Good day, and thank you for standing by. Welcome to the FLEETCOR First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the call over to your speaker today, Mr. Ron Clarke. 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 Clarke, 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 fleetcor.com. Throughout this call, we will be covering organic revenue growth. As a reminder, this metric neutralizes the impact of year-over-year changes of foreign exchange rates, fuel prices and fuel spreads. It also includes pro forma results for acquisitions closed during the 2 years being compared. We will also be covering non-GAAP financial metrics, including revenues, net income and net income per diluted share, all on an adjusted basis. These measures are not calculated in accordance with GAAP and may be calculated differently than in 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 future acquisitions are based on that information. They are not guarantees of future performance, and you should not put undue 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 8-K and in our annual report on Form 10-K 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 Clarke, our Chairman and CEO. Ron?

Okay, Jim. Thanks. Good afternoon, everyone, and thanks for joining our Q1 2022 earnings call. Upfront here, I'll plan to cover 4 subjects: so first, give you my take on Q1; second, lay out our updated rest of year 2022 guidance; third, and I'll 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 million, 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 overperformance in the quarter. Organic growth overall, 15% for Q1, and each of our 4 major lines of business, all growing organically double-digits. Trends in Q1, excellent. Sales, up 39% versus last year. We added about 50,000 new clients to the fold, sold in Q1, and over 50% of all of our new global fuel card clients came to us digitally. So a terrific sales quarter. A 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…

Yes. Thanks, Ron. So before digging into the financial results, I would 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, FLEETCOR provides a set of corporate payment solutions to help businesses reduce spend. Now we do it in 2 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 2 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. 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…

[Operator Instructions] Your first question is from Tien-Tsin Huang of JPMorgan.

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, Tien-Tsin, good to hear your voice, too. So simplistically, the $140 million would be $40 million in Q1, $100 million rest of year and called out: 1/3, real performance; 2/3, macro health.

Got it. And then from a new sales perspective, I think you said 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 sort of upgraded your thinking on sales productivity and targets? I heard the billion comment earlier, but just thinking about the next 2 to 3 quarters, have you changed your thinking [ on that basis ]?

Yes, really good question. So yes, particularly on the fuel, fleet side. And the thing that's interesting is that you think the higher fuel prices obviously help us from a revenue perspective, right, in terms of MDR, but they actually help in sales. So literally, there was a period the digital guys came down and we had 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 had taken up the forecast rest of year. So again, I said it repeatedly, it's the single best indicator, [ tension ] for 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.

Your next question is from James Faucette of Morgan Stanley.

This is Jeff Goldstein on 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. So I don't want to give too much away, but I would say there was an a-ha 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, serving basically our card fleet customers or prospective fleet customers with this. And all of a sudden, 2 or 3 other interesting customer segments liked what we have. And so that's the headline. They're non-fleet kinds of customers that need help in EV. And so the assets that we built 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've just opened our eyes to how to basically serve a greater set of people in the ecosystem and hopefully generate incremental revenue.

Got it. That's helpful. And then I wanted 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.

Yes. I mean the headline on that one is it's just so nascent. I know that 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 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 held adversely with the banks. And so it's, I think, it's a food frenzy really for all of us that are bringing something new, and I'm hopeful the other guys that are new can get something, too. But the real competition for us is the -- are the current people, the current providers. So it's super wide open for us.

Your next question is from Sanjay Sakhrani of KBW.

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 would say 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 circa around $300 million on our books. So to the extent that the thing were shuttered and there was now complete loss, that's kind of ballparking 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 mother ship. 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 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 areas you would want to add to?

Yes. I think it's mixed, is what I would say. Obviously, we're always working a pipeline, no different today. We've got 3 or 4 things. And I would say, as I run through those, some of them are later-stage. Some of the sellers haven't moved a lot. We point out, [ hey, you watching ] like even today some of the comp groups. And so I would say some people are just, I think, kind of staying put, maybe going to wait to see if things come back. And then I would say, [ there's ] 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 would say, it's interesting, but it's kind of mixed. Not everybody has reset, but I think some people have.

Your next question is from Ramsey El-Assal of Barclays.

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 as just really working right now?

Yes. Hey, Ramsey, it's Ron. I would 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. And for sure, I don't know if we called it out before, but we have a bit of a, 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 add-back. The full AP thing is warring, was still 50%-plus up in the quarter. And despite eating a giant cross-border business, not that long ago, the cross-border business was also better than we thought. Mostly Australia, so that business originates really in 4 markets for us, but one of which is Australia. And it was, when I say in the ditch, I mean, it was super in the ditch in '21. So it's really, I would say, some fair amount of underlying health in Australia 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. 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 fleet 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 -- is the question?

