Q2 2023 Fleetcor Technologies Inc Earnings Call

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Good afternoon, ladies and gentlemen, and welcome to the fleet core technologies incorporated second quarter 2023 earnings Conference call. At this time all lines are in listen only mode.

During the presentation, we will conduct a question and answer session.

At any time during the call you require immediate assistance. Please press star zero for the operator.

This call is being recorded on Tuesday August eight 2023.

I'd now like to turn the conference over to Jim <unk>.

Investor Relations. Please go ahead.

<unk> that in future acquisitions are based on that information. They are not guarantee of future performance and you should not put undue reliance upon them. We undertake no obligation to update any of these statements the.

The expected results were subject to numerous uncertainties and risks, which could cause actual results to differ materially from what we expected at 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 both on our website and it said dot Gov.

That out of the way I will turn the call over to Ron Clark, our chairman and CEO Rod.

Okay. Jim Thanks, Good afternoon, everyone and thanks for joining us today.

Upfront <unk> plan to cover for subjects first provide my take on our queue to results.

Second I'll share are updated.

<unk> 2023 guidance.

Third update you on a few key priorities that were working.

And then lastly discuss the status of our strategic review.

Okay. Let me, let me begin with our <unk> results, which finished better.

Then our expectations.

We reported revenue of $948 million in cash EPS of 419.

Both of those up sequentially.

R Q2, EBITDA almost touched.

$500 million.

Which is an all time record for us.

Both are print revenue growth.

And organic revenue growth came in at 10% for the quarter.

The reason is Q to print revenue health.

Helped by acquisition revenue.

And hurt by lower fuel prices, so so effectively awash.

The components of our overall, 10% organic revenue growth were fleet step.

Stepping up 6% for the quarter helped a lot there buyer international markets, particularly.

Mexico, and Australia, both of those up over 20% for the quarter.

Also R E V revenue Inc.

Increased 45% year over year <unk>.

Brazil [noise] grew 15% in Q2.

Continued strengthen our core.

Toll line tag volume, they're up 7% helped.

Helped by our new bank partnerships.

Also increasing demand for our new vehicle insurance add ons.

Lodging up 14%.

Led by our airline vertical.

Results from a number of new airline <unk>.

Implementations, along with the growing usage of our auto Reba.

<unk> booking feature for distress passengers and finally corporate payments of 22%.

That was led by our direct <unk>.

Payables business.

That was up over 30% in the quarter.

Also are across board of business.

Doing great.

Enjoyed record levels of new sales and new accounts.

Turning to the trends or fundamentals in the quarter also quite good sales grew 20%.

And Q2 <unk>.

Inside of that number of corporate payment sales up 80%.

Versus last year, which reflects strong demand for that product line.

Are doing with America fuel sales remained pretty soft in the quarter.

That reflects the pivot we made away from micro SMB accounts last fall and.

In an effort to control bad debt.

Retention good remains steady at 91% and that's despite a set of aggressive credit policies that we changed and same store sales, finishing flat.

Really a mix of pockets of both.

Strength and weakness.

Weakness, we saw in our lodging managed accounts business and strength really and the stability improving stability in our north American trucking business.

So look all in all.

A bit better Q2 than we had expected.

A really terrific star to the first half a year to date revenues sales.

Earnings all coming in ahead of plan.

Okay, Let me shift gears and share our outlook for rest of the year 2023 <unk>.

First off.

We are calling for the second half macro to be roughly neutral.

To our recent three plus nine view.

He'll be it with some puts and takes.

Specifically expecting better effects.

But lower fuel prices.

We're revising full year 2000, twenty-three guidance, including Russia.

Revenue of 3.848 billion at the midpoint.

In cash EPS of 17 22 at the mid point.

This updated guide reflects the flow through of our 8 million Q.

<unk> revenue beat and seven cents cash EPS beat so, leaving the second half prior guide in tact.

And although the business is running ahead of our internal expectations for the first half there is considerable sequential rare.

Revenue growth still baked into our second half forecast.

The revised second half guide implies print revenue growth of about 12%.

[noise] and organic revenue growth of about 10%.

Pretty consistent with the first half.

Finally, the guide implies an attractive Q for exit.

With revenue growth expected.

To be 14% and reach 1 billion in quarterly revenue for the first time.

So pretty exciting.

We do expect cash EPS growth of 16.

Percent in the exit as we begin to lap interest rates from last year.

Okay. Let me, let me make the turn and share our progress against a few important priorities.

So first E V.

More continuing to progress our efforts.

Along with our understanding of how the energy transition may in fact affect our business.

Who would look at pages 12 through 14 and.

And are earning supplement.

So on the economics front.

<unk> vehicles at least among our commercial mixed.

Mixed fleet clients continues to be very favorable.

<unk> vehicles, there are generating more revenue per vehicle.

Than a comparable ice's vehicle, we've seen this positive trend now over the last 10 quarter, So really super good news there.

A second <unk> is beginning to grow.

<unk> revenue in queue to up 45% versus the prior year and the number of UK.

E V commercial accounts nearly tripled.

And Q2 versus prior year.

Okay second up as our fleet Board Refreshment initiative.

We added three new directors to the fleet Board.

Here in calendar 2023.

<unk> had too long tenure directors retire.

This move is strengthened both our audit and Tech Committee oversight.

And greatly.

Enhance our diversity.

So last up in terms of updates as our North America fleet sales.

You may recall.

We were selling a lot of super small micro accounts digitally.

Last year and made the decision to move digital sales up market to bigger company prospects. So some progress there again, we essentially stopped onboarding.

New Super small one and two card sized companies about nine months ago.

Although this reduces.

