FLEETCOR Technologies, Inc.
Q4 2019 Earnings Call Transcript

Published: 7 Feb 2020

[Operator:]

Greetings, and welcome to the FLEETCOR Technologies Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the presentation. [Operator Instructions] Please note this conference is being recorded.I will now turn the conference over to our host, Jim Eglseder, Senior Vice President of Global Investor Relations. Thank you. You may begin.

[Jim Eglseder:]

Good afternoon, everyone, and thank you for joining us today for our fourth quarter 2019 earnings call.With me today are Ron Clarke, our Chairman and CEO; and Eric Dey, our CFO. Following comments from Ron and Eric, the operator will announce your opportunity to get into the queue for the Q&A session. It is only then that the queue will open for questions.Please note, our earnings and the supplement can be found under the Investor Relations section on our website at fleetcor.com. Throughout this call, we will be presenting non-GAAP financial information, including adjusted revenues, adjusted net income and adjusted net income per diluted share. 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 appears in today’s press release and on our website, as previously described. We are also providing 2020 guidance on both the GAAP and non-GAAP basis with reconciliations.Now before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. This includes forward-looking statements about our guidance and outlook, new products and initiatives and expectations regarding business development and acquisitions. They are not guarantees of future performance, and therefore, you should not put undue reliance upon them.These 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 today in our press release and on Form 8-K, on our Annual Report on Form 10-K that is filed with the Securities and Exchange Commission. These documents are available on our website and at sec.gov.With that out of the way, I would like to turn the call over to Ron Clarke, our Chairman and CEO. Ron?

[Ron Clarke:]

Okay. Jim, thanks. Good afternoon, everyone, and I appreciate you joining our fourth quarter earnings call. Upfront here, I’ll plan to cover four subjects

[Eric Dey:]

