Good afternoon, and welcome to the FLEETCOR Technologies, Inc. Third Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I'd like to turn the conference to Jim Eglseder, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us today for our Third Quarter 2022 Earnings Call. With me today are Ron Clarke, our Chairman and CEO; and Alissa Vickery, our Interim 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. Now 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 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 that 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 also need to remind everybody that part of our discussion today may include forward-looking statements. These statements reflect the best information we have 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 those 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?

Jim, thanks. Good afternoon, everyone, and thanks for joining our Q3 2022 earnings call. Upfront here, I'll plan to cover 4 subjects. First, I'll provide my take on Q3 results. Second, I'll provide updated full year 2022 guidance. Third, provide just a brief preview of 2023, along with some of the factors that will affect our performance. And then lastly, I'll catch you up on a few recent developments. Okay. Let me turn to our Q3 results, which were quite good and ahead of our expectations. We reported revenue of $893 million, that's up 18%, and cash EPS of $4.24, that's up 21%. Our EBITDA for the quarter exceeded $450 million. Organic revenue growth, quite good, coming in at 13%. That was led by our corporate payments business at 21% and our lodging business at 28%. Trends in the quarter quite are good also. Same-store sales finished plus 2%, retention remaining steady at 92%. And overall sales performance, just terrific, up 24% for the quarter. We onboarded almost 60,000 new clients during Q3. So the fundamentals of the business remain very solid, obviously, selling a lot and retaining a lot. Look, additionally, I want to point out that we're continuing to strengthen the setup, the positioning of the company, which obviously improves our growth prospects going forward, added some important EV assets and further refined our plan to go on offense. We added some pretty important AP automation software to front end our corporate payments solution set that really rounds out for us that AP solution set. And we continue to expand our fuel footprint in Brazil, driving transaction growth there. I think we're expecting an exit rate of about $10 million annual add-on fueling transaction. So good progress. Okay. Let me shift gears and turn to our updated full…

Thanks, Ron. I'm happy to be here on my first earnings call as CFO, albeit on an interim basis. I look forward to meeting many of you on the conference circuit in the fourth quarter. But now let's look at some more detail on the quarter. As Ron mentioned, we posted 18% growth in revenue, driven by 13% organic growth or $96 million, which I'll delve into in a moment. The remaining growth was 4% or $27 million from macro tailwinds and 2% or $14 million from acquisitions made over the past year. Impacting our results were fuel prices of $4.46 per gallon for the quarter, higher than prior year of $3.15 which contributed $26 million of additional revenues versus prior year and lower than our $4.64 guidance assumption from August. Fuel spread revenue was also quite positive by about $21 million compared to the prior year as falling fuel prices during the quarter caused spreads to widen. Offsetting these tailwinds was a $21 million negative impact of lower foreign exchange rates primarily resulting from unfavorable movement in the British pound. Now moving to organic growth. Corporate payments was up 21%, driven by continuing strong new sales across both direct and cross-border. Specifically, our direct corporate payments business, or nonpartner business grew 24% and continues to demonstrate very robust growth, especially for AP, which grew 44%. Cross-border was up 30%, another very good quarter as new sales remained strong and activity levels were again robust across nearly all geographies. Our channel partner business is just under 10% of the corporate payments category and declined 13% in the quarter as our focus is on growing our direct businesses. Fuel grew organically 5% as we did see some volume softness in our U.S. SMB businesses. However, our new sales growth was 13%,…

[Operator Instructions] Our first question will come from Darrin Peller with Wolfe Research.

Even looking on like a 2-year basis, the Fleet segment looks like it's high single digits or about 9%, 10% growth when just stacking it. It definitely looks like it's trending back to a normal rate or even better than a normal rate versus what I think you guys would have expected. So can you touch on that for a minute in terms of where we are in your view versus any type of recovery. And then obviously, again, going into a more uncertain macro environment, they're resilient to that business because it does look like it's gotten to a point where it's doing the right thing from a growth rate standpoint. And then just quickly, the add-ons, the follow-ons and the cross-sells that you've been really able to implement, how has that been going, Ron? And if you could just touch on that too.

Darrin, thanks. So on the first one, I think we're still kind of in the 5% to 8% kind of target range based on what we elect to invest. Some of the overperformance recently is literally the COVID recovery kind of [ climb ] back from the [ debts ] there in 2020. So I think we're probably mostly unchanged because we've got a lot of the businesses to feed and investments to make that we're kind of happy in that mid- to high single digits. So that's our target. On the add-ons, I'd still say still early days. We're still struggling with where in the base, right? We've got a couple of hundred thousand clients we should target. So I think I mentioned initially we were thinking, hey, we'll go to where the bulk is down market and then realize most of the spend is in the larger accounts there, which we get after different distribution. So I'd say we're still testing some different ways to do that but have the goal of the company to turn the fuel card business, as I said, into our corporate payments business. So work in process.

