Greetings, and welcome to the FLEETCOR Technologies 4th 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. Please note, this conference is being recorded. I will now turn the conference over to our host, Jim Eglestetter, Senior Vice President of Global Investor Relations.
Thank you. You may begin.
Good afternoon, everyone, and thank you for joining us today for our Q4 2019 earnings call. With me today are Ron Clarke, our Chairman and CEO and Eric Day, our CFO. Following comments from Ron and Eric, the operator will announce your opportunity to get into the queue for the Q and 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 ks on our annual report to Form 10 ks that is filed with the Securities and Exchange Commission. These documents are available on our website and atsec.
Gov. With that out of
the way, I would like to
turn the call over to Ron Clark, our Chairman and CEO. Ron?
Okay, Jim. Thanks. Good afternoon, everyone, and appreciate you joining our 4th quarter earnings call. Upfront here, I'll plan to cover 4 subjects. 1st, provide my view of our Q4 finish.
2nd,
take a bit of
a look back at our full year 2019 highlights. 3rd, I'll preview our 2020 guidance. And then lastly, I'll outline our priorities over the coming years. Okay. So on to the quarter, we reported Q4 revenue of 699,000,000 dollars that's up 9% and $3.17 in cash EPS up 14%.
Revenue finished a bit better than we had forecasted 90 days ago, I'd say with the exception of Gift, which came in light. Profits also at the high end of our expectations helped a bit by a lower tax rate. Organic growth, good, overall finished at 10% in Q4. Fuel card growth inside of that at 9% for the quarter. Our 3 non fuel lines organic growth, quite good.
Tolles, up 17, lodging up 14 and corporate pay also up 14. Trends remained quite good. What we call new sales or new bookings grew 13% in the quarter. Client revenue retention staying steady at just over 91% and our same store sales finished at 0.5 point negative impacted mainly by the weak trucking vertical. Our Beyond strategy or Beyond initiatives continued forward progress.
In Toll, just a great Q4, the Beyond Toll or what we call urban tag sales in the quarter, 125,000 new tags sold in Q4. As a reminder, that's up from 4,000 in Q1, about 20,000 in Q2, and I think it was 58,000 in Q3. So clearly, evidence that the 20,000,000 urban user target opportunity is starting to like our city based parking fuel and fast food offer. And the fuel business are beyond fuel here in the U. S, again, continued good progress.
We added 1300 new companion card accounts to that program, so continuing to grow that. In corporate pay, going beyond our virtual card and selling what we call full AP outsourcing or 100 percent of a client's invoices, we closed $4,000,000 in new business in the quarter. We also continue to process 3 or 4 tuck in acquisitions, hoping to make some final decisions on those here in Q1. So look, in summary, a good Q4, a good finish, Organic revenue growth at 10%, cash EPS up 14%, new sales good, up 13%, client revenue retention steady 91%, and we're continuing to advance our Beyond initiatives. Okay, let me transition to a look back at just some of our 2019 full year highlights.
So first, profits advanced 12% to $11.79 in cash EPS. That was well ahead of our initial 2019 guidance of $11.55 2nd, organic revenue growth, full year growth at 11%. That's the highest annual level since we began reporting this metric. So for full year 2019 fuel up 9%, corporate pay 20%, toll 16%, lodging 13%, so quite good. 3rd, our technology getting better.
We stabilized a few platforms in 2019. We
strengthened our IT team with
a few new hires. Cybersecurity. For our trends, again, full year trends quite positive, new sales up 14% for the full year, client revenue retention over 91% for the full year. We broke the $1,000,000,000 cash net income threshold in 2019, operating cash flow above $1,000,000,000 for the first time. We completed 4 tuck in acquisitions for $450,000,000 We continue to advance our Beyond initiatives and their contribution to the company.
And then lastly, FLT, our stock
had
a good year, price up over 50% in 2019, which is well ahead of the broader market. So all in all, a pretty good year. Let me now make a turn to 2020 and outline our initial guidance for the year along with the assumptions that are behind it. So first off, I'd say we like the setup heading into 2020. So the macro, which was quite challenging in 2019, is setting up much better for us in 2020.
