Good afternoon, ladies and gentlemen, and welcome to the FLEETCOR Technologies, Inc. Second Quarter 2023 Earnings Conference Call. This call is being recorded on Tuesday, August 8, 2023. I would now like to turn the conference over to Jim Eglseder, Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us today for our second quarter 2023 earnings call. With me today are Ron Clarke, our Chairman and CEO; and Tom Panther, our CFO. Following their prepared remarks, 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 the supplement can be found under the Investor Relations section on our website at fleetcor.com. Now throughout this call, we will be covering organic revenue growth. As a reminder, this metric neutralizes the impact of year-over-year changes in foreign exchange rates, fuel prices and fuel spreads. It also includes pro forma results for acquisitions closed during the 2 years being compared. We will also be covering non-GAAP financial metrics, including revenues, net income, and net income per diluted share, all on an adjusted basis. These measures are not calculated in accordance with GAAP and may be calculated differently than 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 also 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 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. The expected results are subject to numerous uncertainties and risks, which could cause actual results to differ materially from what we expect today. Some of those risks are mentioned in today's press release on Form 8-K and on our annual report on Form 10-K filed with the Securities and Exchange Commission. These documents are available both 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 us today. Up front here, I'll plan to cover 4 subjects: first, provide my take on our Q2 results. Second, I'll share our updated 2023 guidance. Third, update you on a few key priorities that we're working on, and then lastly, discuss the status of our strategic review. Let me begin with our Q2 results which finished better than our expectations. We reported revenue of $948 million and cash EPS of $4.19 million, both of those up sequentially. Our Q2 EBITDA almost touched $500 million, which is an all-time record for us. Both our print revenue growth and organic revenue growth came in at 10% for the quarter. The reason is Q2 print revenue helped by acquisition revenue and hurt by lower fuel prices, so effectively a wash. The components of our overall 10% organic revenue growth were fleet stepping up 6% for the quarter, helped a lot there by our international markets, particularly Mexico and Australia, both of those up over 20% for the quarter. Also, our EV revenue increased 45% year-over-year. Brazil grew 15% in Q2 and continued strength in our core toll line, tag volume, they're up 7%, helped by our new bank partnerships also increasing demand for our new vehicle insurance add-ons. Lodging, up 14%, led by our airline vertical. That results from a number of new airline implementations, along with the growing usage of our auto rebooking feature for distressed passengers. And finally, corporate payments up 22%. That was led by our direct payables business. That was up over 30% in the quarter. Also our cross-border business doing great, enjoyed record levels of new sales and new accounts. Turning to the trends or fundamentals in the quarter, also quite good. sales grew 20% in Q2. Inside of that number, corporate payment sales are up 80% versus last year, which reflects strong demand for that product line. Our North America fuel sales remained pretty soft in the quarter. That reflects the pivot we made away from micro SMB accounts last fall in an effort to control bad debt. Retention remained steady at 91%, and that's despite a set of aggressive credit policies that we changed. Same-store sales finished flat, really a mix of pockets of both strength and weakness. Weakness, we saw in our lodging managed accounts business and strength really in the stability, improving stability in our North America trucking business. So look, all in all, a bit better Q2 than we had expected, a really terrific start to the first half. Year-to-date revenues, sales, and earnings all coming in ahead of plan. Okay. Let me shift gears and share our outlook for the rest of the year 2023. First off, we're calling for the second half macro to be roughly neutral to our recent view, albeit with some puts and takes, specifically expecting better FX, but lower fuel prices. We're revising full year 2023 guidance, including Russia, of revenue of $3.848 billion at the midpoint and cash EPS of $17.22 at the midpoint. This updated guide reflects the flow-through of our $8 million Q2 revenue beat and $0.07 cash EPS beat, leaving the second half prior guide intact. And although the business is running ahead of our internal expectations for the first half, there is considerable sequential revenue growth still baked into our second half forecast. The revised second half guide implies print revenue growth of about 12% and organic revenue growth of about 10%, pretty consistent with the first half. Finally, the guide implies an attractive Q4 exit with revenue growth expected to be 14% and reach $1 billion in quarterly revenue for the first time. So pretty exciting. We