, Ramsey. That's a good question. I think we're mostly focused on the three or four city locations that we mentioned, fueling, parking, fast food, and then condos effectively access right for people back in the city. And so the plan, we put a fair amount of capital actually, in the '21 plan to build out particularly the fuelling footprint there, because it's the biggest TAM right, the dollar spent on fuel are massive. And so the bigger the delay was not only COVID, but our guys tinkered and came up with two or three different hardware software into the configurations for the fueling locations that improved reliability, like super high. So if a car gets in the thing, knows it's the right car and doesn't make mistakes and to dramatically reduce the cost. And so that business is going to be on a super duper hurry up drill. Even now, even though the first half of the year trying to add stations across the board. So we should see those transaction counts usage of the thing grow a lot as we move into the second half.

[Ramsey El-Assal:]

Okay. And then, on a separate topic, I wanted to ask generally about the kind of credit aperture across your business and whether it's sort of opened back up again, I mean, obviously, it has to some degree, but was there a revenue headwind in the quarter from sort of tighter credit standards, given we're still in a challenging kind of macro environment? And how should we think about that in terms of maybe potentially even opening further as we go forward? Or, is that largely kind of narrative largely sort of played out?

[Ron Clarke:]

Now, that's another good question. So I'll start the answer to that one. We overreacted, right, so the thing happened we kind of pulled pretty far back, which clearly reduced revenue even -- we even pulled back on existing accounts, right, trimming lines, accelerating payment terms and stuff. So we went had a pretty hard and now we've reported, out for the year and I think Chuck even mentioned the forward roll rate. So we've got the -- I think the lowest credit losses, lower I can remember and certainly as the basis against spend and so we rotated back. I say in the fuel card business, we are 100% back. So whatever credit policies, we had pre-COVID, I'd say if you went looked at our fuel card businesses, we are right back to fully open still balanced and fully open. I'd say the one place where we're still being a little cautious is in the corporate pay. And the reason is the spend per client, there is so significant, if you think about it and so we're still being -- we're still being careful. The certain industries sitting in the corporate pay space that have been, pretty impacted. So I'd say we move that one back but still not all the way back because it's more highline, what we call internally highline risk of, a couple of BKs for some significant amount of money. So I think there's still upside as we roll through '21 as those three or four industries where we're cautious on kind of comeback.

[Operator:]

Our next question is from David Togut with Evercore ISI.

[David Togut:]

Just following up Ron on your comments on corporate pay. Can you give us some sense of the range as you're thinking about for the T&E card for 2021? That seems to be the biggest swing factor within that business since most of the other categories are holding up reasonably well.

[Ron Clarke:]

Yes, David. Good question. So the overall corporate pay business sitting inside the guidance we gave is high teens. So if you take the entire line of business sitting in our plans, we're out looking at high teens for that. I think inside of that the TD, which is now shrunk down is probably in the mid-to-high single digits. And if you remember, what we call kind of a multi-card kind of walk around plastics there by, supplies, even fuel. And they're even used as P cards as a form of vendor payables. That line of business that plastics are multi-card, I think the last time I looked is down to about 20% of it now being white collar TD, like us. And so fortunately got an 80% of that business is kind of okay, it's buying fuel, it's buying supplies, it's paying vendors. And so it's not going to decline, if you will, it's not going to drag down really the growth rate as much because it shrunk down in 2020. So fortunately, it'll have less impact on the total corporate pay business this year.

[David Togut:]

Got it. Thanks for that. And then just a final question on the gift card business is the view that you're going to hang on to that for quite some time. Just given the cash that you generate from it, even though it appears to be a declining business?

[Ron Clarke:]

Yes. I'd say the short answer to that is, yes. Obviously, retail as a category was super impacted in 2020, brought our gift card business pretty far down at the opening kind of in Q2. Surprisingly, the thing has come back quite well. People still obviously, if you listen to the word gift cards still ordering, gift cards and the digital portion of those David has gone way crazy high and we bought a business a year ago to help our retailers manage online pretty timely, as they rotated over to more online sales. So surprisingly, that business is getting healthier from some of those new digital initiatives. And so, what I say is, we'll kind of see how this year goes, their plan is actually up, obviously off of the softness for '21. So I think we'll probably take another peek at the business as we get late into this year.