Thank you, Ron. For the fourth quarter of 2019, we reported revenue of $698.9 million, up 9%, compared to $643.4 million in the fourth quarter of 2018. GAAP net income decreased 22% to $235.5 million, or $2.60 per diluted share from $302 million, or $3.33 per diluted share in the fourth quarter of 2018. Included in the fourth quarter of 2019 was a gain of $13 million related to a minority investment. And in the fourth quarter of 2018, was a gain of $153 million from the sale of a Chevron portfolio.Adjusted net income for the fourth quarter of 2019 increased 14% to $286.4 million, compared to $252 million, and adjusted net income per diluted share increased 14% to $3.17, compared to $2.78 in the fourth quarter of 2018.We experienced several macroeconomic headwinds in the fourth quarter of 2019, compared with the fourth quarter of 2018. Movements in foreign exchange rates were primarily negative, with most of the impact from the Brazilian real, as a currency was down roughly 7% from the fourth quarter of 2018.We believe foreign exchange rates negatively impacted revenue during the quarter by approximately $9 million. In addition, fuel prices were lower by approximately 5% compared with the fourth quarter last year. And although we cannot precisely calculate the impact of these price changes, we believe our revenue was negatively impacted by approximately 2 million.And finally, fuel spreads had about an $8 million negative impact on the quarter, compared with a very good spread setup in the fourth quarter of last year. So in total, those changes had a negative impact of approximately $19 million on our fourth quarter revenue, compared with the fourth quarter of 2018.Organic revenue growth in the quarter was 10% overall. All of our major product categories performed well during the quarter. The corporate payments category continues to perform very well and was up 14% organically during the quarter. The growth in corporate payments was driven by both Cambridge, which grew 20% in the quarter versus very tough comps and the remainder of the corporate payments business, which grew in the mid-teens.Our toll business was up 17% organically and our lodging business was up 14%. And as expected, our fuel card business produced 9% organic growth in the quarter. As always, there are a number of a lot of moving parts to our businesses around the world. We continue to see some softness in our over-the-road businesses, but was offset by some strong performances in some of our international businesses.Now moving down the income statement. Total operating expenses for the fourth quarter were $378.1 million, compared to $358.7 million in the fourth quarter of 2018, up approximately 5%. The increase was primarily due to acquisitions completed in 2019. As a percentage of total revenues, operating expenses were approximately 54%, compared to 56% in the fourth quarter of 2018.Credit losses were $20 million for the fourth quarter, or 7 basis points, compared to $21 million, or 8 basis points in the fourth quarter of 2018. Depreciation and amortization expense increased 2% to $68.5 million in the fourth quarter of 2019 from $67.2 million in the fourth quarter of 2018. The increase was primarily due to acquisitions completed in 2019 and additional CapEx spending.Interest expense decreased 8% to $35 million, compared to $38.2 million in the fourth quarter of 2018. The decrease in interest expense was due primarily to decreases in LIBOR, partially offset by additional borrowing for share buybacks and acquisitions.Our effective tax rate for the fourth quarter of 2019 was 21.1%, compared to 23.9% for the fourth quarter of 2018. The fourth quarter of 2019 tax rate was lower than the fourth quarter of 2018, due primarily to excess tax benefits.Now turning to the balance sheet. We ended the quarter with $1.680 billion in total cash, approximately $404 million is restricted and consists primarily of customer deposits. As of December 31, 2019, we had $4 billion outstanding on our term loan and revolver and approximately $638 million in undrawn availability. We also had $971 million borrowed in our securitization facility at the end of the quarter.In the fourth quarter of 2019, we purchased approximately 2.2 million shares of our stock for $632.5 million, resulting in a total share buyback for 2019 of approximately 2.4 million shares for $695 million. Our total current repurchase authorization remains at $857 million.As of December 31, 2019, our leverage ratio was 2.43 times EBITDA, which is well below our covenant level of four times EBITDA as calculated under our credit agreement. The increase was due to borrowing for share buybacks and acquisitions in 2019. We intend to use our future excess cash flow to temporary pay down the balance on a revolving credit facility and securitization facility and maintain liquidity for acquisitions and other corporate purposes.And finally, CapEx expense in the quarter was $26.5 million.Now on to the update for the outlook for 2020. Before I walk you through our 2020 outlook, there are a number of puts and takes I want to make sure you have considered as you model the walk from 2019 actuals to our 2020 guidance. Please refer to our fourth quarter earnings call supplement for a bridge from 2019 to 2020 revenue and adjusted net income per share.First, we are planning for another 9% to 11% organic growth rate year and adjusted net income growth rate of approximately 15% at the midpoint of our guidance range. We expect the corporate payments, toll and lodging businesses to grow mid-teens in 2020 and gift and other to be up slightly.The fuel card category is expected to grow organically in the 6% to 8% range. Growth is expected to be led by continued solid performances in most of our fuel card businesses. However, growth will be tempted by softness in our over-the-road freight businesses, as we expect current market conditions to persist in 2020. Also, our 2020 guidance includes the Chevron divestiture impact of approximately $12 million in revenue in 2019.I also want to update you on our latest thinking about the macroeconomic environment. We expect the macro to negatively impact our revenue and profit for 2020. We are estimating that the absolute price of fuel will be about the same as the 2019 average. Foreign exchange rates, if they continue to be at today’s level, will also have a modest negative impact on revenue and spreads will be slightly unfavorable to 2019.In total, we believe these items will create an estimated $20 million revenue headwind and negatively impact cash EPS by about $0.10 to $0.15 per share. Although our share count will be lower in 2019, due to the fourth quarter share buybacks, we had to borrow on our revolver to finance the share buybacks.So in total, we expect the net impact of the lower shares and increased borrowing to finance the shares to have a negative overall impact for 2020 of about $0.10 per share.And finally, we expect our tax rate to be in the 20% to 22% range, slightly lower than the 2019 average tax rate. There are a number of moving parts to the tax calculation, but we are expecting additional share-based compensation-related deductions to favorably impact our tax rate in 2020.So with that out of the way, our guidance for 2020 is as follows

[Operator:]

Thank you. Ladies and gentlemen, we will now conduct our question-and-answer session. [Operator Instructions] Our first question comes from Ramsey El-Assal with Barclays. Please state your question.