Yes. No, that's helpful. And just one quick follow-up, if you don't mind, is on the -- your preliminary outlook for next year. When you talk about the different assumptions, I guess, first of all, the reported -- the revenue growth target you talked, I think you said 10% organic. Is that -- that's organic, I'm assuming? Is that reported or constant currency? I think it's -- and then also, when we think of the $17, just the assumptions on fuel and macro that go into that, again, it seems like the underlying core assumptions are sustainable and seem like they've really gotten to a point that's been strong.

Yes. So on the first one, I'd say, we're kind of halfway through, Darrin, the '23 budget cycle. So we've worked on revenue, obviously, harder than the expense and the profit side. So as I said, it's a mix of the different business lines, fuel, lodging, Brazil and corporate payments have different growth rates to kind of weight themselves to 10%. That is an organic number, although the print at this point looks pretty similar because we have some pro forma revenue kind of rolling forward, right, from '22 to '23 offset by what we think could be some macro headwinds, particularly FX. So at this point, year-to-date, not a big difference between organic and print. And then on the bottom, again, I think the thing we can control is really the operating margin. So we're doing a lot of work on metering the OpEx so that we can grow kind of EBITDA margins, 200 or 300 bps next year. So call it, I don't know, we're coming on, I think, around 52-ish this year that we try to get that up a couple of points. And then the wild card is really the below the line after today's Fed call, I'm not sure how encouraged or not any of us should be. But wherever that number flies to and then descends and then obviously, the FX, particularly the pound. So that's really the wait and see. So we're just trying to give a rough super early days view, obviously, hopefully, all us will know a bunch more in 90 days.

Our next question will come from Ramsey El-Assal with Barclays.

I wanted to first ask about Russia. And maybe if you wouldn't mind updating us on the size of that business, so we kind of contemplate what it might mean to take it out of numbers. And also just -- I'm pretty sure the answer here is it's not contemplated in that preliminary read of next year, but the idea would be if you came to an agreement there to sell the business that we would then need to sort of get that out of our models next year?

Yes. Ramsey, it's Ron. So yes, both good questions. So on the first one, it obviously depends on the FX, the kind of ballpark gets $100 million-ish, little bit more in revenue at kind of a 75% EBITDA margin, again, kind of where the FX is today. And yes, we haven't done anything in terms of taking it out although, of course, we've looked at models where we sell it for X and we use that cash to buy back, which really manages obviously the dilution as we look into next year. So we'll certainly keep you guys apprised. We're kind of live out shopping the thing now. So we'll keep you posted.

And I'll just add. This is Alissa. The specifics around Russia have been included in our 10-Q disclosures previously as well in terms of sizing.

Great. Great. One quick follow-up for me. On the FTC matter, I guess, first, is there any sense of timing in terms of when this might be resolved? Is this the type of thing now where there's a relatively protracted negotiation? Or will it be resolved sort of in short order to the degree that you can tell? And then, Ron, you seem pretty confident there's no P&L impact here. Is there any best or worst case type of outcomes? Or is it really like no matter how the cookie crumbles here you guys are going to come out of it okay?

Yes. On the first one, we're clearly on some kind of glide path, right, the things in the sense so a guess would be a couple of months -- 2, 3 months, depending on how the [ chitchat ] goes and when the court gets back involved if they do. So that would be my guess. On the impact, yes, there's nothing either in their order, which the judge said no to or really anything we're contemplating because it's disclosure based, again, Ramsey, right? It's not, hey, we can't charge something or we can't sign up a customer or whatever. And so the good news is, we've done a bunch of things and had a chance to see. And obviously, we're reporting those changes are embedded right in the results we're putting out. So again, there's nothing we can see that would have any material go-forward impact. So probably like you and others on the call, we mostly just want to get on the other side. We've repeatedly said just be specific, tell us what it is that makes everyone happy and we're happy to do it. And so we've done a lot of that. And again, it's had little to no impact. I mean when you can sign up 96% of a couple of hundred thousand customers to say they want to continue affirmatively with your program, and you've given them the biggest Ts and Cs in boxes that you have, it makes me feel pretty confident that we've been straight ahead with people.

Our next question will come from Sanjay Sakhrani with KBW.

I guess a question for you, Ron, just on the valuations for M&A. I mean it seems like there's been a pretty marked decline in fintech valuations. I'm just curious if you're seeing anything pop into your wheelhouse, how we should balance that relative to share repurchases?

Yes, Sanjay. I think to your point, there has been some -- a bit of a reset in the last few months. And you could see by what we've announced in this quarter that -- when we started the process, we focused on these capability things because no matter what the price is they're about capabilities, and they're not large amounts of absolute money. We do have a couple of, what I'll call, more traditional kind of FLEETCOR in the wheelhouse deals that seem to be in ranges that we like that we can transact at. And then second, I think, let's see how the thing plays out. As you know, people move their valuation aspirations with time. And so to the extent that people wait and stuff doesn't trade, we think there could be even a further reset next year because right some people are getting squeezed these days. So we're optimistic that things will get better, and we can go back to targeting some larger deals.