[Operator:]

Our next question is from Peter Christiansen with Citigroup.

[Peter Christiansen:]

I just thinking through the incremental investment on some of the IT initiatives here. Can you give us some of the timetables for your key goals here and have you considered whether or not given that we are in a recovery year that possibly accelerating some of those investments?

[Ron Clarke:]

Yes, Pete. It's Ron, I'm not sure that we're accelerating for the recovery year, I think we're doing two things. One, we're trying to invest in projects that drive growth. So we've kept the capital plan, kind of up a bit 15 million, 20 million Chuck, I think over the prior year. And then, second, we made a decision Pete to pour more money into what we call IT transformation or modernization, whatever the word is. So we're pretty hard on the trail of consolidating some of the apps, updating, obviously, some of the hardware and software and stuff and so we're pouring money into simplifying kind of our technology footprint. While we're obviously still making investments in digital and things like Roger new analytics packages, new mobile interfaces, so we're spending money on things that we should be but also on the transformation side.

[Peter Christiansen:]

Thanks to telco. And then, Ron, little bit of a longer term question here. The drumbeat on EVs is kind of picked up recently with Ford, GM making some announcements and the Biden administration looking to switch over the federal fleet. Does this change how you think about the fuel card business longer term and perhaps on how FLEETCOR intends to manage any broader changes industry wise there?

[Ron Clarke:]

Yes. I mean, I think Pete a bit I think, we've been on for all kinds of reasons not only EV, but just TAM and growth rate and long-term, potential the company diversifying, things that we do that share the same model, and so on what we're at 60% now, I guess. So we're moving anyway. But I said a little bit in the call the last time on the EV thing that what our perspective on the thing is, a) it's way farther out even if the acceleration of EV sales is pretty dramatic, because of the size of the install base, the useful life, our models show the same number of commercial vehicles, the combustion engine vehicles in 10 years here in the U.S. and in the U.K. our two biggest markets in 10 years as today, because of the growth rate of sales and again of the life. But the more important point I mentioned last time is, it's less about the buying fuel, the fleet car buying electricity, I think what we're learning particularly in Europe and in the U.K., is we're getting paid by our clients as they move to some EV, they're paying us card fees, for example, for the EV vehicle the same way. And there's this new opportunity of, we're going from 150,000 gas stations in the United States to having millions of charging points at employees homes. And so, the employers look like they want us to play a role in the hardware and software and measuring of all of those new charge points and all the reimbursement. And so, it's early days, but I say to you guys that doing what we do of measuring and helping pay and reimburse employee expenditures in and around vehicles, we think we're still going to get paid a fair amount of money, both in the transition to mixed fleet and even when people get over to EV. So we're going to have a little bit of a teach in maybe in 90 days on this subject, with a takeaway, hopefully being, a) it's way longer out there for the old combustion engine and b) what FLEETCOR’s economics may look like, even in a pure EV world.

[Operator:]

Our next question is from Ashish Sabadra with Deutsche Bank.

[Ashish Sabadra:]

And congrats on pretty good results considering the difficult macro environment we are in. My question was on the sales front, pretty good acceleration there going back to 92%. You called out for doubled. I was wondering if you can also talk about the sales group in other segments. And also, as we think about next year and a 30% expectation for a 30% higher sales compared to this year areas where we can see more strength, I guess SMB will be will definitely be one of the areas but any incremental color will be helpful? Thanks.