[Ramsey El-Assal:]

Hi, guys, and thanks for taking my question tonight. I wanted to ask about the Corporate Payments segment. It’s still healthy growth there. It came in – the organic growth rate came in below our model. I just wanted to kind of dig in a little bit there to see if there is anything has changed in terms of how you’re viewing this segment? And I guess, in particular, going into 2020, is there any adjustment to your long-term thinking about the way, for example, Cambridge and virtual card, both contribute to the overall growth rate there?

[Ron Clarke:]

Ramsey, hey, it’s Ron. So the 14% head in a pretty weak payroll card, kind of subcategory, which is kind of flat. So if you pull that out, our core corporate pay was actually up 18% in Q4. And then second, in Q4 of 2018, there was a bunch of political spend, because it was the two-year cycle. I don’t have it in front of me. But I’m sure the growth rate in corporate pay in Q4 of 2018 would have been super high. So that made the comp, if you will, of this quarter against the 2018 quarter quite tough, because no political spend in Q4 2019.

[Ramsey El-Assal:]

I see. Okay.

[Ron Clarke:]

I guess, the second part of it, okay, what – what’s the forward view? I’d say, high-teens. I’d say, I don’t have it in front of me. But if you said, “Hey, what do we think that whole corporate pay business will do that’s embedded in our guidance?” I’d say we’re outlooking high-teens and, again, it does bump around by quarter. I think it has even here in 2019. But we – we’re investing to have that business keep pacing out in the high-teens.

[Ramsey El-Assal:]

Okay. I appreciate that. I also wanted to ask about the FTC lawsuit and see if you had any comment on that? Any thoughts on timing? And just also maybe embedded in your response, you could address the kind of potential risk if there could be any actual changes to your business practices that come out of this lawsuit, as it gets eventually concluded, or is this more just an effectively a negotiation about a penalty payment?

[Eric Dey:]

Hey, Ram, and this is Eric. I guess, first and foremost has been real no change since the complaint was filed by the FTC about 30 days or so ago. So we really don’t have an update on the lawsuit itself, given the short period of time. We have made a number of comments around what we think the materiality of its going to be and our thinking is the same and we don’t think it’s going to have a material impact on our business going forward. Yes, we had some conversations around redress, but those are still TBD at this point in time.

[Ramsey El-Assal:]

Got it. All right. Well, thanks for taking my question, guys.

[Operator:]

Thank you. Our next question comes from Peter Christiansen with Citibank. Please state your question.

[Peter Christiansen:]

Good evening. Thanks for the opportunity to ask a question. Ron, I guess, with any type of business, there’s always a pricing trade-off attrition issue that managers need to consider. I guess, if you’re looking across, particularly the fuel card business, how do you think about that trade-off between pricing and attrition? And has that changed?

[Ron Clarke:]

I think it’s fair. Sure there is. I’d say that we’re probably steady, as she goes. I don’t think we’re making any material changes in fuel card pricing, either here or rest of the world. I think a bit of the reason for the thing guiding down a little bit in 2020 is, a, we had a pretty good year. I think the full-year this year was 9% organic, we saw a little bit better comp; and then b, really it’s credit.I’d say, with the EMV being laid in fuel, we’re continuing to get chased by the bad guys at gas stations. And so I’d say the credit dynamics were worse in 2019 in the fuel card business than we thought. And so we’ve had to take some actions basically to tighten credit, credit lines, the amount that people can spend, et cetera. So I’d say, that’s for certain part of the reasons we guide.

[Peter Christiansen:]

Is there any – do you have an estimate of what percentage of provisions are cost to fraud?

[Ron Clarke:]

Say it again, Peter, one more time?

[Peter Christiansen:]

Yes. What percentage of your provision expense has been fraudulent charges? And where has that mix of bankruptcy versus fraud kind of expenses there? How has that trended in recent quarters?