Okay. Just a follow-up. Alissa, you mentioned the fuel price softness -- sorry, the fuel softness, volume softness. And I'm just curious, if we just dig underneath that, is there something going on there? Do you think it's macro driven? Or what's driving that? And then just a clarification on the interest expense. So we should target around $300 million of net interest expense. Just want to make sure I got that number right.

Yes. Sanjay, it's Ron. Why don't I take the first one and then let Alissa take the second one. So no, I'd say the fuel kind of volume and transactions, I think we reported, I think, 4% volume growth, transaction growth for the quarter. I would say it's pocketed. There's a couple of spots like SMB Trucking that are a bit softer than normal, although most of that's offset by enterprise, the big trucking firms. I think the biggest thing, Sanjay, is in some of the research we deal with kind of local SMB accounts is the higher price had a smidge of elasticity, kind of moved them back a little bit like, hey, we'll shrink the radius of where we do a plumbing call. We won't go 30 miles out of the city now, we'll only go 10 miles and stuff. And so I do think when the prices were at those peaks, whatever, 3, 4, 5 months ago, that, that also dialed it back a bit. But I'd say we're in the smidgy level. It's really nothing significant and it's really nothing across the board. Do you want to take on interest?

So Sanjay, it's Alissa. So on the interest side, I think you're asking about going into '23. So everybody in the world seems to know that Fed Funds target rates have just skyrocketed. We'll close out the year somewhere around 3.75%. As a reminder, we all started around 0. And then going into 2023, targeting somewhere around 4.5% to 5% for the year. And so we're really out looking at interest expense probably around $300 million plus. So maybe I would take our number and multiply it by 2 and you're probably in the ballpark.

Yes, that's the net number, too, Sanjay, right? There's kind of gross interest expense, and then we've got a bunch of cash at high rates. So to Alissa's point, the gross numbers significantly larger, probably comes down 20% or 25% with the cash that we have offsetting it. But look, it is a total swag route. We're sitting here like you guys trying to guess what the next 14 months are going to be. And we don't know. So we just said, hey, we'll take what we're hearing. We'll kind of run the math that way, and will be a lot higher when we talk again.

Our next question will come from Andrew Jeffrey with Truist Securities.

I appreciate you taking the time to answer my question this afternoon. Ron, some pretty encouraging commentary on margin next year. Can you talk a little bit about how much of that is being driven by cloud migration and digital sales initiatives versus maybe being a little bit more selective in terms of the customers you sign up in the current macro environment? And then if we get a recovery, would we expect, say, in '24, would we expect the margin to sort of come back down a little bit as you lean in to new customer growth a bit more?

Yes. That's a really good question, Andrew. So I'd say that the target that we like to see in the company is 55%. Again, I think we'll pencil around 52% this year. But that thing moves around based on things we buy, right, that run lower margins or weirdo stuff like COVID that crushes revenue quickly and stuff. But I'd say our running internal targets closer to 55%. In terms of next year, I think the 2 things you picked up. One is, we knew this was going to be a half a year. I mean, we're going to, I think, be about $0.70 higher than we told in February. I don't know if anyone's applauding, but I consider that good news to do better than we said. And so because we saw that, we kind of opened the spicket. We let people work to your point on some additional projects. We tested some additional things. We staffed up in areas we spend, I'd say, money that we could afford to kind of make the targets that we run the company on. So when I see the world tightening, the answer is, we'll be a little bit more approval, a little bit more selective to use your word. And I think the big thing is really around our view of the economy and the credit environment, particularly around the digital side, like you said, because that's where the sales growth, if you will, versus the credit risk are supercorrelated. So my guess is we'll kind of enter the thing a bit cautious, kind of cut a little bit of the tail at the bottom. I would initially maybe not try to grow that thing in the low to mid-20%, but maybe 3 to 5 points lower and see how it goes. So it would be just a little bit of a guide on kind of overall OpEx and a little bit of caution around the micro selling and related credit risk.

And in lodging, this is a business that you've been adamant, is awesome, and you've definitely been right in terms of the growth. What do you think that looks like as we lap some tougher compares. What's the normalized growth rate do you think for that lodging business?

I think it's high teens to 20%. To your point, we have some favorable comps. We've got a segment in there for airlines, which are obviously in the ditch. So some of it is that. But we're just -- all parts of that business are kind of going great. We're selling a lot in all 3 of them. We bought a new software front end for that airline business and airlines are looking to get added in-house work and stuff. So we have the best network, the best rates to offer the different clients that we have. And so between the scale and the selling machine that we have there and the product, they're pretty specialized offering. So there's not lots of other players that can offer really what we do both the convenience and the pricing. So I'd say it's in the high teens to 20% on a normalized basis.

Our next question will come from Sheriq Sumar with Evercore ISI.

I have a question on the cross-selling opportunities. I mean it's been a quarter -- it's been like a few quarters where you have talked about growing it a bit slow on that front just not to upset the customers and the process. But, a, what's the update on that process or on the cross-selling opportunities? And is there a potential for you to ramp up the cross-selling efforts going into 2023?

