Fleetcor Technologies Inc

NYSE:CPAY

Earnings Call Transcript 2022-Q1

[Operator]

Good day, and thank you for standing by. Welcome to FLEETCOR First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the call over to your speaker today, Mr. Ron Clarke. Please go ahead.

[Jim Eglseder, Head of Investor Relations]

Good afternoon, everyone, and thank you for joining us today for our first quarter 2022 earnings call. With me today are Ron Clarke, our Chairman and CEO; and Charles Freund, our CFO. Following comments, the operator will announce that the queue will open for the Q&A session. It is only then that you can get in line for questions.

Please note, our earnings release and supplement can be found under the Investor Relations section of our website at fleetcor.com.

Throughout this call, we will be covering organic revenue growth. As a reminder, this metric neutralizes the impact of year-over-year changes 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 in other companies.

Reconciliations of the historical non-GAAP to the most directly comparable GAAP information can be found in today's press release and on our website.

I need to remind everyone that part of our discussion today may include forward-looking statements. These statements reflect the best information we have as of today. All statements about our outlook, new products and expectation regarding business development and future acquisitions are based on that information. They are not guarantees of future performance, and you should not put undue reliance upon them.

We undertake no obligation to update any of these statements.

These expected results are subject to numerous uncertainties and risks, which could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's press release on Form 8-K and in our annual report on Form 10-K filed with the Securities and Exchange Commission. These documents are available on our website and at sec.gov.

Now with that out of the way, I will turn the call over to Ron Clarke, our Chairman and CEO. Ron?

[Ron Clarke, Chairman and Chief Executive Officer]

Okay, Jim, thanks. Good afternoon, everyone, and thanks for joining our Q1 2022 earnings call. Upfront here, I'll plan to cover 4 subjects. So first, give you my take on Q1; second, lay out our updated rest of year 2022 guidance. Third, I'll give you a brief update on our Russia business. And then lastly, I'll share some new things, some good things happening in the company.

Okay. Let me make the turn to our Q1 results. Terrific really, really great performance. We reported revenue of $789 million, up 30% and cash EPS of $365 million, up 29%.

Revenue came in very strong, about $40 million above our Q1 midpoint guide with only $12 million of that beat macro related. So a lot of very good fundamental overperformance in the quarter.

Organic growth overall 15% for Q1 and each of our 4 major lines of business all growing organically double digits. Trends in Q1, excellent. Sales up 39% versus last year. we added about 50,000 new clients to the fold, sold in Q1, and over 50% of all of our new global fuel card clients came to us digitally. So a terrific sales quarter.

Steady revenue retention of 93% and healthy same-store sales for the quarter at plus 7%. So Q1 really 1 of the best quarterly performances that I can recall.

All right. Let me shift to our updated rest of year 2022 guidance. So First off, we're expecting a bit of a mixed macro rest of the year. So on the positive side, our clients are healthier, spending more, which we can see in the volumes. Fuel prices are at record levels. And the Brazil currency has rebounded some since the start of the year.

On the not-so-good side, we're out looking higher interest expense really depending on the pace of the rate hikes and likely higher bad debt expense. The real wildcard we think, for rest of the year is the Brazil FX has continued to be quite volatile year-to-date.

Fortunately, we're enjoying pretty strong fundamentals exiting Q1. We've got healthy volumes. We've got record sales. We've got steady retention. So all the things that set up well for us for the rest of the year.

So with that, we're revising our 2022 full year guidance today up as follows. So revenue to $3.36 billion at the midpoint. That's up $140 million and cash EPS of $15.60, that's up $0.35 from our initial guide. So a much stronger full year 2022 outlook today than we had 90 days ago.

Assuming we achieve today's guidance, it would imply full year '22 revenue growth of 19% and full year '22 cash EPS growth of 18%. So that would be back-to-back years post COVID 2021 and 2022, in which FLEETCOR would compound earnings by 18%.

I do want to remind everyone, we are outlooking still meaningful sequential improvement in the guide as we run through the year with our Q4 revenue expected to be up about $90 million versus our Q1 print.

Okay. Let me shift gears and give you just a brief update on our Russia business. So I'll start by reminding you that Russia represents a very small part of the company, about 3% of revenue. So on a 2022 annualized basis, Russia will contribute about $85 million in revenue and approximately $0.77 in cash EPS.

