Corpay, Inc.

Good day and thank you for standing by. Welcome to Fleet Corps First Quarter 2022 Earnings Conference Call. At this time, all participants line are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the call over to your speaker today, Mr. Ron Clark. Please go ahead.

Good afternoon, everyone, and thank you for joining us today for our first quarter 2022 earnings call. With me today are Ron Clark, our Chairman and CEO, and Charles Freund, our CFO. Following the prepared comments, the operator will announce that the queue will open 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 of our website at fleacore.com. Throughout this call, we will be covering organic revenue growth. As a reminder, this metric neutralizes the impact of year-over-year changes in foreign exchange rates, fuel prices, and fuel spreads. It also includes pro forma results for acquisitions closed during the two years being compared. We will also be covering non-GAAP financial metrics, including revenues, net income, and net income per duty to share, all on an adjusted basis. These measures are not calculated in accordance with GAAP and may be calculated differently than at other companies. Reconciliations of the historical non-GAAP to the most directly comparable GAAP information can be found in today's press release and on our website. I need to remind everyone 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 outlook, new products, and expectations regarding business development and feature acquisitions are based on that information. They are not guarantees of future performance and you should not put under reliance upon them. We undertake no obligation to update any of these statements. These expected results are subject to numerous uncertainties and risks, which could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's press release on Form 8K and in our annual report on Form 10K filed with the Securities and Exchange Commission. These documents are available on our website and at sec.gov. Now with that out of the way, I will turn the call over to Ron Clark, our Chairman and CEO. Ron?

Okay, Jim, thanks. Good afternoon, everyone, and thanks for joining our Q1 2022 earnings call. Up front here, I'll plan to cover four subjects. So first, give you my take on Q1. Second, lay out our updated rest of year 2022 guidance. Third, give you a brief update on our Russia business. And then lastly, I'll share some new things, some good things happening in the company. Okay, let me make the turn to our Q1 results. Terrific, really, really great performance. We reported revenue of $789 million, up 30%, and cash EPS of $365, up 29%. Revenue came in very strong, about 40 million above our Q1 midpoint guide with only 12 million of that beat macro related. So a lot of very good fundamental over performance in the quarter. Organic growth overall 15% for Q1 and each of our four major lines of business all growing organically double digits. Trends in Q1, excellent. Sales up 39 percent versus last year. We added about 50,000 new clients to the fold sold in Q1. And over 50 percent of all of our new global fuel card clients came to us digitally. So a terrific sales quarter. Steady revenue retention of 93% and healthy same-store sales for the quarter at plus 7%. So Q1, really one of the best quarterly performances that I can recall. All right, let me shift to our updated rest-of-year 2022 guidance. So first off, we're expecting a bit of a mixed macro rest-of-year. So on the positive side, our clients are healthier, spending more, which we can see in the volumes. Fuel prices are at record levels. And the Brazil currency has rebounded some since the start of the year. On the not-so-good side, we're outlooking higher interest expense, really depending on the pace of the rate hikes, and likely higher bad debt expense. The real wild card, we think, for rest of year is the Brazil FX, as it's continued to be quite volatile year to date. Fortunately, we're enjoying pretty strong fundamentals exiting Q1. We've got healthy volumes. We've got record sales. We've got steady retention. So all the things that set up well for us for rest of year. So with that, we're revising our 2022 full-year guidance today up as follows. So revenue to $3,360,000,000 at the midpoint, that's up $140,000,000. And cash EPS of $1,560,000, that's up $0.35 from our initial guide. So a much stronger full year 2022 outlook today than we had 90 days ago. Assuming we achieve today's guidance, it would imply a full year 22 revenue growth of 19% and full year 22 cash EPS growth of 18%. So that would be back-to-back years post-COVID 2021, and 2022, in which Fleet Corps would compound earnings by 18%. I do want to remind everyone we are outlooking still meaningful sequential improvement in the guide as we run through the year, with our Q4 revenue expected to be up about $90 million versus our Q1 print. Okay, let me shift gears and give you just a brief update on our Russia business. So I'll start by reminding you that Russia represents a very small part of the company, about 3% of revenue. So on a 2022 annualized basis, Russia will contribute about $85 million in revenue and approximately $0.77 in cash EPS. The Russia business is really a pure fleet card business. It runs very standalone, and we employ about 600 local employees. As you can imagine, we've been quite busy since the start of the conflict. We've been taking actions to de-risk the business. We've been complying with the ever-evolving sanctions. and we continue to weigh the various options that we have. We're certainly being super cautious to take care of the well-being of our employees. So look, we'll continue to keep you updated as the situation evolves. Okay, so last up today, I'd like to run through some good things that are happening in the company. So first, some new wins. So we've got A fair number of notable new wins and client renewals in the quarter. So just a couple examples. Speedway, one of our largest North America retail partners, recently extended their relationship with us. Delighted with that. Amazon awarded us their middle mile trucking fleet, which has grown like a weed. We won the Eclipse leasing business contract in Australia, a pretty big piece of business for us in the region. Second, cross-sell. We really like the cross-sell opportunity in front of us. We're still exploring selling our corporate payment products into our fuel card base, and we're progressing. selling our add-ons to our total customers. You've heard us talk about selling fueling. We're also testing now selling insurance and even lodging. We did reach 1.7 million add-on fueling transactions in the quarter to our total customer base, so progressing quite well. Third, EV, we're going on offense. previously about building capabilities to serve our fleet use case and protect the customers we have and the revenue we have, we've now identified a couple of new customer segments that we can repurpose, we think, our EV assets like our network to and generate incremental revenue beyond the fleet business. So potentially here some incremental revenue upside to the energy transition. And lastly, we had our growth off-site meeting last month and set the internal goal of selling $1 billion of new business annually within the forecast period. So pretty excited to aspire to $1 billion in new business. We've concluded we have the product set now and the TAM to do it, And we think we've built the marketing, credit, and digital underlying capabilities to do it. So super excited about chasing a bigger number. So look, taken together, new wins, cross-sell opportunities, EV on offense, and selling more, pretty exciting for us. So look, in conclusion today, just a few final thoughts. So one, our Q1 results were terrific. clearly better than we had expected. Our rest of year or full year 2022 performance expected to be much better than we envisioned 90 days ago and lots of good things, new things happening in the company. So all in all, we're in a pretty good place. So with that, let me turn the call back over to Chuck to provide some additional details on the quarter. Chuck?