Yes. 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 a-ha things, where you look at everything we've been doing for a couple of years. We've made a bunch of investments. We've reworked our system so that 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 a-ha moment. But as I mentioned, we've also got a deal once we had that idea a few months ago. We've 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, hey, so go 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 in, 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? Yes. That's what I'm trying 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 whichever way it goes.

Yes. And we're hearing from the people. I mean the other thing I want to make out is this isn't just Ron Clarke's brain 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.

Your next question is from Andrew Jeffrey of Truist Securities. Gus Galá: 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 you reflect 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.

Yes. 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. And 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 million, it came in a little hot. Gus Galá: Okay. Helpful. 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-sell Corpay 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. Gus Galá: Yes, sorry. I 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 cross-sell Corpay into fleet.

Got it. So let me take the first part first, which is just sales productivity. It's numbers 1, 2 and 3 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 would say the 2 things that really help our aging, right, of our people-based assets, so as we have people in seats and people in territories long, they get more productive. So we've made huge strides with 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 at in front of and how to bid and everything else. And so that business keeps 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, the 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 Corpay cross-sell, I think I mentioned it in the last 90 days, we kind of paused selling the Corpay 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 Clarke fuel card guy and said, "Hey, we're giving you a new way to pay us, pay your bill to us. And here it is. Oh, 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.

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

And maybe I'll just start with on the fuel -- in the fuel card and fleet business. Can you talk a little bit about just April trends? Obviously, there's been some chatter around 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 looked like?

Yes. 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 of, in single -- low single digits. But it's -- what we hear is related to both driver shortages as well as now, the 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 the guidance increasing. And I think if I followed it right, the fundamental improvement in the guide is, other than the first quarter beat, obviously, and excluding the macro and fuel, is like, what, [ $20 million, $25 million ]. Are there particular segments that are driving that increase in terms of your expectations that maybe just growing -- grew faster than you had expected? Or do you think that they are going to be growing faster than you did at the start of the year?

Okay. Sure. So obviously, the benefit from the fuel pricing side, so most of the macro, you would see there. And also, in terms of the comeback 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 then just my last question. Just in terms of -- you mentioned sales force 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 of the stretch, they might have used up their other existing line on their other card or whatever method they use to pay, just looking to increase their available to borrow. So just can you talk about how you're managing the credit side of that?

Yes. 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 in what we 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 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 we will have to share the wallet 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, our 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, move it to weekly, weekly, net-5. So because of the turn in that kind of business and the usage and stuff, we do have a fair number of clients that are [ unsure of ] payment terms. So obviously, that's a way to Chuck's point, to still basically bring on customers but basically minimize, if you will, to limit the losses that we could incur.

In certain segments, where we don't feel comfortable, we'll push in the prepaid.

Your next question is from Jeff Cantwell of Wells Fargo.

Maybe could you dig in somewhere in the cross-sell, meaning 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 [ where I can ] dimensionalize them? [ I think I feel like a ] goal would be to have some sort of framework for thinking about how cross-sell revenue fits into our model. So I just want to see if we can think about cross-sell appropriately as it certainly seems like a nice opportunity for you.

Yes, I'm not sure, this is Ron, by the way, I catch the thing that you're saying, hey, how do we as a company think about and measure the cross-sell opportunity. I think we kind of run through it that we go area by area. So in fuel cards, our idea is Corporate Payments, so we sell companion cards in there. We're selling bill pay in there. In our toll business, I mentioned before, we're selling fueling. I mentioned we sold -- 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 in every -- 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. And I guess, we could report out, Jim, if it's interesting, kind of what those sales or revenues add up to, where people are interested. But I would say we're making pretty good progress on most of them. I did say we paused the Corpay payables one to get people on the platform first. But look, we have 800,000 customers now spending hundreds of millions with us, so obviously -- hundreds of billions. So we got 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 card wins did you see you had this quarter? And could you provide any color on 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, the follow-up would be, are they sizable? Any sort of dimensions to that would be great as well.

Yes. This is Charles. So 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 to the Corporate Payments arena, we do sell more in the mid-market, so as 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 was mentioning it before, as 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. And congrats on the results.

Your next question is from Pete Christiansen of Citi.

I wanted to ask, 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 out the next quarter or so, looking for large deals. Are you seeing healthy activity in that area?

Yes. I don't think it's anything, Pete, out of the ordinary. I would say, in the larger accounts, which we call out because we had 50,000 new accounts, that -- [ with our Board to take the rest of the call ] to run through those names. I would say that enterprise and partners, they run on cycles, they're under contract with us or someone else, and they come up. And so no, no super 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, the same a little bit on the EV side. So that would be the one difference. I think some of 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 how you're 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.

