Greetings. Welcome to FLEETCOR Technologies, Inc. Second Quarter 2021 Earnings Conference Call. Please note this conference is being recorded. I will now turn the conference over to Jim Eglseder, Head of Investor Relations. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining us today for our second quarter 2021 earnings call. With me today are Ron Clarke, our Chairman and CEO; and Charles Freund, our CFO. Following the prepared comments, the operator will announce that the queue will open for the Q&A session. It is only then that you can get in line for questions. Please note that our earnings release and supplement can be found on the Investor Relations section of our website at fleetcor.com. Now throughout this call, we will be presenting non-GAAP financial information, including adjusted revenues, adjusted net income, and adjusted net income per diluted share. This information is not calculated in accordance with GAAP and may be calculated differently than non-GAAP information at other companies. Reconciliations of historical non-GAAP information to the most directly comparable GAAP information appears in today's press release and on our website as previously described. I do 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 recovery, outlook, new products and acquisitions, expectations regarding business development and future acquisitions are based on that information. They are not guarantees of future performance, and you should not put undue reliance upon them. We do not undertake any obligation to update any of these statements. These expected results are subject to numerous uncertainties and risks, which could cause actual results to differ materially from what we expect. Some of those risks are mentioned in today's press release on Form 8-K and in our annual report on Form 10-K, both filed with the Securities and Exchange Commission. These documents are available on our website and at sec.gov.

Okay, Jim. Thanks. Good afternoon, everyone, and thanks for joining our Q2 earnings call. Upfront here, I plan to cover three subjects. First, I'll share my perspective on our Q2 results, along with the rest of year outlook. Second, I'll provide an update on our two newest acquisitions. And then lastly, I'll talk about our fuel card business, including our latest view on EV, along with a couple of innovative developments underway in that business. So very pleased to report outstanding Q2 financial results meaningfully above our internal expectations. We reported Q2 revenue of $667 million that's up 27% and cash EPS of $3.15, up 38%. Both our Q2 '21 revenue and cash EPS exceeded our Q2 '19 results, so finally moving past our pre-pandemic baseline. Organic revenue growth came in at 23% for the quarter, our full AP outsourcing platform segment up 53% versus Q2 last year. The trends in the quarter are really quite good. Our same-store sales metric improved to plus 18%, with many of the sectors in our client base recovering. Retention reached a record level, we reached nearly 94%, an all-time high since we've been reporting the metric. Interestingly, our global fuel card business reached 92% retention, also an all-time high. Credit losses remain very good, running at historic levels. Our sales outstanding in the quarter finished up almost 2x last year's Q2 and up 6% against 2019. Let me transition to our view of the rest of the year. So today, we're raising guidance to $2.765 billion at the midpoint for full-year revenue, raising cash EPS at the midpoint to $12.90. That's driven by our Q2 beat, the AFEX close and really the momentum that we have running into the second half. I want to remind everyone we had previously guided to a substantial second-half sequential step-up already. As a reminder, cash EPS guidance is up nearly $0.60 from the start of the year. We opened the year at $12.30; today, $12.90, so obviously, better than we anticipated. The second half guidance implies a few things. First, the revenue growth will run about 20% ahead of last year and high