[Ron Clarke:]

Yes. I don’t have it super handy. But I’d say it’s circa under $10 million of what we call fraud. I’d say that the two kinds of fraud are basically application fraud, right? Someone makes up there an actual business and they never are. And then fundamentally, fraud at the gas station, where someone fundamentally fills up tanks, if you will. And so I don’t have it in front of me, we can circle back on it. But for sure, those two numbers are up in 2019 over prior years.

[Eric Dey:]

And don’t forget, as we migrate to chip and pin next year, our fraud losses are going to decrease over a period of time and hopefully, to be very minimal after October next year when hopefully, everybody’s converted into the new chip and pin requirement.

[Peter Christiansen:]

That’s helpful. I’ll jump back into queue.

[Operator:]

Our next question comes from Andrew Jeffrey with SunTrust. Please state your question.

[Andrew Jeffrey:]

Hi, good afternoon. Thank you for taking the question. Ron, I’m intrigued by your comments with regard to perhaps evolving M&A priorities and opportunities. Could you talk a little bit more about sort of corporate procurement? And what that might look like in terms of augmenting the payable software – payable software offering you already have? Should we think about that as looking a little bit like what Coupa is doing, or just a little color would be helpful?

[Ron Clarke:]

Yes. I mean, I think the headline is, as we’ve gotten into the two bigger categories, Andrew, the payroll and benefits and into the payable, so Beyond just employee-related, the idea of software, right? The clients are using different kinds of software to help them clearly in the payroll or benefit administration area and using software in and around payables with its procurement or workflow stuff.And so I think the idea is that there are some targets that messed around that, that are kind of in front of the payments – the payments kind of the thing at the end. And so I think the thing we’ve been doing over the last six months is, hey, hey, hey, if we bolted on some of that software that’s in front of basically the payment, could we create a better bundled experience with a client?And obviously, it’s obvious that those companies might have clients. So it might be an entree for us into the payment thing that we do. So I wouldn’t say, we’re ready to pull the trigger. But I’d say, it’s a concept in causing us to explore a set of targets that we didn’t really look at six months ago.

[Andrew Jeffrey:]

Okay. All right. It would be interesting to see how you proceed. And just a point of clarification, if I may, around fuel. I understand the OTR is soft and manufacturing have been in recession for a couple of years now, or at least a year, anyway?The 6% to 8% guidance versus the sort of 9% in 2019, does that suggests that Beyond Fuel is facing tougher comps or deselling, or I wonder if you could just parse out how much of that might be economic – same-store sales-related, how much of it is sort of grow over in Beyond Fuel? I thought Beyond Fuel might offset some of the same-store sales weakness?

[Eric Dey:]

Yes, it’s a combo of all of those things you said. So one, it’s obviously a good comp, a good growth rate in 2019. Two is, trucking, not only in the U.S., but in Brazil and the UK is weak. And I think we called it out in our same-store sales, it was, I think, minimized 4% or 5% negative range in the base in terms of softness. So it’s quite weak.And then I think, I mentioned the last one is, it’s credit. So, for example, we get a very large number of our new fuel card accounts digitally now in the U.S., I think, it’s approaching 75% of all the new accounts we acquire. And so we’ve had to moderate what we can offer, both credit at all and certainly credit for Beyond Fuel via that channel based on the credit – the experience that we’ve got.So we’ve decided to just going cautiously. I don’t want to blow the things up, so we’re going in kind of slow, careful, let the stuff we signed up in 2019, dead end. We studied the credit dynamics of it and then kind of expand it. So it might do better, Andrew, as we pace our way through the year. But I – we really want to win pretty cautiously on the credit side.

[Andrew Jeffrey:]

Got it. Okay. Thank you.

[Operator:]

Thank you. Our next question comes from Tien-Tsin Huang with JPMorgan. Please state your question.

