M&A, Digitization Efforts Keep FLEETCOR Positive For 2021

Despite continued headwinds from the pandemic, which continue to suppress corporate spend around the world, commercial payments technology firm FLEETCOR is retaining an optimistic outlook for 2021 thanks to evidence of a trajectory of recovery, continued modernization efforts, and an aggressive mergers and acquisitions (M&A) strategy ahead.

Chairman and CEO Ron Clarke spoke during the company’s third quarter earnings call on Thursday (Nov. 5), with third quarter stats beating analyst expectations and signaling a significant improvement compared to Q2.

Digitization emerged as an important driver of success with the company’s corporate users, according to Clarke.

“We stepped up investments in technology, particularly around digital investments,” he said, pointing to the company’s revamped, mobile-centric client user interface and further investments in application programming interface (API) connectivity to support integrations with clients’ existing back-office systems. “That contributes a lot of leads in our corporate payments business.”

While the numbers still have a way to go before they reach pre-pandemic levels, an improving performance in overall revenue growth, client retention and sales made for a positive quarter.

“In summary, Q3 [was] clearly a better quarter for us than Q2,” said Clarke. “All-in-all, improving performance.”

FLEETCOR’s corporate payments operation was a bright spot for the company. The unit saw the most dramatic improvement on Q2 figures, with sales activity hitting the same level seen during Q3 of last year. Corporate payments activity is expected to improve into the new year as FLEETCOR plans to close its acquisition of cross-border B2B payments company AFEX, which Clarke likened to a smaller version of FLEETCOR’s 2017 takeover of Cambridge Global Payments, and which is expected to strengthen the company’s operations in Europe and Asia.

The company’s acquisition strategy will be instrumental in driving its recovery next year. Earlier this week, Clarke told reporters FLEETCOR is prepared to spend $1 billion on M&A activity.

“We’re back pretty aggressively on the acquisitions front,” he said during Thursday’s earnings call. “In addition to AFEX, we are chasing a couple of new deals around our corporate payments space.”

Uncertainty Ahead

When looking at the numbers, not only did FLEETCOR narrow its decline in organic revenue growth compared to the quarter before, new sales volumes improved significantly quarter over quarter, hitting 80 percent of volumes seen this time last year (compared to Q2 2020 hitting 54 percent of Q2 2019’s figures). Overall, FLEETCOR managed to beat analyst expectations, posting $585.3 million in revenues for the quarter and $188.8 million in net income.

Still, macroeconomic headwinds were apparent. FLEETCOR’s Brazil operations were hit particularly hard, according to Clarke, and while same-store sales figures improved, the weaknesses in the quarterly figures can largely be attributed to what the company described as “client softness.”

The year 2021 and beyond may be looking strong, but Clarke acknowledged that, despite Q4s historically looking a lot like Q3s, this year could be significantly different.

“We’re really not sure what to expect,” he said, adding that the company will continue to look to keep down operating expenses and is expecting further recovery of sales volumes. Still, Clarke noted, “it’s a bit of a wait-and-see.”