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

Good afternoon, everyone, and thank you for joining us today for our fourth quarter and full year 2021 earnings call. With me today are Ron Clarke, our Chairman and CEO; and Charles Freund, our CFO. Following their 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 under the Investor Relations section of our website at fleetcor.com. Now throughout this call, we will be discussing organic growth. As a reminder, organic revenue growth neutralizes the impact of year-over-year changes in foreign exchange rates, fuel prices, and fuel spreads, and includes pro forma results for acquisitions closed during the two years being compared. We will also be discussing 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 at other companies. Reconciliations of the historical non-GAAP to the most directly comparable GAAP information can be found in today's press release and on our website. I do need to remind everybody that part of our discussion today may include forward-looking statements. These statements reflect the best information we have as of today. All statements about our outlook, new products and expectations regarding business development and future acquisitions are based on that information. They are not guarantees of future performance, and you should not put undue reliance upon them. We undertake no obligation to update any of these statements. These expected results are subject to numerous uncertainties and risks, which could cause actual results to differ materially from what we expect. Some of those risks are mentioned in today's press release on Form 8-K and in our annual report on Form 10-K filed with the Securities and Exchange Commission. These documents are available on our website and at sec.gov. Now with that out of the way, I will turn the call over to Ron Clarke, our Chairman and CEO. Ron?