[Tien-Tsin Huang:]

Hi. Thanks so much. Just following up on Andrew’s question just on the beyond side. I’m curious, is there a way guys to quantify the impact in the fourth quarter or the lift in the fourth quarter? And what the assumption would be in 2020 just for the Beyond initiative?

[Ron Clarke:]

It’s kind of in the 1% to 2% range, Tien-Tsin, is what I’d say. And, again, the – we now have something in the base that I don’t have in front of me, but we have obviously real revenue in all the Beyond initiatives now finally in 2019 and certainly in Q4. So they’re all planning to be up, but again, they’re coming off relatively small basis. So it’s something we could probably dig out and come back, but I’d say, across the board, it’s kind of 1% to 2%.

[Tien-Tsin Huang:]

Okay. And then when you mentioned broadening your client offerings, and I know you gave payables, as an example. But I’m curious the tangential stuff that you’re willing to look at, how far are you willing to go from the core to meet this broadened client offering initiative? I mean, I’m – can you give us a little bit more there, how far from the core are you interested in going?

[Ron Clarke:]

Yes, not not super far…

[Tien-Tsin Huang:]

Okay.

[Ron Clarke:]

…would be the headline. And so the first one is, we were fanatics around models. So we got to like the business model a lot first, separate from what the business is. And then second, it’s got to be connected in someway.I referenced that procurement software, example, because I think it’s relatively easy to understand that if you’re a AP at an a company and get ready to manage 1,000 invoices, you’ve got to have some set of software, either in your ERP or others to keep track of the vendors and whether you should have them all and when you should pay them, there’s a lot of work to do before you click pay.And so things like that seem obvious to us as ways to maybe get clients more interested in a broader bundle. But we’re not going to go crazy. We’re just really trying to highlight that there’s some adjacent things that are close to what we do that we like.

[Tien-Tsin Huang:]

Okay. Last one, if you don’t mind, just on the M&A side. Do you – should we think of 2020 looking like 2019 in terms of doing a few similar sized deals like an invoice pay Travelliance sold, or could we see some bigger deals in 2020, if you have every way, anything that’s holding you back there?

[Ron Clarke:]

I certainly hope so, would be my answer. I’ve got my sheet of big elephant sitting here in front of me and actually had a review yesterday on it. So our sights are set. I am trying to do some big, Eric, reference our balance sheet is probably as good or better place than it’s ever been. So we are eager, probably like others on the phone to do something. But I told you before, Tien-Tsin, we’re not going to rush just because it’s a good thing to do, but we’re certainly interested in doing it.

[Tien-Tsin Huang:]

Cool. I appreciate it. Thanks.

[Operator:]

Our next question comes from Sanjay Sakhrani with KBW. Please state your question.

[Sanjay Sakhrani:]

Thank you. I guess, my first question is on the investments that are being made. Can you guys walk us through where those investments are being made? And what’s driving some of these investments? Is it that you’re being offensive, or are there areas where you think competitively you could do better?

[Ron Clarke:]

Yes. Sanjay, it’s Ron. So I’d say, if you think about the sequential step in, in investment, it’s one, some pro forma roll forward of the acquisitions. So some of the expense growth, as you roll into 2020, is really just 12 months of deals that carry lower margins, right, than our core business. That’d be number one.Number two would be just traditional kind of line of business processing, servicing kinds of expenses that go hand-in-hand with the volume growth that we have planned. But the two bigger discretionary ones would be IT and sales. And what we saw, we’ve been modeling the last two or three months, the fact that our tax rate will probably set down about a point, I think, we finished around 2022 and change.For 2019, when Eric and I saw the number trending, I think, we guided 2020 to 2022. So we used 2021 at the midpoint, we said, hey, there’s an opportunity maybe to make a few investments in sales and IT. So we added a bit more, really around transformation. I said just – instead of just projects, we’re trying to have better data warehouses, move more processing to the cloud, improve our API layers as we connect, double down on the UIs for customers in terms of how they interact with us.So it’s just – it’s a series of, I call it different kinds of IT. Obviously, we’re spending significantly more in and around cybersecurity. So it’s investments and what we call non-line of business project investments that we’re looking at.