The Russia business is really a pure fleet card business. It runs very stand-alone, and we employ about 600 local employees. As you can imagine, we've been quite busy since the start of the conflict. We've been taking actions to derisk the business. We've been complying with the ever-evolving sanctions, and we continue to weigh the various options that we have.

We're certainly being super cautious to take care of the well-being of our employees. So look, we'll continue to keep you updated as the situation evolves.

Okay. So last up today, I'd like to run through some good things that are happening in the company. So first, some new wins. So we've got a fair number of notable new wins and client renewals in the quarter. So just a couple of examples. Speedway, one of our largest North America retail partners recently extended their relationship with us, delighted with that. Amazon awarded us their middle mile trucking fleet, which has grown like a weed. We won the Eclipx fleet leasing business contract in Australia, a pretty big piece of business for us in the region.

Second, cross-sell, we really like the cross-sell opportunity in front of us. We're still exploring selling our corporate payment products into our fuel card base, and we're progressing selling our add-ons to our toll customers. You've heard us talk about selling fueling. We're also testing now selling insurance and even lodging. We did reach 1.7 million add-on fueling transactions in the quarter to our total customer base, so progressing quite well.

Third, EV, we're going on a offense. We've talked previously about building capabilities to serve our fleet use case and protect the customers we have and the revenue we have, we've now identified a couple of new customer segments that we can repurpose we think our EV assets like our network to and generate incremental revenue beyond the fleet business. So potentially here some incremental revenue upside to the energy transition.

And lastly, we had our off-site -- growth off-site meeting last month and set the internal goal of selling 1 billion of new business annually within the forecast period. So pretty excited to aspire to $1 billion in new business. We've concluded -- we have the product set now and the TAM to do it, and we think we've built the marketing, credit and digital underlying capabilities to do it. So super excited about chasing a bigger number.

So look, taken together, new wins, cross-sell opportunities, EV on offense and selling more pretty exciting for us. So look, in conclusion, today, just a few final thoughts. So one, our Q1 results were terrific, clearly better than we had expected. Our rest of year or full year 2022 performance expected to be much better than we envisioned 90 days ago and lots of good things, new things happening in the company. So all in all, we're in a pretty good place. So with that, let me turn the call back over to Chuck to provide some additional details on the quarter. Chuck?

[Charles Freund, Chief Financial Officer]

Yes. Thanks, Ron. So before digging into the financial results, I'd like to make sure that you were all aware of the new investor deck we posted on our website a few weeks ago. In there, we tried to simplify how we talk about the company. At its core, FLEETCOR provides a set of corporate payment solutions to help businesses reduce spend. Now we do it in 2 ways: one, by enabling and controlling what's purchased. We call this expense management, and it comes in a few flavors like fuel, tolls and lodging; Or two, by enabling controls after the purchase, but before the payments have been made. We call this AP payments where we provide the options businesses have to make their payments, such as online bill pay, full AP outsourcing, virtual cards and cross-border. So when you think of it this way, the company really does only 2 things: expense management and AP payments in a couple of different ways.

So with that context, let's look at some more detail on the quarter. As Ron mentioned, we posted an impressive 30% growth quarter, including 15% organic growth, which I'll get into in more detail in a moment. About 10% or $58 million of the growth was due to acquisitions we made last year and about 3% or $21 million came from macro tailwinds.

Speaking of macro, fuel prices were $3.88 per gallon for the quarter, higher than our $3.40 guidance assumption based on January levels. Higher fuel prices contributed about $22 million of additional revenues versus prior year.

Now we exited the quarter with fuel prices at around $4.50 per gallon. We do think this will moderate some over the balance of the year. Fuel spreads in the quarter had a positive impact of about $5 million, and we had a $6 million negative impact due to lower foreign exchange rates as unfavorable movements in European currencies, which affect our cross-border and fuel business, more than offset the strength of the Brazilian reals that helps our total revenue.

Now moving to organic growth, starting with AP payments. Our corporate payables were up 23%, and that was led by full AP outsourcing, which was up over 50% yet again, driven by continuing strong new sales. Cross-border was up 17%, and that's normalized for the AFEX acquisition. The cross-border team had a great quarter as new sales remain strong and activity recovered in Australia.

And moving on to our expense management solutions. Fuel was up organically 14% as new sales growth of 25% and higher same-store sales of 3% to 4% continued to drive the performance. I may sound like a broken record on this, but we continue to see fantastic results from our digital marketing and customer acquisition efforts across this business.