Yeah, thanks, Ron. So before digging into the financial results, I'd like to make sure that you were all aware of the new investor deck we posted on our website a few weeks ago. In there, we tried to simplify how we talk about the company. At its core, FleetCorps provides a set of corporate payment solutions to help businesses reduce spend. Now, we do it in two ways. One, by enabling and controlling what's purchased. We call this expense management, and it comes in a few flavors, like fuel, tolls, and lodging. Or two, by enabling controls after the purchase but before the payments have been made. We call this AP payments, where we provide the options businesses have to make their payments, such as online bill pay, full AP outsourcing, virtual cards, and cross-border. So when you think of it this way, the company really does only two things, expense management and AP payments in a couple different ways. So with that context, let's look at some more detail on the quarter. As Ron mentioned, we posted an impressive 30% growth quarter, including 15% organic growth, which I'll get into in more detail in a moment. About 10% or $58 million of the growth was due to acquisitions we made last year, and about 3% or $21 million came from macro tailwinds. Speaking of macro, fuel prices were $3.88 per gallon for the quarter, higher than our $3.40 guidance assumption based on January levels. Higher fuel prices contributed about $22 million of additional revenues versus prior year. Now, we exited the quarter with fuel prices at around $4.50 per gallon, but we do think this will moderate some over the balance of the year. Fuel spreads in the quarter had a positive impact of about $5 million, and we had a $6 million negative impact due to lower foreign exchange rates as unfavorable movements in European currencies, which affect our cross-border and fuel business, more than offset the strength of the Brazilian AI that helps our toll revenue. Now, moving to organic growth, starting with AP payments. Our corporate payables were up 23%, and that was led by full AP outsourcing, which was up over 50% yet again, driven by continuing strong new sales. Cross-border was up 17%, and that's normalized for the AFEX acquisition. The cross-border team had a great quarter as new sales remained strong and activity recovered in Australia. And moving on to our expense management solutions, fuel was up organically 14% as new sales growth of 25% and higher same-store sales of 3% to 4% continued to drive the performance. I may sound like a broken record on this, but we continue to see fantastic results from our digital marketing and customer acquisition efforts across this business. Tolls were up 18% compared with last year, as the business just continues to perform. New sales are solid, and retention initiatives are showing to be quite effective as we highlight the differentiated value proposition we offer versus our competitors. Lodging continued to perform well, too, up 22%. Our workforce lodging business has improved with higher new sales and better volumes. Airlines again outperformed with organic growth over 65%. In the quarter, we did announce the purchase of Livardi, an airline software platform company. The deal is immaterial to our financials, but we believe the software combined with our lodging solution will drive more sales in the airline vertical. Now, looking further down the income statement, Operating expenses of $472 million represented a 38% increase over prior year, primarily due to the addition of the Apex and ALE operations, increases tied to higher volumes across our businesses, incremental bad debt, stock compensation, and new sales generation activities and investments to drive future growth. Bad debt expense was $25.5 million, or six basis points, as bad debt levels have returned to more historical levels as customer spend increases with higher fuel prices and as a result of much stronger new sales, which tend to have a higher loss rate. The EBITDA margin in the quarter was 50% as higher stock comp and bad debt expenses negatively impacted the margin. This was largely expected as the company took actions to stimulate growth coming out of the COVID environment. we still expect our full year EBITDA margin to be in line with our original expectations of 52% as margins expand throughout the year along with revenue growth and the increased benefit of synergy realization from acquisitions. Interest expense decreased 23% year over year driven by the effect of a $1 billion fixed rate swap that matured in January and the benefit of higher interest income earned on customer deposits and cash balances in certain foreign jurisdictions. Our effective tax rate for the quarter was 26% versus 22% last year, with the increase driven primarily by less excess tax benefit on stock option exercises and higher interest income on foreign deposits, which are taxed at a higher rate. Now turning to the balance sheet. We ended the quarter with over $1.3 billion in unrestricted cash, and we had $969 million available on our revolver. There was $4.9 billion outstanding on our credit facilities, and we had $1.4 billion borrowed in our securitization facility. As of March 31st, our leverage ratio was 2.72 times trailing 12-month adjusted EBITDA as calculated in accordance with our credit agreement. In the quarter, we upsized our securitization facility to $1.6 billion in order to accommodate higher receivables balances due to higher fuel prices. We intend to maximize the use of the facility given that it is the lowest cost of capital funding instrument that we have. We repurchased roughly 1.8 million shares, 1.1 million of which were completed under our 10b-5 plan that we had in place in January and which were included in our original guidance. We still have $1.23 billion authorized for repurchase, and we believe we have ample liquidity to pursue any near-term M&A opportunities and continue to buy back shares when it makes sense. Ron has covered our full-year guidance updates, so now let me share some thoughts on our Q2 outlook and our assumptions. For Q2, we're expecting revenue to be between $805 million and $825 million. and adjusted net income per share to be between $3.80 and $3.90, which at the midpoint is approximately 70 cents or 22% higher than what we reported in Q2 of 2021. Regarding our guidance assumptions, we are using $3.90 as our fuel price assumption for the rest of the year. This reflects fuel prices of $4.25, $3.85 and $3.65 for the next three quarters, respectively. Clearly, we don't expect fuel prices to remain at the current elevated levels, so we're using this forward curve as the basis of our forecast. Our interest expense guidance of $105 million to $115 million is based off of a LIBOR average of 154 basis points for April through December. Our original assumption had LIBOR of 54 basis points for that same period. The rest of our assumptions can be found in our press release and supplement. I would note that our rest of year guidance expectations do still include revenue and adjusted earnings per share from our fuel business in Russia, which are $67 million and 63 cents respectively for the remainder of the year. Moving away from the results and outlook, I'd like to thank our circa 10,000 employees around the world who helped us deliver a fantastic start to 2022 and who will be the driving force as we continue to grow our company. Thank you for your interest in Fleet Corps. And now, operator, we'll open the line for questions.