Okay. Jim, thanks. Good afternoon, everyone, and thanks for joining our Q4 earnings call. So upfront here, I plan to cover three subjects. So first, provide my view of Q4, along with full year '21 results; second, lay out our 2022 guidance and priorities for the year; and then lastly, I'll share my thoughts on the company's midterm imperatives. Okay. Let me make the turn to our Q4 results, which were quite good. So we reported revenue of $802 million, up 30%, and cash EPS of $3.72, that's up 24%, both record highs for the company. Revenue came in quite hot, almost $40 million higher than the revenue guidance we provided 90 days ago. Organic revenue growth for Q4 was good, up 17%, also up 7% against Q4 of '19. Every line of business showed double-digit organic revenue growth in the quarter. Our Q4 trends continued quite well, with record sales in the quarter, up 40% versus the prior year. Steady revenue retention at 93%. Same-store sales were healthy at plus 6%. We have had some notable callouts since we spoke last. We formalized our partnership with the largest bank in Brazil, which will help distribute our toll products, so we expect a lift there. We launched our Corpay One SMB platform business, so we are getting our corporate payments business into the SMB space. We just completed another investment in an EV software company. We upsized our term loan of $750 million. We repurchased over 3 million FLT shares in Q4 and in January. And we completed the rebranding of our corporate payments business. All the brands are now under Corpay. So in summary, really a good finish to the year, better than we expected, and the trends are helpful as we look into 2022. Okay. Let me turn to 2021 full year. I think we characterize 2021 really as a comeback year, where we moved ahead of our 2019 pre-pandemic baseline. Really good financial results. '21 revenue of $2.8 billion, up 19%. Cash EPS of $13.21, also up 19%. Both of those results were record highs for the company. We opened 2021 with an initial guide of $12.31 of cash EPS at the midpoint, so now finishing $0.90 better than that initial guide. So clearly a better year than expected. Organic revenue growth for 2021 was up 12%. That's the highest organic revenue growth that we've ever reported. 2021 sales were super good, record levels, up 46% versus 2020 and up 19% versus 2019. We've added 175,000 new clients to our books in '21 across the world, showing strong demand for our services. We did close two accretive acquisitions in '21 and expect those to deliver $0.50 to $0.60 of incremental cash EPS here in '22. So all in all, a meaningful recovery from 2020. All right. Let me cover now our initial thoughts on 2022 guidance along with the priorities for the year. We've mentioned before that our stated midterm objectives for the company are to grow sales 20% plus, to grow organic revenue 10% plus, and to grow cash EPS 15% to 20%. Good news, our '22 guidance meets all three of these objectives, so here it goes. For revenue in 2022, at the midpoint, we are guiding to $3.22 billion, that's up 14%; cash EPS of $15.25 at the midpoint, up 15%; organic revenue growth overall, up 10%; and sales growth just over 20%. This guidance does not include any forward capital allocation beyond deleveraging. There is no real macro help in these numbers. We're basically outlook for the macro to be neutral. Yes, higher fuel prices, but really offset by some weaker FX. We have assumed about a 1% COVID recovery in our same-store sales client base coming back this year in '22. Confidence is pretty high in these numbers. About half of the expected year-over-year performance improvement is already in our exit rate or run rate coming into the year, so that helps. Our recent sales and retention trends support the forecast. Most of the synergies for the two big acquisitions are already baked in, so we expect to get that accretion. We have repurchased about 6.5 million shares from a year ago, so that is obviously going to be quite accretive. In terms of priorities, we have picked a few areas that we'll invest in incrementally this year. So on digital sales, we're expecting a big increase in digital sales production in '22 and are making, thus, incremental investments in digital advertising and staff. For IT, we are making big investments in IT transformation to accelerate our move to the cloud. And this platform business that I spoke of, where we're integrating our walk-around services with our central AP services, we are going to push those platforms significantly and get a read on demand. So all in all, a pretty ambitious year. Okay. So last up today, I'd like to talk about our midterm prospects and the imperatives for the company. I thought it might be helpful to rewind just a bit for anyone new on the call, reminding everyone who FLEETCOR is and what we're trying to do. In a nutshell, FLEETCOR provides B2B specialty payment solutions, all intended to help businesses, our clients, spend less primarily by controlling what they buy and what they pay for. Our differentiation really comes in two forms. First, our products are highly specialized. We target certain kinds of clients with very specialized needs. For example, our products would look different for trucking firms than they would for plumbing firms. Our travel services would look different for blue collar travelers than they would for white collar travelers. So it’s a very dialed-in product line. Second, we operate more than 15 proprietary acceptance networks that allow us to capture unique data at the point of sale. We also enjoy favorable economics, which we share with our clients. This focused or specialized approach, coupled with our two-sided business model has allowed us to deliver consistent growth over a long period. So let me turn to the three imperatives, the big things that we're focused on driving sustained growth over the long term. First up is EV. We’re working on EV and the energy transition hard. We feel like we've made a lot of progress so far. Both here and in Europe, we’ve added public acceptance networks for EV, so public charge points or recharge points. We’ve invested in EV software companies that facilitate at-home recharging and reimbursement. We’ve signed up a few hundred clients to our EV service to get feedback on this service. Initially, we're seeing the revenue or the economics from our EV service is roughly in line with our more traditional refueling services. So look, we're on this EV, we'll manage along with the transition and continue to report out. The second imperative is digital, where we’re working super hard to make the digital transition, accelerated by COVID. First, I'd say sales has really made a pivot. Over 50% of our global fuel card sales came in digitally last year, with over half of those processing end-to-end with no human intervention. On the marketing front, we’ve moved our focus to top of the funnel, utilizing digital advertising, ABM technology to identify prospects interested in our services. On the client experience front, we’ve advanced our user interfaces to allow our clients to do more themselves, faster and easier than ever before. At the point of sale, we’ve added new ways to transact with us beyond cards, including mobile phones, RFID technology, and connected cars. So a lot of progress on the digital front. Lastly, we are diversifying our portfolio into bigger total addressable markets, into higher-growth segments. You've heard us speak of going beyond, where we extend each of our existing businesses into adjacent market segments to create more opportunity. Just a few examples: our corporate payments business, traditionally a middle market business, is now entering the SMB space. Our traveler lodging business, originally focused on a workforce, has recently added lodging for airline crews, and homeowner insurance companies to extend the potential of that business. In Brazil, we've added hundreds of thousands of urban or city dwellers to our expanded offering, transitioning from a toll-centric, highway-centric client base. Over time, we expect these adjacencies to enhance the opportunity for each of our businesses. The platform business is one we will integrate our specialized payment solutions into one comprehensive platform, so a single business or client could utilize, for example, our smart business cards, travel solutions, and our online bill pay services all from the same user interface and from us. Therefore, we believe this platform concept really combines our capabilities for employee walk-around purchases along with central bill pay. As a result of these extensions, we anticipate our global fleet card business to account for about 40% of the company's revenue this year, down from about 50% five years ago. So again, we are repositioning for faster growth. We plan to work these three midterm imperatives hard: EV, digital, and diversification. Of course, we'll report progress as we go. In conclusion today, back to Q4. Again, better than we expected, with good trends coming into this year. 2021 was truly a comeback year, finishing much better than we thought at the outset. For 2022, we have another guide to growth, with organic growth expected at 10% and earnings expected to be up 15%, giving us a significant distance from our pre-pandemic baseline. Therefore, again, we're focused on these three imperatives that I just outlined as key to sustainable growth for the company. With that, let me turn the call back over to Chuck to provide some additional details on the quarter. Chuck?