do expect cash EPS growth of 16% in the exit as we begin to lap interest rates from last year. Okay. Let me make the turn and share our progress against a few important priorities. So first, EV. We're continuing to progress our EV efforts along with our understanding of how the energy transition may in fact affect our business. If you would look at Pages 12 through 14 in our earnings supplement. So on the economics front, EV vehicles, at least among our commercial mixed fleet clients, continue to be very favorable. EV vehicles are generating more revenue per vehicle than a comparable ICE vehicle. We've seen this positive trend now over the last 10 quarters. So really super good news there. Second, EV is beginning to grow. EV revenue in Q2, up 45% versus the prior year. And the number of U.K. EV commercial accounts nearly tripled in Q2 versus the prior year. Okay. Second up is our fleet Board refreshment initiative. We added 3 new directors to the fleet Board here in calendar 2023 and have had 2 long-tenured directors retire. This move has strengthened both our audit and tech committee oversight and greatly enhanced our diversity. So last up in terms of updates is our North America fleet sales pivot. You may recall, we were selling a lot of super small micro accounts digitally last year and made the decision to move digital sales upmarket to bigger company prospects. So some progress there. Again, we essentially stopped onboarding new super small 1 and 2 card sized companies about 9 months ago. And although this reduces our overall North America fleet sales, we do expect the second half fleet credit losses to decrease about 30% to 35% sequentially first half versus second half. Good news, we are increasing the number of new fuel apps that have more than 5 cards. That's from modifying our digital advertising bidding engine. So that's working. We do expect to be on the other side of this digital sales transition as we exit '23 and thus better positioned to accelerate fuel card sales next year. Okay. Last up is the status of our strategic review in which we're reevaluating the portfolio of our company with the idea of potentially separating one or more of our businesses. As you can imagine, we've been quite busy with this review, along with our overall value creation plan. So first, on overhangs on the FTC front, we have closed the FTC injunctive relief chapter. You may recall, we received the court order. We're implementing the remaining disclosure request there and expect to be in compliance by the end of this month. We do believe that our North America fuel business exceeds the very best industry marketing and disclosure practices. Russia, we have now received all necessary government approvals to close the Russia sale. We are working through some final closing mechanics and hopeful that deal will close later this month. Tom will speak to the expected financial impact of the Russia sale here in just a minute. Second, noncore assets, we are progressing the potential sale of a couple of noncore assets. We're well underway in exploring the sale of our prepaid businesses. We're also in discussions regarding a few small divestitures that are within our vehicle line of business. Third, fleet reinvention. We're pretty aggressively working to reposition our global fleet business, the goal is to create really an exciting future for fleet that promises sustainable and durable growth. We think we're out in front here in EV and actually expect EV to accelerate growth in that business. We're continuing to broaden our set of vehicle-related payment solutions, of solutions beyond fuel. And we believe that re-rating our biggest business and biggest earnings contributors is really the #1 driver of the company's overall value creation. So lastly, the topic of separation. We are exploring with the help of Goldman Sachs the idea of separating one or more of our businesses to further unlock value. Our path initially is to look simply at separating or spinning off one of our major businesses into a separate company. So the considerations or assumptions here are around forward pro forma multiples, what would the stand-alone company trade at, tax impacts, dis-synergies of the separation, opportunities for future M&A, really a whole host of things. The second path is to potentially combine one of our 3 major businesses with a partner. That would be a pure-play company that provides very similar solutions to one of our 3 big businesses. So we are actively involved in exploring a few partner combinations and evaluating the attractiveness of that path. As promised on our last call, we expect to complete our work on each of these 4 initiatives before year-end and for sure, we'll share our conclusions with you then. Okay. So look, in closing today, I do want to reiterate that we are pleased with Q2 and our first half performance, our financials and KPIs ahead of our initial expectations. We are flowing through our Q2 beat and raising full-year 2023 guidance. We are progressing a few of our key priorities again, particularly on the EV front, and we are actively exploring several portfolio moves in an effort to re-rate our multiple. So with that, let me turn the call back over to Tom to provide some additional detail on the quarter. Tom?