<unk> overall, North America fleet sales, we do expect the second half.

Fleet credit losses to decrease about 30% to 35% sequentially first half versus second half.

Good news, we are increasing the number of new few.

Fuel apps that have more than five cards.

Thats for modifying our digital.

Advertising bidding engine so that's working.

We do expect to be on the other side of this digital sales transition as we exit twenty-three and thus better positioned to accelerate fueled car sales next year.

Okay last up is the the status of our strategic review.

And which were reevaluating the portfolio of our company.

With the idea of potentially separating one or more of our businesses.

As you can imagine we'd been quite busy with this review along with our overall value creation plan.

So first on overhangs.

On the FTC front, we have close the FTC injunctive relief chapter.

You May recall, we received the court order.

Implementing the remaining disclosure request, there and expect to be in compliance by the end of this month.

We do believe that our North America fuel business exceeds the very best.

Industry marketing of disclosure practices rush.

Russia, we have now.

Received all necessary government approvals.

Close the Russia sale.

We are working through some <unk>.

Final closing mechanics.

And hopeful that that deal will close later this month.

Tom will speak to the expected financial impact of the Russia sale here in just a minute.

Second.

Non-core assets, we are progressing the potential sale.

A couple of non core assets.

We're well underway and exploring the sale of our prepaid.

Businesses.

We're also in discussions regarding a few small divestitures that are within our vehicle line of business.

Third fleet.

[noise] fleet reinvention were.

We're pretty aggressively working to reposition our global fleet business. The goal is to create really an exciting future.

For fleet that promises sustainable and durable growth.

We think we're out in front here in EV and.

And actually expect EEV to accelerate.

Growth in that business, we're continuing to broaden our set of.

Vehicle related payments solutions, social solutions beyond fuel.

And we do believe that re raiding our biggest business and biggest.

Earnings contributors rule of the number one driver of the company's overall value creation.

So lastly, the topic of separation, we are exploring with the help of Goldman Sachs.

The idea of separating one or more of our businesses to further unlock value.

Her path.

Initially is to look simply at separating.

Or spinning off one of our major businesses into a separate company. So the considerations or assumptions here are around.

Forward pro forma multiples.

What what would the Standalone company trade at a tax impacts.

Dissynergies of the separation opportunities for future M&A really a whole host of things.

The second path is to potentially combine.

One of our three major businesses with a dance partner that would be a pure play company there.

Provides you know very similar solutions to one of our three big businesses. So we are actively involved in exploring a few dance partner combinations.

And evaluating attractiveness of that path.

As promised on our last call, we expect to complete our work on each of these four initiatives before year end and for sure will share our conclusions with you then.

Okay. So look in closing today.

I do want to reiterate that we are pleased with Q2.

And our first half performance are financials and Kpis.

Ahead of our initial expectations.

We are flowing through our queue to beat.

And raising full year 2000 twenty-three guidance.

We are progressing a few of our key priorities again, particularly on the front.

We are actively exploring several portfolio moves in an effort to rewrite or multiple.

So with that let me turn the call back over to Tom to provide some additional detail on the quarter Tom.

Thanks, Ron.

Here's some additional details related to the macro environment during the quarter.

We have 10% organic revenue growth in Q2, and a reported revenue growth was also 10%.

As the growth from recent acquisitions offset fuel price headwinds.

Revenue of $948 million exceeded the midpoint of our guidance by $8 million comprised of $13 million and higher revenue, partially offset by $5 million, a fuel related macro which flowed through to our <unk> beat and cash EPS of $4.19.

Fuel prices were $3 65 per gallon for the quarter lower than our $3.99 guide for May which caused approximately $20 million of lower revenues versus prior year.

We exited the quarter with fuel prices around $3.55 per gallon.

Prices rose in July two approximately $3.60 per gallon.

A trend we expect to continue over the balance of the year based on the <unk>.

Forecasts.

Fuel spreads were a positive versus prior year by about $5 million.

Lastly, we had $9 million of negative impact from lower foreign exchange rates, mainly due to the decline in the rubble as the economic impact from the war drags on.

And aggregate, we had $23 million of macro headwind versus last year that we were able to power through by way of organic and acquisition related growth.

Now onto our performance for the quarter.

As I previously mentioned organic revenue growth was 10%, reflecting the healthy diversification of our business and the realisation of strong sales from last year that continued into the first half of this year.

Corporate payments revenue was up 22% driven by strength in our direct business, including full AP software solutions, which again grew over 50%.

Our comprehensive menu of high quality payments solutions continues to sell incredibly well as we sign up new customers, who are looking to transform their AP operations.

Cross border revenue was up almost 30% of sales remains strong and client transaction activity was again robust.

Re completed the global reach customer migration and are now focused on selling our combined set of products and services and all geographies, which is contributing to our strong performance.

In addition, we remain committed to realizing the cost synergies as we rationalize the iced tea and facilities overlap.

Which will help expand margins in the second half of the year.

Turning to our fleet business organic revenue increased 6% driven by higher revenue per transaction and sales growth, especially in our international markets.

And the U S. We are seeing early success from our pivot and digital sales to a slightly larger customer segment, but we're still feeling the effects from significantly reducing our micro SMB fleet sales beginning in the third quarter of last year.

We anticipate digital sales to improve heading into next year as we adjust our lead generation strategies and conversion pipelines.

To expand on Ron's comments regarding our market, leading <unk> solutions in Europe , we're seen over 20% sequential quarter growth and accounts cards and home charging users and we continue to expand our proprietary charging network, which translated into over 30% sequential.

Growth and kilowatt hours charged.