Thanks, Ron. Jumping into the product category details behind our 17% organic revenue growth in Q4, corporate payments was up 18%, with another quarter of strong performance in full AP, which was up over 50% yet again. Our card products, both virtual and multicard, were up 16%, and cross-border was up 14%, normalized for the AFEX acquisition we closed in June. In cross-border, we completed the final customer migrations from AFEX's systems to our Corpay cross-border platform in December. We’ll continue with the integration of back-office systems and processes throughout this year. Our theses are holding, with synergies and accretion in line with our expectations. I'd like to give a big shout-out to our integration team, as it is due to their hard work and dedication that the conversion has been so seamless and successful. Fuel was up organically 12%, with growth in every geography largely as a result of our digital sales efforts and strong retention rates. Our ability to sell and retain fuel card customers around the world demonstrates the competitiveness of our products and the effectiveness of our technology. We continue to make good progress in developing and marketing our EV charge management solutions, particularly in Europe, where we now have over 5,000 clients with EV-enabled cards or fobs. We have expanded the on-road network acceptance of our EV solutions, with approximately 6,500 charge points in the U.K. now accepting our products. This represents about 22% coverage of all publicly available charge points in the country. On the continent, we have around 85% coverage, as our products are accepted at roughly 190,000 charge points. We have built a dedicated organization to advance our EV efforts and will continue to support our fuel card customers as they slowly migrate to EVs. Tolls were up 17% compared with last year, as strong new sales were up 20%, and some new retention initiatives are paying off. We made tremendous progress to expand our toll business this year, doubling our fuel locations year-over-year to nearly 1,200, and we had nearly 0.5 million active fuel users as of year-end. We recently signed Mitsubishi, Hyundai, Toyota, and Kia to install our tags on vehicles before they leave the factories. As Ron mentioned earlier, we completed our joint venture with Caixa, Brazil's largest bank. Our lodging business continued to perform well, up 39%. Workforce lodging has improved with higher volume, and airlines especially outperformed, with organic growth over 100% as domestic air travel rebounded from COVID lows. The integration of ALE Solutions, a provider of lodging services to displaced policyholders of major insurance companies, is going quite smoothly, and we're increasingly confident in the value it will deliver. Gift organic growth was 19% year-over-year as the new efforts we've discussed on the last several calls continue to produce results, especially the retailer online sales channel. We also saw a pick-up in card replenishment orders, which had been delayed due to COVID concerns. Now looking further down the income statement, operating expenses of $462 million represented an increase over the prior year, primarily due to the addition of the AFEX and ALE operations as well as higher deal and integration-related costs, increases tied to higher volumes across our businesses, stock compensation, and new sales generation activities and investments to drive future growth. Bad debt expense was $18.5 million or 5 basis points, as credit losses have returned to more historical levels. Interest expense decreased 9% year-over-year due to a slight decline in LIBOR rates and the offset of higher interest rates applied to customer deposits and cash balances in certain foreign jurisdictions. We incurred $9.9 million of cost during the quarter associated with the incremental $750 million in Term B debt we added in December. On the Term B increase, the rate was the same as our existing facility at LIBOR plus 175 basis points and matures in April 2028. Our ratings and leverage remained effectively unchanged, reflecting the strength and earnings power of our company. Our effective tax rate for the quarter was 25.6% versus 20.3% last year, with the increase driven primarily by the lack of excess tax benefit on stock option exercises. Now turning to the balance sheet, we ended the quarter with over $1.5 billion in unrestricted cash, and we had $1.1 billion available on our revolver. There was $4.9 billion outstanding on our credit facilities, which included the incremental $750 million Term B debt I just mentioned. Finally, we had $1.1 billion borrowed in our securitization facility. As of December 31, our leverage ratio was 2.71x trailing 12-month adjusted EBITDA as calculated in accordance with our credit agreement. As Ron mentioned, in the quarter, we repurchased roughly 2.3 million shares. In total, we repurchased about 5.5 million shares during 2021. We also bought 1.1 million shares in January under our 10b5-1 plan. You may have seen in our press release that our Board authorized another $1 billion in repurchases. Taking all of that into account, we still have almost $1.4 billion authorized for repurchases as of today. We believe we have ample liquidity to pursue any near-term M&A opportunities and continue to buy back shares when it makes sense. I think it's important to remind everyone of the power that our earnings and cash flow give us. Recapping 2021, we repurchased 5.5 million shares for $1.36 billion. Our guidance for share count for 2022 is down 7 million shares from what we guided a year ago. We spent $950 million on deals which will generate incremental earnings of $0.50 to $0.60 per share next year and continue to provide growth in future years. We also raised an additional $1.55 billion of Term B debt, $800 million in Q2 and $750 million in Q4, at very attractive rates and terms. Our leverage barely changed. We believe the combination of our strong position, the structure of our business model, and high recurring revenues will enable us to deliver consistent quality growth year after year after year. Now let me share some thoughts on our Q1 outlook and our full-year assumptions. Looking ahead, we're expecting Q1 2022 revenue to be between $740 million and $760 million, and adjusted net income per share to be between $3.45 and $3.55, which at the midpoint is approximately $0.68 or 24% higher than what we reported in Q1 of 2021. You may notice the midpoint of our Q1 guide is also approximately $0.22 or 6% lower than what we reported in Q4 of 2021. This is largely due to revenue seasonality where certain businesses, such as gift and tolls, have strong fourth quarters while fuel and lodging tend to have soft first quarters due to weather and holidays. As such, the first quarter tends to be the lowest in terms of both revenue and profit for our company. I'd like to note a few assumptions underlying the full year 2022 guidance Ron provided earlier. We expect bad debt to be about $30 million higher than 2021 levels as we see a return to more normalized credit losses, partly due to increasing sales production. Our interest expense guidance of $90 million to $100 million assumes three 25 basis point rate increases throughout the year. Our tax rate is also expected to be higher, at between 24% and 26%, as we expect any excess tax benefit from stock option exercises to remain low relative to the last few years. The effects of these higher expenses will be partially offset by the lower share count resulting from our repurchase activity over the past 13 months. The rest of our assumptions can be found in our press release and supplement. Now looking past the results and the outlook, since we last spoke, our new ESG report was published and is available in the Investor Relations section of our website. Some highlights you will find in the document are: more details around our workforce advantage, including our comprehensive employee development and training programs; our adoption of the Rooney Rule for all vice president-and-above positions; and some reporting on our global data centers, including the significant reduction in power usage and footprint, which are down 40% and 62%, respectively, over the last five years. Finally, I would like to thank our nearly 10,000 employees around the world who helped us deliver a strong finish to a great year and who will be the driving force to even greater heights in 2022. Thank you for your interest in FLEETCOR. And now, operator, we'd like to open the line for questions.