[Sanjay Sakhrani:]

Okay. And then just follow-up on all the M&A questions. I guess, when we think about broadening the scope of these acquisitions? Is it because there’s not a lot of attractive stuff at the core? And the valuations just aren’t attractive enough? Or is it more that these are viable opportunities to get the same types of returns as you have elsewhere and it really adds another dimension to your offering?

[Ron Clarke:]

Yes. I think it’s really outside in, it’s trying to look at the world that our clients and prospects fit in and how they go about doing their work and us identifying very adjacent kinds of software and services that look a lot like what we do. So I’d say that the first driver of it is to try to package things that help clients basically do their work.And then the second one just what you said, it creates, obviously, a bigger sandbox to go work in and obviously, again, may create some cross-selling opportunities of getting client bases that are in similar areas. So it’s all the above. And again, we’re going to be quite cautious and to have a lot of conviction before we pull the trigger. But I want to give everyone a heads up that, that software and services adjacency is something that we are looking at, so that people could be prepared if we tell you that.

[Sanjay Sakhrani:]

But just a clarification. In terms of the accretion potential of any of these types of deals, is it similar to the stuff that you’ve done before, or is it different? Thanks.

[Ron Clarke:]

We’ve looked at some fair number of these in the last six months. I mean, as you know, the box of buying things that have both revenue growth and accretion opportunities all in one are not always super easy. And I think that’s been a bit of a guy first, the last couple years is not buying assets that are only accretive, but don’t have mid-term growth prospects. So I would say, we’re trying to make sure we look at deals at have both of those characteristics.

[Sanjay Sakhrani:]

All right. Thank you.

[Operator:]

Thank you. Our next question comes from Ashish Sabadra with Deutsche Bank. Please state your question.

[Ashish Sabadra:]

Thanks for taking my question. So question on the toll, pretty good momentum there. You talked about pretty good traction on the 20 million urban user opportunity. You also mentioned the potential slowdown in tools to low-teens, which is still pretty healthy and I guess, it’s mostly because of inflation. But I was just wondering if you can talk about how we should think about the urban user contribution going forward and the deal win from the urban user going forward? Thank.

[Ron Clarke:]

Hey, Ashish, it’s Ron. Yes, that’s a good question. So I guess, you hit one of them. So if you said, “Hey, hey, hey, why might Brazil organic growth step back a little bit from 2019.” One is what you said that inflation has gone backward a bit in Brazil, so a bit less – less of that is baked in.And then number two, I think that we are open to acquiring new accounts with longer free trial periods, which takes us and some of the pricing of the new business down. And the reason for that is that some of the competitors in banks and Brazil have been offering six or 12-month starts on the toll programs. So although we believe with a premium brand and network, we want to make sure we’re still getting that business. So that would be the second one.In terms of the urban thing, I mean, let me put it into context how big we think this could be. So in my opening remarks, I commented that we sold 125,000 new urban tags in the core, so call it, circa 200,000 new users that signed up in 2019. I don’t have the plan in front of me, but my guess is, it’s somewhere 200,000 two and 300,000 new urban users plan for 2020.We only sign up about 1 million new users, standard toll users per year. And so the impact, as you roll that snowball forward, if we can sign up 200,000, 250,000 and keep signing up a million, that number starts to get quite meaningful. So I’d say the one thing we – we’ve got evidence of now is that, this offer to use an RFID convenient payment thing in and around the city and a bunch of places is something people like, and to tell you that we’re able to actually communicate it and sell it.And so now we got to try to scale it. We got to build out the network further, which we’ve got money in for and we’ve got to keep adding those number of users. So, we’re bullish on it, but I think it could be a pretty meaningful number here over the mid-term.

[Ashish Sabadra:]

That’s very helpful. And then just maybe a follow-up question on the investments in digital and sales, that’s pretty positive. How should – how are you going to crack the ROI on those investments? How should we think about the retention, as well as sales booking going forward as you make these investments? Thanks.