Thanks, Ron. Here are some additional details related to the macro environment during the quarter. We had 10% organic revenue growth in Q2, and our reported revenue growth was also 10% and as the growth from recent acquisitions offset fuel price headwinds. Revenue of $948 million exceeded the midpoint of our guidance by $8 million, comprised of $13 million in higher revenue partially offset by $5 million of fuel-related macro, which flowed through to our $0.07 beat in cash EPS of $4.19. Fuel prices were $3.65 per gallon for the quarter, lower than our $3.99 guide from May, which caused approximately $20 million of lower revenues versus the prior year. We exited the quarter with fuel prices around $3.55 per gallon, but prices rose in July to approximately $3.60 per gallon, a trend we expect to continue over the balance of the year based on the EIA forecast. Fuel spreads were positive versus prior year by about $5 million. Lastly, we had $9 million of negative impact from lower foreign exchange rates, mainly due to the decline in the ruble as the economic impact from the war drags on. In aggregate, we had $23 million of macro headwind versus last year that we were able to power through by way of organic and acquisition-related growth. Now on to our performance for the quarter. As I previously mentioned, organic revenue growth was 10%, reflecting the healthy diversification of our business and the realization of strong sales from last year that continued into the first half of this year. Corporate Payments revenue was up 22%, driven by strength in our direct business, including full AP software solutions, which again grew over 50%. Our comprehensive menu of high-quality payment solutions continues to sell incredibly well as we sign up new customers who are looking to transform their AP operations. Cross-border revenue was up almost 30% as sales remained strong and client transaction activity was again robust. We completed the global reach, customer migration and are now focused on selling our combined set of products and services in all geographies, which is contributing to our strong performance. In addition, we remain committed to realizing the cost synergies as we rationalize the IT and facilities overlap, which will help expand margins in the second half of the year. Turning to our fleet business. Organic revenue increased 6% driven by higher revenue per transaction and sales growth, especially in our international markets. In the U.S., we are seeing early success from our pivot and digital sales to a slightly larger customer segment, but we are still feeling the effects from significantly reducing our micro SMB fleet sales beginning in the third quarter of last year. We anticipate digital sales to improve heading into next year as we adjust our lead generation strategies and conversion pipelines. To expand on Ron's comments regarding our market-leading EV solutions in Europe, we are seeing over 20% sequential quarter growth in accounts, cards, and home charging users, and we continue to expand our proprietary charging network which translated into over 30% sequential growth in kilowatt hours charged. While the revenue base remains relatively small, given the emerging usage of commercial EVs, it's a great start and we are committed to building upon our unique capabilities. Brazil's revenue grew 15% compared to last year, driven by 7% tag growth. We now have 6.5 million tag users, which enables us to further increase the proportion of revenue from our expanded network of products where we earn interchange. In the current quarter, approximately 36% of our B2C revenue was from the expanded network. Sales also remained strong, increasing 16% driven by a robust digital, field and partner distribution channels. Lodging revenue increased 14%, which was in line with our expectations. I would note that the business grew 41% last year. So this quarter is up against a tough year-over-year comp. This quarter's solid performance was highlighted by sales success across our industry verticals. In addition to revenue per room night that increased 19%, driven primarily from channel and product mix. The Other segment declined 14% due to a shift in the timing of cards ordered by our retail clients in our gift business. In the second quarter of last year, card orders were pulled forward from Q3 and Q4 as retailers wanted to ensure supply chain delays did not impact their card stock for the year-end holiday season. Our full year net revenue expectations for this business remain in line with our prior expectations. Now looking further down the income statement. Operating expenses of $536 million represented a 9% increase over Q2 of the prior year, primarily due to the addition of the Roomex, Plugsurfing, and Global Reach Group operations. The increase in OpEx was also impacted by higher bad debt, increases tied to higher transaction and sales activities and investments to drive future growth. Bad debt expense was $35 million or 7 basis points of spend, which was stable with last year and in line with our expectations. We currently expect bad debt to improve approximately 20% in the back half of the year compared to the second half of 2022. EBITDA margin in the quarter was 52.4% which is a 140 basis points improvement from 51% in the first quarter of this year and 30 basis points higher than last year. Normalizing for our recent capability acquisitions, EBITDA margin increased 130 basis points compared to the prior year quarter. We still expect our full year EBITDA margin to improve throughout the year and exit around 200 to 250 basis points better than the prior year. This will be driven by solid revenue growth and synergies realized from acquisitions. Interest expense increased $65 million year-over-year driven by the increase in SOFR on our debt stack. The impact of higher interest rates resulted in an approximate $0.57 drag on Q2 adjusted EPS. Over the past few months, we've been monitoring swap rates relative to the SOFR forward curve. In August, we executed $2 billion of fixed rate swaps with an average maturity of 3.5 years, an average fixed rate of 4.3%. These swaps provide immediate positive carry of approximately 100 basis points and ladders out the fixed rate portion of our debt stack, which is now approximately 60% fixed. These interest rate risk management actions capitalized on the strong relative value of swap rates at the 3- to 4-year point of the curve, generating an immediate benefit to interest expense and substantially reduces interest expense volatility going forward without incurring outsized duration risk. Our effective tax rate for the quarter was 26.6% versus 23.7% last year, which reflected a discrete tax item that positively affected the 2022 tax rate. Now turning to the balance sheet. We ended the quarter with $1.25 billion in unrestricted cash, and we had $768 million available on our revolver. We have $5.5 million outstanding on our credit facilities and we had $1.25 billion borrowed under our securitization facility. As of June 30, our leverage ratio was 2.6x trailing 12 months EBITDA as calculated in accordance with our credit agreement. We made no open market share repurchases in the quarter, and we still have over $1.2 billion authorized for share repurchases. We have ample liquidity to pursue near-term M&A opportunities and continue to buy back shares when it makes sense. In addition to Ron's overview of our full year guidance, let me give you some additional detail, including some thoughts on our Q3 outlook and supporting assumptions, which can be found in our supplemental materials. For the full year, we now expect GAAP revenues between $3.836 billion and $3.86 billion. Adjusted net income between $1.281 billion and $1.303 billion. Adjusted net income per diluted share between $17.09 and $17.35. And finally, EBITDA growth of 17%. For Q3, we're expecting revenue to be between $980 million and $1 billion, and adjusted net income per share to be between $4.44 and $4.64 per share, which, at the midpoint, is up 7% of what we reported in Q3 of 2022. All of these estimates include Russia for the full year. We are now assuming an August close of our Russian business as we continue to work through the final closing details. Upon close, we expect revenues for the year to be $45 million to $55 million lower, resulting in a $0.25 to $0.35 decline in adjusted EPS over the remainder of the year. Based on using the sale proceeds for buybacks. This guidance is consistent with our previous guidance after adjusting for anticipated August close. Related to our guidance assumptions, we are using $3.66 for our fuel price assumption for the rest of the year. Our interest expense guidance of $330 million to $340 million is based off an average SOFR rate of 5.31% for the rest of the year. Additional assumptions can be found in our press release and supplement. With that, thank you for your interest in FLEETCOR. And now operator, we'd like to open the line for questions. Thank you.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from Tiem-Tsin Huang with JPMorgan.

