If you just kind of look at where we are through 2024, we’re probably closer to a blended rate of around 3.40. So that’s one of the callouts that we had in terms of the Q1 growth challenge. But we’re not prognosticators of oil and the pull-through to fuel. We just looked at EIA and other providers of those things, and that was the consensus view of how the year would play out. I think as demand increases from a seasonal perspective, you would see that increase. Spreads generally consistent with last year, that’s really hard to predict. It’s more based on volatility of fuel price, not just absolute. So that’s kind of in base gas. But we looked at historical trends and done some modeling and we expect spreads to be relatively consistent. FX, a little bit of a tailwind.
If the dollar and rate cuts continue — the projection is correct and the dollar doesn’t strengthen — have a little bit of strengthening over the last week or so. But longer term, we expect the dollar to be a little weaker, and so that will help the FX side of our business. And so we think, overall, that will be a slight tailwind to us. Rates, generally kind of neutral to better. We have modeled out the rate curve based on the latest rate curve out there, so we think rates will be a little bit better. Certainly, interest expense lapping the headwind from this year in terms of the grow over from ’22 will be a significant benefit to us. And then, I guess, finally, taxes, we think will be generally consistent with the full year tax rate in 2023.
So overall, we characterize the macro is kind of neutral from a macro perspective — big macro perspective and kind of a slight benefit to us with respect to things that have affected us directly.
Ron Clarke: I got to jump in because I’m clearly the optimist here. Play it off Tom. But I’d say it’s all — it’s shiny days, right, living through 2023 with a $200 million interest expense boat anchor and sitting here at the beginning of the year with half FX and declining interest rates. It feels super great to get earnings print back to 15% or 18% that we can print instead of whatever we printed last year. So I would say that it’s setting up at this moment to be super positive, so we’re super happy with it.
Sanjay Sakhrani: Just a follow-up. Ron, you mentioned sort of the cross-sell initiatives in your prepared remarks. How much of that can happen over 2024? Is there anything baked in? And then when can we actually get the contribution in a significant way?
Ron Clarke: I mean it’s happening in different places. I think we’ve called out before, it’s probably 20% of the Brazil sales now in the company are taking add-on products there and selling them back to the core base. We’re underway with that, as I said, with the parking app because we’ve got millions of consumers. We’re back reselling something back into the base of Corporate Payments back into the fuel card base. So it’s clearly in our sales plan. I’d say it’s a probably relatively significant number as we get through the year in terms of what we’re expecting there. So it’s been a core part of the idea of we’ve got, as you know, 800,000 business clients and some number of them are pretty big. And so having more things to offer them has always been part of the idea. So I think it’s meaningful this year.
Operator: The next question comes from Sheriq Sumar with Evercore ISI.
Sheriq Sumar: I was looking at Slide 37, and I can see that the Corporate Payments take rate has increased in 2023. So just wanted to get some context as to what’s the pricing power over here and can we expect the same trajectory? I think that’s the function of the adjustments that you have done by the segments. So just to get some insights on that.
Ron Clarke: Sheriq, give page number again, you said 27?
Sheriq Sumar: 37.
Tom Panther: Yes, so a lot of that has to just do with the channel mix. So as Ron mentioned earlier in terms of the way the amount of take rate we have on channel versus the direct business as we saw the channel volume fluctuate in the quarter, that’s what’s causing the fluctuation in the take rate related to Corporate Payments.
Sheriq Sumar: And my follow-up is on the margins. We see that the margins have been grinding higher across all the segments, and especially within the Vehicle Payments and Corporate Payments. So just to get a sense as to what could be the biggest driver in margins in 2024, like which segment do you expect to be a meaningful contributor?
Tom Panther: I don’t think it’s kind of disproportionate one way or another, just to kind of rounded out to summarize. For the year, we were at 53%. We were exiting around 54%. And we guided for the full year 2024 to be at 54%, probably exiting a little bit higher than that, as you would expect. And so it’s not really one, there’s not a lot of change there. You’re talking about, give or take, 100, 150 basis points. And secondly, I think it’s more of the structure of the business that’s driving the margin, not necessarily something that we’re doing necessarily inside the business to modify the existing business model and the structure. So just as we grow at the levels at which each of the businesses are growing from a revenue and sales perspective and the amount of fixed cost, you’re just going to get this natural operating leverage benefit from margin where you’ll see that rotate up.