Yes. I think I kind of covered, Sheriq, this comment a bit before, but I'd say it's still a work in process. I think it's my summary that we went headlong into the thing targeting the smaller clients that we have because we have so many of them. And as we get into the thing, we got clear that corporate payments turns on spend, not on client count and that about 5,000 of our clients have about half of all the spend, all the purchasing. So we've gone back and targeted those. We have some of our blue-suited salespeople going into our biggest dual card accounts now and selling corporate payments, but we're still trying to figure out, is there a scene, is there a different place inside of our fuel card client base where we can bring corporate payments offerings. So I think a lot of this is like anything that's new. We're learning. We're trying to figure out what the sweet spot is among the super big base and what the product is that fits that sweet spot. So we haven't given up, still work in process.

Our next question will come from Pete Christiansen with Citi.

Nice updates there, Ron. I've 2 questions. One, I wanted to go back to the 12% organic growth that you're seeing in the tolls business. Just wondering, if you could tease that out a little bit, the base tolls business versus some of the Beyond Tolls initiatives that you put forth, including the tag fueling stuff. Wondering if you can give us a sense of how is that contributing to segment growth at this point? And then I have a follow-up.

Yes, Pete, it's good to hear from me. So that one, I think, for Sheriq's question a minute ago was one that's working, I think we're at about 20% now of the revenue there and what we call Beyond Toll, parking, fuel. We've also gotten some super early traction on insurance right, where this vehicle mobility company with millions of customers and so offering insurance that centers around the vehicle and stuff has been a pretty good uptake. And so it's going well. The fuel number, which I said is exiting, we think around [ $10 million ] annualized exactly as we thought is kind of correlated to the number of sites. So as we add additional sites that basically can read the tag conveniently low and the old [ transgrow ] because more people use the thing. So we built a plan to continue that, take it up by another 25% or 30% next year. So look, the goal would be kind of over the next 2 or 3 years that, that stuff is in the 40% kind of range on top of the core business. And we continue to add -- I mean if there was -- it reminds me of coke here in the U.S. if there was another way to sell a toll tag in Brazil, we know it's like we sell it. In stores, we sell with hangs, things in stores. We sell it at toll booths. We sell it through car makers. We sell it through insurance guys. We sell literally every way that you can get a toll tag to market, we're doing -- selling way over 1 million new ones per year. And so it's a business that despite the competitive set up changing a lot is still performing great for us. Super happy with it.

Yes, that certainly sounds exciting. I'd like to pivot to fuel card sales a little bit here. I mean, obviously, when we had fuel prices starting to peak up earlier in the year, I'm sure that was helpful in driving new sales, maybe giving you some -- a good degree of inbound activity. Now gas prices come down, diesel is still holding up pretty strong. What's your sense for how fuel prices today are still driving fuel card sales. Is there a tailwind still there?

Yes. No, that's a really good question. They're super related to your point, if you think about, particularly on the digital side, just raw demand, Google counting how many people key in fuel card. You hit it on the head back in the spring or early summer at the peak, that thing was up a lot, right, that inbound demand. But remember, we still sell, I don't know, 40%, 45% of the business nondigitally and some amount -- a decent amount of our digital is us targeting accounts. So I'd say it's down some from the peak although the peak reside than we've seen before at an [ edgy path ]. The only thing I'd said back is even at today's current price over the last, call it, whatever, 5 or 7 years, this is still at a super high level. So I'd say, yes, down a bit from the peak, but still -- is still pretty robust.

Our next question will come from Jeff Cantwell with Wells Fargo Securities.

And just wanted to follow up on some of the questions that are coming your way. One of them was, can you talk to us a little bit about some of the early underlying assumptions for fuel in 2023. And the way I wanted to frame the question is, if we're all looking at Exhibit 2 in your press release, which is fuel transactions, fuel revenue per transaction. Do you have any sense of what the growth rates there would look like for next year in order to get you to mid- to high single-digit revenue growth in fuel. And then along the same lines, this is obviously a very dynamic macro environment that interest rate environment. The goalpost is clearly moving all the time. So my second question is, can you talk about what you think is a range, right, your confidence? And whether there's a wider range in that potential outlook for next year versus prior years? And like do you kind of feel that the upside, downside to the mid-high single digit is the same as in past years or maybe it's wider this year. I'd just love to hear your thoughts there.

All right. Jeff, it's Alissa. So in terms of fuel price assumptions going into next year, we basically left next year consistent with the current period. So we've assumed fuel prices in the range of $4.37 or so with a little bit of downside on the spreads. In terms of your question on rev per trans, I think our intent is generally to always have a nice balance between volume and rate to the extent that there's incremental products being offered. And so now I would say that we would continue to expect that to be a balanced approach.