Our first question comes from Pete Christiansen with Citi.

It is good to see. Ron, looking at the outlook, which...

Pete, we're struggling to hear you.

I'm sorry, can you hear me?

Yes. I can hear you now.

Our next question comes from the line of Ramsey El-Assal with Barclays.

Congratulations on solid results in the fourth quarter here. I wanted to ask about CapEx as a percentage of revenue. It looks like it moved up to 4% from 3%, where it's been for quite some time. Now I know Ron called out a lot of critical business investment. But I'm just wondering, should we view the investment you're making as more cyclical in nature? Meaning, you'll finish with this investment cycle and maybe CapEx as a percentage of revenue will tick back down again? Or is this sort of what we should expect in terms of a new level of business investment going forward?

Ramsey, it's Ron. I'd say probably the latter. Probably think about this level, this 4%-ish level. The two drivers, kind of new things in the last couple of years, would be that Brazil network buildout that we've referenced before. So a fair amount of cost in getting those incremental few thousand stations up. And then two, we've earmarked a fair amount of incremental money through the IT transformation. So not just enhancing, but effectively building new systems in parallel. I'd say those couple of things would have at least probably a couple more years to run, and then it may bottom back down a bit.

And on capital deployment or balance sheet deployment, more generally, maybe Ron, if you could give us your view on the appetite for buybacks versus M&A? And then on the M&A side, I'm really curious to see whether you're seeing more opportunities emerge or the deal pipeline increasing just because the valuation environment seems to have shifted down quite a bit. It might be a little too soon, but I'm just curious what you're seeing out there.

Yes, that's a good question. I would say our priorities remain the same, Ramsey. First, we focus on mergers and acquisitions if they align with our goals for capabilities or are financially beneficial. As Chuck mentioned earlier, we've repurchased about 6.5 million shares over the past year, indicating our interest in our own stock, which we believe is justified. Regarding M&A, we decided to hold off about three months ago due to the volatility in our own stock and others in our sector. Moving forward, we'll reconnect with some late-stage opportunities to see where sellers currently stand. We have a sense of our position now, so feel free to ask me again in 30 days whether sellers have recognized the volatility and if they might be open to accepting lower prices.

Our next question comes from Darrin Peller with Wolfe Research.

When we look ahead in the fuel segment, you're currently experiencing low single-digit growth, but I believe your outlook suggests an acceleration. Could you elaborate on that regarding the OTR aspect in comparison to local fleets, and how you plan to transition from your current growth rate to a higher growth level? Additionally, I have a quick follow-up question regarding corporate payments.

Darrin, hey, it's Ron. Yes. I'd say the guide embedded in the guide for '22 would be high single digits for fuel cards, so off of obviously more normalized comps this year. And Part B, yes, the OTR, which is, I don't know, call it, 30% of our business globally across Europe and Brazil continues to run softer, right? The COVID impact, getting drivers has softened that business more. So I think inside of our high single digit, that thing would be a smidge softer than the local or partner business.

Okay. And you've had decent sales flow that's probably flowing through right now?

Yes. You kind of cut out a bit. But if you said we had decent sales, I mean we've had literally record sales in the fuel card business.

I would like to follow up on the corporate payments aspect. I'm trying to determine when the cross-selling for Corpay will fully begin. Considering the potential of the software on the Nvoicepay side compared to just the virtual card, what is your outlook on our overall offering? When do you anticipate we will see a full-scale rollout of this initiative? There seems to be a lot of positive discussion in the industry, and I believe this could lead to some significant trends.

Yes, another good question. I'd say probably another quarter or so, and let me explain why. So we started out, call it, in the second half testing, going out to 1,000 clients, 2,000 clients, putting them on a new payment platform, seeing if they had an interest in our new platform, bill pay solution, saw some decent reaction to it. So what we've decided to do is kind of be careful in changing the payment platform and presenting a new service at the same time. We want to be super cautious around not upsetting, if you will, the golden goose of these fuel card clients. So we’re moving to put that platform in against a broader set of clients, get them comfortable using that and then effectively present add-on services for them. So my guess is probably somewhere in Q2, we'll be able to report out on it.