So at the same time, we also want to continue to invest [Multiple Speakers] I guess, fair point. Yes, credit is coming down a little bit, ’23 to ’24, it would also help the margin. But the other thing just from the standpoint of just investment, we continue to make significant investments in the company, particularly around sales and marketing. And so we are mindful in terms of the amount of spend that we’re putting back into the company to make sure that the sales engine can continue to generate the kind of growth levels that we’ve historically generated.
Operator: The next question comes from Chris Kennedy with William Blair.
Chris Kennedy: I know you give the sample of the UK for unit economics of your EV business. But can you just talk broadly about that, how that’s evolved over time and your confidence going forward in that?
Ron Clarke: So look, I preface it with, it’s still early days. I guess, we’ve been running this analysis for, what, eight quarters or something and have 300 or 400 accounts in it. So look, we know a paramount. We have real customers that are paying real bills and paying us more. I’d say to you this conceptually the reason that I think we can get paid the same or more, just to me simplistically is there’s just more purchase. So in the fuel business, let’s say, in the UK, there’s 9,000 gas stations, but we have 1 million drivers there. So someday, when every guy or gal has an EV, there’s going to be 1 million incremental charge points. It’s way more than 9,000 public charging points. And so the ability, again, to help a company make the transition from some old fashion gas stations, some public charging to the 1 million at home, bring that all together and keep it simple is useful and the scope of what they pay for charging and fuel are our fees are peanuts.
And so it feels to me like we know what we’re doing. And more importantly, we have products that they like I think it doubled, Tom, year-over-year. And so I feel better about we’ve got the right solution, clients like it and clients are paying for it and the they’re paying more down than the whole fashion thing. So I’d say stop ringing the frigid fire alarms. It would be my comment to people, hey, there’s a lot of time in front of us. But I would not be super fray sitting here today.
Operator: The next question is from Trevor Williams with Jefferies.
Trevor Williams: I want to ask on Lodging. Any more detail you can give on some of the different components within the segment? It sounds like most of the incremental weakness was on the airline side. But any more color on the other pieces workforce, managed services, insurance, just how those did, especially relative to Q3 would be helpful?
Tom Panther: So the Lodging business, as we mentioned in our prepared remarks, it did experience softness. Where our biggest surprise was for the quarter was really more on the airline and the insurance piece. We actually saw the workforce piece come in about where we had anticipated. And a lot of the expected growth that we had forecasted in the fourth quarter was from what we’ve seen historically with the level of flight cancellations related to our distressed product where you typically would see a seasonal uptick, there’s lots of people in the air with holidays and things like that, and that just didn’t come to fruition. Similarly, on the insurance side, we saw the decline in the overall insurance. So the decline quarter-over-quarter in Lodging was really more directed towards those two businesses where those types of episodic type things that occur in the fourth quarter just didn’t materialize.
Workforce, we continue to see a little bit of softness there. But as Ron had indicated, we feel like that has locked out and expect that to move forward based on new sales and the introduction of some of the new products.
Trevor Williams: And then just to put a finer point on the assumptions for the macro neutral or the organic guide. In terms of cadence, is the expectation that growth will accelerate progressively over the course of the year? So like you were saying with vehicle where Q1 low point, 4Q exit rate for ’24 should be the high point of organic growth for the year or anything else to call out?
Ron Clarke: Let me take that and then Tom can add to it. So I mean, conceptually, the main reason is the same store sales. So if you think about math, right, of how to get to 10%, right, we lose business, right, 8%. We make sales and then we have the same store sales. And so the bet that we have, which we’re seeing in the trends, is it the same store that was plus two four quarters ago and was minus 3 this past quarter will head back to flat. And if that does, obviously, that example lifts the organic thing by 3 points. So that’s A. B, we think the retention, again, will likely tick up because of this micro flush. When you have more bigger accounts, you structurally just have better retention. And then third, our Corporate Payments business is growing faster and it has higher retention rates than our fuel card business.
So those two things, as we model it will help the back half. And then hopefully, the set of new products and the cross sell stuff, which we’re pouring out now that will start to build those add-ons will start to build in the back half. So that’s what makes up the curve as we run through the year.
Operator: The next question is from David Koning with Baird.
David Koning: Just a couple of things. I guess, on the corporate line, you called out the yield mix improvement. But corporate volumes were down about 15% sequentially, it must have been low yielding volumes that fell off. But what is the mix or what was the falloff in volumes from?