Tolls were up 18% compared with last year as the business just continues to perform. New sales are solid and retention initiatives are showing to be quite effective as we highlight the differentiated value proposition we offer versus our competitors.

Lodging continued to perform well, too, up 22%. Our workforce lodging business has improved with higher new sales and better volumes. Airlines again outperformed with organic growth over 65%. In the quarter, we did announce the purchase of Levarti, an airline software platform company. The deal is immaterial to our financials, but we believe the software, combined with our lodging solution will drive more sales in the airline vertical.

Now looking further down the income statement. Operating expenses of $472 million represented a 38% increase over prior year, primarily due to the addition of the AFEX and ALE operations, increases tied to higher volumes across our businesses, incremental bad debt stock compensation and new sales generation activities and investments to drive future growth.

Bad debt expense was $25.5 million or 6 basis points as bad debt levels have returned to more historical levels as customer spend increases with higher fuel prices and as a result of much stronger new sales, which tend to have a higher loss rate.

The EBITDA margin in the quarter was 50% as higher stock comp and bad debt expenses negatively impacted the margin. This was largely expected as the company took actions to stimulate growth coming out of the COVID environment. We still expect our full year EBITDA margin to be in line with our original expectations of 52% as margins expand throughout the year, along with revenue growth and the increased benefit of synergy realization from acquisitions.

Interest expense decreased 23% year-over-year, driven by the effect of a $1 billion fixed rate swap that matured in January and the benefit of higher interest income earned on customer deposits and cash balances in certain foreign jurisdictions. Our effective tax rate for the quarter was 26% versus 22% last year with the increase driven primarily by less excess tax benefit on stock option exercises and higher interest income on foreign deposits, which are taxed at a higher rate.

Now turning to the balance sheet. We ended the quarter with over $1.3 billion in unrestricted cash, and we had $969 million available on our revolver. There was $4.9 billion outstanding on our credit facilities and we had $1.4 billion borrowed in our securitization facility.

As of March 31, our leverage ratio was 2.72x trailing 12-month adjusted EBITDA as calculated in accordance with our credit agreement.

In the quarter, we upsized our securitization facility to $1.6 billion in order to accommodate higher receivables balances due to higher fuel prices. We intend to maximize the use of the facility given that it is the lowest cost of capital funding instrument that we have.

We repurchased roughly 1.8 million shares, 1.1 million of which were completed under our 10b5 plan that we had in place in January, and which were included in our original guidance. We still have $1.23 billion authorized for repurchase and we believe we have ample liquidity to pursue any near-term M&A opportunities and continue to buy back shares when it makes sense.

Ron has covered our full year guidance updates. So now let me share some thoughts on our Q2 outlook and our assumptions.

For Q2, we're expecting revenue to be between $805 million and $825 million and adjusted net income per share to be between $3.80 and $3.90, which at the midpoint, is approximately $0.70 or 22% higher than what we reported in Q2 of 2021.

Regarding our guidance assumptions, we are using $3.90 as our fuel price assumption for the rest of the year. This reflects fuel prices of $4.25, $3.85 and $3.65 for the next 3 quarters, respectively. Clearly, we don't expect fuel prices to remain at the current elevated levels. So we're using this forward curve as the basis of our forecast.

Our interest expense guidance of $105 million to $115 million is based off of a LIBOR average of 154 basis points for April through December. Our original assumption had LIBOR of 54 basis points for that same period. The rest of our assumptions can be found in our press release and supplement.

I would note that our rest of year guidance expectations do still include revenue and adjusted earnings per share from our fuel business in Russia, which are $67 million and $0.63, respectively, for the remainder of the year.

Moving away from the results and outlook, I'd like to thank our circa 10,000 employees around the world who helped us deliver a fantastic start to 2022 and who will be the driving force as we continue to grow our company. Thank you for your interest in FLEETCOR.

And now operator, we'll open the line for questions.

[Operator]

Thank you, sir. [Operator Instructions] Your first question is from Tien-Tsin Huan of JPMorgan.