Thank you, sir. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw a question, press the paddy. And please stand by while we compile the Q&A roster. Your first question is from Tianjing Wang of JP Morgan. Your line is open.

Hi, thanks. It's nice to speak to you guys. And the results look really great here. I'll ask maybe, I think, Ron, you talked about the guidance change. And it looks like it's well above the beat. both macro and fundamentally as well. So is there a way to maybe break that up for us, just to better understand what the $140 million, whatever the revision is for the full year, how much of that is macro, fuel, et cetera, versus underlying performance being better?

Hey, Tinge, and good to hear your voice, too. So, yeah, simplistically, the 140 would be 40, you know, in – Q1, 100 rest of year and call that one-third real performance, two-thirds macro health.

Got it. And then from a new sales perspective, I think you set up 39%. I know you've always stressed to us the importance of driving new sales. How about for the rest of the year? Have you upgraded your thinking on sales productivity and targets? I heard the the billion comment earlier, but just thinking about the next two to three quarters, have you changed your thinking in the last nine days?

Yeah, really good question. So, so yes, particularly on the, um, fuel fleet side. And the thing that's interesting is the, you think the higher fuel prices obviously help us from a revenue perspective, right? In terms of, you know, MDR, but they actually help in sales. So literally, There was a period, the digital guys came down to me and said that, I think it was in March, the volumes, the search volumes were running about 2x, kind of our normalized level of kind of inbound. So our sales in that business were super good in Q1, and we've taken up the forecast for the rest of the year. So, again, I've said it repeatedly. It's the single best indicator, attention to the business, right? If we can grow compound sales somewhere in the 20s, right, when we're trying to compound revenue, double-digit, obviously that improves, right? If we get to that number and don't have COVID again, obviously the revenue will accelerate.

Yeah. I'm glad to hear it. Glad to hear it. Thanks for the update.

Yep.

Your next question is from James Fawcett of Morgan Stanley. Your line is open.

Hey, guys. This is Jeff Goldstein. I'm for James. You were talking about in your prepared remarks about possibly seeing revenue upside to energy transition given repurposing some of your EV assets. Can you just expand on that a little and talk about what needs to go right for you to actually see that revenue upside from the ongoing transition?

Hey, Jeff. It's Ron. I don't want to give too much away, but I'd say there was an aha moment where we were taking stock of the assets that we're building, particularly the ability to capture, right, the EV data, and then the network, the public network getting acceptance and the ability to settle there. And up until very recently, our whole focus has been, hey, you know, serving basically our current fleet customers or prospective fleet customers with this. And all of a sudden, two or three other interesting customer segments likes what we have. And so that's the headline. They're non-sweet kinds of customers that need help in EV. And so the assets that we build for one purpose we think are pretty transferable to the other. And then B, we've actually got a pretty interesting target sitting in our M&A pipeline that would be supportive of that, that would accelerate our move there. So... The real headline is we just opened our eyes to how to basically serve a great set of people in the ecosystem and hopefully generate incremental revenue.

Got it. That's helpful. And then I want to ask about the competitive landscape within corporate payments. How are you thinking about competition and investment in that space, just given the range of new competitors increasingly attacking that opportunity set? Just anything in particular to call out there.

Yeah, I mean, the headline on that one is, it's just so nascent. I know that, you know, you guys have some theme of, hey, the disruptor theory, and there's lots of new people doing lots of new things, which is true. But I try to remind people, Jeff, that's us. We're the new guys that have less than 1% of that TAM. And it's fundamentally, you know, the banks that have most of what we call the corporate payments business. So it is a It's a massive set of payables basically to get digitized, and it's adversely with the banks. And so I think it's a food frenzy really for all of us that are bringing something new. And hopefully the other guys that are new can get something too. But the real competition for us are the current people, the current providers. So it's super wide open for us.

