Steve Greene With FLEETCOR

Welcome, hi Lee, how are you doing?

Yeah, thank you. So FleetCor is a global leader in business payments. We help businesses enable and control what they purchase and the bills that they pay. And we do that across the world. We have over 10,000 employees, over 800,000 clients in the US, in Europe, and in Brazil.

Yeah, the business was kind of founded in 2000 and it started as a small regional fuel card business that was on the verge of bankruptcy at the time. And slowly over the years, we've grown both organically and through acquisitions. So now, to the extent that the fuel card business that we originally started out as is less than half of our revenues, and the rest of the business is spread between corporate payment products, which we can talk about, lodging solutions, some prepaid solutions we offer businesses, and as well as tolls. And we serve originally businesses that had fleets and vehicles that they were looking to fuel, and now we serve businesses of all types, of all sizes, in just about every industry.

Yeah, so it varies from business to business. Technology forms a critical part of all of our businesses. And you can think of our businesses as having a network. So on one side we have clients, the businesses, and on the other side we have merchants or places where those businesses go and buy stuff. And so sitting in between the merchants and the clients are IT systems. And those IT systems do vary a little bit from the fuel card business, which helps manage and control how much fuel is put in the gas tank or what type of fuel is put in, to more of a corporate payments AP type application where our systems are verifying that a bill is ready to be paid and then it helps execute the payment. So the technologies are in some way similar, but the actual code is pretty different from business to business.

Yeah, it's a good question. So we look at things that are related to what we do. So those would be kind of specialty payment products. In those businesses typically have pretty similar business model characteristics. So we focus a lot on what kind of products and solutions the business offers and the business model characteristics that those businesses have. So we look for things that have other specialty payment applications and solutions, and then we look for things that have recurring revenues, they're a network business, they have similar distribution and sales channels that we're familiar with from the businesses we operate today. We look for things with high growth and low capital intensity. So those are some of the things that we look for when we start to expand.

Yeah, it's a super good question. So we typically buy things for one of three reasons. The first is if we want to enter a new market space or extend the area that we're in already, and a lot of times buying a business is easier than starting it from scratch. The second thing we do in terms of deciding whether to build organically or buy something is speed. So we're in a hurry, we have high growth aspirations, and organic growth in starting stuff from scratch can take longer in many cases. So if you want to go fast in a certain area, we would choose to acquire. And then the last thing is it's helpful for creating value for our shareholders. So there'll be businesses that we look at where we can either have some kind of cost synergy, where it's a similar business that is supporting two finance teams for example, we only need one, or there's a revenue synergy where maybe a company has a great product but it hasn't been able to invest in sales or distribution capability, and those are channels that we would already have. So we take an existing product and we can pump it through our sales channel and help that business grow faster.

Yeah, exactly. So let me give you a couple examples. We acquired a business early last year which is a company called Rogers, based both here and over in Scandinavia. And that was really more of a product acquisition. They had a small business bill pay software application, and it was a relatively new business, they'd only been around for three or four years. So it had great technology but still hadn't had time yet to build a big customer base. So we bought that company the beginning of last year and we're now taking that product, we've rebranded it into Corpay One, and now we're rolling it out through our existing distribution channels and offering that same software tool back to the businesses that already take some of our products. So that'd be something where the business is earlier stage and we're super interested in it. And then we did another deal last year, the company called AFEX, which was a larger business, it was in the cross-border payment space. But they had tens of thousands of accounts, but it was a complementary geography, it wasn't in an area that we already were in. And so that was an opportunity for us to buy a more mature, larger business that was really complementary to what we already had. So it's a bit of both. Both small businesses are interesting to us and large and more mature businesses are interesting as well.

Yeah, the answer is a bit of both. So I think like everyone else out there, if you ask me that question in March of 2020, I think we paused. We weren't sure what was going to happen. We weren't sure if it was a good idea to spend a bunch of capital on acquisitions or should we hunker down. And as 2020 rolled into 2021, we got more comfortable with the outlook, with how our clients were doing, and we really chose to step on the gas. So 2021 is one of our best years ever in terms of acquisitions. We closed eight acquisitions, spent over a billion dollars. And we really used COVID to focus on some areas of growth that we're really excited about and try to add to some businesses, the footprints and businesses that we already own. So the answer is kind of a bit of both.