[Tien-Tsin Huang]

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

[Ron Clarke, Chairman and Chief Executive Officer]

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

[Tien-Tsin Huang]

Got it. And then from a new sales perspective, I think you said up 39%. And I know you've always stressed to us the importance of driving new sales. How about for the rest of the year? Have you sort of upgraded your thinking on sales productivity and targets? I heard the billion comment earlier, but just thinking about the next 2 to 3 quarters, have you changed your thinking on that basis?

[Ron Clarke, Chairman and Chief Executive Officer]

Yes. Really good question. So yes, particularly on the fuel fleet side. And the thing that's interesting is that you think the higher fuel prices obviously help us from a revenue perspective, right, in terms of MDR, but they actually help in sales. So literally, it was a period the digital guys came down and being said that I think it was in March, the volumes, -- the search volumes were running about 2x kind of our normalized level of kind of inbound. So our sales in that business were super good in Q1, and we've taken up the forecast rest of the year.

So again, I said it repeatedly, it's the single best indicator for the business, right? If we can grow compound sales somewhere in the 20s, right, when we're trying to compound revenue double digit, obviously, that improves, right? If we get to that number and don't have go but again, obviously, the revenue will accelerate.

[Operator]

Your next question is from James Faucette of Morgan Stanley.

[Jeff Goldstein]

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

[Ron Clarke, Chairman and Chief Executive Officer]

Jeff, it's Ron. So I don't want to give too much away, but I'd say there was a Aha! moment where we were taking stock of the assets that we're building, particularly the ability to capture, right, the EV data and then the network, the public network, getting acceptance and the ability to settle there. And up until very recently, our whole focus has been A, serving basically our current fleet customers or prospective fleet customers with this. And all of a sudden, 2 or 3 other interesting customer segments likes what we have. And so that's the headline. They're non fleet kinds of customers that need help in EV. And so the assets that we build for one purpose, we think, are pretty transferable to the other. And then b, we've actually got a pretty interesting target sitting in our M&A pipeline that would be supportive of that, that would accelerate our move there. So the real headline is we've just opened our eyes to how to basically serve a greater set of people in the ecosystem and hopefully generate incremental revenue.

[Jeff Goldstein]

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

[Ron Clarke, Chairman and Chief Executive Officer]

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

[Operator]

Your next question is from Sanjay Sakhrani of KBW.

[Sanjay Sakhrani, KBW]

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

[Ron Clarke, Chairman and Chief Executive Officer]

Sanjay, it's Ron. I'd say really uncertain, right, how that ball is going to bounce. We're doing lots of things, as you can imagine, exploring everything, right, selling it, transferring it, doing all kinds of things. So ballpark, I think we're carrying circa around $300 million on our books. So to the extent that the thing were shuttered and there was some complete loss, that's kind of ballparky what the number is.

So look, I don't know where it's going to go. We've obviously got some ideas of how we're running the thing differently and cutting ties obviously with the business a bit back here to the mother ship. And so it's really more of a wait and see. We're going to obviously continue to explore whether there's buyers that are interested in the business and honestly, just see how the conflict steps along here.

[Sanjay Sakhrani, KBW]

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

[Ron Clarke, Chairman and Chief Executive Officer]

Yes. I think it's mixed is what I'd say. Obviously, we're always working a pipeline, no different today. We've got 3 or 4 things. And I'd say as I run through those. Some of them are later stage, some of the sellers haven't moved a lot. We point out A, you watching like even today, some of the comp groups. And so I’d say some people are just I think, kind of stay in put, maybe going to wait to see if things come back. And then I'd say there's a couple of newer things that we've negotiated, let's say, in the last couple of months, we've been able to agree to prices that we like that work for us. So I'd say, it's interesting, but it's kind of mix. Not everybody is reset, but I think some people have.

[Operator]

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

[Ramsey El-Assal, Barclays]

I wanted to ask just a general question about corporate payments. It came in a lot higher than our number and I think the Street number as well. What kind of outperformed in the quarter even versus your own expectations? What do you see in that business is just really working right now?

[Ron Clarke, Chairman and Chief Executive Officer]

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

[Ramsey El-Assal, Barclays]

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

[Ron Clarke, Chairman and Chief Executive Officer]

Yes. I think it's , it's the opportunity side. Look, it's still super duper early days, as you guys know. I think it's just one of those Aha! things where you look at everything we've been doing for a couple of years. We've made a bunch of investments. We've reworked our system so they can combine EV and combustion. And we've worked on network building and contracts and all those kind of stuff.