Yes, we do expect about a $20,000,000 revenue headwind in 2020, mostly as a result of the Brazil FX. But that will be largely offset by expected lower interest rates and a bit lower tax rate. So really effectively neutralizing the overall environment on our 2020 profit plan. So good news there. Our 2019 trends will roll into 2020, so that helps us.
Last year sales rolling in and steady client retention. Our beyond contribution, again, we're expecting a bit more help in 2020 from those initiatives. The 4 deals, we'll get the full year benefit of our 4 tuck in acquisitions. We expect to get about 3% cash EPS accretion from those. And then lastly, our share repurchase, we did announce our December ASR that will reduce our 2020 share count, although offset a bit by incremental interest expense.
So look, taken together, these factors will help support our profit growth plans in 2020. If you turn to our 4 major businesses, we're out looking a pretty promising 2020. In the fuel segment, we see a bit of a mixed bag. Some markets, Russia, Mexico, Brazil and Australia, expecting to all be double digit growers in 2020. But the core U.
S. And UK businesses will rely on help from the Beyond fuel initiatives and they're generating more spend and more revenue from some of our existing clients. Also expecting continued weakness in the trucking. In corporate pay, outlooking our FX business to have another strong year in 2020, good momentum. Our core virtual card business has got a couple of new channel or partner opportunities that could be quite big and quite exciting.
And our full AP business, we expect to be way up this year, both as we implement sales from the prior year and capture the full year benefit of our network synergies. Brazil expecting the core toll business to have another healthy tag volume growth year. That's being supported by a couple of new sales partnerships. We're expecting further acceleration of our beyond toll or urban program in 2020. There, our city fueling parking and fast food network continues to expand.
We do expect Brazil inflation to be quite a bit lower this year, which will reduce the Brazil revenue growth likely into the lower teens. In lodging, we're looking for the SMB segment there, that growth to accelerate. We've made some pretty significant improvements to our electronic booking capability, making it easier for small business to use our product. We've also expanded the network there. We are planning to capture hotel rate synergies and some virtual card synergies as we onboard our Travel Alliance acquisition fully this year.
So with that, our guidance for 2020 is as follows: Revenue guiding to $2,930,000,000 at the midpoint that reflects an 11% increase. Organic revenue, we're guiding in the 9% to 11% range overall. Fuel expected in the 6% to 8% range and the 3 non fuel businesses in the low to high teens range. Sales growth, outlooking another 13% to 15% sales growth year. Profit growth guiding to $13.55 of cash EPS at the midpoint that reflects a 15% increase.
So this 2020 guidance is consistent with the midterm targets of 10% revenue growth and 15% to 20% profit growth. Okay. Lastly, let me transition over to how we're thinking about the company's priorities over the mid term. So first is our portfolio. So we continue to seek greater diversity.
The company is now approaching 60% of all revenue outside of fuel. So we're continuing to reposition the company for faster growth. So in addition to where we started, employee related expenses like fuel, toll and hotel, we're now expanding into helping businesses with their employee payroll and benefit related expenses and their supplier, vendor or payables related expenses. So clearly, these two big expense categories dramatically expand our TAM and runway. Adjacent view of acquisitions, so we're starting to look at acquisitions in a bit of a new light.
So beyond chasing acquisitions that fit inside of our 4 sort of categories, fuel, lodging, toll and payables, We're starting to look at some deals that might potentially broaden, our client offerings. So for example, in the payable segment, maybe considering some procurement related software solutions, that simplify the front end of payables. So finding ways to help clients a bit more broadly around the area that we help them with their payments. Our 4 major lines of business clearly expect to penetrate those further over the midterm, But as we've tried to articulate, our beyond strategy is hopefully redefining those four segments and how we serve them. So again, for example, targeting urban or city users in Brazil, or targeting airlines versus workforce, prospects in our lodging business.