While the revenue base remains relatively small given the emerging usage of commercial eev's. It's a great start and we are committed to building upon our unique capabilities.

Brazil's revenue grew 15% compared to last year, driven by 7% tag growth. We now have six and a half million tag users, which enables us to further increase the proportion of revenue from our expanding network of products, where we earn interchange.

In the current quarter, approximately 36% of our BDC revenue was from the expand the network.

Sales also remained strong increasing 16% driven by a robust digital field and partner distribution channels.

Lodging revenue increased 14%, which was in line with our expectations.

Note that the business grew 41% last year. So this quarter's up against a tough year over year comp.

This quarter solid performance was highlighted by sales success across our industry verticals.

In addition to revenue per room night that increased 19% driven primarily from channel and product mix.

The other segment declined 14% do a shift in the timing of cards ordered by our retail clients and our gift business and.

In the second quarter of last year card orders were pull forward from Q3 and Q4 as retailers wanted to insure supply chain glaze did not impact their cardstock for the year end holiday season.

Our full year net revenue expectations for this business remain in line with our prior expectations.

Now looking further down the income statement.

Operating expenses are $536 million represented a 9% increase over Q2 of the prior year, primarily due to the addition of the Rumex plug surfing and global reach group operations.

The increase in Opex was also impacted by higher bad debt increases tied to higher transaction in sales activities and investments to drive future growth.

Bad that expense was $35 million or seven basis points of spend which was stable with last year and in line with our expectations Rickard.

We currently expect bad debt to improve approximately 20% in the back half of the year compared to the second half of 2022.

EBIT margin in the quarter was 52.4%.

Which is 140 basis points improvement from 51% in the first quarter of this year.

And 30 basis points higher than last year.

Normalising for our recent capability acquisitions, EBIT margin increased 130 basis points compared to the prior year quarter.

We still expect our full year EBITDA margin to improve throughout the year and exit around 200 to 250 basis points better than the prior year.

This will be driven by solid revenue growth and synergies realized from acquisitions.

Interest expense increased to $65 million a year over year, driven by the increase in sopher on our debt stack the.

The impact of higher interest rates resulted in an approximate 57 drag on Q2 adjusted EPS.

Over the past few months, we've been monitoring swap rates relative to the sofa forward curve and.

In August we executed $2 billion, a fixed rate swaps with an average maturity of three and a half years, an average fixed rate of 4.3%.

These swaps provide immediate positive carry of approximately 100 basis points and ladders out the fixed rate portion of our debt stack, which is now approximately 60% fixed.

These interest rate risk management actions capitalize on the strong relative value of swap rates at the three to four year point on the curve generating an immediate benefit to interest expense and substantially reduces interest expense volatility going forward.

Without incurring outsized duration risk.

Are effective tax rate for the quarter was $26, 6% versus 23.7% last year, which reflected the discrete tax item that positively affected of 2022 tax rate.

Now turning to the balance sheet.

We ended the quarter with $1.25 billion in unrestricted cash and we had $768 million available on a revolver.

We have $5.5 million outstanding on our credit facilities, and we had $1.25 billion borrowed under our securitization facility.

As of June 30th or leverage ratio was two six times trailing 12 months EBITDA is calculated in accordance with our credit agreement.

We made no open market share repurchases quarter, and we are still have over $1.2 billion authorized for share repurchases.

We have ample liquidity to pursue near term M&A opportunities and continue to buy back shares when it makes sense.

In addition to Ron's overview of our full year guidance, let me give you some additional detail, including some thoughts on our queue three outlook and supporting assumptions, which can be found in our supplemental materials.

For the full year, we now expect GAAP revenues between 383 $6 billion and $3.86 billion ajar.

Justin net income between 128 $1 billion and 130 $3 billion.

<unk> net income per diluted share between $17.09 and.

$17.35.

And finally EBIT growth of 17%.

Four Q3, we're expecting revenue to be between $980 million and $1 billion and adjusted net income per share to be between $4.44 and $4.64 per share, which at the midpoint is up 7%.

Over what we reported in Q3 of 2022.

All of these estimates include Russia for the full year.

We are now assuming in August close of our Russian business as we continue to work through the final closing details.

Upon close we expect revenues for the year to be $45 million to $55 million lower resulting in a 25 to 35 cent decline and adjusted EPS over the remainder of the year.

Based on using the sale proceeds for buybacks.

This guidance is consistent with our previous guidance after adjusting for anticipated August clubs.

Related to our guidance assumptions, we are using $3.66 for our fuel prices assumption for the rest of the year.

Our interest expense guidance of $330 million to $340 million is based off an average sofa rate of 5.31% for the rest of the year.

Additional assumptions can be found in our press release and supplement with that.

Thank you for your interest in fleet Gore and now operator, we'd like to open the line for questions. Thank you.

Thank you ladies and gentlemen, we will now begin the question and answer session. So do you have a question. Please press the star followed by the one on your Touchtone phone, you'll hear a three tone prompt acknowledging your request questions will be taken in the order received.

Wish to withdraw your question. Please press star followed by the two.

If you're using a speaker phone please lift the handset before pressing any keys.

First question comes from.

<unk> with J P. Morgan.

Please go ahead.

Okay, great good afternoon, everybody.

I appreciate the the update on <unk>, I guess <unk> I want to ask you.

You're moving forward with the strategic review.

You mentioned a couple of.

Of options on the separation and.

Some views on the non core so and I know, it's probably learned a ton here I.

Don't think you're going to tell us, which what you're leaving per se, but as you learn.

This process I mean have you changed your priorities on on.

On how you're gonna seek value and I know this is taking up a lot of your time, but as the preference to seek immediate value for certain or.