[Chuck Freund:]

Ashish, this is Charles. So, yes, in terms of the sales performance, as Ron had mentioned, we exited Q4 at over 90% of the prior year. It is mixed. So I'd say Brazil had an unbelievable sales year overall in the fourth quarter really outperformed versus prior year. So they were well above 15 or so percent above last year, there's still a couple of businesses that are lagging a bit particularly our North America, fuel business is still catching up, it's on an upward swing, but it just hasn't recovered quite as quickly. Our lodging business has actually come in kind of right around last year that's performed okay. So it's mixed, I'd say. But nonetheless, they all kind of come back from Q2 through Q3 and I think in Q4 at a better place. And looking forward to next year, we've got pretty robust ambitions and plans, we're going to have the biggest sales plan in the company's history. And we're planning to be up 30% versus where we finished this year. So, we've got a lot to do, or we're pretty excited about possibility there.

[Ron Clarke:]

Ashish, it's Ron. Just to jump on to what Chuck said, the one of the things helping us, is the market is kind of coming back, right, we study, searches of the categories. And so some of the results we're report in Q4 is, world is just kind of get used to this and kind of get on with things. And so we think is that keeps moving our way we're businesses are interested in the kind of things we do that helps. And then, of course, we're going to invest more relevant and more FTEs, more digital spend, we've got some new products we've talked about. So we're super excited. I mean, first of all, we've got super soft comps, in Q2, when sales almost closed down. And so to Chuck's point, this is a super big deal for '22. I know most people on the call are interested in this year in '21, but I had lied to you guys is that if we make the sales plan, which is super big, both against the prior year and absolute, it's -- that will pour all kinds of revenue into '22, which is part of the softness that we're dealing with here in '21, right? We basically took a quarter and a half out of selling and so you don't get the same wave of revenue rolling into the forward year. So I just don't want people to miss the importance of the sales plan for next year.

[Chuck Freund:]

I'd also just comment that, when COVID hit and we took our foot off the accelerator in certain areas, right, because we weren't going to pour incremental sales investment when the market wasn't listening and they were distracted. So we slowed down some of those incremental investments, where we're shifting gears now in preparation for a big new year next year and the reopening of the economy. So fingers crossed. And so we're investing ahead of that. And I think that's also putting a little pressure on our forward guidance in terms earnings, right, because we're making sales investments again, in a big way. So I think should be mindful of that.

[Ashish Sabadra:]

Yes. No, that's very helpful color. Sorry. Just maybe a follow up question on the SMB bill pay opportunity, obviously, it's large opportunity, a lot of players are going after it and congrats on the Roger AI acquisition. So I was just maybe a follow up question to earlier questions there, you obviously have a very warm lead, which positions you much better? But can you just talk about how long are those sale cycles implementation times? And how do you plan to leverage your existing sales force and the warm leads that you have to maybe accelerate and double down on that opportunity? Thanks.

[Ron Clarke:]

Yes, Ashish, another super good question. So one of the attractive things about the SMB bill pay is what you said, it's the instamatic sale and sign up and get going. The current business that we have today, which is in the middle market, has a pretty prolong kind of implementation cycle. It's almost like a project to get a $200 million company to connect with you and get the merchants in place and all that kind of stuff. And so, the first good news is that sales and revenue will be more connected in the SMB corporate pay business than they are in the middle market. And I think the point that the question you asked, the point that we make is a super , which is the missing capability. I think Napoli asked me this in the last call, but I couldn't tell him. Hey, Ron, what are you missing to really be a gorilla here in corporate pay and I didn't want to say, the answer is an SMB killer, software app that works for the little company, because we have the rest of the stuff. We acquired tons of clients with our sales channels. We've got capital. We've got processing capability. We've got the merchant networks to monetize. So we caused the clients to sell, to listen to us. And so unlike, Rogers and as the principal there who kind of on the role of the super good product kind of hanging out on the road, you take their super good product and you embed it into these sets of things we have. I mean, we are I said half kiddingly remarks, but this could be kind of the biggest deal of all because finally, we have a product that matches up with some of our capabilities. I mean, no one ever asked me before, but how funny that FLEETCOR build a corporate payments business in the middle market, when the whole company was an SMB company. And so it just took us a while to pair up the corporate payments business with a business that we built over the last 20 years. So the headline is, we've arrived, but we haven't. So I think, without getting way over the skis here that this is a super big deal directionally for the company over the next three to five years to just building this thing out, we're both walk around plastic and payables sit inside the same client where we stitch together effectively our fuel card business and our corporate payments business in the same client. It's not a small idea in our mind, it's a big idea.