Understood. Thanks for the call, Eric.

Your next question is from Sanjay Sakrani of KBW. Your line is open.

Thanks. I know, Ron, you mentioned there's a number of ways Russia can go. What's the likelihood we see a meaningful negative hit from that region, whether it's related to sort of discontinuing operations or other macro-specific factors in the country?

Hey, Sanjay, it's Ron. I think, you know, Really uncertain, right, how that ball is going to bounce. We're doing lots of things, as you can imagine, exploring everything, right, selling it, transferring it, doing all kinds of things. So ballpark, I think we're carrying, you know, circa around $300 million on our books. So to the extent that the thing were shuttered and there was some complete loss, that's kind of ballpark-y what the number is. So, look, I don't know where it's going to go. We've obviously got some ideas of how we're running the thing differently and cutting ties, obviously, with the business a bit back here to the mothership. And so it's really more of a wait and see. We're going to obviously continue to explore whether there's buyers that are interested in the business and honestly just see how the conflict steps along here.

Okay, great. And I can't help but not ask the – the M&A question just because valuations have come in so significantly. I mean, how do you feel about the backdrop now and what's really interesting in terms of, you know, areas you'd want to add to?

Yeah, I think it's mixed is what I'd say. Honestly, you know, we're always working a pipeline, no different today. We've got three or four things. And I'd say as I run Through those, some of them are later stage. Some of the sellers haven't moved a lot. You know, we point out, hey, you're watching like even today, you know, some of the comp groups. And so I'd say some people are just, I think, kind of staying put, maybe going to wait to see if things come back. And then I'd say others, a couple of newer things that we've negotiated, let's say in the last couple of months, we've been able to agree to prices that we like, that work for us. So I'd say it's interesting, but it's kind of mixed. Not everybody is reset, but I think some people have. Okay. Great. Thanks.

Your next question is from Ramzi El-Assal of Barclays. Your line is open.

Hi. Thanks so much for taking my question. I wanted to ask just a general question about corporate payments. It came in a lot higher than our number and I think the street number as well. What kind of outperformed in the quarter even versus your own expectations? What do you see in that business that's just really working right now?

Hey, Ramsey, it's Ron. I'd say everything in there worked. The sales were good. We did get a bit of recovery in the base in that business. We talked about some of the clients getting healthier for sure. I don't know if we've called it out before, but we have a bit of what we call a multi-card business in there that's not only purchasing, but it does pick up some travel. So like others, we got some decent amount of that back. The full AP thing is roaring. We're still 50% plus up. in the quarter and despite, you know, eating a giant cross-border business, you know, not that long ago, the cross-border business was also better than we thought. Mostly Australia, you know, so that business originates really in four markets for us, one of which is Australia. And it was, when I say in the ditch, I mean, it was super in the ditch in 21. And so... It's really, I'd say, some fair amount of underlying health in Australian cross-border, in the multi-card business, and then really just, again, super-duper sales. So kind of all working there.

All working. Okay. And I wanted to ask you, too, about your comment on the EV strategy and sort of going on the offensive there. Yes. This is a bit of a nuance, but I think it's important. Is this sort of in response to what you're seeing in the marketplace in terms of fleets starting to shift in this direction? Or is this more you're seizing an opportunity because you see, well, the opportunity to kind of shape the market and create a customer and drive revenue in a new way in a market that looks like it's about to sort of evolve in the right direction? Is it kind of reactive or the opposite is kind of the question?

Yeah, I think it's B. It's the opportunity side. Look, it's still super-duper early days, as you guys know. I think it's just one of those aha things where you look at everything we've been doing for a couple of years. We've made a bunch of investments. reworked our system so they can combine EV and combustion. And we've worked on network building and contracts and all those kind of stuff. So we're doing all this stuff right in preparation of serving our clients. And then kind of out of the woodwork, a couple of non-fleet customers kind of poke their heads up and go, hey, we need help on this stuff. We're like, wait a minute here. Why are we just trying to make a good fleet transition. Why don't we take advantage of the new needs that are being created given we have these new assets and stuff? So I think it was honestly like shame on me, shame on us. It was a bit of an aha moment. But as I mentioned, we've also got a deal. Once we had that idea a few months ago, we found someone that's been chasing that a bit too. And so it's a super duper way of hedging however this goes, right? If it goes slow, which is my bet, you know, hey, so it goes slow. If it goes faster, we could have something that actually goes up in the event that our other thing ticks down, which, again, we don't think much early days, but instead of people calling, hey, look, it's sad times for fleet, or maybe they go, holy moly, they're going to hold on to most or all of their fleet business, and they're going to be beneficiaries of something new because of what they built. So maybe people are like, wow, Are you saying it could be literally a net positive? Yeah, that's what I'm trying to say today is. And we're obviously going to provide way more info here when it's appropriate of who those customers are and what we're going to do and why it can be upside. But I'm telling you, we're super excited about it.

That's great. So still quite early days, but you're laying the groundwork for. for whichever way it goes. I appreciate it. Thanks for that.