Jeff, this is Ron. Let me just jump on what Alissa said, obviously, mix continues to help us right. We've overrotated to SMB. So we get sequential rate happy just from the mix because we get more rate on smaller accounts than big. But on the macro question, I'd say, who knows. I'd say it seems you guys are sitting on the planet with me, it's crazy kind of volatile, not only the things for us like fuel prices, but clearly, FX volatility is super high this year. I don't even want to mention interest rate volatility. And so the question is, in 90 days when we get to kind of locking down, finalizing our plan, will the forward view be any clearer, will there be messaging that, that thing is going to stabilize some. And so that's my answer to you to the extent that the big macro things seem like the volatility is slowing, we'll probably use kind of some traditional range. And to the extent that those macro things have a bigger bait around them, then yes, we probably would have something wider to let you know how those things affect us. But I said a million times, like we run the company here forever. And we're going to run the company to generate growing revenue and growing certainly EBITDA profits faster and the below the line stuff will come and go. No one's clapping that I can hear that the macro is at our back, and we have $0.70 more, $100 million -- $150 million more in revenue. No one's clapping, understand the other way. So we just -- our game is we just power through it. And look, it can't go up forever. If interest rates go up, the cost goes up to $300 million -- and actually it was going to $500 million in '24, maybe they're going to add a $250 million. And so as long as we can keep compounding the top and the EBITDA line, [ 10 and 13 ] we're going to deliver mid- to high teens EPS over the forecast period. So I'd say we just don't see any of these variables continuing to rise sequentially year-over-year.

Our next question will come from Mihir Bhatia with Bank of America.

Want to second the -- thanks for the updates on the FTC Russia and also the early look on 2023, very helpful. And maybe I did want to start on interest expense just for 2023. I apologize to go back to this, but I just want to make sure we have it right. The $300 million to $320-ish million that you've talked about. Does that include Russia? I think that if I recall correctly, there's a fairly high interest rate there, which you're getting and high cash balance, which helps that. So since it's a net number, does that include the Russia benefit, I guess?

Mihir, it's Alissa. So, yes, it would include any benefit that we're getting off of the deposits that are in Russia certainly on the income side. We don't really have any expense -- interest expense in that region. So it's really...

It's payments, Mihir, again. This number, I mean it's a rounding error in the business...

We do see rates going down in Russia. So hopefully, it's not too big for a loss.

Right. And then the other question I wanted to ask was just in terms of lodging, I just wanted to understand a little bit more about the Roomex acquisition in terms of just expanding your workforce lodging business into Europe. Is that -- how much of the business was in Europe anyway? And is this like more of a beachhead where you grow from here? Or just trying to understand a little bit more about that.

That's a good question. Thanks for that. So the Roomex business, first of all, is really a copycat of our U.S., what we call workforce. If you think about a lot of the blue collar people to travel for work. That's kind of what that Roomex thing is. So we were delighted to identify someone that does kind of the same thing. So it's really a U.K. business today. It's got a little bit, I can't remember, 5% maybe of its business in Germany. So the majority of it is in the U.K., which is our second largest market, which was interesting to us. And so yes, the idea there is, hey, they've got assets that sit in the U.K., they've got a lodging network that's attractive. They have sales, they have ops, they have tech that runs there. And we have a ton of clients, as you can imagine, like tons of clients and actually a fair number of kind of midsized and enterprise clients there. So the idea is, hey, we know this business super well. It's in a market that we've got a good position so we can accelerate it and it's a good business on its own. It's got a good group of people. So it's really just like our fuel card business or other businesses. We're a global player. We have a business that looks exactly like a business we have, and it's in another country that we can understand then we go there. We liked the price back to someone's question earlier about M&A valuations, I think was a reasonable price for both sides, which is why the trade works. So yes, it will certainly accelerate and it kind of sets us up to make a business with bigger TAM that we can understand.

Our next question will come from Bob Napoli with William Blair.

Nice job on quarter. I appreciate the outlook for next year. Just I was hoping to get maybe a little bit more color on -- I appreciate the segment margins that you started giving us. But just with margin expansion next year, where are you most confident in margin expansion next year and then maybe over the long term?

Yes. Bob, it's good to hear your voice and that you're up and at 'em here, so good to hear from you. We don't really plan the margin expansion really by lines of business. The discretionary monies that are big in our company are sales and IT. And so that's how we think about it. For us to boost EBITDA margins 200 basis points will just kind of flatten out a little bit, not grow as fast some of the sales investment and IT. And people may say, "Oh, how is that going to work? Well, when you make a pretty big investment incrementally like we did this year, you pick up the productivity really in the forward years, right, because you've hired new people or you've got new leads in the pipeline. And so some of the investments -- incremental investments we made in '22 will kind of roll in, we'll pour into '23. So we've got a decent game plan of OpEx that will service the business we have and meet the growth targets. And again, because we spent a bit more this year, that's kind of helpful to us for next year.

Great. And just like a big picture question. Which part of your business are you most excited about over the next 3 to 5 years, that's going to become a much bigger piece of your business, if you would?