Yeah, I know, it's a good question. So the first thing we looked at was what's happening with our clients. The businesses that we serve, is COVID going to help them or is it going to hurt them? And particularly for the businesses that are going to struggle, what can we do to protect FleetCor and at the same time be helping our business companies continue to operate? So we looked at things like credit lines. Are we extending the appropriate amount of credit to our clients? In terms of accepting new accounts, is it the right profile account that we want to accept, or do we want to be a little more conservative with what new accounts we offer? And then I'd say we had a close tracking of cash flow in those days and payments. Are people staying current? How are they doing? So that was really the very early days of COVID, getting our handle around the health of our clients and the types of sales and new accounts we wanted to accept. That was really what happened there. If you flip over once we decided to pivot back into acquisitions, a lot of those discussions were about what is the impact of COVID on this particular acquisition target. And I have to tell you, it was a little bit of a tale of two cities. So some businesses were helped by COVID. They were businesses that had software tools that helped companies pay bills, but do so with a remote workforce where people aren't in the office, so you can digitize invoices and AP clerks can work from home. There are other businesses, like we have a lodging business. Those businesses, travel was down a lot. So then we get into the forecasting business of trying to figure out how long will volumes be down and what's the rate at which they'll start to come back. And when we structure a deal, so that the buyer, FleetCor, is comfortable with taking some risk on the recovery, but we can also produce an attractive enough offer to the seller so that maybe we share some risks. So if it does well, we offer a little bit of money at closing, and then if it does a little bit better, we give them some more money, and if it meets expectations even more, we give them some more money. So we kind of created structures in those days around the recovery to help match what was going to happen in the future with the ultimate proceeds that the seller would get.

Yeah, so we do. It's an exciting time to be in our business. So I mentioned earlier at the top of the show, we have products that help enable and control what's purchased. So think of those as fuel cards or a T&E card. And then we have another set of solutions that help businesses enable and control the bills that are paid. So think about this as I'm in the home office, the headquarters, and I'm paying AP bills that are coming in. What we're trying to do for small businesses is both. So we're trying to provide specialized payment tools so that people who are out in the field can buy what they need to do their jobs, fuel or supplies for a construction business, and help the small business owner pay the bills as they come in. And we're putting that on a platform for those businesses that's a software platform so they can manage all the expenses that they have to manage their operation, they can pay all the bills that they have coming into the central office, and wrap that with a nice piece of software. So it's an easy way of doing both things. Typically for most small business owners, you had a credit card doing the walk-around stuff and you had QuickBooks or something to manage your AP. So we've tried to create a solution that helps small businesses do both of those things in one convenient UI.

Yeah, with the product called Corpay One. So we've got a few thousand accounts on it today. And the real interesting thing is we can take that product back to the hundreds of thousands of fuel card accounts we have who are just using a fuel card, and we can add on this Corpay One solution. So it's a pretty exciting thing we're working on.

Yeah, it's a good question, particularly on the M&A side. So the answer is we're continuing to do what we're good at, which is stick with what we know and invest and buy businesses that we're familiar with in fuel, toll, lodging, and corporate payments. So we'll keep doing that. And then I'd say two areas which we're starting to get into a little bit more are electric vehicles. So the world is transitioning from fossil fuel powered vehicles to electric vehicles over some period of time, and so we want to be there to help our clients manage that transition. So we've announced a couple different investments, one with a connected car company and another with a software tool that helps clients manage fueling at home. So we're starting to get more into EV. That's the first area. And then the second thing is more of a technology software tool. Our products typically have been point-of-sale purchases or helping send out and pay bills. There's a lot of work that a small business will go through before those things happen. There's approvals that need to be made, there's expense reports that need to be filled out. So there's basically a set of workflows that need to take place, and we think we can attach some software tools that help a business do those things and marry them up with our payment products to basically help clients do even more things inside their business. So those are two areas, EV and software, we're starting to look pretty closely at and start to make some investments. And regarding EV, that's both the fleets and individual, like a homeowner? Mostly for businesses. That's where we're really emphasizing, not as much for consumers. So the businesses like the people who are using EV with trucking? Trucking will probably be interesting in EV. So the transition to EV is going to happen at a different pace for different types of vehicles and in different markets and countries. So I think the last use application will probably be 18-wheelers, that's a harder thing to solve. The first thing we're seeing are sedans or small vans. Those cars are going to go to EV faster than big 18-wheelers, and we're already seeing it in our businesses in Europe. So it's already happening overseas, yes, absolutely.