We're doing all this stuff right in preparation of serving our clients and then kind of out of the wood work, a couple of non-fleet customers kind of poke their heads up and go, "Hey, we need help on this stuff," I’m like wait a minute here, why are we just trying to make a good fleet transition, why don't we take advantage of the new needs that are being created, given we have these new assets and stuff? So I think it was -- honestly, like shame on me shame on us, it was a bit of an Aha! moment. But as I mentioned, we've also got a deal once we had that idea a few months ago, we've found someone that's been chasing that a bit, too. And so it's a super duper way of hedging, however this goes, right?

If it goes slow, which is my bet, Hey, so it goes low. If it goes faster, we could have something that actually goes up. In the event that our other thing ticks down, which, again, we don't think much early days, but instead of people call in, hey, look, it's sad time for fleet or maybe they go holy moly, they're going to hold on to most or all of their fleet business, and they're going to be beneficiaries of something new because of what they built. So maybe people like, wow, are you saying it could be literally a net positive? Yes. That's what I'm trying say today is. And we're obviously going to provide way more info here when it's appropriate on who those customers are and what we're going to do and why it can be upside. But I'm telling you, we're super excited about it.

[Ramsey El-Assal, Barclays]

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

[Ron Clarke, Chairman and Chief Executive Officer]

And we're hearing from the people. I mean the other thing I want to make up is just Ron Clarke's brain turning the loan in the night, there's actual prospective customers out there talking to us and taking on some of these things. So it's real, which is the other thing I want to make sure you hear.

[Operator]

Your next question is from Andrew Jeffrey of Truist Securities.

[Unidentified Analyst]

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

[Charles Freund, Chief Financial Officer]

Yes. This is Charles. So yes, bad debt came in higher, and part of that is due to fuel prices, right? So you have higher fuel prices equal higher customer balances, they default, that's unfortunate.

And yes, new sales tend to default at a much higher rate, right? So once we underwrite someone if they stick with us for a couple of years, they tend to be okay. The first year, though, we do see higher losses. So record sales last year and continued record sales in Q1 of this year are driving some of that.

We do think as fuel prices will normalize throughout the course of the year, that bad debt will also normalize a bit down. But for this quarter at 25.5%, it came in a little hot.

[Unidentified Analyst]

Okay. Helpful. And following up, I want to ask about the efforts to drive sales force productivity and where we are in terms of the glide path of driving cross-sell Core into fuel?

[Ron Clarke, Chairman and Chief Executive Officer]

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

[Unidentified Analyst]

Sorry. Just wanted to ask you guys to talk a little bit about sales force productivity and kind of where we are in the glide path of driving cross-sell Corpay.

[Ron Clarke, Chairman and Chief Executive Officer]

Got it. So let me take the first part first, which is just a sales product. It's numbers 1, 2 and 3 on my list and our list rate, the more we can sell from an absolute perspective and the more efficiently we can sell it obviously leads to profitable sales profitable business. So it's a huge focus. I'd say the 2 things that really help our aging right of our people-based assets, so as we have people and seats and people in territories long or they get more productive. So we've made huge strides in increasing the headcount in the last couple of years. So now we're getting some benefit basically from that aging of the people side.

And then on the digital side, it's a bit of a breeder reactor, right? The bigger the business gets, the smarter we get how to match and who to put at in front of and how to bid and everything else. And so that business keeps getting better basically, we keep getting more effective at it because we keep getting smarter as well, as you know, the Googles and stuff, index people that have successful things. So to the extent that we get better our organic portion or free portion of digital selling gets higher.

And so all of that other than the inflation of people bidding more is super positive. So not only are we in record production of sales land, we're also in a super attractive cost of sales as well.

On the second part of the question, the Corpay cross-sell, I think I mentioned -- I think I mentioned in the last 90 days, we kind of paused selling the Corpay payable solution until we put the platform in. So what we started out doing when we put the first couple of thousand accounts is we went to Ron Clarke fuel card guys and said, "Hey, we're giving you a new way to pay us, pay your bill to us. And here it is, so you like it. And oh, by the way, you can pay some other bills."

And we found out it was maybe a bit too much, hey, you're moving my cheese and how I pay the bill, now you put by something else. And so we decided basically to do the first thing of put the platform in make sure people are comfortable being able to pay us on this new platform and then go back, which we plan to do in this quarter in Q2. So I'm hoping to have a better update for you in terms of demand and stuff when we speak next time.