Good afternoon, everybody. I appreciate the update on things. So I guess, Ron, I want to ask you, with you're moving forward with the strategic review, you mentioned a couple of options on the separation and some views on the noncore. And I know you've probably learned a ton here. I don't think you're going to tell us which way you're leaning per se. But as you've learned through this process, I mean, have you changed your priorities on how you're going to seek value? And I know this has taken up a lot of your time, but is the preference to seek immediate value for certain? Or are there some other things that you see that could be value creative that maybe could last over the mid- to longer term, if you follow my question. Really immediate gratification versus sort of a long-term balancing act.

Tien-Tsin, I have no idea where to go with that question. Yes. We're obviously, as I tried to say in the opening, working the thing pretty hard. Running through these 3 or 4 different areas. I guess I would say in terms of leading your comment of, hey, what do we think? What do I think? Has the chance to re-rate to get the value. I'd say 2 things. One, we think getting people to believe the fleet business or what we're going to transform into the vehicle business that that's got a durable, and exciting future as kind of Job 1, 2 and 3 because it's such a big part of the company, particularly the EV part of that story. So I'd say we are working that like super hard, and it will come full with some stuff in a few months. The second one on the separation thing, I'd say that, to me, the separation is much more interesting and compelling if we can do it in combination with something, not only because that could create more scale and stuff in the space but also potentially have a bunch of synergies with it. And so the structural separation enables in some ways transactions that are not as easy out of the mothership. So I'd say that those would be my 2. It's the fleet reinvention where people believe in the future and the potential for separation that would also include a combination.

So, I wrote down, Ron. I didn't ask the question very well. I think you mentioned that EV would accelerate growth in the fleet business. I think EV grew 47%. Do you feel like you have a good line of sight now, at least in the short to midterm, on the EV piece and how it would supplement growth within the fleet? Can you tell us a little bit more on where the sources of revenues are coming from?