You know or there's some other things that you see that could be valued created that maybe you could let us over the meat the longer term if you're calling my question. Thanks, really immediate gratification versus sort of a longterm.

<unk>. Thank you.

H N should have no idea where to go with that.

Well, that's all right yeah, we're obviously.

I tried to say the the opening work cause I think pretty hard right run its release these three or four different areas.

I guess I would say in terms of the leading you're calm and of.

K, what do we think what do I think.

Has the chance to rearrange I get value I, I'd say two things one lasik.

<unk> getting people to believe that sleep business.

We're gonna transfer vehicle business that that's got a adorable you know an exciting future is kind of job one two and three cause it's so big it's such a big part of the company.

Yellow, particularly the E V part of that story. So I'd say, we were working that like Super hard and.

Will come forward with some stuff at 90 days.

The second one on the separation thing I'd say that.

To me the the.

Separation is much more interesting and compelling if we could do it in combination with something not only because I had to create more scale and stuff in the space, but but also potentially have a bunch of synergies with it so the structural.

Separation enables in some ways.

Transactions that are not as easy you know out of the mothership. So I say that those are the my Jewish the fleet reinvention, where people believe in the future and the potential for separation. There would also include a combination.

So I <unk> I wrote down wrong. Thank you I didn't ask the question very well I think you mentioned that E V would accelerate growth and the fleet business with <unk>.

47% did you feel like you have a good line of sight now at least in the short the midterm on the.

You know on the AVP somehow it would supplement growth within flea can you tell us a little bit more worthy sources of revenues are coming from.

Yeah. That's that's another question I mean, the first name change it is just.

If you take existing account the defence nature, so hate as vehicles.

Millions of vehicles, what are some of those vehicles or a visa the first conclusion or forming conclusion is we don't care.

Be a different no matter, what commercial vehicles exist and a bunch of years from now as long as they're currently at all by the company. We can make money, we can make revenue in the back or make it more <unk>.

Second one is it's looking like because R. E D stuff is a bit better or out ahead of other people, including for example, the oil companies that we might do better in our basic selling and retaining.

You know a commercial fleet that we have because we get advantage by half of the combined.

Oh fashion, a new fashion package and then the third one we've got a new trick comment on the consumer side, which is a segment. They were not in so to the extent that we can light up the consumer side by just.

Repurposing the stuff we have so that's kind of the 123.

Neutral.

Flat kind of in the first one went a bit more in the commercial and then add the consumer that that would be the tri sector.

Oh that's helpful. Thank you for <unk>.

It's always good to talk to you.

Thank you. Your next question comes from Ramsey <unk> from Barclays. Please go ahead.

Hi, gentlemen, thanks for taking my question. This evening I wanted to ask about the fried segment organic revenues came in above our model I think you've called out some outperformance in international markets, Mexico, Australia. Just curious what was the driver there that sort of upside surprise and should we expect whatever boosted growth.

Finale to kind of continue to the remainder of the year.

Hey, Ramsey Uhm question.

Alright, and just a variety of things I think we saw some good transaction activity and our international markets.

Moderate mortgage diversify beyond just you what we have other businesses within that week segment that it also helps drive growth you know so it's just a function of of you aware of the business was performing I'll also save fuel price and our international markets, where stick your particular with the retail side.

What we didn't necessarily would experience here in the U S. So that would also help kind of bolster the international side in the overall revenue growth.

Yep, Obsequent, where you look at that growth rate going for way.

More successful in closing the Russia transaction.

Affect it to some degree but your overall.

You're a nice healthy pick up in in the overall growth rate.

Hey, Ramsey is Roger just add I think you said on the last call did the same with caught it take along right that it was it was lower and so kind of been single digits is still kind of where our guide is.

Okay, Alright, and I think the answer to this question is probably no based on your performance on the corner and your guide, but for that but I wanted to ask regardless any impact from the yellow bankruptcy I. Another another customer any residual credit exposure or anything like that.

No not.

So no exposure to yellow.

Got it short answer short short question short answer appreciate it. Thanks.

[noise]. Thank you. Your next question comes from <unk> with Credit Suisse. Please go ahead.

Great. Thanks for taking my question and I just wanted to follow up on <unk> question on the fleet take that could you tell us what growth was in the North American Fleet segment, maybe just like on the same store sales basis.

And then as my follow up question.

Should we expect that this mid single digits revenue per transaction growth to continue in the second half. Thank you.

Yeah, we actually don't break it down Yonder segment level, So I mean, I I think.

Yeah, we kind of keep it at the total sleep level.

International business outperformed you asked but getting the kind of details is just something that we stay away from and then.

Going forward I think it's sweet.

We just said I think you can continue to expect borrowing you know, we see fuel prices and spread to somewhere in the range of of our guidance.

You can see that mid single digits like Rosemary as we look ahead into acute you're asking for.

Hey, Thanks for calling me, let me just add on top of a toss it pretty consistent.

Same store sales is asleep business.

Look about the same the last few corners of not not a lot going on there.

Thanks for all.

Thank you. Your next question comes from Darren Keller with Wolf Research. Please go ahead.

Hey, guys. Thanks.

Maybe just hone in on the core pay so I went for a minute just given how strongly continues to be and if we break down the.

If we break down the segment by obviously the different sources of growth I'd love to hear more about what you're what you're seeing the most strength out of and sustainability of those I mean, he made some comments obviously on nvoicepay, but anything more would be great and then Iran. I know, we've touched on cross selling that business into the fleet side as well. So curious on your thoughts there. If if there was any been been any progress.

Yep. He got good good question, Yeah. So first off we're happy you know someone picked on US for me I think last time, San eighth at around 20 per cent I think it was 19, so I don't think guys off.