single digits above the second half 2019 baseline. We expect the business to reach all-time highs again in both revenues and profits. Our Q4 EPS profit guidance implies nearly a $14 annualized cash EPS exit rate. Let me transition now to an update on our recent acquisitions. We closed AFEX, that's the add-on cross-border deal, on June 1. Last week, we signed definitive documents to acquire ALE, which is a lodging provider to the insurance vertical. Starting with ALE, this is a highly complementary add-on to our existing lodging business. The company brings a whole set of specialized capabilities designed to serve the insurance vertical. We've got an interesting synergy plan for that business and expect accelerated revenue and profit growth next year. We are also well underway on our AFEX integration. We've already exited about $10 million of run-rate payroll expense. We've implemented one unified cross-border management organization, and we've designed an IT consolidation plan to move to a single system. That will significantly reduce run-rate IT and operations expense. Both of these acquisitions are classic FLEET wheelhouse deals. We paid reasonable prices. They're extensions of our existing business, so we know them well. Both have very rich synergy opportunities. We're expecting these businesses to grow about 20% on a pro forma basis next year and together deliver incremental cash EPS in 2022 in the $0.50 to $0.70 range, so big upside. We are quite enthusiastic about the transactions. Let me shift gears now and talk about our fuel card business, which we continue to love and which we think has a bright future. I'll talk about EV and specifically two new things that we're doing to improve the growth prospects of our fuel card business. Starting with EV, I mentioned last time, we're really embracing EV as an opportunity and in no way see it putting an end to our fuel card business. Employers are going to need to reimburse employees for recharging electric vehicles just like they reimburse employees for refueling combustion engines. You may find that it costs more to operate EVs than people think. We also think there will be new economics and that we have opportunities to achieve very similar revenue from EV measuring and reimbursing as we do from combustion engines. In a nutshell, we expect the at-home software subscription fees to be significant and augment many other fees that we get in the revenue mix. We are looking at the commercial transition to EV to be slow, particularly here in the U.S., giving us ample time to build out our public charging network and implement recharging at home. We expect mixed fleets to kick things off, and our position should provide an advantage in consolidating activity and data for our clients. In conclusion, we see EV as a different way to serve commercial fleets but one in which we believe can still be attractive. Let me now discuss the couple of innovations we're working on in the fuel card business. First is digital and particularly digital selling, which now in Q2 has reached about 60% of all our new fuel card sales globally coming to us digitally. We've made improvements in our digital selling capabilities, automated keyword bidding, redesigned our websites to maximize sales conversion, and begun investments at the top of the funnel through digital TV, radio, and Facebook advertising, which is driving about 50% more visitors to our websites leading to incremental sales. The last innovation to touch upon is our effort to transform our fuel card UI, used by over 100,000 clients, into a broader payment platform. We're combining our latest cloud-based SMB bill pay platform with our fuel card UI so that clients can pay us the fuel card bill and also pay additional vendors using the same software platform. This idea is aimed at accelerating the active bill pay clients we can add to our platform and begin the transformation of the fuel card business into a corporate payments business. We'll keep you updated there as we progress.