And we're hearing from the people. I mean, the other thing I want to make up is this isn't just, you know, Ron Clark's brain, you know, turning alone in the night. There's actual prospective customers out there talking to us and taking on some of these things. So it's real, which is the other thing I want to make sure you hear.

Great. All right. Thanks so much. You got it, Ramsey.

Your next question is from Andrew Jeffrey of Truva Securities. Your line is open.

Hey, guys. It's Gus stepping on for Andrew. Just as we look at the cycle and you're kind of starting to see rising bad debt expense, is that safe to assume it reflects some late fees and overdue balances? And you commented that that kind of happens with the higher new sales. Are you seeing the bad debt expense go up because of the existing client base as well. Just parsing that out would be very helpful.

Yeah, this is Charles. So yes, bad debt came in higher, and part of that is due to fuel prices, right? So you have higher fuel prices equal higher customer balances. If they default, that's unfortunate. then, yes, new sales tend to default at a much higher rate, right? So once we underwrite someone, if they stick with us for a couple of years, they tend to be okay. The first year, though, we do see higher losses. So record sales last year and continued record sales in Q1 of this year are driving some of that. We do think as fuel prices will normalize throughout the course of the year, that bad debt will also normalize a bit down. But for this quarter at 25.5, you know, it came in a little hot.

Okay, helpful. Thank you. And following up, I want to ask about the efforts to drive sales force productivity and where we are in terms of the glide path of driving cross-celled Corpe into fuel.

What was the first part? I missed the first part of the question. Can you just repeat the question again? I missed the first part of it.

Sorry. Just wanted to ask you guys to talk a little bit about sales force productivity. and kind of where we are in the glide path of driving crossover Corp A to fleet.

Got it. So let me take the first part first, which is just a sales product. It's, you know, Numbers one, two, and three on my list and our list, right, the more we can sell from an absolute perspective and the more efficiently we can sell, it obviously leads to profitable sales, profitable business, so it's a huge focus. I'd say the two things that really help our aging, right, of our people-based assets, so as we have people in seats and people in territories longer, they get more productive, right? So we've made huge strides of increasing the headcount in the last couple of years. So now we're getting some benefit basically from that aging of the people side. And then on the digital side, it's a bit of a breeder reactor, right? The bigger the business gets, the smarter we get of how to match and who to put ads in front of and how to bid and everything else. And so that business keeps growing. getting better basically. We keep getting more effective at it because we keep getting smarter. As well, as you know, the Googles and stuff index people that have successful things. So to the extent that we get better, our organic portion or free portion of digital selling gets higher and so all of that other than the inflation of people bidding more is super positive. So not only are we in record production of sales land, we're also in a super attractive cost of sales as well. On the second part of the question, the core pay cross-sell, I think I mentioned in the last 90 days, we kind of paused selling the CorePay payable solution until we put the platform in. So what we started out doing when we put the first couple thousand accounts is we went to a Ron Clark FuelGuard guy and said, hey, we're giving you a new way to pay us. Pay your bill to us. And here it is. Don't you like it? And oh, by the way, you can pay some other bills. And we found out it was maybe a bit too much. Hey, you're moving my cheese, and now I pay the bills. Now you're pitching me something else. And so we decided basically to do the first thing, put the platform in, make sure people are comfortable being able to pay us on this new platform, and then go back, which we plan to do in this quarter in Q2. So I'm hoping to have a better update for you in terms of demand and stuff when we speak next time.

Thanks, guys.

Your next question is from Mihir Bhatia of Bank of America. Your line is open.

Thank you for taking my questions. Maybe I'll just start with a few in the few card and freight business. Can you talk a little bit about just April trends? Obviously, there's been some chatter around, you know, freight recession and things like that. But what are you seeing in terms of freight miles driven? Are those holding up nicely? Any commentary about just what April looks like?

Yeah, this is Charles. So in our over-the-road business, which would deal with big trucking, like you mentioned, we see a little bit of softness in that business. When I say a little bit, I mean low single digits. But what we hear is related to both driver shortages as well as now supply chain issues, some truck and or trailer shortages. So, yes, a little bit of softness there, but nothing material.

Got it. Okay. And then just in terms of, I wanted to go back to your comments just about, you know, the guidance increasing. And I think if I followed it right, the fundamental improvement in the guide is, you know, other than the first quarter beat, obviously, and excluding the macro and fuel, it's like, what, 30, 35 million? Yeah. Are there particular segments that are driving that increase in terms of your expectations that maybe just are growing faster than you would expect at all? You think today are going to be growing faster than you did at the start of the year?

Okay. Sure. So obviously the benefit from fuel price and such, so most of the macro you see there and also in terms of the come back in terms of COVID. We've seen a lot of that in the lodging space, which we expect will continue as pent-up demand for travel will help our airline lodging business. So we have a lot of sequential improvement expected in that business in particular.

Okay. And this is my last question. Just in terms of You mentioned, you know, Salesforce productivity or the inquiries increasing because of higher fuel prices. But just can you talk a little bit about just how you're managing the credit side of that, right? I mean, some of the folks probably are coming to you just because they're stretched. They might have, you know, used up their other existing line on their other card or whatever method they used to pay and are just looking to increase their available to borrow. So just can you talk about how you're managing the credit side of that? Thank you.