[Operator]

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

[Mihir Bhatia, Bank of America]

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

[Charles Freund, Chief Financial Officer]

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

[Mihir Bhatia, Bank of America]

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

[Charles Freund, Chief Financial Officer]

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

[Mihir Bhatia, Bank of America]

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

[Charles Freund, Chief Financial Officer]

Yes. So we are taking a look at policies and such. Generally, we'll underwrite to a full amount. And then as prices go up, folks will come and ask for increases and when we underwrite them. And we're underwriting someone new, we're looking at an amount -- and if we can't cover all their volume, we do lose a bit of share of wallet in that regard.

So we do watch it closely. It is an area where you can quite quickly monitor spending levels and such. So we get a good sense when someone comes on, are they good? Are they performing, their fuel volumes tend to be pretty stable. And so as long as they're with us for a while, we'll feel more comfortable to kind of ride the prices up with them. But for new clients, it's pretty strict straight off the bat. There's an amount I can cover what you got, great, if I can't, and we will have to share a wallet stuff in the early days.

[Ron Clarke, Chairman and Chief Executive Officer]

It's Ron. Let me just add on one other trick that works in the fuel card business, which is we changed the payment cycle. So to your point, if we're getting a lot of digital stop and it's not screening out as well. Our approval rates aren't as good. One of the things we can do is effectively like a trucking, move it to daily, daily or in a local business, move it to weekly, weekly net 5.

So because of the turn in that kind of business and the usage and stuff, we do have a fair number of clients that are onshore payment terms. So obviously, that's a way to Chuck's point to still basically bring on customers but basically minimize, if you will, to limit the losses that we could occur.

[Charles Freund, Chief Financial Officer]

In certain segments where we don't feel comfortable we'll push into prepaid.

[Operator]

Your next question is from Jeff Cantwell of Wells Fargo.

[Jeff Cantwell, Wells Fargo]

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

[Ron Clarke, Chairman and Chief Executive Officer]

Yes, I'm not much sure this is wrong, whether I catched the thing. You're saying, Hey, how do we the company think about and measure the cross-sell opportunity. I think we kind of run through it that we go area by area. So in fuel cards, our idea is corporate payments. So we sell companion cards in there. We're selling BillPay in there. In our total business. I mentioned before, we're selling fueling. I mentioned we sold -- generated 1.7 million transactions in the quarter. We're now starting to sell insurance.

In our lodging business, obviously, we've added cars that allow the same client that buys lodging to buy air or other kinds of travel, it's not lodging. So in every -- virtually in every business we have because we've gotten bigger and we have more products now, we're taking those related products back to the group that we have. And I guess we could report out, Jim, if it's interesting kind of what those sales or revenues add up to what people are interested.

But I'd say we're making pretty good progress on most of them. I did say we paused the core pay payables one to get people on the platform first. But look, we have 800,000 customers now spending hundreds of millions with us, so obviously, hundreds of billions. So we got plenty of opportunity to sell products back.

[Jeff Cantwell, Wells Fargo]

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

[Charles Freund, Chief Financial Officer]

This is Charles. So I think you're on the new client wins. I think Ron mentioned we had 50,000 in the quarter, new clients. A lot of them tend to be small, digitally acquired, a lot of them in our fuel base. When we get to the corporate payments arena, we do sell more in the mid-market. So they are larger clients and such. So it does really depend on the business that you're in. In Brazil, we sell lots of consumers, tags and such. So it depends.

We are still in the main selling individual products to a prospect or not really bundling yet. And that's one of the big opportunities that Ron was mentioning before is around the platform.

So as we build out the platform and it has multiple products in it. Once we sell it in, then people can then turn on that additional functionality. But we haven't been doing that as of late. So a lot of the new wins that you're seeing is really a function of just better sales performance and a lot coming through digital channels.

[Jeff Cantwell, Wells Fargo]

Okay. And congrats on the results.

[Operator]

Your next question is from Pete Christiansen of Citi.

[Pete Christiansen, Citi]

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

[Ron Clarke, Chairman and Chief Executive Officer]

Yes. I don't think it's anything, Pete, out of the ordinary, I'd say, in the larger accounts, which we call out because we had 50,000 new accounts that -- with our board will take the rest of the call to run through those names. I'd say that enterprise and partners, they run on cycles, they're under contract with us or someone else, and they come up. And so no, no super change, I think, in that rate.

