Fleetcor Technologies Inc

NYSE:CPAY

Earnings Call Transcript 2020-Q4

[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, Head, Investor Relations]

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.

Following the prepared remarks, the operator will announce that the queue will 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 section on our Web site at fleetcor.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 share. This information is not calculated in accordance with GAAP and maybe calculated differently than non-GAAP information at other companies. Reconciliations of historical non-GAAP financial information to the mostly directly comparable GAAP information appears in today's press release and on our Web site 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 8-K, and in our Annual Report on Form 10-K filed with the SEC and available at sec.gov.

With that out of the way, I'd like to turn the call over to Ron Clarke, our Chairman and CEO. Ron?

[Ron Clarke, Chairman and Chief Executive Officer]

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%.

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-tool 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 7 of our earnings supplement, you can see that every Q4 metric is improving from the Q2 low.

Revenue up from $525 million to $617 million, cash EPS up to $2.8 to $3.01, 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 million and then lastly, retention holding steady at 92%, so to us, evidenced 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 19 and cash EPS finishing at $11.09, 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 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 and 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, Q3 and Q4; we signed four acquisitions in 2020. Our guys ran IT exceptionally well had the best overall system uptime and the history of the company. And lastly, we were able to replan the business in the second half. We conducted a replanting exercise in the summer and the actuals came in a smidge better than the replan. So reminds us again that fleets of business you can plan.

I really do want to give a shout out to all FLEETCOR people who hung in there and kept the company going through very unsettling times.

Okay, let me make the turn to 2021. And I outlined our initial guidance of 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. So first, volume and revenue trends strengthening through 2020, so the potential to continue that into '21. Sales, production improving thus, the amount we expect to get of India revenue from new business and as I mentioned a bit ago, very solid client retention and credit trends.

We were 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 billion 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 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 $12.40 of cash EPS for the core business, we are planning about $0.10 of dilution from the Roger acquisition. So that would put our consolidated number at $12.30 at the midpoint.

Lastly, assuming now a May 1 close for the Apex acquisition, accretion could be approximately $0.20 for the year. So if that happens on-time that could take consolidated cash EPS to $12.50. 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, Q3 and Q4 revenue and profit growth to be back into the high teens.

Okay, let me transition now to my last subject, 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, 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 asked, 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. We do continue to make progress against our beyond strategy, 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 earned interchange so that's up from literally from zero a few years ago. But today, 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 card 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 card 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 a large global SMB client base numbering in the hundreds of thousands, we've got working SMB sales channels, which 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 had 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 maybe 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?

[Chuck Freund, Chief Financial Officer]

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.

Looking further down the income statement, our total operating expenses were down 14% for the fourth quarter of 2020 to $323 million. We performed in line with a high-end of our target reduction compared with the fourth quarter of 2019. The decrease was primarily due to lower volume related costs, lower employee related costs including headcount, sales commissions, bonuses and stock compensation. We also saw lower T&E expenses, in addition to the impact of foreign exchange rates.

As a percentage of total revenues, operating expenses were approximately 52.4% or roughly 240 basis point improvement from last quarter. Bad debt expense in the fourth quarter of 2020 was $6 million or 2 basis points, which includes a reserve release of $5 million. And that was only four basis points excluding the reserve release.

Our bad debt levels continue to be good and our aging roll rates remain very favorable. There is still uncertainty around the timing, level and duration of government stimulus and various responses to increasing COVID cases around the world. So that's still a consideration on our reserve.

Interest expense decreased 13% to $30.3 million, driven primarily by decreases in LIBOR related to the unhedged portion of our debt. This was partially offset by the impact of additional borrowing for share buybacks earlier in the year. Our effective tax rate for the fourth quarter of 2020 was 20.3%, with a reduction from last year, driven primarily by incremental excess tax benefit on stock option exercises.

Now turning to the balance sheet as of December 31 2020, we have approximately $1.9 billion of total liquidity consisting of available cash on the balance sheet and our undrawn revolver at quarter end. We ended the quarter just shy of 1.5 billion in total cash, of which approximately 542 million is restricted and consists primarily of customer deposits. We had $3.6 billion outstanding on our credit facilities and $700 million borrowed in our securitization facility. We remain committed to a consistent program of capital allocation using our free cash flow for acquisitions and buybacks.

In the quarter, we repurchased roughly 181,000 shares in connection with employees sales. In total for 2020, we spent $850 million on share buybacks. We believe that we have ample liquidity to pursue any near term M&A opportunities, still opportunistically buying back shares when it makes sense. For the quarter, we had approximately $23.4 million of capital expenditures, we finished with a leverage ratio of 2.67x trailing 12 months EBITDA as of December 31.

Now, let me share some thoughts on our outlook. Looking ahead, we're expecting Q1 2020 adjusted net income per share to be between $2.60 and $2.80, which at the midpoint is approximately $0.31, or 10% lower than what we reported in Q4 of 2020.