So really trying to rethink our existing four lines of business to extend the growth profile. And then lastly, we're trying to strengthen just the core capabilities of the company, clearly focused on technology, trying to transform our architecture. We're doubling down on digital and working to build products that make it much easier to do business with our company. And people continuing to add invest in people and people quality to put the best team we can on the field. So we think these priorities set the company up really for continued growth over a much longer timeframe.
So look, in closing, again, Q4, we thought quite good finish to the year. 2020, again, we like the setup and we're expecting revenue and profit growth consistent with our long term targets. And then the future, again, continuing to transform and reposition the company for faster growth, widening the sandbox and trying to strengthen really our core capabilities. So with that, let me turn the call back over to Eric to provide some additional details on the quarter. Eric?
Thank you, Ron. For the Q4 of 2019, we reported revenue of $698,900,000 up 9% compared to $643,400,000 in the Q4 of 2018. GAAP net income decreased 22% to $235,500,000 or 2 point $302,000,000 or $3.33 per diluted share in the Q4 of 2018. Included in the Q4 of 2019 was a gain of $13,000,000 related to a minority investment And in the Q4 of 2018 was a gain of $153,000,000 from the sale of the Chevron portfolio. Adjusted net income for the Q4 of 2019 increased 14% to $286,400,000 compared to $252,000,000 and adjusted net income per diluted share increased 14% to $3.17 compared to $2.78 in the Q4 of 2018.
We experienced several macroeconomic headwinds in the Q4 of 2019 compared with the Q4 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 Q4 of 2018. We believe foreign exchange rates negatively impacted revenue during the quarter by approximately $9,000,000 In addition, fuel prices were lower by approximately 5 percent compared with the Q4 last year. And although we cannot precisely calculate the impact of these price changes, we believe our revenue was negatively impacted by approximately $2,000,000 And finally, fuel spreads had about an $8,000,000 negative impact on the quarter compared with a very good spread set up in the Q4 of last year.
So in total, those changes had a negative impact of approximately $19,000,000 on our 4th quarter revenue compared with the Q4 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 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 4th quarter were $378,100,000 compared to $358,700,000 in the Q4 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 Q4 of 2018. Credit losses were $20,000,000 for the Q4 or 7 basis points compared to $21,000,000 or 8 basis points in the Q4 of 2018. Depreciation and amortization expense increased 2 percent to $68,500,000 in the Q4 of 2019 from $67,200,000 in the Q4 of 2018.
The increase was primarily due to acquisitions completed in 2019 and additional CapEx spending. Interest expense decreased 8% to 35 $200,000 in the Q4 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 Q4 of 2019 was 21.1% compared to 23.9% for the Q4 of 2018. The Q4 of 2019 tax rate was lower than the Q4 of 2018 due primarily to excess tax benefits.
Now turning to the balance sheet. We ended the quarter with $1,680,000,000 in total cash. Approximately $404,000,000 is restricted and consists primarily of customer deposits. As of December 31, 2019, we had $4,000,000,000 outstanding on our term loan and revolver and approximately $638,000,000 in undrawn availability. We also had $971,000,000 borrowed in our securitization facility at the end of the quarter.
In the Q4 of 2019, we purchased approximately 2,200,000 shares of our stock for 632,500,000 dollars resulting in a total share buyback for 2019 of approximately 2,400,000 shares for $695,000,000 Our total current repurchase authorization remains at 857,000,000 dollars As of December 31, 2019, our leverage ratio was 2.43x EBITDA, which is well below our covenant level of 4x 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 temporarily pay down the balance on our revolving credit facility and securitization facility and maintain liquidity for acquisitions and other corporate purposes. And finally, CapEx expense in the quarter was $26,500,000 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 4th 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 tempered 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 $12,000,000 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 $20,000,000 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 4th 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: total revenues between $2,900,000,000 $2,960,100,000,000 net income to be between $965,000,000 $1,000,000,000 net income per diluted share to be between 10 $0.80 $11.20 adjusted net income to be between $1,090,000,001 $1,230,000,000 and adjusted net income per diluted share to be between $13.35 and $13.75 or 13.55 So in summary, the fundamentals of the business are quite good. Another year of guiding to 9% to 11% organic revenue growth and 15 percent normalized adjusted net income per share growth before the impacts of divestments in the macro. Some of the assumptions we have made in preparing the guidance include the following: weighted fuel prices equal to $2.78 per gallon average in the U.