I do think there's some kind of newish or different kinds of stuff like that Amazon thing that I mentioned. So there's some different kinds of players a bit same a little bit on the EV side. So that would be the one difference. I think some of the new business that's out there is just a little bit different in terms of the type of business it is.

[Pete Christiansen, Citi]

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

[Ron Clarke, Chairman and Chief Executive Officer]

Yes, it's a good question. So I'd say not a lot. So a couple of reasons. One is we already fed the army here a bit, if you will. I think we said that at the beginning that we gave -- because we could get a profit target this year, more expense growth than normal, particularly in sales and IT. So one, I think our initial guide and other guide still has decent amount in it. Two is, I don't love the uncertainty of 2/3 of the upside being the planet, the planet can shift around and refactor on us some. And so I don't like to spend money that I can 100% count on, so that would be #2. But with that, I would say you hit the one area.

It was one area where we would and do plan to spend a bit more, it would be in digital selling. And the reason is, you can't. Unlike some of the other things that take way longer to build right and prepare and to get into the market, the head digital guy can walk down in my office and say, "Look, we're getting twice the things, do you want to spend another $2 million, $3 million this month?" So because it's sales, which is great for the future and because you can do it quickly, that would be the one area, Pete, that we would step on the gas.

[Operator]

Your next question is from David Togut of Evercore ISI.

[David Togut, Evercore ISI]

I have 2. First up, Ron, when looking at the 19% growth in corporate payments, could you talk through what were the strongest growth verticals in the quarter. And then based on the new business signings that you saw, what would you expect to be kind of the highest growth verticals within corporate payments going forward?

And then the second question, looking at the 18% revenue growth in the tolls business, is it possible to break down the growth contribution of that 18% between toll tags and transaction growth.

[Ron Clarke, Chairman and Chief Executive Officer]

Yes. So let me -- anyway, good to hear from you, David. So let me take the first thing. So when you refer to verticals, I don't know if you're referring to the customer verticals or the products, but let me try to answer both. So on the kind of product line side, what we call the full AP or full outsourcing is obviously going great. It's grown over 50%. So obviously, well above the line average. And the good news, which you implied is it also represented half of our sales. So a much larger part of our new sales than it does on our revenue, obviously, which is why it's growing faster.

And then on the customer side, I'd say we're just going gangbusters in the construction vertical. That vertical has come back. It's super healthy, at least here in the United States. We've got a super great position in terms of partners, the accounting and ERP partners. We've got a great merchant network. And so the sales and interest from that channel is just at record levels for us. I mean, we're not selling other places too, but that one's going great.

Do you, Chuck, do you want to take the -- David's second question?

[Charles Freund, Chief Financial Officer]

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

[Ron Clarke, Chairman and Chief Executive Officer]

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

[Operator]

Your next question is from George Mihalos of Cowen.

[Georgios Mihalos]

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

[Charles Freund, Chief Financial Officer]

Yes, now in my head definitely interest expense will be going up. The other one is our tax rate. So in the first half of this year, we are still getting some benefit from stock option exercises of some very low priced stock options that are actually expiring in Q2. So we don't see that we'll get that benefit in the second half. And so that, of course, changed the flow through.

[Ron Clarke, Chairman and Chief Executive Officer]

George, this is Ron. Let me just add that it's all below the line. So the $100 million of kind of upside from our initial guide, right, rest of the year, why isn’t it flowing through. At the EBITDA line, our rest of the year will be up a couple of points from our Q1 print. So we will get operating leverage down there. It's all the 2 things Chuck just said. I mean it's a wafer forecast we have on interest expense. I mean who knows. But we put in I think Chuck has it in the back up there some obviously massive increase as we run through the year in interest expense. And then a tax rate, again, that's high, I mean, on $1.5 billion or $1.4 billion of cash PBT, every point or two is big. And so we're losing it in just in those 2 things. But I want to make sure people here at the operating leverage line that that thing is flowing through. It's going to be way better than Q1.

[Georgios Mihalos]

Okay. That's great. That's exactly what I was getting at. So I really appreciate that color. And then --

[Ron Clarke, Chairman and Chief Executive Officer]

And I think if we work on the interest rates down, that would help us, too.