Our next question comes from the line of Sanjay Sakhrani with KBW.

Just a question on the expense growth. Obviously, very strong coming out of the pandemic, sort of deflationary there. Could you just talk about how much is driven by inflationary pressure versus more investments you're making? And kind of what you're assuming that's going to translate to in terms of top line growth?

Yes, Sanjay, this is Charles. The expense growth you're seeing comes from a couple of different areas. First, we've got the AFEX and ALE acquisitions that are rolling in, so that's number one. Second, we've got the normalization of credit losses. We expect those to be quite a bit higher, including some comps there. Also related to the deals, we’ve got ongoing integration costs. The AFEX integration is probably the most advanced we will have taken as a company, so to really move them off their systems, close redundant offices, etc. It's a multiyear journey there and we're spending money to basically create synergies for the future, which is also baked in, both in the fourth quarter here as well as into our guide for next year. We are seeing some inflationary pressure predominantly around staffing. So wages in some of the call centers and such, we've taken measures to remedy that. As it relates to vendors, a little bit. But I'd say that will help us eventually as it flows through to vendor payments in our corporate payments arena. So it’s a tale of two cities. We're experiencing some additional costs from inflation, but we will also get some benefits on the revenue side.

Sanjay, it's Ron. Just to jump on the last thing Chuck said, some of the increment is really driven by us, based on our choice to chase EV capabilities and sales. Again, some testing and advertising coming up and also in IT to really better position the business. We like the profit number we got to. So in addition to the factors that Chuck laid out, I do want you to understand what we have planned for the company on a forward basis.

Understood. And I actually have a follow-up question on the EV point. I'm just curious, Ron, how you think the distribution channels are going to look like in the future, some payment processors that partnered with the auto manufacturers? And I'm curious how unconventional the partnerships that you're trying to forge are going forward. I know you have some of them, but can you speak to what you're targeting?

Yes. I think it's actually been the other way so far. I think that we’ve announced again a follow-on in kind of a new investment in software companies. I think companies that are working on software see people like us and leasing companies as the best distribution pipeline in the fleet, particularly as they're shifting. We continue to feel confident that we can offer that back to our client base because we're first to see if they're moving from fuel internal combustion to something else. Therefore, we could spot that in our client base. Moreover, we've got plenty of coverage to bring new clients into the fold. So I'd say our distribution capabilities are solid. With that said, we referenced the Brazil initiative, which is an example where we have now put tags—effectively, toll tags—in partnership with three or four partners for those cars as they come off the line. When you buy your new Kia or whatever it is, it's got a Sem Parar tag when you take it home. We think over time, these cars will be coming off the line connected, sending data every couple of seconds. So we mostly want to be set up to grab that, establish relationships where we have access to that connected car data that can assist the client with payments, whether at public locations or at home. I would say we're much better equipped now to navigate this transition and understand how to operate and the support we need.

Our next question comes from the line of Trevor Williams with Jefferies.

I wanted to ask another one on expenses, kind of similar to what Sanjay was getting at. But margins in Q4 were down about 300 basis points from the third quarter despite all the revenue upside. I mean, is this kind of a new stepped-up level of spend that we should just expect to run through 2022? Just as we think about how much leverage you can get from—you're guiding to 14% revenue growth next year, if you do better than that, if we get kind of another light back just on some of the pieces of the revenue pie that are still lagging versus '19. So just give us a sense for how we should be thinking about operating leverage going forward, given that you've already— it seems like there’s been a stepped-up level of investment to prepare for the new go-to-market strategy.

Yes, Trevor, it's Charles. I'd say that there is a bit of a reset. Some of the acquisitions that we bought do operate at slightly lower margins, dealing with big airlines or insurance companies, right? These clients are very focused on the rates they pay and require high service levels. We need to make investments; so as the airline volume revenue comes back, we need to staff up. I think the 54% margin is probably a good assumption going forward next year. We are continuing to make investments for future growth. So in summary, operating margin should hold at that level for the remainder of this year.

Okay, got it. And then, Charles, just a follow-up on interest expense. It sounds like you guys have three hikes built into your guidance for '22. Can you give us a sense just – and even if it’s not an exact number, that’s fine. But if we end up with five or six hikes, what the interest expense sensitivity could look like in that scenario?

We've got about $5.9 billion that would flow with LIBOR. So for every 25 basis points, you're looking at about $14 million to $15 million of incremental annualized expense, so you’ve got to layer that in over time. On the flip side, we do have customer deposits and cash balances that earn interest, and so if interest rates continue to rise around the world, we might actually see enough benefit offsetting the additional interest expense.

Okay, thanks, Trevor. I apologize for any technical difficulties. It looks like we're going to take Tien-Tsin next. Except I can't promote him. Alex, can we take Tien-Tsin? All right, guys, let’s see if we can do the next one. Alex, can you hear us? Okay, well, while we wait for that to get squared away, Pete's questions from earlier were, how should we think about expectations on the Corpay One SMB initiative factoring into the guide? Trying to understand if there's upside opportunity versus normalized corporate payments growth expectations.