S. For those businesses sensitive to the movement in the retail price of fuel market spreads slightly unfavorable to the 2019 average Foreign exchange rates equal to the 7 day average as of the week ending January 19, 2020. Interest expense of $130,000,000 to $140,000,000 fully diluted shares outstanding of approximately 89 point 5,000,000 shares and adjusted tax rate of 20% to 22%. And as always, no impact related to acquisitions or material new partnership agreements not already disclosed. Now for the Q1.
I want to remind everyone that our business has some seasonality and that typically the Q1 is the lowest in terms of both revenue and profit. 1st quarter seasonality is impacted by weather, holidays in the U. S. And lower business levels in Brazil due to summer break and the carnival celebration that occurs in the Q1. Also, the first quarter revenue will be impacted by a $10,000,000 unfavorable macro impact, mostly foreign exchange rates when compared to the Q1 of 2019.
The Chevron divestiture, which impacted revenue by approximately $8,000,000 and the net impact of share repurchases and the associated interest expense carry versus prior year. In total, we estimate these items will negatively impact our Q1 net income per share by approximately $0.15 versus the Q1 of 2019. With that said, we are expecting our Q1 2019 adjusted net income per share to be between $2.90 $3 Additionally, our volume should build throughout the year and our new initiatives should gain momentum throughout the year, resulting in higher revenue, organic growth and earnings per share in the second through 4th quarters. With that said, operator, we'll open it up for questions.
Thank you. Ladies and gentlemen, we will now conduct our question and answer session. Our first question comes from Ramsey El Assal with Barclays. Please state your question.
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?
Ramsey, it's Ron. So the 14% had in a pretty weak payroll card kind of subcategory, which is kind of flat. So if you pull that out, our core corporate day was actually up 18% in Q4. And then 2nd, in Q4 of 'eighteen, there was a bunch of political spend because it was the 2 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, this quarter against the 2018 quarter quite tough because no political spend in Q4 'nineteen.
I guess the second part of it of, hey, 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 out looking high teens. And again, it does bump around by quarter. I think it has even here in 2019, but we're investing to have that business I also wanted to ask about
the FTC lawsuit. 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 effectively a negotiation about penalty payment?
Hey, Ramsey, this is Eric.
I guess, 1st and foremost, there's 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 it's going to be and our thinking is
the same and we don't think
it's to have a material impact on our business going forward. Yes, we have some conversations around redress, but those are still TBD at this point in time.
Got it. All right. Well, thanks for taking my question, guys.
Thank you. Our next question comes from Peter Christiansen with Citibank. Please state your question.
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?
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 car pricing either here or rest of the world. I think a bit of the reason for the thing guiding down a little bit in 'twenty is, A, we had a pretty good year.
I think the full year this year was 9% organically, so a little bit better comp. And then D really is credit. I'd say with the EMV thing being late 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 car 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, etcetera.
So I'd say that that's for certain part of the reasons we guide.
Is there any do you have an estimate of what percentage of provisions are constitute fraud?
Say it again, Peter, one more time.
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?
Yes, I don't have it super handy, but I'd say it's the circa under $10,000,000 of what we call fraud. I'd say that the two kinds of fraud are basically application fraud, right? Someone makes up their 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 this one if we can circle back on it, but for sure, those two numbers are up in 2019 over prior years.
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 will be very minimal after October next year when hopefully everybody's converted to the new chip and PIN requirement.
That's helpful. I'll jump back into queue.
Our next question comes from Andrew Jeffrey with SunTrust. Please state your question.
Hi, good afternoon. Thank you for taking the question. Ron, I'm intrigued by your comments with regard to perhaps evolving M and 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 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.
Yes. I mean, I think the headline is as we've gotten into these 2 bigger categories, Andrew, the payroll and benefits, and into the payables, so beyond just employee related. The idea of software, right, the clients are using different kinds of software to help clearly in the payroll or benefit administration area and using software in and around payables, whether it's procurement or workflow and stuff. And so I think the idea is that there are some targets that nest around that, that are kind of in front of the payment. Payment is kind of the thing at the end.