Yes, that's another too good question. I mean the first thing, Tien-tsin, is just if you take the existing accounts, the defensive nature. So, hey, this vehicle, we have millions of vehicles. What if some of those vehicles are EVs? So the first conclusion or forming conclusion is we don't care. We could be in different matter of what commercial vehicles exist in a bunch of years from now as long as they're owned by the company. We can make money, we can make revenue. And in fact, we're making more. The second one is, it's looking like because our EV stuff is a bit better. We're out ahead of other people, including, for example, the oil companies. that we might do better in our basic selling and retaining commercial fleets that we have because we get advantage by having the combined old fashion and new fashion package. And then the third one, we've got a new trick comment on the consumer side, which is a segment that we're not in. So to the extent that we can light up the consumer side by just repurposing the stuff we have. So that's kind of the 1, 2, 3. Neutral to flat kind of in the first one, went a bit more in the commercial and then add the consumer, that would be the trifecta.

Your next question comes from Ramsey El-Assal from Barclays.

I wanted to ask about the fleet segment organic revenues. It came in above our model. I think you called out some outperformance in international markets, Mexico, Australia. Just curious what was the driver there that sort of upside surprise? And should we expect whatever boosted growth internationally to kind of continue through the remainder of the year?

Ramsey, it's Tom. I appreciate the question. Ram, it's just a variety of things. I think we saw some good transaction activity in our international markets. And keep in mind, our international markets diversified beyond just fuel. We have other businesses within that fleet segment that also helps drive growth. So it's just a function of where the business was performing. I'll also say that fuel price in our international markets were stickier, particularly at the retail side than what we necessarily would experience here in the U.S. So that also helps kind of bolster the international side and the overall revenue growth. Obviously, we'll relook at that growth rate going forward when we're successful in closing the Russia transaction. That will affect it to some degree. But overall, we saw a nice healthy pickup in the overall growth rate.

Hey, Ramsey, it's Ron. Just to add, I think we said on the last call that the thing would kind of tick along, right? That it was lower. And so kind of mid-single digits is still kind of where our guide is.

Okay. All right. And I think the answer to this question is probably no, based on your performance in the quarter and your guide, but I wanted to ask regardless, any impact from the yellow bankruptcy. I know they're not a big customer, any residual credit exposure or anything like that?

No, no exposure to yellow.

Your next question comes from Nick Cremo with Crédit Suisse.

I just wanted to follow up on Ramsey's question on the Fleet segment. Could you just tell us what growth was in the North American Fleet segment, maybe just like on a same-store sales basis? And then as my follow-up question, could we expect this mid-single-digit revenue per transaction growth to continue in the second half?

Nick, it's Tom. We actually don't break it down beyond the segment level. So I mean, I think overall, we kind of keep it at the total fleet level and the international business outperformed U.S. But getting into kind of the details is just something that we stay away from. And then going forward, I think as we just said, I think you can continue to expect borrowing, we see fuel prices and spreads hang to somewhere in the range of our guidance. That you would see that mid-single-digit type growth rate as we look ahead into Q3 and Q4.

Hey, Nick, it's Ron. Let me just add on to what Tom said, pretty consistent same-store sales in the fleet business. Let's look about the same in the last few quarters, so not a lot going on there.

Your next question comes from Darrin Peller with Wolfe Research.

Maybe just one on the core pay segment for a minute, just given how strong it continues to be. And if we break down the segment by obviously, the different sources of growth, I'd love to hear more about what you're seeing the most strength out of and sustainability of those. I mean, you made some comments, obviously, on invoice pay. But anything more would be great. And then, Ron, I know we've touched on cross-selling that business into the fleet side as well. So curious on your thoughts there if there's been any progress.