Yes. Can people hear us? Pete, I don't think you can hear, but it’s Ron. So I answered a bit of this earlier that we're going a bit slower to be cautious on the cross-sell, and we are obviously selling to new prospects in the market. I’d say control of the overall corporate payments guide for the year, the SMB piece would still be relatively small, primarily because we're trying to be cautious and make sure we have the acquisition economics right. In terms of upside, since we're not scalable yet, I'd say as we get into the second half and complete some of the testing, there could be upside. We could step on the gas a bit if we like what we're seeing and perhaps elevate the growth rate in the second half.

Okay. And then another question is, can you flesh out the Brazilian banking relationship a bit, how you see this impacting the value proposition, and how could this impact future revenue growth going forward?

Yes. We completed the joint venture with Caixa Bank, the largest bank in Brazil, which tends to focus a bit more downmarket. If you look at our historic Sem Parar business, we have tended to focus a bit more on middle-class users. With Caixa, we'll be able to move a bit downmarket and leverage all of the distribution capabilities such as all the branches, their ATMs, etc. We view it as extensive distribution but also reaching different segments around the country that we just weren't as focused on historically.

Let me just jump on, Jim, and discuss. Hey, it's Ron. I would just add that we love how incremental different distribution channels are. When we bought the business, a significant percentage of all new sales came through the stores and kiosks, where people were queuing, and we diversified that into digital, hanging things at retail, outbound sales, etc. Plus, we've formed a diverse set of partners, including the manufacturers Chuck referenced. What I want to emphasize is we love the incremental nature of a bank and those relationships. We haven't included a large amount into the guide yet because that just lifted off a couple of months ago. But we're super excited about it because it’s the largest bank and the largest set of account holders in the entire country. We hope again that, that will be additive to our efforts. And to Chuck's point, because it targets a slightly different user set than the traditional one.

Ladies and gentlemen, we apologize for the technical difficulties. We will now take our next question. Our next question comes from the line of Tien-Tsin Huang with JPMorgan.

Hey, Ron, Charles, Jim. It's Andrew, actually, on for Tien-Tsin. Congrats on the quarter. I wanted to ask a question on retention. So obviously, still running strong compared to pre-pandemic, a little bit of a slide quarter-over-quarter. But what I wanted to ask was, as you guys started to sell more services in bundled, with the Corpay integration, could there be any lift in terms of retention as you sell potentially more stickier products?

Andrew, it's Ron. Yes, we actually have statistics on that. We look at different cohorts, similar sets of clients and analyze whether they have one, two, or three kinds of services. Your thesis is absolutely correct that as you move beyond one service, you become stickier with clients and have a deeper relationship. Therefore, to the extent we can get our platform or bundle working and someone has walk-around products, then we are able to offer them central bill pay, we believe we will see a lift, especially when the bundle might include smart business cards or fuel cards, which is our predominant walk-around service.

Great. Just one more quick follow-up. I was just curious, were there any hiring pressures or wage pressures that impacted your clients, whether it be in the fuel or corporate payment side that might have impacted this quarter as a result that we could expect to normalize over time?

We had a little bit, actually. Chuck referred to this earlier in our lodging business, where we have a decent-sized servicing group, which is one of the lower wage groups in the company. I'd say that's the place where we felt pressure. We've responded to that in the fall, both to retain people that we were losing and to add additional personnel. I think like the rest of corporations in America, we're seeing some pressures in different areas, in IT, digital, and certain pockets. But we have built that in again to the guide. I think it's been going on for about three to six months. We are comfortable with what we plan.

And Andrew, to pick up on what you were saying, I think you were talking maybe wage pressures on some of our customers. We have indeed noticed that in lodging, particularly. Our workforce lodging business, while it has seen some recovery, has not yet returned to its full potential, as we have had small businesses turn down job opportunities because they cannot hire the necessary personnel. We are eager to see how the employment market evolves as government subsidies wane and if there is potential upside available. Having built a substantial amount into the plan a little, not a lot, but we will wait and see regarding truck drivers as well.

Our next question comes from the line of Bob Napoli with William Blair.

Ron, could you provide some color on your expectations for the growth of the corporate payments business in 2022 and perhaps, over the medium term? Can you discuss the various segments, including full AP versus cross-border versus others?

Sure, Bob. I'd say the guidance for that business in total is in the high teens. And again, there are different pieces. The payables portion, including virtual cards, full AP, demonstrates strong growth with full AP growing 50% last quarter and anticipated to grow a bit faster. The partner business that we're calling out will grow slower than that. As for the cross-border business, it should be closer to the mid-teens. In regard to your persistent inquiries, 'Yes, we could grow it faster.' But we are trying to maintain a balanced expenditure relative to our growth target and profit target, spending wisely to avoid adding 50% new personnel or advertising that does not work. We remain disciplined in our spending approach.