22, so so on the strange side the direct business is what I say, we'd call out before they were not happy with the channel as a part of your business with a things started seven years ago that thing is still negative and trending down so they end up with 22.

The holiday to tell you that the direct stuff as well north of 22, which obviously we're super.

Excited about there's no concentration on that business. So so that's doing well and I do need a call for the cross border thing I mean, I don't know if you heard it but the sales.

This was up 8% eight zero percent quarter over quarter. So it's an all time record of the amount of new business that we sold a cross border was just crazy in terms of sale. So I don't know able hear this the sales in that business and the performance and the director.

Is this our our tiny way about what we got through with it.

So your last question on cross L. So we did an interesting thing.

As part of the strategic review, where we looked at our three biggest businesses in the U S. Rightfully lodging in corporate payments and we said, let's go and do what we call. The Blue box. So companies that are not like micro call at about 10 million.

And we focus on three industries, where about 70 per cent of the clients are and we find that we've got about 15% to 20% overlap alrighty.

So in other words, when we take the clients that lets a fleet has the lodging as in the corporate Damon's <expletive> that are kind of not small and we say hey, they have more than one the answer is lots of the clients have more than one.

15 to 20 per cent overlap.

And the reason that we have a call out before us because we started in those it'll product silos and N and unrelated brand <unk> three products. So now clearly we started advertising.

You know kind of the core pay brand to those fit that your account tell him Hey, we got all three things. So everyone should expect that there'll be more of that more of the same had a decent size perspective costs were taken taken everything we've got.

Good good that's good to hear.

Just just my quick followed would be around capital allocation you know I. It just seems like there was a little bit less in the way of buybacks in the first half so.

Is there any change to your strategy on cap allocation or is it waiting for the Russia deal to close or anything else going on that we should just be aware of.

Yeah, that's a good that's a good follow up so.

Mm no change, obviously M&A continues to be the <unk> dog and given the strategic review if somebody M&A activity, that's inherent right in the combination.

It's that I've made so that that that's part of it and then the second one you got it we we basically will earmark proceeds it towards successful at closing out the Russia sale Angela prepaid sale, usually if that will be biased dot <unk>.

Okay. Good.

Thanks, Rob.

Thank you. Your next question comes from Peter Christianson with Citigroup. Please go ahead.

And then the guys. Thanks for the question Nice nice nice trends here I wanted to first to talk about the the the margin expansion that you're you're looking for this year, which is pretty commendable considering.

The full full price decline, which which is.

We all noticed it can be quite detrimental just wondering where where you're seeing the sources of margin uptake I guess for the full year I guess the second half of the year is a make shift is at that particular segment that you're seeing better cost execution operating leverage any color then it would be helpful.

<unk>, let me start <unk> Thom Jumpin. So the first one is there's always operating leverage inherent in the business right. So as a revenue climbs rights are second AD revenue will be up I don't know 100 150 million P. <unk> is our guy over the first.

So.

The marginal eat at a slow through on that incremental revenue was Super Duper High and then the second one I'd say, it's kind of laughing the capability acquisitions I think we said earlier that that sapping, you know call. It 100 to 200 basis points out of our EBIT margin Ryan investing in <unk>.

Things for the future so as we laugh that <unk> will pick it up in fact, the the piece of paper in front of me is our internal Q4 forecast, which as Arkansas Holidayed marching up all 340 basis points. So if the revenue comes in until we get the operating.

Elaborate Julie laugh that thing.

<unk> will be way stronger exiting two four than they were last year.

Yeah.

Keep it on the acquisition problem. We also expect to continue to realize the synergies from R. G. R. T acquisition. So that'll help some and then also stock cough Baghdad will also improve relative to your year related to those two items as well so.

Items in.

<unk> I'll go with the acceleration March.

Yeah, <unk> one right. That's in groups of Fries, I think lots of people right in the second half, which is why we reacted relatively quickly and we're seeing the transpose. It won't we reported here and what we're forecasting so the toss point is a pretty big step down.

As you execute for which which.

Obviously is super helpful to the E P J Martin.

No. That's a good point you guys just have a good history of getting after that that.

In the past for sure my follow up question I've gone head on it earlier.

You call that some really impressive grow and and core pay, particularly the cross border and and certainly file a P. Just wondering if you could paint the picture.

At least qualitatively, what's going on in the virtual card side in the direct side, a little bit more just give us a sense of the direction of.

Those slices of business would be helpful. Thank you.

Yep.

<unk> I think you know.

As I mentioned the sales as the lead indicator right. So the fact that not only in the corps, but I'm looking at is a year today. It so it's a record level.

Sales both of the payables side of the business end of the cross border. So that that's the that's the first point.

And then in terms of what we're selling.

The mix shifted more to fall a P. But we still do sell standalone virtual card and and I think it.

<unk> with a rule of the idea of having you know.

Both areas to draw on a look I'll pay some of your bills now or all day all of your Bill you you tell me what you want.

Give you some money back either way so that that too for a pitch I think is resonating. So we're still selling both the stand alone and the ball, but a bit more of the full these days.

<unk> good acceleration on just sheer volume increase and some of that is from the sale with someone that's just from deepening with our existing customer base getting implementations onboard it.

It also working real hard to try to get as much carnival spend as possible. So so all of those things in terms of the front door and mining the existing portfolio all drive that that the president gross gross low.

Oh, thank you.

Thank you gentlemen, good.

Could result.

Thank you and your next question comes from Andrew Jeffrey from two of Securities. Please go ahead.

I appreciate you taking the question great results in Incor pay which is good to see.