Yeah, I'd say for 2022, there's three things that we have a pretty close eye on that'll impact not only the amount of deals we do in M&A but also our businesses in general. So what are those things? Number one, we continue to keep an eye on COVID. Is COVID really gone or do we have lockdowns? So that's one thing that we monitor, and we're in markets all over the globe, so countries are at different states of coming out of the COVID recovery. Number two is obviously the war in Ukraine and how much disruption, what are the ripple effects of that conflict? Is there going to be an impact on some of our European operations and some knock-on effects for those of us here in the US? And then the third one, which I think is the biggest one to keep an eye on, is inflation and the interest rates. So we're close to 8% inflation right now. The Fed has already communicated that they're going to take up interest rates, so we've already started a round of interest rate increases. And I think where interest rates top out and the impact on the economy, and can the Fed thread the needle without taming inflation but not cutting down growth and hurting the economy too much, will be a very delicate balance. So that's something we're watching very carefully, how the interest rate progression and the inflation impact plays out throughout 2022.

I think, I don't know that clearly we can't be at 8%. I think it's going to be unfortunately a little more stubborn. I mean, who knows whose crystal ball is more accurate, but I think we're going to have some lingering effects of inflation. So I'd probably be a little bit biased towards more interest rate increases than less. We haven't seen really any abatement yet, at least in our businesses. So I'd say I don't know, I think it's going to be a tough thing to solve, although I think the Fed is committed to getting there. And the question is, can they keep interest rates low enough without really bringing the economic growth down too much? It is threading the needle. But I think everybody is cautious now. They assume there's going to be some impact obviously, and it's just a matter of how quickly we can work through it.

Yeah, no, we, you know, strong management really makes a difference. We're in a crazy hiring market right now. I'm hiring on my team, I know that our IT folks continue to hire. A growing company needs more folks. So I think it's been tough to recruit people. I think the silver lining there, which is something we're starting to experiment with, is you used to have folks you hired them and they went into an office. So when you wanted to hire, it was helpful to have people in the community where you're hiring. That's obviously our preference for a lot of the jobs, but we're evolving to more of a hybrid approach where we're going to be flexible with some roles and let people not have to come into the office every single day. And I think that might alleviate some of the bottlenecks in terms of hiring people, to offer some kind of hybrid approach. We're studying pretty carefully, like on the sales side, it used to be you set up a sales force, you need two people in Dallas, two people in New Orleans, two people in LA. I think it's interesting to think about how the labor markets evolve, that maybe you can have a Zoom-based sales force. You don't need to hire two people in every single market. So I think that's an interesting thing that we're studying to get some relief from the labor constraints we're seeing in some markets. It's a lot more affordable to hire them in the middle of the country than on the West Coast specifically. Yeah, it's cost, but it's also just we can hire a lot more people. It's both of those things. It's certainly cost a factor, but if we want to add 50 people, if you're not geographically constrained, you can find 50 people in the same city? I think it's helpful as well because the world's your oyster now. You can get the best from anywhere instead of just that one locale. Right, absolutely. You can go where the talent is best, you're not as constrained as we used to be. But then you have the challenge of how do I get them as part of the culture and get all that kind of soft stuff with that remote employee. So that has its own challenges. Yep, you got it.

Yeah, it's www.fleetcor.com. You can learn a little bit about the clients we have, the products that we offer, and a little bit more about the company.

Thanks, Lee. Appreciate the time. Thank you very much for having me.