And so I think the thinking you've been doing over the last 6 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 the 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 6 months ago. Okay.
All right. It will
be interesting to see how you proceed. And just a point of clarification, if I may, around fuel. I understand OTR is soft and manufacturing has been in a 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 suggest that Beyond Fuel is facing tougher comps or de selling or I wonder if you could just parse out how much of that might be economic, same store sales related? And how much of it is sort of grow over in Beyond Fuel?
Because I thought Beyond Fuel might offset some of the same store sales weakness.
Yes. It's a combo of all those things you said. So one, it's obviously a good comp, a good growth rate in 2019. 2 is trucking not only in the U. S.
But in Brazil and the U. K. Is weak. And I think we called it out in our same store sales. It was, I think, in the minus 4% to 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 experience that we've got. So we've decided to just go in cautiously. I don't want to blow the thing up. So we're going in kind of slow, careful, let the stuff we signed up in 2019 bed in, study 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.
Got it. Okay. Thank you. Huang with
JPMorgan.
Please state your question. Hi, Tien tsin Huang with JPMorgan. Please state your question.
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 Q4 or the lift in the Q4 and what the assumption would be in 2020 just for the Beyond initiative?
It's kind of in the 1% to 2% range, Tien Tsin, is what I'd say. And again, we now have something in the base that I'll 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 out. 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%.
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, just can you give us a little bit more there? How far from the core are you interested in going?
Yes, not super far 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 some way. I referenced that procurement software example because I think it's relatively easy to understand that if you're an AP head in 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 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.
Okay. Last one, if you don't mind, just on the M and A side. Do you should we think of 'twenty looking like 'nineteen in terms of doing a few similar sized deals like an InvoicePay, TravelEye and Sol? Or could we see some bigger deals in 2020 if you have your way? Anything that's holding you back there?
I certainly hope so, would be my answer. I've got my cheat sheet of big elephants sitting here in front of me and actually had a review yesterday on it. So our sites are set. I'm trying to do something big. As Eric referenced, our balance sheet is probably in 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.
Cool. I appreciate it. Thanks.
Our next question comes from Sanjay Sakhrani with KBW. Please state your question.
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 those areas where you think competitively you could do better?
Yes, Sanjay, it's Ron. So I'd say, if you think about the sequential step in investments, it's 1, some pro form a 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 1. Number 2 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 2 bigger discretionary ones would be IT and sales. And what we saw when we've been modeling the last 2 or 3 months, the fact that our tax rate will probably step down about 1 point, I think we finished around 22% and change for 'nineteen. When Eric and I saw the number trending, I think we guided 20 to 22. So you use 21 at the midpoint. We said, hey, there's an opportunity maybe to make a few investments in sales and IT.
Really around transformation. I said 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 a 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 in what we call non line of business project investments that we're looking at.
And then just a follow-up on all of the M and 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?
Yes. I think it's really outside in. It's trying to look at the world that our clients and prospects sit 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 is 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 of the above. And again, we're going to be quite cautious and have a lot of conviction before we pull the trigger, but I wanted 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.
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.
They vary. We've looked at some fair number of these in the last 6 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 guide for us the last couple of years. This is not buying assets that are only accretive that don't have mid term growth prospects.
So I would say we're trying to make sure we look at deals that have both of those characteristics.
Our next question comes from Ashish Sabadra with Deutsche Bank. Please state your question.
Thanks for taking my question. So question on the toll, pretty good momentum there. You talked about pretty good traction on the 20,000,000 urban user opportunity. You also mentioned 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 tailwind from the urban user going forward? Thanks.
Ashish, it's Ron. Yes, that's a good question. So I guess you hit one of them. So if you said, 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 of that's baked in.