[Operator:]

Our next question is from Bob Napoli with William Blair.

[Bob Napoli:]

Just a quick question. I know we're getting at the end here. But the increase in sales, investment that you're making and is this something that is one time in nature? Or is the idea here in conjunction with your transformation to accelerate growth increase investment in sales, that will ramp up the sales growth rate over the over the long-term and in line with the transformation focusing on the higher growth product lines?

[Ron Clarke:]

Yes, the short answer. The increment is recurring. And if you look at our three year plans, you'd see similar kind of increase 50% plus in sales in our 22 plants. So yes, it is recurring. And I think the second part is, it does come in a couple forms. It comes in a, the old fashioned form of just more scale. So more outbound phone call or more field people, more digital, Google, search keywords. But I say that the nuance that's different is, we're going to make more investment, kind of in digital, kind of at the top of the funnel. So we're going to spend more money to create more engagement as we have this broader product set now. And so having more things to sell, I think allows us to spend some money earlier in people's decision cycle, then at the end. So we tested that in Q4 last year, and it's working and so that's some decent part of the step up in '21, kind of a different kind of spend Bob worse than historically.

[Operator:]

Our next question is from Trevor Williams with Jefferies.

[Trevor Williams:]

I just wanted to ask on expenses. So just maybe for Charles, regardless of where you end up in the organic range. I mean, should we expect the expense growth really to look similar to whatever you end up doing on the top-line? Or could there be a level at which you might start to see a little bit more op leverage? So just trying to think about how much we could see flow through to earnings if you do get a big snapback in volumes in the second half? Thanks.

[Chuck Freund:]

Yes. So I think, when you look at our Q1 guidance, you see a bit of a reset of certain line items, whether it's the bad debt reserve or our anticipation of bad debt kind of eating up through the quarters and commensurate with our sales performance. Some of the snapback in terms of T&E right when the world opens up, half of our people are going to travel like others do. Our bonus accruals and such there's kind of like a re-level set in this Q1. And then moving forward from there, so that's part of it. To your point, though, when the volume does come back that's COVID-related and that revenue does pour in, it'll come in at a higher margin level. But offsetting that are some of these incremental investments that Ron mentioned, right? We're layering in more sales and marketing for our core products. We are hiring in a lot of sales marketing for Roger and our cross-sell efforts. So I'd say it's going to be pretty balanced, in my view, as we go through the quarters of the year.

[Trevor Williams:]

Okay. Got it. That's really helpful. And then, just a quick clarification on the guide. I mean, it looks like you're implying the share count to be roughly flat year-over-year. So really no buybacks baked related to the earnings guide. So just curious if there's any reason in particular, why we shouldn't expect you to be buying back stock next year, if there's just some element of conservatism that's baked in there? Thanks.

[Ron Clarke:]

Yes. Hey, it's Ron. So clearly, we build plans in terms of our capital allocations, though, we're going to basically retire debt, right, take the principal down. And so to your point, to the extent that capital allocation results in another transaction and other acquisition, we buy earnings or b), we buy back stock. To your point, though the capital allocation can take up our earnings. So the guidance that we have now assumes that the roughly billion dollars of cash flow would basically retire debt during the year, which, my guess is that I'm hoping to near a year from today, Trevor, that's not what we do, to your point in the next 12 months. But since those two decisions are in the future, we plan what we know which is to is pay down debt.

[Operator:]

I believe this concludes the question-and-answer session. I'd like to turn it back over to management for closing remarks.

[Jim Eglseder:]

Yes. Thanks, everybody. Apologize, we didn't get your question. But let us know if you have any incremental questions and we look forward to working together in the quarter. That's all.

[Operator:]

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.