Yes, Matt, like you, I know it's your favorite. I mean, it's hard not to like what we call our corporate payments business just because of the enormity. The market we -- if you guys -- you may get a kick out of the story, but I moved a guy that ran -- who still runs our international fleet business to run our old business. So he's here, and I'm talking to them the other night, so we get on the corporate payments, cheese he says, I never understood like what a mess the U.S. is, all this paper and trying to pay from. And so like I think as we live here, we don't even think about it, that it's just the opportunity there to make that just a gigantic business. It's -- in our prelims it's closing in on $1 billion next year, and we spent -- no one knows this better than you a couple of years getting all the puzzle pieces together so that we've got kind of a full suite of stuff. And so I just think that the potential is so big and the competition, even though you and others keep talking about -- [ friggin ] fintechs, I tell you the whole market is banks and Amex, and we're winning. That's where 90% of our business comes from. And so we -- we just like the chances to bring what we have at great sales again in Q3, record sales. And so that's the business that will be dramatically bigger in the next few years.

Our next question will come from Ken Suchoski with Autonomous Research.

I just had a clarification question on Russia. Does the $17 EPS figure include the EPS contribution from Russia. And I just -- can you talk a little bit about how you're able to actually access the proceeds from a sale of that Russia business. Just want to make sure that we have that right.

Ken, it's Ron. Yes, on the first one. We haven't sold a business, so it's still part of our planning, although again, the idea that we have would be to take the cash from the sale and obviously, the retained earnings that we have sitting there. And if our stock stays at this price, so obviously buy a lot of it, which will compress the dilution. In terms of the proceeds, it's how we're going to set it up with a buyer. The buyer is going to have to basically be able to pay us outside of there. So it's one of the kind of the conditions of the buyers that we're looking at. So we do have a way basically depending on who the buyer is for them to be able to pay us.

Okay. Great. That's really helpful, Ron. And then I appreciate all the continued disclosure on profitability by segment. I just had a follow-up question to Bob's question. I mean it looks like the corporate payments business has a 43% EBITDA margin. Is there an opportunity to bring that segment margin up closer to the corporate average over the long term? Or do you have to continue invest in that business to drive that high teens revenue growth?

That's another super good question. So kind of a 2-part question. The first one is really scale, right, trying to make that business in some of the pieces dramatically bigger. So like all of our businesses, it's got a lot of fixed cost, call it, 40% to 50% of the cost structure of that business is fixed. So clearly, the incremental margins are better. And then it's really just the trade for growth, like we -- it's not a hard math for you guys, if you want to grow something at 20% versus 10% or 8%, you have to spend more money, right, to grow it faster. And so that's really the second part of it is, given the TAM, given the size of the opportunity, we'll probably continue to overinvest and run, that EBITDA margin is a bit lower than the line average. But again, it's because we're setting it up to grow faster. It's not a reason -- just there's nothing structurally. In other words, if you said to me, that thing gets to $1.5 billion or $2 billion, and I want to take the growth rate down on the line average, there's nothing structurally that would stop us from having that business look an awful lot like the rest of our line average businesses.

Our next question will come from John Davis with Raymond James.

Ron, I just wanted a little -- talk a little bit about bad debt expense and have you tightened the credit box at all? I know we've just kind of normalized, but given what most feel is some sort of macro softness coming at some point, have you contemplated that, especially when you talk about kind of mid- to high single-digit fuel growth next year?

Yes. Good question, John. Yes, is the short answer. So I think we hope we reported this, but I think we have to, call it, [ 25, 25, 35, 35 ] is kind of a guesstimate at the full year credit loss number. And so when we saw the thing the forwards, the roll rates get a bit worse, we did tighten the new account selling. So we have 2 kinds of credit; one is, hey, who are we going to take in. We used to take in 10 people, 10 companies, now we're going to take in 8, so we're going to cut the tail off. And then the second one is really credit lines, right for customers that we have, right? If we're willing to give you more credit to buy more things, we can get more revenue. So that's the one that we're looking at pulling back selectively kind of in certain areas. So we've done it on new. We haven't done it yet on existing and partly because we have much better information, right? The underwriting is much better on our existing customers because we have all that payment history on them. So that's a key thing for us to watch is really the trade. Remember, probably about half of all of our credit losses, whatever 25, 25, 35, 35 as up to whatever, $120 million, $130 million, half of that, John, is basically tied to new business. right, which is a way high number versus the base. So that's the place that we always start.

Okay. That's helpful. And then just a follow up on the margin commentary going into next year. As I think about fuel prices probably being flat to down a little bit higher, at least for the full year, bad debt expense, I'm penciling out that kind of OpEx is going to be kind of flat to down year-over-year to get to kind of 200 to 300 basis points of margin expansion? Just -- I know you said you spent a lot kind of given the outperformance this year on kind of the better COVID recovery. But I just want to kind of make sure that, that pencils and that you can kind of hold the line on OpEx in order to get back to kind of what you call it normalized profitability kind of in the mid-50s on an EBITDA margin basis.