About half of the difference is attributable to revenue seasonality. You see while some of our businesses like gift have seasonally strong fourth quarters, most of our businesses have seasonally weak first quarters. Of course, volume-related expenses will slightly offset this revenue seasonality impact.

Roughly a third of the difference is due to the normalization of certain expenses. For example, in Q4 of 2020, we released $5 million of our bad debt reserve, which we do not expect to repeat in Q1. As sales performance has continued to recover throughout 2020, we expect bad debt to gradually increase sequentially as those customers balances age. Additionally, when the impact of the COVID related shutdowns became clearer in 2020, we proactively reduced our annual incentive target payouts by 50% and accrued to those lower targets for the remainder of the year. As our business has recovered meaningfully, we plan to return incentive targets to 2021 to normal levels.

We also expect our effective tax rate in Q1 of 2021 to be about 80 to 100 basis points higher than the rate we reported in Q4 of 2020. Lastly, the acquisition of Roger and incremental sales and marketing investments are slightly dilutive to the quarter sequentially.

Now looking beyond Q1 to full year 2021, we feel it's important to help you understand how we're thinking about the outlook and providing some ranges around possible outcomes. Even though those ranges are a bit wider than what they have been in the past. For 2021, we're guiding revenues to be between 2.6 billion and 2.7 billion and adjusted net income per diluted share to be between $11.90 and $12.70, inclusive of the Roger acquisition. We're still faced with substantial uncertainty regarding the pace of economic recovery and the impact it will have on our financial performance. That said, we've developed a 2021 budget which incorporates everything we know now, including revenue and expense run rates, current macroeconomic environmental factors, planned sales contributions and expected attrition impacts.

In addition, our guidance assumes a continued rollout of the vaccines that will allow gradual volume and revenue improvement in the first half of the year, with an acceleration in the back half of the year as client softness and new sales performance improves sequentially. As I mentioned earlier, we expect several expense lines to normalize higher in 2021 compared with 2020. As our business recovers stock and bonus accruals as well as sales commission expenses will be higher. T&A will rise as our salespeople get back on the road, and volume related expenses will also rise with increased business activity. And debt expense is expected to normalize as we've reopened credit and our sales performance continues to improve.

We're also making incremental investments in sales, marketing and IT to support our growth aspirations and to deliver a 2021 sales production plan. That's more than 30% higher than 2020s results. We're extremely excited with the Roger acquisition and a disproportionate share of our incremental sales and marketing investments will be directed towards that business. As such, the fully loaded acquisition will be an estimated $0.10 drag to adjusted net income per diluted share in 2021.

As we've demonstrated time and again, we do take a balanced approach on expenses. And we'll adjust accordingly if we see revenues begin to deviate from our expectations. And lastly, we continue to work through the approvals on Apex, which have been slowed by Brexit and virus-related shutdowns. While we still expect the deal to be accretive in 2021, we now believe it is more likely to close in Q2 versus our original expectation of Q1. And just for clarity, Apex is not included in the guidance ranges I provided earlier.

And now operator, we'd like to open the line for questions.

[Operator]

Thank you. [Operator Instructions] Our first question is from Sanjay Sakhrani with KBW.

[Sanjay Sakhrani, KBW]

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, Chief Financial Officer]

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, Chairman and Chief Executive Officer]

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, KBW]

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, Chairman and Chief Executive Officer]

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, JPMorgan]

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, Chairman and Chief Executive Officer]

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, JPMorgan]

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, Chairman and Chief Executive Officer]

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, Morgan Stanley]

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, Chief Financial Officer]

Yes. So some of it is just obviously deal related, right, we picked up that [their people 50] [ph]. 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, Morgan Stanley]

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, Chairman and Chief Executive Officer]

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, Barclays]

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, Chairman and Chief Executive Officer]

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, Barclays]

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, Chairman and Chief Executive Officer]

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, Evercore ISI]

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, Chairman and Chief Executive Officer]

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, Evercore ISI]

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, Chairman and Chief Executive Officer]

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, Citigroup]

I just think 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, Chairman and Chief Executive Officer]

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, Citigroup]

Thanks to telco. And then, Ron on a little bit of a longer term question here. The drumbeat on EVs is kind of picked up recently with Ford, GM making some announcements in 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, Chairman and Chief Executive Officer]

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. are 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, Deutsche Bank]

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 [indiscernible] 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, Chief Financial Officer]

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, Chairman and Chief Executive Officer]

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, Chief Financial Officer]

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, Deutsche Bank]

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, Chairman and Chief Executive Officer]

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 [good room] [ph], 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, [indiscernible] 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, William Blair]

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, Chairman and Chief Executive Officer]

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, Jefferies]

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, Chief Financial Officer]

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, Jefferies]

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, Chairman and Chief Executive Officer]

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, Head, Investor Relations]

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.