[Ron Clarke:]

Yes. So the sales one, I’d say that one is shorter-term. We, as you guys know, build models to increase sales investment year-over-year and increase sales production year-over-year. So that example, I’d say, we’re planning, I think I commented 13% to 15% incremental sales production this year. And my guess is, we’re probably spending low-teens incremental sales investment to accomplish that.I think the IT one is different. I’d say the incremental money we decided to invest this year is a bit nontraditional. For us, it’s more architecture, infrastructure, again, structural, if you will, allowing us to do things easier, better to make changes in applications, to write stuff on co-basis that fill all platforms to get stuff running on old multi-single client, hardware into a cloud environment with better economics.So I’d say that there probably a year or two out the returns on this new set of IT things. But for us, I think the key is, we have to simplify the technology footprint and application footprint that we have. And so we’re making some investment in 2020 to get positioned to do that.

[Ashish Sabadra:]

That’s very helpful. Thanks.

[Operator:]

Thank you. Our next question comes from George Mihalos with Cowan and Company. Please state your question.

[George Mihalos:]

Hey, thanks. Good to be on the call, guys. Maybe just to kind of circle back on the corporate payments side. Ron, I appreciate your commentary on growth kind of being in the high-teens looking out into 2020. Should we expect any change though in the rates of growth for the cross-border business versus sort of traditional virtual card, kind of putting full file outsourcing to decide and just focusing on those two segments or sub segments?

[Ron Clarke:]

Yes. Again, the high-teens number still includes that payroll card subset, which again is not planned to grow super. So again, if we kind of move that out, the core – corporate pay might do even a bit better.I’d say, yes, we probably are thinking about Cambridge, the FX business a bit slower. So we’ve grown that thing, obviously, in the couple of years 20%-plus on the top and more on the bottom. I’d say that the combo of our old line virtual card idea and our new line full AP outsourcing, that thing, again, is planned in the high-teens. So really, both major businesses, both the payables business and the FX business are kind of hand-in-hand in terms of the growth rate.

[George Mihalos:]

Okay, very helpful. And just one point of clarification. With your site set on potentially larger scale M&A, will that sort of put a pause or a hold on buyback activity over the beginning of the year? Thank you.

[Eric Dey:]

Hey, George, it’s Eric. Probably not. I mean, the reality is, we have a lot of liquidity. As we stated earlier, our balance sheet is in as best place as really it’s ever been. Our leverage is low. And listen, we got plenty of liquidity basically to pursue both avenues, that’s what we want to do. So I wouldn’t say we’re not going to do it.

[Operator:]

Thank you. Our next question comes from David Togut with Evercore ISI. Please state your question.

[David Togut:]

Thank you. Good afternoon. Just to expand upon the Beyond Toll initiative in Brazil, recognizing this is a very different initiative than what you have in the U.S. with Beyond Fuel. Do you have any credit concerns about Brazil, as you do about the U.S.? In other words, is there any brake on the growth of this kind of Beyond Toll initiative? And then related to that, I think historically, you’ve given out some transaction growth numbers on the expansion of your McDonald’s relationship in Brazil?

[Ron Clarke:]

Yes, David. Hey, it’s Ron. So yes, on the credit side, it’s a good question. I’d say two things. One, that some large amount of our new business were booking on to credit card. So literally, we’re not taking credit risk for, I’m going to say, call it, two-thirds of that new business that we’re booking. And obviously, the other third, we’re screening and determining that it’s pretty credit worthy.So the credit dynamics in that market actually improved, believe it or not, in 2019, over the prior year, and we’ve got a model that kind of flat, as shown in 2020. So I’d say that sitting here today, the credit dynamics or risk aren’t slowing us down on that. What was slowing us down there is trying to build out the non-fuel network. That’s really the governor on speed there.

[David Togut:]

I see. And then McDonald’s transaction growth, any metrics there for the fourth quarter?