Then as a follow-up question, Ron, FLEETCOR has 15 proprietary acceptance networks for your fuel card business. Are that many necessary? How do you see those networks relative to an open-loop network, and what benefits are you getting out of it? Is there an opportunity to optimize?

That's a great question. So the answer is not only regarding our fuel cards business but represents the underlying core of the company. In addition to lodging, we have roughly 15,000 hotels here in the U.S. out of about 45,000 to 50,000. We have favorable economics and unique data, which we utilize to approach our clients. We have a toll network in Brazil. We have fuel networks in about ten countries, making it challenging for others to create a proprietary network today. I just mention it to reiterate that those networks, along with the volume we pass through them and the data we collect, provide substantial advantages to us when pitching offers to the business account side.

Our next question comes from the line of David Togut with Evercore ISI.

The lodging business performed impressively, exceeding our forecast for revenue in the quarter. Can you walk us through your forecast for lodging revenue growth in 2022? If you could, share some insights on the underlying drivers, including domestic versus international business, and give us a little status update on Travelliance, which you acquired a couple of years ago. Are you seeing a nice recovery there?

Yes, David, this is Charles. Lodging is performing extremely well. We do have continued recovery to go, especially in the airline space. Much of the performance you're seeing here reflects domestic air travel. International travel is still down significantly compared to historic norms, but we see that starting to recover in the coming year. Workforce lodging has a bit of room to recover, but it is also doing quite well. The ALE business, a recent acquisition, is accretive and a good buy. There is still some work left to realize the synergies, but I'd say we are confident that our plans will come together. I do have specific numbers in front of me.

Hey, David, it's Ron. I just note that the guidance for that category is plus 20% organically, with significantly high figures based on new acquisitions that closed in September. The drivers include a substantial sales plan that is way up, I think, around 35% to 40% for '22. As Chuck indicated, there has been marked sensitivity, particularly for airlines, where roughly a quarter of that segment historically of our revenue has come from international flights, which in Q4 was essentially nonexistent. To the extent that the world opens and airlines resume cross-border travel, we have the contracts and are already serving airlines domestically. Our assumptions indicate a bounce back later in the year.

Just one final question on capital allocation priorities for 2022. While you've been opportunistic regarding stock at current price, you've also executed solid acquisitions. What is your thought process moving forward as you assess stock price versus pipeline acquisition opportunities?

We're still buyers. I mentioned my opening comments that we not only bought a couple of million shares in Q4, but we made the decision with the Board to keep buying at this price into January through our 10b5 program. I don’t know where the stock will go, but at this price, we’re buyers. As Chuck mentioned earlier, we have $1.5 billion to $1.7 billion depending on what cash we decide to utilize, allowing us to pursue multiple avenues. At this stock price, we can buy back a lot more of our company. As I noted earlier, we are prepared to resume discussions regarding deals we worked on during summer and fall. If you asked me, “What happens in six months?” I’d expect to see us doing both.

Our next question comes from the line of George Mihalos with Cowen.

I guess, first, just to build off David's last question, can you break down the revenue composition within lodging from your traditional blue-collar business and the airline business now? Just trying to gauge the size of each segment and how it might influence future growth as airlines recover.

Yes, that's a good question. We think of it as three pieces or verticals. First is workforce, targeting blue-collar travelers, like tree-cutting firms going to restore power lines. Secondly, we have the airline crew segment, which globally contributes to a significant proportion of lodging, as about 10% of rooms worldwide are crew accommodations. Finally, we have the newest area, which caters to homeowner insurance professionals, providing housing when clients face issues like water damage or fire. Each of them works with unique systems, integrating into crew management or claims systems. I’d estimate the two new segments comprise about 40% of the total, compared to workforce lodging. All three segments continue to grow for the reasons previously outlined.

Just a quick follow-up on the expense side. I know that has been discussed, but if we look at 2022, some expenses are transitory as bad debt normalizes and integration costs play out. Could you help us distinguish how much of these are transitory for '22 versus structural, as you accelerate investments to the cloud and your tech transformation?

Yes, George, it's Ron. Let me respond and then Chuck can elaborate. I think of it as discretionary expense. We will incur a base set of expenses necessary to operate the business, involving IT, communication, personnel, credit, and similar functions. The substantial incremental expenses are directed toward sales and IT, leading to more revenue in the future. We anticipate total planned expenses to be about $600 million to $700 million for 2022. Ultimately, our decisions regarding these extra expenses depend on projected outcomes. Therefore, it is contingent upon successful performance, and we’ll adjust our spending based on feedback.

Our next question comes from the line of Andrew Jeffrey with Truist.

Ron, lots of interesting initiatives, starting with digital efforts, which you noted now represent half of fuel sales and your movement towards platform selling. I'm trying to understand if you think success with more value-added solutions might lead to expanded spending on fuel cards. While that wasn’t specifically brought up this quarter, collectively, how might this business grow faster while maintaining current margin levels? I want to ensure I'm not missing any important elements.