And then number 2, I think that we are open to acquiring new accounts with longer free trial periods, which takes in a sense some of the pricing of the new business down. And the reason for that is that some of the competitors and banks in Brazil have been offering 6 or 12 month starts to their toll programs. And 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 in my opening remarks, I mean, let me put 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 quarter, 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 between 200,000 and 300,000 new urban users planned for 2020. We only sign up about 1,000,000 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 $1,000,000 that number starts to get quite meaningful. So I'd say the one thing 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've got to try to scale it. We've 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 midterm.
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 track 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. 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 in 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'd say 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 stuffs and code bases 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 they're probably a year or 2 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.
That's very helpful. Thanks.
Thank you. Our next question comes from George Mihalos with Cowen and Company. Please state your question. Hey, thanks. Good to be
on the call guys. Maybe just to kind of circle back on the corporate payment side. Ron, appreciate your commentary on growth kind of being in the high teens looking at it in 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 the side and just focusing on those
two segments or sub segments?
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 a 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, 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.
Okay. Very helpful. And just one point of clarification. With your sights set on potentially larger scale M and A, will that sort of put a pause or a hold on buyback activity over the beginning of the year? Thank you.
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 its best place as really it's ever been. Our leverage is low.
And listen, we got plenty of liquidity basically to both avenues if that's what we want to do. So I wouldn't say we're not going to do it.
Thank you. Our next question comes from David Togut with Evercore ISI. Please state your question.
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 break 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?
Yes, David. Hey, it's Ron. So yes, on the credit side, it's a good question. I'd say 2 things. 1, that some large amount of our new business we're booking on to credit card.
So literally, we're not taking credit risk for, I'm going to say, call it, twothree of that new business that we're booking. And obviously, the other third, we're screening and determining that it's pretty creditworthy. So the credit dynamics in that market actually improved, believe it or not, in 2019 over the prior year, and we've got it modeled at kind of flattish going into 2020. So I'd say that sitting here today, the credit dynamics or risks aren't slowing us down on that. What's slowing us down there is trying to build out the nonfuel network.
That's really the governor on speed there.
I see. And then McDonald's transaction growth, any metrics there for the Q4?
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 $2,500,000 to $3,000,000 would be my guesstimate without having the piece of paper in front of me.
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 Q4, that would be appreciated.
Asking, you just broke up for a second. Ask David again if you would.
Yes. Historically, you've given out quarterly transaction growth for the Mastercard fuel card, 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 Q4?
I'm Parrot, do you have that funny?
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 whole fuel sector, something in that ballpark.
Yes. I'd say, David, back again, I don't know the number, but the concept of this 2fer idea, particularly with our field people or phone people to be able to offer a business, fuel cars that control fuel spend and then also on a quote one account help that company with payables or help open up the card for some employees for supplies or construction supplies is clearly a winning pitch. I saw some exhibit, I don't know, in the 4th quarter where in Q2 and Q3, about 25% of all of our new sales were these 2 for sales, where this concept of adding payables to the account or some supplies, sometimes with different use of the account is a very interesting offer. So I think the concept in the offer of this expanded product is good.
Understood. Appreciate all the insights.
Good to talk to you.
Our next question comes from Ryan Carey with Bank of America. Please state your question.
Hey, guys. Thanks for taking my question. It sounds like the underlying trucking environment remains tough, particularly in the U. S. And the U.
K. 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?
Yes. Ryan, it's Ron. Yes, I'm looking at it as a piece of paper. I'd say the trucking base softness got a little bit worse than Q3. It actually got worse kind of, call it, 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 3% to 5% range in our 2020 guidance.
Got it. Okay. And then just a quick clarification on the Beyond initiatives. Was the 1% to 2% incremental revenue growth contribution from the Beyond initiatives inclusive of both fuel and toll? And if it is, is there any way to break that up into the individual contribution from the fuel side and then from the toll side?
Yes. I think what we should do 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 to 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 4 major categories, right? The beyond efforts are different. The maturity, if you will, of them are different and stuff. 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.
Thank you for taking my questions.
Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn it back to management for closing remarks. Thank you.
Yes. Thanks for joining us today, guys. As always, this is Jim. Let me know if you have any further questions or need anything else.
Thank you. This concludes today's call. All parties may disconnect. Have a great evening.