Yeah, so we are taking a look at policies and such. Generally, we'll underwrite to a full amount, and then as prices go up, folks will come and ask for increases, and we'll re-underwrite them. When we're underwriting someone new, we're looking at an amount, and if we can't cover all their volume, we do lose a bit of share of wallet in that regard. So we do watch it closely. It is an area where you can quite quickly monitor spending levels and such. So, you know, we get a good sense when someone comes on, are they good? Are they performing? Their fuel volumes tend to be pretty stable. And so as long as they're with us for a while, we'll feel more comfortable to kind of ride the prices up with them. But for new clients, it's pretty strict straight off the bat. There's an amount. If I can cover what you've got, great. If I can't, then, you know, we will have to share a lot of stuff in the early days.

Hey, it's Ron. Let me just add on one other trick that works in the fuel card business, which is we change the payment cycle. So to your point, if we're getting a lot of digital stuff and it's not screening out as well or approval rates aren't as good, one of the things we can do is effectively, like in trucking, move it to daily-daily. or in a local business, you know, move it to weekly, weekly net five. So because of the, you know, the turn in that kind of business and the usage and stuff, we do have a fair number of clients that are onshore payment terms. So obviously that's a way, to Chuck's point, to still basically bring on customers but basically, you know, minimize, if you will, the limits of the losses that we can incur.

In certain segments where we don't feel comfortable, we'll push them up pretty big.

Got it. Thank you so much. You got it.

Your next question is from Jeff Cantwell of Wells Fargo. Your line is open.

Hi, thanks for allowing me to join these calls. Appreciate it. Great results here. And you're giving us a ton of color. Maybe could you dig in some more on the cross sell? Meaning, you know, You were sort of talking about this earlier, but where are those opportunities developing? Why are they developing? And maybe could you segment those out for us and even dimensionalize them? I guess the ultimate goal would be to have some sort of framework for thinking about how cross-sell revenue fits into our model. So just want to see if we can think about cross-sell appropriately, as it certainly seems like a nice opportunity for you.

Yeah, I'm not sure this is wrong or right. I captured the thing. Are you saying, hey, how do we, the company, think about and measure the cross-sell opportunity? I think we've kind of run through it, that we go area by area selling fuel cards. You know, our idea is corporate payments, so we sell, you know, companion cards in there. We're selling, you know, bill pay in there. In our toll business, I mentioned before, we're selling fueling. I mentioned we sold, you know, generated 1.7 million transactions in the quarter. We're now starting to sell insurance. In our lodging business, obviously, we've added cards that allow the same client that buys lodging to buy air or other kinds of travel. It's not lodging. And so virtually in every business we have, because we've gotten bigger and we have more products now, we're taking those related products back to the group that we have. I guess we could report out, Jim, if it's interesting, kind of what those sales or revenues add up to if people are interested. But I'd say we're making pretty good progress on most of them. I did say we paused the core payables one to get people on the platform first. But, look, we have 800,000 customers now spending, you know, hundreds of millions with us, so obviously hundreds of billions. So we've got, you know, plenty of opportunity to sell products back.

Okay, that's great color. And then might I ask if you could do the same for your new wins? How many new clients did you say you have this quarter? And can you provide any color, what you think is driving them? I guess if you think back to the last year, the year before, does anything stand out about now, about why you're winning versus previously? Just curious if you could give us some color. And I guess, you know, the follow-up would be, you know, are they sizable? Any sort of dimensions to them would be great as well. Thank you.

This is Charles. I think you're on the new client wins. I think Ron mentioned we had 50,000 in the quarter new clients. A lot of them tend to be small, digitally acquired, a lot of them in our fuel base. When we get into the corporate payments arena, we do sell more in the mid-market, so they are larger clients and such. So it does really depend on the business that you're in. In Brazil, we sell lots of consumers, tags and such. So it depends. We are still in the main selling individual products to a prospect. We're not really bundling yet. And that's one of the big opportunities that Ron has mentioned before is around the platform. So as we build out the platform and it has multiple products in it, once we sell it in, then people can then turn on that additional functionality. but we haven't been doing that as of late. So a lot of the new wins that you're seeing is really a function of just better sales performance and a lot coming through digital channels.

Okay, thanks very much, and congrats on the results.

Thank you.

Your next question is from Pete Christensen of Citi. Your line is open.

Good afternoon, gentlemen. Great results here. Ron, you called out some really nice wins in the fuel card space here, some large deals. Just wondering if you could provide some color on how you're seeing RFP activity these days, maybe looking at the next quarter or so, looking for large deals. Are you seeing healthy activity in that area?

Yeah, I don't think it's anything feed out of the ordinary. I'd say, you know, in the larger accounts, which we call out because, you know, we have 50,000 new accounts that we're going to take the rest of the call and run through those names. I'd say that enterprise and partners You know, they run on cycles. They're on a contract with us or someone else, and they come up. And so, no, no super, you know, change, I think, in that rate. I do think there's some kind of newish or different kinds of stuff, like that Amazon thing that I mentioned. So there's some different kinds of players a bit. Same a little bit on the EV side. So that would be the one difference. I think some of the – The new business that's out there is just a little bit different in terms of the type of business it is.

Interesting. And then I was just curious, you know, how are you thinking about utilizing some of the macro upside that you've been enjoying? Obviously, you're getting a lot more inbound activity with higher fuel prices just in general, but in terms of dedicating more spend, variable spend to digital marketing, things like that, versus perhaps letting some of that flow to the bottom line. Just wondering if your calculus has changed there, if you're thinking about anything differently at this juncture.