Thanks, Ron. I'm delighted to share the results of a very good quarter. For Q2 of 2021, we reported revenue of $667 million, up 27%; GAAP net income up 24% to $196 million; and GAAP net income per diluted share up 26% to $2.30. Adjusted net income for the quarter, or ANI, increased 36% to $268 million, and ANI per diluted share increased 38% to $3.15 as we finally lapped the worst of COVID. Organic revenue growth improved 29 points sequentially to up 23% on a year-over-year basis, driven by strong sales, record retention levels, and same-store sales recovery. Looking at organic growth across the categories, Corporate payments was up 32% in the second quarter, led by our full AP solutions. We are seeing great success leading with our full AP and selling a more complete package versus just a stand-alone virtual card offering. Full AP is clearly our preference for sales, so we've reoriented our combined sales force with this focus, and it's paying off. T&E card revenue was up 58% year-over-year, rebounding significantly as business activity and travel began to resume. This T&E description is somewhat misleading as it's really a multipurpose card that can be used as a purchasing card or as a general use card depending on customer needs. Spending within T&E-related categories has rebounded but remains below historical levels, indicating room for further improvement. Cross-border revenue was up 25%. These results include one month of AFEX with pro forma results for Q2 last year, assuming we owned it in both periods. Finally, virtual card revenue was up 13%. Both of these areas are still affected by COVID-related softness in sectors previously mentioned, such as airlines, cruise operators, hotels, and international trade. We believe much of this softness is recoverable, though the timing remains unpredictable. Fuel was up organically 19% year-over-year with strong retention trends and record digital sales driving performance. We expect to see further soft recoveries in fuel once the labor shortage afflicting our large trucking fleet customers normalizes and offices reopen more broadly to enable white-collar commuters to return to regular activity levels. Tolls was up 9% compared with last year and showed impressive performance despite the lockdowns in place for much of the quarter. This growth was driven by record first-half tag sales, showcasing the value and attractiveness of our offerings even when many were not driving. Approximately one-quarter of all consumer tags sold year-to-date are enrolled in urban plans, allowing purchases beyond just tolls, such as parking and fueling. We added 25% more fuel stations to our tag acceptance network in the first half, planning to add another 50% during the second half. This combination of urban tag sales and non-toll network expansion should produce strong growth in volume as lockdowns ease and consumer activity increases. Lodging was up 39%, driven by workforce lodging, which rose 36%. The pace of improvement in workforce lodging has leveled off somewhat as customers are constrained by the labor shortage, but we believe this volume will rebound as the labor market normalizes. Airline lodging increased by 49% as domestic air travel recovered faster than expected, although it still remains below historical norms. International airline lodging is expected to bounce back as international travel recovers. Regardless of the substantial recovery in lodging, we see continued upside potential here. Gift organic growth grew 22% year-over-year, benefitting from retailers embracing online sales. We anticipate this trend will continue as we experience success with gift clients using our proprietary platform for selling both digital and physical cards online. In fact, we expect to double the number of clients using this platform by year-end. Meanwhile, momentum in mobile wallet services and B2B sales, where third parties sell gift cards to companies for employee incentives and rewards, are also contributing to improvement. Looking further down the income statement, our operating expenses were up 18% to $370 million, totaling 55% of revenue. The increase was primarily due to higher business activity levels, the effect of currency translation on international expenses, and acquisitions. We've also made incremental investments in digital sales and top-of-funnel marketing, incurring nonrecurring integration-related expenses for AFEX, like severance and platform migration costs. Operating margins improved 4 points from last year to 45% due to recovering volumes with higher margins, increased fuel prices, and solid expense control. In the quarter, bad debt was $6 million or 2 basis points. Credit performance continues to be strong, although we expect our bad debt to normalize as new sales improve. Interest expense increased by 7% to $34.7 million due to a $6.2 million charge related to our debt refinance, a higher balance on the Term B note, partially offset by lower borrowings on our revolver and reduced LIBOR rates on the unhedged portion of our debt. Our effective tax rate for the second quarter was 25.2%, similar to last year, reflecting a $6.5 million adjustment to our deferred tax position due to a rate change in the U.K. In our guidance, we are raising our expected tax rate for the year given this adjustment and an assumed lower level of excess tax benefits on stock option exercises in the second half. As for the balance sheet, we ended the quarter with $1.3 billion of unrestricted cash. We also had approximately $1.2 billion of undrawn availability on our revolver. In total, we had $4.1 billion outstanding on our credit facilities and $1 billion borrowed on our securitization facility. As of June 30, our leverage ratio was 2.62x trailing 12-month adjusted EBITDA as calculated in accordance with our credit agreement. We repurchased approximately 926,000 shares during the quarter for $246 million at an average price of $266 per share. The Board increased our share repurchase authorization by $1 billion on July 27, providing us with $1.6 billion of share buyback capacity. Even including the recent buybacks, the AFEX closing, and the pending ALE deal, we still have low leverage and ample liquidity for additional deals and/or buybacks. Our high-margin, high-cash-flow business generated $268 million of ANI this quarter, quickly replenishing capital, allowing us to pursue attractive buying opportunities as they arise. Now for our outlook. We are raising our full year revenue guidance to between $2.74 billion and $2.79 billion, an increase of over $100 million at the midpoint. We are also raising our adjusted net income per diluted share guidance to between $12.80 and $13 or $12.90 at the midpoint. AFEX is a significant contributor, as is a better macro environment, in addition to volumes that improved faster than we anticipated in the first half of the year. We continue to be encouraged by our strong sales and retention trends and currently expect COVID volume recovery to continue into the second half of the year. We are mindful of the potential impact from the Delta variant, and we will adjust our outlook and operations as necessary. We expect Q3 2021 adjusted net income per diluted share to be in the range of $3.35 to $3.55. You can view our full updated guidance and assumptions in our press release, so I won't reiterate them here. I would note that our guidance does not include the impact of the ALE acquisition that we just announced. We'll update for that when we actually close the transaction. In closing, I'd like to thank my 8,000-plus FLEETCOR colleagues around the world who persevered through the pandemic, helped us return to growth this quarter, and positioned our company for a strong second half and beyond.