Yes, that's a good question. So I would say not a lot. So a couple of 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 a ] decent amount in it. Two is I don't love the uncertainty of 2/3 of the upside being the planet. The planet can shift around and refactor on us some. And so I don't like to spend money that I can 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. Unlike some of the other things that take way longer to build, right, and prepare and to get into the market, the head digital guy can walk down to my office and say, "Look, we're getting twice the things. Do you want to spend another $2 million, $3 million this month?" So because it's sales, which 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.

Your next question is from David Togut of Evercore ISI.

I have 2. First up, Ron, when 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 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?

Yes. So let me -- anyway, good to hear from you, David. So let me take the first thing. So when you refer 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, right, great. It's grown 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 would 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 the interest from that channel is just at record levels for us. Doesn't mean we're not selling in other places too, but that one's going great. Do you, Chuck, want to take the -- David's second question?

Yes. 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 know you've been excited with this one. So I'll share a little bit of the forward view. So I called out 1.7 million transactions. So the guy that runs that business has a bet with me, that it will be 10 million-plus for the year. And so the thing has gone from, hey, it's an idea here, let's see how we go, to really exiting, [ even really, they're growing like 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 now.

Your next question is from George Mihalos of Cowen.

Let me add my congrats on the quarter. I guess first question, Charles, if we just look at the updated guidance, you're taking revenues up 5% higher than where they were previously. The adjusted net income, that's going up about 2 points, so there's a bit of a differential. Can you just kind of bridge that gap for us? I assume one of them had -- or part of that is going to be interest expense, but maybe what else is maybe weighing down some of the growth in the adjusted net income relative to the better revenue outlook?

Yes, so you hit the nail in 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, changed the flow-through.

And 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 year, hey, why isn't it flowing through. At the EBITDA line, our rest of year will be up a couple of points from our Q1 print. So we will get operating leverage down there. It's all the 2 things Chuck just said. I mean it's a [ whopper ] forecast we have on 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 $1.3 billion or $1.4 billion of cash, PBT, every point or 2 is big. And so we're losing it in just in those 2 things. But I want to make sure with people here, 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 I really appreciate that color. And then...

[ And if you can work on even 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? Congrats on the quarter.

Yes. 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.

Your next question is from Trevor Williams of Jefferies.

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 callouts just on what you're assuming? Any differences between the U.S. and Europe and then the U.K. within Europe, in particular?

I would 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 will change demand for the product, as Ron mentioned, digitally. But 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 yes, volumes should fall 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 on buybacks. Just, Ron, any update just in terms of how you're thinking about capital allocation priorities between buybacks, I mean, the debt paydown potentially with where rates are going, M&A? Any help there just on your framework for how you're thinking about it.

Yes. You got it. So no is the answer to the first question. We provide guidance basically with a 100% delevering 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 would 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 has put it out there, we've got $1 billion-something in our current facilities generating, whatever, a few hundred million more a quarter. So we've got, obviously, a lot of liquidity to spend. So my guess is 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 9 months from today, they will have done some of both of those things.

And your next question is from Ken Suchoski of Autonomous Research.

I wanted to ask about the lodging segment because I don't think we've touched on it yet, and there were 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 normalize to pre-COVID levels, where would that lodging business be in terms of revenue and/or room nights?

Yes. 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 the recovery of our airline segment there, right, as airline travel and flights have come back. And it's also our core workforce space. Our clients have gotten healthier and done more driving kinds of travel. So all 3 happy things are happening in the base. I would say that that's, again, a 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 3 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 look way harder now in taking the core workforce 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 as [ MMC ] in the company, which means we sell new business more efficiently there than any other line of business in the company. The margins in 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 of that adoption curve?

Yes. 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. And so we just love -- I've said this a million times, is we -- maybe we don't have the world's greatest, but we got a pretty good product. And we have a couple of things that the new guys, right, don't, which is kind of proven, aged, distribution, that can create pressure on the marketplace. And we've got a 10-year-old merchant network, right, that accepts these purchasing and virtual cards. And so we're able to actually process and create economics. So we still -- I still feel like we've got a big advantage in the offer, but mostly, what you said, that it's just kind of -- it's just white space. It's just lots of companies are on kind of an old, just join a kind of clunky model. And what we and other people have is certainly way better than what they're doing. And so that group will win some share. But as I mentioned, we're selling a lot. So we're winning 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 see as disrupting, and put us in the bucket of trying to go get that business. So that's our view of it.

No more questions. Please continue.

Thanks for joining us today. Let us know if you need anything else. So have a nice evening.

This concludes today's conference call, and thank you for participating. You may now disconnect.