That's a good question. So I'd say not a lot, so a couple reasons. One is, We already fed the army here a bit, if you will. I think we said at the beginning that we gave, because we could get a profit target this year, more expense growth than normal, particularly in sales and IT. So one, I think our initial guide and other guides still have a decent amount in it. Two is, you know, I don't love the uncertainty of two-thirds of the upside, you know, being the planet. The planet can, you know, shift around and refactor on a sum and so I don't like to spend you know money that I can't 100% count on so that would be number two but with that I would say you hit the one area if there was one area where we would and do plan to spend a bit more it would be in digital selling and the reason is you can you know unlike some of the other things that take way longer to build write and prepare and to get into the market, you know, the head digital guy can walk down to my office and say, look, you know, we're getting twice the things. Do you want me to spend another, you know, two, three million bucks this month? So because it fails, which, you know, is great for the future, and because you can do it quickly, that would be the one area, Pete, that we would step on the gas.

Good, good, good. All right, guys. Thanks so much. Nice job. Yep.

Your next question is from David Toggett of Evercore ISI. Your line is open.

Yeah, thanks so much. I appreciate you taking the questions. I have two. First up, Ron, looking at the 19% growth in corporate payments, could you talk through what were the strongest growth verticals? in the quarter, and then based on the new business signings that you saw, what would you expect to be kind of the highest growth verticals, you know, within corporate payments going forward? And then the second question, looking at the 18% revenue growth in the tolls business, is it possible to break down the growth contribution of that 18% between toll tags and transaction growth?

Yeah, so let me – anyway, good to hear from you, David. So let me take the first thing. So when you're referring to verticals, I don't know if you're referring to the customer verticals or the products, but let me try to answer both. So on the kind of product line side, what we call the full AP or full outsourcing is obviously going great. It's growing over 50%, so obviously well above. the line average, and the good news, which you implied, is it also represented half of our sales, so a much larger part of our new sales than it does of our revenue, obviously, which is why it's growing faster. And then on the customer side, I'd say we're just going gangbusters in the construction vertical. That vertical has come back. It's super healthy, at least here in the United States. We've got a super great position in terms of partners, the accounting and ERP partners. We've got a great merchant network. And so the sales and interest from that channel is just at record levels for us. Doesn't mean we're not selling other places too, but that one's going great. Do you, Chuck, want to take the David's second question?

Yeah, I think if you were to look at even in our exhibits to the financials, you'll see the 18% growth in tolls, 5% tag growth, and then our revenue per tag is up 12. And so part of that is pricing adjustments we make. Some of that is inflation in the country, which we can pass on to the cardholders. And a little bit of it is some of the MDR that we're getting from some of these non-toll-related purchases, like parking or fast food or fuel. It's still a fairly small piece, but as we build out particularly the fuel network, we expect it to be much more in the next couple of years.

But David, hey, I knew you've been excited this one, so I'll share a little bit of the forward view. So I call that 1.7 million transactions. So the guy that runs that business has a bet with me that it'll be 10 million plus. And so the thing has gone from, hey, it's an idea, let's see how we go, to really exiting, even during the year, growing like a weed during this year and exiting at some kind of crazy level. And we plan to double again next year the accepting sites. We have the same 6 million vehicles or tag holders. So it's a little too early to say mission accomplished, but that thing is really working out.

Great. Well, appreciate the insights, and it'll be exciting to track your progress there.

Thanks, my friend. Appreciate it.

Your next question is from George Mihalas of Cowan. Your line is open.

Let me add my congrats on the quarter, and thank you for squeezing me in here. I guess first question, Charles, if we just look at the updated guidance, you're taking revenues up, you know, 5% higher than where they were previously. The adjusted net income, that's going up about two points, so there's a bit of a differential. Can you just kind of bridge that gap for us? I assume part of that is going to be interest expense, but maybe what else is maybe weighing down some of the growth of the adjusted net income relative to the the better revenue outlook.

Yeah, so you hit the nail on the head. Definitely interest expense will be going up. The other one is our tax rate. So in the first half of this year, we are still getting some benefit from stock option exercises of some very low-priced stock options that are actually expiring in Q2. So we don't see that we'll get that benefit in the second half.

And so that, of course, changes the flow through. Hey, George, it's Ron. Let me just add to that. It's all below the line, so the $100 million of kind of upside from our initial guide, right, rest of the year, hey, why isn't it flowing through? If you even DA line, our rest of the year will be up a couple of points from our Q1 print. So we will get operating leverage down there. It's all the two things Chuck just said. I mean, it's a whopper forecast. We have an interest expense. I mean, who knows? But we put in, I think Chuck has it in the back up there, some obviously massive increase as we run through the year in interest expense. And then a tax rate, again, that's high. I mean, on, you know, a billion three or four of cash PBT, you know, every point or two is big. And so we're losing it just in those two things. But I want to make sure people hear that the operating leverage line, that thing is flowing through. It's going to be way better than Q1.

Okay, that's great. That's exactly what I was getting at, so really appreciate that color.

And if you could work on keeping the interest rates down, that would help us too.

Fair point. That might be a bit tough to do. Just to close out that point, how many rate increases are you factoring in now to this increased interest expense guidance? And again, thanks, guys. Congrats on the quarter.