Ron, I’m interested in what surprised you in the second quarter compared to your expectations regarding the performance. Charles, you mentioned that you expect the rebound to continue, but the guidance for the second half didn’t increase significantly. I understand you raised guidance last quarter, but I’m trying to make sense of this situation. Could you explain that to us?

Sanjay, it's Ron. So what I was saying, no surprising sales, right? We had shown previously the climb back from a year ago where we were against the baseline. To post a record number, almost across the board, that's probably the most surprising, most positive thing. The second thing is just the ratability. Coming into this year, we were cautious about how well we could plan this business, and so I'd say both this quarter and the first half, along with our outlook, I'm surprised that things are tracking as well or better than the plan we built. Those would be the couple of things from me.

If we think about the second half, you guys aren't necessarily expecting that strength — or that strength isn't outpacing your expectations. Is that because we're putting in some more conservatism or something else?

That's a good question. We've taken up the second half from 90 days ago. The sequential number was already up a lot, Sanjay. My second point is that we're looking at making $7 in the second half versus $6 off of a good quarter here. It's still up, but we had already forecasted the thing to sequentially keep improving. We always start with a pipeline. We have attractive opportunities in front of us. Yes, that's what caused us to refinance and take up our liquidity. We’ve got 2 or 3 things close in that we're going to decide on, along with another 2 or 3 things that we may pursue before the year ends. We've got interesting things.

I appreciate the color and commentary on capital allocation. I want to dig in a little bit on the...

Should the deals look similar to the classic two deals you closed here, similar in terms of size and accretion? Or are some of these perhaps bigger or smaller? I'm trying to get a better sense of what you're seeing and what might be different.

We've got a couple of things similar to AFEX and ALE. They're more of what we do, where we like the values and they're accretive. We've got a couple of things that are adjacent; for example, going up the value chain in corporate pay, like AP automation, doing more for clients between their ERP and our payments. We've got a couple of these that are close to our categories. Yes, we did our kind of nice review halfway through the year and the sales forecasts are higher in the back half. We have forecasts that are up against the 2019 baseline. Digital sales have reached about 60% of all our new fuel card sales globally. We're generating 50% more visitors in Q2 than in previous quarters. That's one area where we can really step up the digital sales even more.

Earlier in the year, there was this assumption that you'd make up roughly two-thirds of hard-hit accounts by year-end. You're running ahead of that schedule. I was wondering if you could update us on your thinking there.

The impact has tracked to our plan, but it’s come in differently. T&E spend came back faster while others have lagged. Some industries still haven’t quite recovered as we anticipated, but it's a mixed bag. The good news is it's tracking to plan, and we believe there's further upside into the second half.

Looking ahead, we’re still optimistic that we'll get to where we planned, but it may just come in a little differently. The thing that's interesting is the softness is super concentrated; about 75 clients account for a large share of the impact in that particular line. The good news is they're still operating, and that could be beneficial as they recover.

In the fuel segment looking at Q3, it has historically been flat to up a little bit sequentially. But this quarter, you're guiding for it to be a nice sequential growth. What's driving that higher than normal growth from Q2 to Q3?

We're seeing higher fuel prices, great digital sales, and back on track where we want to be. A little bit of COVID recovery is still in store. Those factors combined will help lift us more in Q3 versus Q2.

Retention in our fuel card business reached an all-time high of 94%. This strong retention, coupled with high sales and some macro positivity from fuel and COVID recoveries, creates notable lift in the second half.

The transformation of the fuel card UI into a broader bill payment platform seems interesting. Can you discuss what you need to do to build this broader bill payment platform primarily regarding merchant acceptance?

We believe this is a big step. We’re integrating Roger's bill pay software to make it a record of payment system. We already have merchant capabilities and network established. Now it's about ensuring our accounts feel comfortable using the UI for more than just making payments to us. We'll monitor the progress closely.

I was looking at a company like Coupa, focusing on procurement and getting involved in Coupa Pay. Have you thought about connecting procurement with payment solutions, and could you get more exposed to the procurement software space?

We've studied many companies with software that automates various payment processes. We might offer both AP automation software and payment solutions. Some clients will want just pay, others will want both, and we want to be flexible.

Curious about your sales momentum, particularly where you're doing better than expected, and any segments experiencing weakness, if applicable.

The most significant improvement has been in fuel sales, surprisingly. We expect the second half to be higher than our internal forecasts, primarily led by digital selling efforts. It's exceeded our expectations.

That concludes our question-and-answer session. This also concludes the conference. You may disconnect your lines at this time, and thank you, everyone, for your participation.