Yes. Again, I want to make sure people clear. It's super early days. We're doing what we call the envelope work of framing what an envelope is. So we're far from done. But I think the biggest difference to what you said is that the sales investment and the nature of the sales investment has a huge impact on the bad debt on a forward basis. So the easiest way for us to improve profitability in 2023 would slow or cut the tail, certainly in the digital micro accounts and keep all that bad debt out of our P&L. So that's the most logical place. But yes, it's not far off what you're saying that the exit rate of our OpEx will obviously grow probably low single digits. And then what you said, it depends obviously were fuel prices. But remember, that also ties, it's correlated to bad debt. right? So one of the reasons our bad debt is higher again is our fuel price was higher here in 2022. If the fuel price is lower, by definition, the bad debt will be lower. So look, lots of these variables move together. And my messaging is just to tell everybody that we're going to run the business kind of macro constant and then open our eyes to what the macro is and make OpEx and capital allocation pivots based on what we see. And what we're seeing now is we're probably going to slow the OpEx.

Our next question will come from Trevor Williams from Jefferies.

I was hoping you guys could unpack the 4Q guidance a bit and some of the moving pieces because it implies revenues down more than $20 million Q3 to Q4. Typical seasonality for you guys is up $20 million plus in normal years, at least. I guess fuel prices are lower sequentially. You've got the pull forward in gift, some of the softness in U.S. SMB and Fleet, but anything else moving pieces-wise you'd call out organically for why you aren't seeing the same normal Q3 to Q4 step out?

Yes. I'll jump on that in to listen. I think you named kind of most of them. I'm sure it's -- whatever you're saying, kind of plus or minus $10 million on whatever, $900 million. So it's not a material kind of number. But those are it. It's kind of a flip flopping this year versus last. Back last year, there was some huge late gift orders because retailers are out of stock from being careful. And so that number was a pretty big whopper number, if I remember, in Q4 last year. And this year, they said, "hey, we getting ready sooner" and so put tons of orders in earlier. And then what you said, we're running at, I don't know, $4.30-or-something fuel price, which has ticked down, obviously, from Q2 to Q3 and then into Q4, which takes them off the talk. But then again, it helps expenses. As I said earlier, both borrowings and bad debt. So the biggest thing is just the normal seasonality. What you said if we look at the last, whatever years you cleaned up, pro forma acquisitions or stuff, 2 or 3 of our business is soft in a fair amount, which is less workdays in the fourth quarter, both here and abroad. And so it's just -- it's really just that, that Q4 and Q1 are just less workdays or softer. And Q2 and Q3 are higher. And so there's not -- there's really nothing like super-duper going on, like as we model the thing to embed the guidance here, I would say there's nothing else that sticks out.

It's Alissa. I'll just add on to that a little bit. We talked about it earlier in the call that interest expense really is significantly worse than where -- I think we all projected even from the Fed's perspective back in July when we were getting our previous guidance. And so that is a big headwind going into the fourth quarter.

I mean just for you guys, like I don't how you see this, but hey, we're kind of saying put in the second half, the revenue for second half is a bit higher than we said 90 days ago, and I guess the profits are the same. I said before, our macro was off by $8 million, the runway interest expenses, whatever, $20 million higher. So underneath the hood, we've been able to do some things to make the thing work. So the trend and the performance, again, separate from the macro, my message would be a pretty good kind of as good or better than we thought 90 days ago. So we're not seeing any kind of blinking red lights yet. And like all the questions on this call, the profitability a lot will turn on where those macro things land in glidepath next year. But I just do want to remind people that like to own stock for more than a week that what comes up, does come down and things don't keep going up for multiple years in a row. And so don't forget, the [ figure ] went up this year, right, in 2022, fuel prices went up, interest rates are going to be -- started obviously lower. And so these things will move again. I just don't think we've ever seen volatility like this, honestly. The amount of movement in some of these factors in the time frame that they've moved. That's what seems strange to us.

Yes. Understood. And then just as a follow-up on corporate payments. Just thinking about the macro sensitivity there. If we go back to 2020, perfect storm of the stuff that worked against you. But I think some of the cyclical exposure there had been a bit of a surprise. Now today, you've got AFEX, Global Reach is going to close shortly. So you'll have more FX hedging and cross-border exposure than you did 2 years ago. I know you're saying high teens is a target for next year. But kind of with that pro forma revenue mix, any view just on how that segment should hold up in a recession kind of where you'd be most vulnerable, the pieces of revenue you think should be most durable? Any help there would be great.

Another good question. I'd say it will hold up well. And the reason is COVID is -- was a bizarre macro thing, right, keeping people at home. And so it picked off hard companies, cruise ships companies that made a living working, so we had some punishing set of clients. The great news about the corporate payments business is the majority of the payments are locked. I think rents in IT services companies mostly can't get out of the AP that's in front of them, even if their own situation softens some. And then, b, you heard again today, there's inflation, which rolled into obviously, company spend. And so I'd say of all the businesses, that went ought to hold up well because the spend is pretty fixed and will likely go up. And then on the cross-border side, I think you hit it, FX volatility, a little bit like high fuel prices creates greater interest in FX management. And so to the extent that different countries have differential plans on interest rates, which triggers FX volatility, that should be helpful to that business, which we're seeing now. So all in all, I'd say, we like the chances for the business next year.