Yeah, so we gave kind of a forward curve on fuel prices. Let me give you the forward curve that we're using for the interest expense. We're looking at LIBOR equivalent of 83 bps in Q2, 159 bps in Q3, and 221 bps in Q4.

Thank you.

Your next question is from Trevor Williams of Jefferies. Your line is open.

Great, thanks. Excuse me, and I had another question on the guide as well, and more just on the macro assumptions you have underpinning, and particularly in fuel. Just in terms of underlying volumes, are you guys assuming the rest of the year follows kind of normal pre-COVID seasonal trends? And then is there any notable call-outs just on what you're assuming, any differences between the U.S. and Europe, and then the U.K. within Europe in particular? Thanks.

I'd say in terms of volumes, we've seen more of a recovery in Europe because they were more in the ditch, and we've seen a bit of a bounce back also in Australia with fuel volumes. But going forward, we don't have a lot of COVID-related recovery, so it would follow kind of normal seasonality. And the fuel prices assumptions, as we outlined them, they really don't change anything in terms of our volume. It'll change demand for the product, as Ron mentioned, digitally, but our – our customers have to drive for work, or they have to make the deliveries, they have to make the service calls, et cetera, et cetera. So the pricing doesn't really matter. But, yeah, volumes should follow kind of in a normal seasonal course.

Okay, perfect. And then on capital allocation, it looks like the updated full-year guide isn't embedding anything additional there. on buybacks. Just, Ron, any update just in terms of how you're thinking about capital allocation priorities between buybacks, the debt pay down potentially with where rates are going, M&A, any help there just on your framework for how you're thinking about it? Thanks.

You got it. So, no, the answer to the first question, we We provide guidance basically with a 100% de-levering assumption because unless we do something, that is what we do. It's the default. So that's what's in the forward guide. I'd say really unchanged. Our first course is always M&A. If we have assets that we can dramatically improve or add meaningful capabilities, that's our first and highest use of capital. But looking at the FLT stock price today, you can imagine that my interest in buying FLT stock is high. So clearly, I don't know if Chuck's put it out there, we've got a billion something in our current facilities. generating whatever, you know, a few hundred million more a quarter. So we've got obviously a lot of liquidity to spend. So my guess is, you know, both will happen. There will be some transactions we'll try to get done. At these prices, we are buyers of our stock, and so it's likely if we're sitting here nine months from today that we'll have done, you know, some of both of those things.

Got it. Okay. That's great. Thank you.

And your next question is from Ken Tsakowsky of Autonomous Research. The line is open.

Hi. Good evening, everyone. Thanks for taking the question. I wanted to ask about the lodging segment because I don't think we touched on it yet, and there was some decent growth there. There's a lot of noise trying to track the recovery relative to pre-COVID levels, just given the acquisitions over the last few years. But I was wondering how – if things fully normalized to pre-COVID levels – You know, where would that lodging business be in terms of revenue and or room nights?

Hey, Ken, it's Ron. It's a good question. So you're right. Whatever it is, the 60% print is happiness everywhere, right? It's a deal getting into the insurance vertical. It's a recovery of our airline segment there, right, as airline travel and flights continue. have come back, and it's also our core workforce base. Our clients have gotten healthier and done more driving kinds of travel. So all three happy things are happening in the base. I'd say that that's, again, high-teens business for us. If you said, hey, you get through this and you get to kind of some normal baseline or normal comp, the market potential is enormous in all three of those. Obviously, the airline business is global. We just bought a little software company that we think is going to be incredibly helpful to some of those global airline sales. So the prospects, we've looked way harder now. We've taken the core workforce in. product and launching it in Europe. We finally have an idea of how to do that to increase the TAM. So the prospects for that thing are great. It's the lowest NSE in the company, which means we sell new business more efficiently there than any other line of business in the company. The margins of the business are super-duper good. So we love the business.

Great. That's really helpful. And maybe just as my follow-up question, there's a lot of competitors on the AP automation side of the business. Your full AP business continues to grow really quickly. Can you just talk about what you're seeing on the RFP side? Are they getting more crowded, or are we still early days at adoption curve?

Yeah, I think it's mostly B. You're right, there's more. people and more products, but as you laid out, the game is distribution and the game is networks. Just to remind everybody, the products don't work if you can't monetize, if the cards don't monetize, otherwise you're relegated to a software fee. We just love, I've said this a million times, maybe we don't have the world's greatest, but we get a pretty good product. We have a couple things that the new guys don't, which is proven age distribution that can create pressure on the marketplace. We've got a 10-year-old merchant network that accepts these purchasing and virtual cards. We're able to actually process and create economics. I still feel like we've got a big advantage in the offer, but mostly what you said, that it's just kind of, you know, it's just white space. It's just lots of companies are on kind of an old disjointed kind of clunky model, and what we and other people have is certainly way better than what they're doing, and so, you know, that group will win some share, but as I mentioned, we're selling a lot, so we're winning, you know, a share. So, again, I hope I can make this point, but We want to be in the disruptor. We're kind of the new guy still taking the business from kind of the old method. So we want to join these other people basically that you guys view as disrupting and put us in the bucket of trying to go get that business. So that's our view of it.

Great. Very helpful. Thanks, Ron.

Yeah, you got it.

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