May maybe for you Tom can you elaborate a little bit on what mix might need to <unk>.

Yield in that segment are you sort of relatives and maybe gross profit to relatively indifferent to fullstack payables versus F X and you know <unk>. If FX continues to be as strong as it is anything we need to think about as far as mixer contribution margin or gross profit margin within that segment.

No they don't they don't differ materially between the.

Subsegments within that overall business.

Of them are attracted are also <unk>.

Different businesses are tables business is much more domestically oriented or cross borders much more internationally oriented we'd like the diversification, but that brings but but there isn't necessarily material March in different that that you need remodeling and I think both of them. He knows Ron mentioned just in terms of what we see from a <unk>.

<unk> perspective have very strong sales results solid pipeline.

Both of them have recurring business with existing customers you may kind of think across borders more transaction oriented wanted John kinds of relationships or anything but that there are generally customers recurring tiny cross border transactions.

And so does not provide those kind of a healthy recurring type revenue stream coming from from those businesses. So they're more I enter that of products and their geography.

<unk> and their compositions are more similar than.

Normally thick.

Andrew It's Roger just.

Oh, one other difference to the point out on top of Thompson, The cross border of business not only would make a lot of sales and their sales are way up but their cost of sales are super attractive.

Second most sufficient sale in our company in terms of what it cost us to get a dollar sale. So would love that and then second uhm. They started super fast so the star right.

What you would call. It a limitation is super-duper quick from kind of well. We wrote letters day is contracted so those those are two things actually about that particular line of business that make it really attractive.

[noise] okay.

That's helpful and then I wanted to touch a little bit if I could on the the digital marketing initiatives. It sounds like they're starting to gain some traction market any sort of L. T V to CAC considerations as you sign those those bigger accounts that we need to be thinking about.

Yeah, I'd say not not really Andrew I'd say, it's pretty complicated too you know <unk>, a big machine like that that gets to <unk>.

<unk> way like you know like a piano or something gets to to work a certain way and then we kind of all.

<unk> the thing and say, Okay, we point the machinery a different way so it needs to grab lots of data. This started to kind of sort itself out again, so it's taken probably a bit longer but as I said in my old when it gets working the the number of big or knew of cows coming to us digitally is <unk>.

Rolling now so I don't want to say it was easy, but it's way easier to stop the problem pages don't sign up the small ones, it's way harder to get more of the big one. So we've always I think 50 per cent of our business has always been stinker account. So we're totally used to that both.

On your writing and and servicing I'm, just starting and all that so really it's just getting smarter about how to spend money to get the the you know the appropriate segment die in the door.

Okay. So it sounds like only upside from here.

Yeah, getting better I mean, that's what I wanted to call is getting.

Get a little I brought that thing to a screeching halt because we we're not gonna oppose them Crazy credit number and the good news is that work spread it out was already down and we're forecasting is roll rates for it to be down. So John one is past tense is accomplished jaw to <unk>. Thank you to to get better the number two bigger stuff.

It's increased and now it's all the guy, it's getting up and they'll get your or swallowing, we need way more of it. So will report whether you know we're picking that pays up as as we run to the second half field.

<unk> straw and those are actually already at a larger clients second level and and they continue to be a significant portion of the overall and Nathan are doing quite well as well so.

Bumper is a little bit of the impact from our pivoted Israel.

Okay I appreciate that thank you.

Thank you. Your next question comes from <unk> with Deutsche Bank. Please go ahead.

Hi, Thanks for taking my question I wanted to ask about monthly trends in the organic sweet business as we move through the second quarter and then any update on what you've seen in July and August month. The date. The reason I ask is that previously you have 24 sort of a continued acceleration off of that three per cent organic growth that you saw.

And the first quarter through the remainder of the year. So kind of just wondering how that kind of threw the quarter and I know you got into mid single digits for the full year, but just wondering about the potential for a continued sequential acceleration is the three Q.

Oh yeah.

<unk>, Yeah really grow with nothing perspective, I won't really normally is obviously, there's a certain day count how many weeks within a particular model that can kind of skew the numbers from from month to month. So it can be a little bit.

You need to kind of just look at the pure months, but just from business momentum perspective, Wednesday, we saw significant shifts in terms of volumes to transactions and things like that as we head into July I'd say, probably more of the same maybe with the benefit of what we see more recently a ticket.

And and crude that'll translate into higher retail and so that should provide.

Ah number that's right within the guidelines number that we reference right and you have 365 or 66 range. So nothing nothing really out of the ordinary to to call out.

I think we'll continue to expect some level of seasonal gross and the summer continues we can get into some of the <unk> heavy agricultural months. Those months can also drive a fair amount of usage. So all of those things of bitcoin is to go to the direction. We've commented on your earlier uncle.

You've got it I appreciate all that color and I guess for my follow up I'll ask on laundry and I don't think that's come up here. The Q&A. So revenue growth 14 per cent off a very difficult comp was impressive but noticed that revenue nights were down sequentially a year over year and then I also believe in the prepared remarks, you mentioned, some softness and manage a cow.

<unk>. So maybe you can give some color on that soft reset your receipt and then relatedly maintain sort of that mid teens growth for the four year, but any color on the cadence of growth as we move into the back half and comps get a lot easier moving past the second <unk>. Thank you.

Yeah, and a a pay as Ron again, so yeah, you're right I did I did call. It out I I'd say, what little surprises not really Super sure why but let me go through our managed to ask what's your name which means something like.

Groups of people could have solved in groups or an environmental group utility going somewhere so larger groups like going to a place like to do something merchandise and groups that would go you know to Walmart <unk>, that's kind of what that business is and.