Our next question will come from Andrew Polkowitz with JPMorgan.

Just one, getting back to the M&A side. I know you mentioned that you feel increasingly good about your positioning of the company broadly and obviously, Global Reach further and the FX business, Roomex and Levarti on the lodging side. I was curious which areas are most interesting for you guys right now looking for incremental M&A next year?

Andrew, it's Ron. That's a good question. I would say that we've done a lot of the positioning work literally last year and this year. If you look at the beyond strategies of building out what segments we can play in like our Corpay One business for SMB and corporate payments or the lodging thing being international or the front end of our mid-market corporate payments business with a process AP automation tools. So I think we really assembled like a lot of products and a lot of capability so that those TAMs are bigger, and that's the sales and revenue we can chase are bigger. I think we're kind of ready to pivot back to more of the wheelhouse scale base, let's buy stuff, we can run better sets of businesses. I'm not saying that we won't do more if there's probably some more stuff around EV that we're snipping that's still in that kind of capability thing. We want to be super good there, already there. But that would be the thing. Any 1 of the 2 or 3 main businesses, corporate pay and lodging for sure, where we could get wheelhouse deals that are larger and accretive would be the #1 preference.

Got it. That's helpful. And one quick follow-up. You actually just mentioned the EV. I was going to ask on -- you mentioned your -- all your methods of toll distribution before and reaching consumers. So I wanted to ask if you could draw some parallel to your consumer side ambitions in the EV space and what you could share with us there? I know it's early still.

No, it's a good follow-up. It's one of the things, one of the models that we know well that caused us -- allowed us -- allowed me to pull the trigger on an EV business that it was consumer-centric. And what we realize there's no credit risk. It's really a network play, building a super duper EV network it's advantage it sounded a lot like the toll. So I think the biggest translation is partners could help. So if you think about the consumer business in Brazil, yes, there's a lot of direct capability, having hundreds of people stand at toll booths or in malls or kiosks and stuff. But the partner model that our Brazil guys have built, every Nissan car with a toll tag when you come in at 2 of the largest banks, reselling our stuff at a 40 million accounts that model of OEMs that make EV cars aren't going to be EV cars unless the existing or new EV manufacturers make them, and same with CPOs, there's not going to be any cars that people can't recharge them. And so those 2 partners, the light went on for us, "Oh my gosh, we can build a consumer business kind of B2B2C by working through these partners and they're going to embrace us. So that's kind of the thinking and that's the feedback we've had from talking to those various groups. So it allows us to basically getting in our gun sites, a new extension for our company without doing some were Super Bowl ad, right, to try to get to consumers. So that's the thing that we like about it.

Got it. I know [indiscernible] Super Bowl ad. So I'll leave it there and congrats on the result.

Our next question will come from James Faucette with Morgan Stanley.

Thanks a lot for all the color and perspective. Just a couple of quick follow-up questions from me. You guys have been really active in buying back your own shares, obviously. But at the same time, you have started to pick up the acquisition activity as valuations have come down. How should we be thinking about like capital allocation priorities and where you're seeing opportunities? And should we -- that kind of offer continuation of the current mix? Or what are your expectations there right now?

Yes, James, it's Ron. The answer is it depends, right? Our capital allocation priorities, I think, are unchanged. We start with deals because they position the company and most of the ones we do create accretion. So that's been obviously number one. But it depends really on our stock price. Obviously, the stock price were buyers with a better company to buy than people shop and be companies for higher multiples. And so if our price is at these levels, I think we're probably leading to buying more stock back mostly because of what I said that we've gotten so many of the positioning or extension, the strategic deals, if you will, kind of behind us. We kind of have the set of things we need to run the company. So at today's stock price, I'd say, we're probably more buyers of our stock than something else. At higher stock prices probably, the pendulum swings back a bit the other way.

I appreciate that. And then just a quick follow-up on kind of the fraud and debt issues. How much of that is just purely function of fuel prices. And as those come down, that self-resolves? Or are you seeing anything different in the current cycles than you have previously that could indicate it could be kind of an ongoing issue even if fuel prices do come down next year?

Yes. That's a super good point. It's most of it, right? So higher fuel prices, right, create more total spend. So the loss event is higher, right, 100 gallons at $5 instead of 100 gallons of $3. And then second it attracts more fraud, right? You get targeted more by criminals, again, when the price is higher. So really, the question is, if that normalizes, those 2 things should improve. And then it really swings over to just the economic health, right, of clients and prospects for us. Do they remain healthy and able to repay and stuff? And so that's the open question, I think. We're not seeing a lot of that. If we look at our distributions, the higher quality accounts are repaying, the roll rate problems like always are in the more credit challenged group. So it should reset if fuel prices stay at this level or smidge down, both fraud and overall loss levels will decline.

This concludes our question-and-answer session as well as the conference. Thank you for attending today's presentation. You may now disconnect.