It’s a great question, Andrew. My answer might be a bit circular here, but we’re essentially repackaging and integrating several of our products for significant incremental potential. We could see this approach appealing to different businesses than we previously targeted. Therefore, I want to emphasize that we’re working towards something that capitalizes on our capabilities built over two decades. It's a 10x opportunity for the company, but the specific process will depend on sale economics, which we are still establishing. I expect profit margins to remain fairly consistent due to our extensive experience, statistics, and knowledge of what we can produce. This does not apply to the newer platform offerings, and we’ll evaluate their performance as they develop.

That’s helpful, thank you. As a follow-up, philosophically, would you like the business to be simpler at some point? Or do you feel confident about all the segments you are in? I know gift has been a mixed bag over the years.

Yes. It’s a great question. The perspective we've often shared about how we operate our company and how our different businesses work in tandem is significant. When we discuss this within the company, the message is simple: we work for businesses, trying to help them curb spending primarily on expenses. Those programs we create serve to control what clients buy and how much they pay. The complexity comes from our specialization in addressing specific needs with various products. By providing tailored solutions, we manage to reach numerous clientele. I believe we might begin to simplify the narrative as we explain how we function, emphasizing that we assist businesses in optimizing expenditure on non-payroll expenses and offering specialized as well as generalized services. I sense we might need to dial back distractions with too much granular detail. For example, consider our digital pivot: we have honed our technology stack and optimized components, applying our expertise to various business units. We plan to integrate these products into the upcoming platform, ensuring they offer cohesive solutions instead of appearing distinctly separate.

Our next question comes from Ken Suchoski with Autonomous Research.

Ron, I wanted to follow up on some questions regarding EV. I believe you mentioned in your initial comments that the unit economics for EV is roughly in line with traditional fueling services. Could you shed light on what those EV unit economics look like? It's commendable that the transition to EV is revenue neutral. What factors are driving that?

Ken, this is Charles. Good question. I had our analyst pull data from the Netherlands, which is further ahead in EV migration compared to the U.K., which is ahead of the U.S. We have approximately 18,000 clients. We divided them into two groups: clients exclusively buying fuel and those with mixed fleets. About 14% of those clients, approximately 2,500, represent mixed fleets, averaging around 20 cards or vehicles per account, so largely enterprise-level clients are moving faster. The average revenue we receive per vehicle for EVs is actually slightly higher. This is because these enterprise-level clients receive rebates through our fuel networks, which is not reflected on the EV reporting side. The economics turn out to be neutral to favorably skewed towards our EV operations. Without getting into specifics, I would say EV revenue is about 20% higher for these mixed fleet customers, and they've transitioned around 15% to 20% to EVs so far.

Hey, Ken, it's Ron. This is an important question, so let me add to Chuck's points. There indeed was a long-held misconception that moving to EV would be cost-efficient for businesses, where charging it would be cheaper than fuel. Those assumptions seem misguided as there are costs associated with recharging EV vehicles that are much higher than once thought, especially using public charging stations. The higher markup on electricity has resulted in increased MDR for companies like ours trying to build business volume. The second misconception surrounds recharging frequency, where the majority will happen at home, thus leading to numerous charge points that we aren't currently managing. Overall, businesses that switch to EV are likely to encounter greater expenses than expected.

Our final question comes from the line of James Faucette with Morgan Stanley.

I wanted to follow up on these minority investments you’ve made. To me, there’s a strong case for managing associated expenses and costs, particularly as you highlighted regarding EV. Can you address under what terms you consider minority investments versus acquisitions? What are your expectations moving forward, and how should we assess the growth trajectory of those relationships and their potential contributions to FLEETCOR?

James, hey, it’s Ron. That’s a good question. It’s essentially ‘try before you buy.’ The category is new, and several partners are working diligently on software solutions. Therefore, we find it logical to support them financially while simultaneously forming commercial agreements detailing economics and roles for both companies. We get early access to their developments and can integrate them into our own offers. Our partners are strong prospects as we work collaboratively to ensure our product matches our clients’ needs. We also maintain the flexibility to evaluate more options across different situations.

That clarifies a lot. Just as a final quick question, throughout your discussions, you’ve pointed to the solid momentum we’re witnessing in travel and lodging sectors. Can you discuss how you navigated the Omicron wave? Were there any impacts on run rates to consider, and how have you managed recent dynamics?

Yes, another good question. I'd say there was a slight impact. Chuck and I conducted an evaluation in January with our teams, and I think we noted somewhat more influence in Europe. Exiting December and moving into January, there was a soft month for us regardless. This gradual effect was effectively integrated into our forecast. We are now seeing signs indicating that this minor impact is dissipating. Although I don’t want to overstate optimism, it definitely feels like we’re entering a clearer period. I just want to stress that the forward numbers we’ve given for '22 give us a lot of confidence.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. This concludes today's conference, and you may...

Hey, Alex, can we make just a quick comment? We just want to apologize to those on the call for the technical disruption. Hopefully, it wasn't too confusing. As always, we appreciate your interest and support.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.