And so for some reason some number of house just on their own.

<unk>. Thank you to the double your outlook and so when we call. It's not Super clear, we say hey is that is that gonna be at that level kind of where you are before so that was kind of a bit call. A couple of points the growth of the soft pocket that we did not look so I'd say, we're not super certain <unk>.

Look like going forward, it's not like a lot of them quit us together.

The retention rate.

So we're hopeful that whenever that is was kind of trance jewelry for the core.

[noise] later on that.

Data that we have a nice diversification of airline an insurance that kind of helps offset that as well.

Pretty good strength as as we commented earlier.

Okay, and we have a big when we call cost of business a giant accounts like railroads trucking firms, we have a small S. M. B business, we call. The rash of there's a lot of other segments of the business, but it was this one this is kind of consulting <unk> I didn't want to call out [noise].

It looks still add it was a change of plan that does is it the team. So it's it's performed above that level. So wanted people to be clear still happy with it.

Off the secret out of course.

Thank you. Your next question comes from Trevor Williams with Jeffries. Please go ahead.

Great. Thanks, Hey, guys. So on Russia I appreciate the updated sale impact on the reported numbers, but was hoping we could get some help on what the organic growth in fleet in the quarter, what it looked like X, Russia and the same thing for the mid single digit target for the full year for flea you just want that growth rate would look like without rush.

Thanks, a lot.

Yeah sure we'll update all of that when you have a transaction closes and what kind of refresh all of that let us come back to you on that I think until we kind of get the transaction closed.

Way of reset after that if that's okay.

Okay Fair enough and then on the guide.

Ron you alluded to there there's still a decent amount of sequential growth implied both for the third and fourth quarter, maybe just talk us through especially for Q4 kind of at the level of visibility. You think you have in that gets $20 million, that's implied quarter over quarter in queue for it sounds like maybe you're getting some of the new sales into the larger fleet.

Customers that might start layering on but anything else just on kind of level of visibility into that thanks.

Yeah. Good good questions. So the first thing I'd say is usually kind of decent luggage July . So that's always helpful. So that's tracking to archive, so what Tom and I built the second half the output. We have is that that that's on track.

Yeah. The thing does bill sequentially, which is.

<unk> favorite thing about the business I think I told people to snowball he started downhill.

There's more schnauzer rolls down the hill. So that's the nature of you know recurring revenue business as we ate sales over head of sales year to date and I My call like corporate payments, which is way ahead is that stuff gets implemented into Tom's boy that attaches more snow the ball rolls and obviously sequentially I think Rob.

40 million sequentially already you too.

Versus Q1, so I'd say look our confidence is pretty high we're on track <unk>. We have the sales in the bag, we just need to get them implemented and then there's the seasonality right Q3 is always a super duper corner at King for better odd in Q1, So we get some benefit of.

You know strange you know for example, Brazil is always Super Duper. Good for example in queue for so we've been out a long time, I think unless something goes sideways on the planet.

We're pretty comfortable with that with a guy.

Thank you. Your next question comes from <unk> with Bank of America.

Please go ahead.

Good afternoon, and thank you for squeezing media I wanted to ask a little bit more about sacred. So you know just so revenue, but <unk> spend in corporate payments.

I'm pretty good growth that they get logged in you called out it was brought up in channels of it but maybe I'll talk a little bit more about the seats like within particular, what drove the spread good revenue per transaction that and also incorporate payments. If you wouldn't mind. Thank you.

Yeah, I'll take a swing at that and I I may have missed a lower the question it take right in both corporate payments and sleep.

Yeah, Yeah, correct, Okay Gotcha yeah.

Generally just kind of mix.

Really nothing in particular to to call out to see a little bit of an increase in tech right. When you refer to our release.

Again, it is a pretty modest increase so I think it's just a matter of just mix of business and really nothing more to really call upsize that we're always go competitive with respect our pricing and things like that so you know I I think.

We'll also factor into our overall spread and and how those things. It played out so it's just a combination of things, but nothing really out of the ordinary.

And that's kind of.

What you're seeing in the numbers in terms, which is kind of a slight increase in right.

Hey, My ears, it's Roger just to add to that which is in corporate payments.

Nick ship the Tom refers to we think will go on so when we tell you guys today that will grow and you know mid to high twenties, and the direct corporate payments business and that the channel business is going backwards, the delta and those take races significant.

Paul at four or five times different. So every turn of that you know every fall with quarter with a direct business as well, let's say 25 per cent or I or in the channel business shrinking that will improve that right prozac.

No that is helpful. Thank you and then if I could ask one big one more just a big picture type question.

You know I think the earlier you were talking about you know.

Doing a little bit more digital marketing mall cross-sell at the same time you are in the midst of a strategic review about potentially divesting some business is that.

And I just wanted to ask about you know the <unk> with that.

Hello aggressive or are you going to be on <unk> there'll be nowhere the strategic review as in make up.

Yeah now that are really good question. So I'd say that we're we're trying to learn I think the the first you know finding today is that we have cross Ellen when we study among the larger clients that we had do they use more than one of our products I'm I'm reporting today, yes, they do.

So the second thing we're doing is advertising now that we've consolidated the brand or generating way more leads by offering up you know more solutions to.

The same perspective company. So I think that's just another <unk> input for us potentially and you know synergies or just synergies and O. As we think about the separation. So obviously to the extent that the separation still may lots of sense. There's no reason, we couldn't have some kind of.

You know agreement commercial agreement with a company afterwards as an example, so I think we're just running them on you know separate tracks and learning, what we can and and see where it lands us, but it's clearly an input into the separation decision for sure.

Got it. Thank you. Thank you for taking my questions.