[Ron Clarke:]

I don’t have it in front of me. I know it’s up and it’s planned to be up again in 2020. I think we’ve got, I can’t remember, 75 additional locations that we’re putting on. So it’ll be 2.5 million to 3 million would be my guesstimate without having the piece of paper in front of me.

[David Togut:]

Understood. Just a quick final question, is the MasterCard fuel card in the U.S. still giving you differentiated growth versus the more traditional fuel card business? And if you have the growth rate for that business in the fourth quarter, that would be appreciated?

[Ron Clarke:]

Ask it – you just broke up one second. Ask it, David, again, if you would?

[David Togut:]

Yes. Historically, you’ve given out quarterly transaction growth for the MasterCard fuel card…

[Ron Clarke:]

Yes.

[David Togut:]

…the interchange product. And I’m just curious, if that – and that product historically has grown faster than the core fuel card business. Was that still the case in the fourth quarter?

[Ron Clarke:]

Eric, do you have that in front of you?

[Eric Dey:]

Yes. I don’t have it exactly in front of me. We really don’t talk about the individual lines of business. But it’s, if I recall, I think it grew kind of line average in the quarter with the growth of the – on the whole fuel sector, something in that ballpark.

[Ron Clarke:]

Yes. I’d say, David, back again, I don’t know the number, but the concept of this two for idea, particularly with our field people or phone people to be able to offer a business, fuel cards that control fuel spend, and then also on a one account help that company with payables or help open up the card for some employees for supplies or construction supplies. It’s clearly a winning pitch.And I saw some exhibit, I don’t know, in the fourth quarter, where in Q2 and Q3, about 25% of all of our new sales were these two for sales, where this concept of adding payables to the account or some supplies, sometimes with different users in the account is a very interesting offer. So I think the concept to the offer of this expanded product is is good.

[David Togut:]

Understood. I appreciate all the insights.

[Ron Clarke:]

Thank you.

[Operator:]

Our next question comes from Ryan Cary with Bank of America. Please state your question.

[Ryan Cary:]

Hey, guys, thanks for taking my question. It sounds like the underlying trucking environment remains tough, particularly in the U.S. and the UK. But if we were to compare that to what you were seeing in the 3Q, it sounds like it weakened a little bit further. First, is that fair?And then second, while these headwinds are likely to persist into 2020, are you expecting we’re past the trough, or could things get worse before they get better?

[Ron Clarke:]

Yes. Ryan, hey, it’s Ron. Yes, I look at it at a piece of paper, I’d say the trucking base softness got a little bit worse than Q3. It actually got worse kind of all throughout 2019. We kind of planned it on the line that it’s on, which again, is soft. I don’t know, I don’t think we know that the UK is down not as much, Brazil is also trucking, for some reason, is down some. So it has gotten a bit worse during 2019, and we are planning it to be in the negative, kind of three to five range in our 2020 guidance.

[Ryan Cary:]

Got it. Okay. And then just a quick clarification on the Beyond initiatives. Was the 1% or 2% incremental revenue growth contribution from the Beyond initiatives inclusive of both fuel and toll? And if it is – is there anyway to break that up into the individual contribution from the fuel side and then from the toll side?

[Ron Clarke:]

Yes. I think what we should do is – because Tien-Tsin asked that earlier. I think that we should try to put together a more embedded exhibit, where we go kind of line of business by line of business and give you guys some color on what the contributions are in the 2020 numbers rather than just throw it out, because they do vary in each of our four major categories, right? The Beyond efforts are different. The maturity, if you will, of them are different and stuff. And so, Jim, just remind us. We’ll take that, Ryan, as a takeaway and come back to you guys with something that hopefully is useful.

[Ryan Cary:]

Thank you for taking my questions.

[Operator:]

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I’ll turn it back to management for closing remarks. Thank you.

[Jim Eglseder:]

Yes. Thanks for joining us today, guys. As always, this is Jim, let me know if you have any further questions or if you need anything else.

[Operator:]

Thank you. This concludes today’s call. All parties may disconnect. Have a great evening.