[Georgios Mihalos]

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

[Charles Freund, Chief Financial Officer]

Yes. So we gave kind of a forward curve on fuel prices, let me give you the forward curve that we're using for the interest expense, we're going to LIBOR equivalent of 83 bps in Q2, 159 bps in Q3 and 221 bps in Q4.

[Operator]

Your next question is from Trevor Williams of Jefferies.

[Trevor Williams, Jefferies]

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

[Charles Freund, Chief Financial Officer]

I'd say in terms of volumes, we've seen more of a recovery in Europe because they were more in the ditch, and we've seen a bit of a bounce back also in Australia with fuel volumes. But going forward, we don't have a lot of COVID-related recovery, so it would follow kind of normal seasonality.

And the fuel prices assumptions as we outlined them, they really don't change anything in terms of our volume. It will change demand for the product, as Ron mentioned additionally, but our customers have to drive for work or they have to make the deliveries. They have to make the service calls, et cetera, et cetera. So the pricing doesn't really matter. But yes, volumes should fall kind of in a normal seasonal course.

[Trevor Williams, Jefferies]

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

[Ron Clarke, Chairman and Chief Executive Officer]

You got it. So no, the answer to the first question, we provide guidance basically with a 100% delevering assumption because unless we do something, that is what we do. It's the default. So that's what's in the forward guide.

I'd say really unchanged. Our first course is always M&A. If we have assets that we can dramatically improve or add meaningful capabilities. That's our first and highest use of capital. But looking at the FLT stock price today, you can imagine that my interest in buying FLT stock is high. So clearly, I don't know if Chuck has put it out there, we've got $1 billion something at our current facilities generating whatever, a few hundred million more a quarter.

So we've got, obviously, a lot of it to spend. So my guess is both will happen. There'll be some transactions we'll try to get done. At these prices, we are buyers of our stock. And so it's likely we're sitting near 9 months from today, they will have done some of both of those things.

[Operator]

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

[Ken Suchoski, Autonomous Research]

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

[Ron Clarke, Chairman and Chief Executive Officer]

Ken, it's Ron. It's a good question. So you're right, whatever it is, the 60% print is happiness everywhere, right? It's a deal getting into the insurance vertical, it's the recovery of our airline segment there, right, as airline travel and flights have come back, and it's also our core workforce space. Our clients have gotten healthier and done more driving kinds of travel. So all 3 happy things are happening in the base.

I'd say that, that's, again, high teens business for us. If you said, "Hey, you get through this and you get to kind of some normal baseline or normal comp the market potential is enormous in all 3 of those." Obviously, the airline business is global. We just bought a little software company that we think is going to be incredibly helpful to some of those global airline sales.

So the prospects we look way harder now in taking the core workforce product and launching it in Europe, we finally have an idea of how to do that to increase the TAM. So the prospects for that thing are great. It's the lowest as seen in the company, which means we sell new business more efficiently there than any other line of business in the company. The margins in the business are super-duper good. So we love the business.

[Ken Suchoski, Autonomous Research]

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

[Ron Clarke, Chairman and Chief Executive Officer]

Yes. I think it's mostly B. You're right. There's more people and more products. But as you laid out, the game is distribution. And the game is networks. Just to remind everybody, the products don't work if you can't monetize if the cards don't monetize, otherwise, you're relegated to a software fee. And so we just love -- I've said this a million times, as we -- maybe we don't have the world's greatest but we get a pretty good product. And -- we have a couple of things that the new guys, right, don't, which is kind of proven age distribution that can create pressure on the marketplace. And we've got a 10-year-old merchant network, right, that accepts these purchasing and virtual cards.

And so we're able to actually process and create economics. So we still -- I still feel like we've got a big advantage in the offer, but mostly what you said that it's just kind of -- it's just white space. It's just lots of companies are on kind of an old just join a kind of conky model. And what we and other people have is certainly way better than what they're doing. And so that group will win some share. But as I mentioned, we're selling a lot. So we're winning share.

So again, I hope I can make this point, but we want to be in the disruptor. We're kind of the new guy still taking the business from kind of the old method. So we want to join these other people basically that you guys see as disrupting and put us in the bucket of trying to go get that business. So that's our view of it.

[Operator]

No more questions. Please continue.

[Ron Clarke, Chairman and Chief Executive Officer]

Thank you for joining us today. Let us know if there’s anything else. So have a nice evening.

[Operator]

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