Thank you. Your next question comes from <unk> from autonomy Research. Please go ahead.

Hey, good evening. Thanks for taking the question I just wanted to ask about corporate payments. You know I think you mentioned run that the cross border New business is up 80 per cent quarter over quarter.

Those new sales ran pretty quickly. So I guess is the expectation that this business grows above 20 per cent or maybe even north of 22 per cent for the rest of the year and into 2024.

[noise] Yeah. So let me let me make sure it's clear what I said I said, the corporate payment sales, which your boat, which is pellicle, we call payables internally in cross border collectively that that book was up 80% you are over the years that the first one and then the second point is yes cross border.

Implement as quickly payables does not.

So to the extent that some amount of that incremental relatives and tables, that's actually 2024 benefit more than is 20 twenty-three, but but on the guy and I don't have it in front of me. My My guess is that we're still guiding and the overall to 20 per cent plausible repayments business.

And that's okay. I don't know if you guys figured it but it's kind of working sales are working revenues working so it's <unk>.

The transfer shortly in a good spot.

Yeah totally and then run I guess you just real quick just on the strategic review and the and the separation sale spinning et cetera. I mean are there certain you know kind of segments that stand out in terms of you know have having a greater opportunity to create more value.

And anything else that you see just on the Dissynergies I know you mentioned.

Some of the overlap in the customer base, but just anything on Dissynergies as you think about.

The different the different segments.

[noise] Yeah, Yeah, I think the strategic review, what we call value creation planet, it's pretty complicated. So that's why I tried to check through kind of a for you know.

Different pieces kind of how we operationalize review right from the the rush is saying, which is kind of a political and emotional pain to the non core assets to this late reinvention turn to the separation and so on.

Or full speed ahead issue hurt on on Russia thing was full speed ahead on the non core businesses, including a couple of small things that they sit inside the vehicle business.

So I think the question everyone has really really a three big business is why we have you know fleet lodging, a corporate payments and I think people are focused on fleet, which is half the company or 40 per cent corporate.

Corporate payments, so that's really where we're focusing the attention on the separation what would the company be better off if fleet and corporate payments were not all part of the same mothership or some way separated whichever whichever one was separated so I'd say that's the primary you know issue with you will question that.

We're trying to answer and as I mentioned before we're looking not only at quote pure separation are standalone separation, but looking at the idea.

Some combination you know in parallel with with a thing. So so that's what that's what we're working on and yes. Unfortunately in a separation, there's there's dissynergies I mean.

It takes away the most important thing, which is really the ability to sell something where you can get a design price I would like to know you know.

What something is in and have my eyes open and so you know, losing whatever 25% or 20 per cent. After the cost base makes a straight sale of one of those businesses pretty difficult you Gotta get a really good price right to cover that acts Dissynergy, but then we're looking really particularly around.

L a I T and management.

<unk>, which is what what I T is commingled and how would we run this stuff you know manage early so we're kind of digging through all that and want to make sure that any any you know thing that we that we pull that it would be worth it I said the benefits would far outweigh.

Cause here. So we're still we're still working at N. M. We we did commit too it's a work week because we can't study it forever and answering all night, when we talk to 90 days.

Okay, Great alright, thanks right.

[noise]. Thank you. Your next question comes from <unk> with Evercore ISI. Please go ahead.

Hey, Thanks for taking my question I have a question on the.

On the bags of business.

Nine witness strong growth of around 15% and <unk> and <unk> was it a good one seven per cent and strong seems good tube.

Can you talk about what's walking in terms of the products the date grades and that and that's segment was also pretty much sequentially. So what's driving the taken it higher and how should we think about the bakery. It's 432 info from you any kind of would be appreciated.

[noise], Yeah, I think that first of all I need is a great a great question because it highlights you know the pivot and strategy there right that what you said the volume of catches up 7% of the revenue the revenues abdominal and so.

2.1 is the the volume is healthy partly because we keep widening the distribution channels. So in the last you assign to the five biggest banks in Brazil to sell our staff are <unk> tags.

Those things are pretty added that channel doesn't cannibalize March the other ways that we sell tag. So we're reaching you know prospective customers that we that we were reaching before so so that's that's super helpful. The second one is the the take rate and the incremental growth is really from the add ons. So the.

Fuel that were selling back of the tag holders as compound and I don't have it in front of new policy 40, or 50% and then these insurance add ons vehicle insurance add on for.

Like contents and micro insurance are crazy and demand and so we're bolting incremental revenue onto the same account without adding any more tax and so I think that's what we said everybody was the idea that business was <unk> distribution of sophomore tags.

Cause we have millions and millions of customers. They are five more things that are vehicle related like jewel and parking.

You know an insurance that we could add on and and the answers we are and just as a reminder, in the first quarter I think almost 40% of the spend in Brazil was beyond told <unk>.

Lots and lots now of purchasing there is is in the coke beyond <unk>. So that that's the idea for the business.

Yeah.

Their remarks, it was right at just under 40 per cent this quarter again in terms of our customer base.

Much was coming from.

Revenues coming from products other than our tech subscription.

So it's it's showing good success theirselves.

<unk> has been.

Continuing to add to the momentum of that business.

Yeah, just just thought I was <unk> tired or whatever whatever it is.

The sale of the absolute sales.

Eight year to date or a record level and for the last three years every year, it's been a record level overall sales versus the prior year.

So there's been no slowdown in the rate that we're you know, we're reaching new customer. So again, it's another business that I'd say is working.

Thank you so much that sounds fun.

Thank you.

Ladies and gentlemen that there are no further questions at this time. So this concludes the conference for today you may now disconnect your lines.

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