Yes. Darren, good question. Yes. So first off, we're happy someone picked on us or me. I think last time saying, hey, he said around 20%, I think it was 19%. So I don't that guys on our last call 22%. So on the strength side, the direct business is what I'd say we've called out before, that we're not happy with the channel of the partner business where the thing started 7 years ago. That thing is still negative and trending down. So to end up with 22% consolidated to tell you that the direct stuff is well north of 22%, which obviously we're super excited about. There's no concentration in that business. So that's doing well. And I do need to call out for the cross-border thing. I mean, I don't know if you heard it, but the sales, so new business was up 80%, quarter-over-quarter. So it's an all-time record of the amount of new business that we've sold and cross-border was just crazy in terms of sales. So I don't know if people are hearing this, but sales in that business and the performance in the direct business are trending way above what we thought they would be. So your last question on cross-sell. So we did an interesting thing, saying as part of the strategic review, where we looked at our 3 biggest businesses in the U.S., right, fleet lodging and corporate payments. And we said, let's go into what we call the blue box. So companies that are not like micro, call it, above 10 million. And we focus on 3 industries where about 70% of the clients are. And we find that we've got about 15% to 20% overlap already. So in other words, when we take the clients that, let's say, fleet has, that lodging has, and the corporate payments has that are kind of not small, and we say, 'Hey, do they have more than one?' The answer is lots of the clients have more than 1, that's 15% to 20% overlap. And the reason that we haven't called it out before is because we started in those product silos and unrelated brand, the businesses just went to Ron Clarke and sold each of the 3 products. So now clearly, we started advertising in the Corpay brand to those bit bigger accounts and tell them, 'Hey, we got all 3 things.' So everyone should expect that there'll be more of that, more of the same kind of decent-sized prospective customer taking everything we've got.

Good, good. That's good to hear. And just my quick follow-up would be around capital allocation. It just seems like there was a little bit less in the way of buybacks in the first half. So is there any change to your strategy on capital allocation? Or is it waiting for the Russia deal to close or anything else going on that we should just be aware of?

Yes, it's a good follow-up. So no change. Obviously, M&A continues to be the lead dog. And given the strategic review and some of the M&A activity that's inherent, right, in the combination the comments that I've made. So that's part of it. And then the second one, you got it, we basically will earmark proceeds if we're successful in closing out the Russia sale and/or the prepaid sales, you should expect we'll be buying stock back.

Your next question comes from Peter Christiansen with Citigroup.

Thanks for the question. Nice trends here. I wanted to first talk about the margin expansion that you're looking for this year, which is pretty commendable considering the full fuel price decline, which is we all know can be quite detrimental. I was just wondering where you're seeing the sources of margin uptake, I guess, for the full year, I guess, in the second half of the year? Is it a mix shift? Is it a particular segment that you're seeing better, cost execution, operating leverage? Any color there would be helpful.

Pete, it's Ronald. Let me start, and then I'll let Tom jump in. So the first one is there's always operating leverage inherent in the business. So as our revenue climbs, our second half revenue will be up, I don't know, a top $100 million or $150 million, Pete, is our guide over the first half. So the marginal EBITDA flow-through on that incremental revenue is super duper high. And then the second one I'd say is kind of lapping the capability acquisitions. I think we said earlier that that's tapping, call it, 100 to 200 basis points out of our EBITDA margin, right? Investing in things for the future. So as we lap that, we'll pick it up. In fact, the piece of paper in front of me is our internal Q4 forecast, which has our consolidated margin up about 340 basis points. So if the revenue comes in, and we get the operating leverage and we lap the thing, our margins will be way strong. We're exiting Q4 than they were last year.

Add keeping on the acquisition front, we also expect to continue to realize some synergies from our GRT acquisition. So that will help some. And then also stock comp, bad debt will also improve relative to year-over-year related to those 2 items as well. So those items and the items that Ron commented on argue that acceleration in margin.

Yes, that bad debt was just an important one, right? That they grew surprise, I think lots of people. In the second half, which is why we reacted relatively quickly and we're seeing the trends both in what we reported here and what we're forecasting. So to Tom's point, there's a pretty big step down as you exit Q4, which obviously is super helpful to the EBITDA margin.

No. That's a good point. You guys just have a good history of getting after bad debt in the past for sure. My follow-up question, and Ron hit on it earlier. You called out some really impressive growth in Corpay, particularly the cross-border and certainly full AP. Just wondering if you could paint the picture at least qualitatively what's going on in the virtual card side and the direct side, a little bit more, just give us a sense of the direction of those slices of business would be helpful.

Yes, Pete, it's Ron again. I think as I mentioned, the sales is the lead indicator. So the fact that not only in the quarter, but I'm looking at the year-to-date, it's a record level of sales, both in the payables side of the business and in the cross-border. So that's the first point. And then in terms of what we're selling, the mix has shifted more to full AP, but we still do sell stand-alone virtual card. And I think if you had our sales group in the room, the idea of having both areas to draw on, hey, look, I'll pay some of your bills, pal, or I'll pay all of your bills. You tell me what you want, and I can give you some money back either way. So that 2 for pitch, I think, is resonating. So we're still selling both the stand-alone and the full, but a bit more of the full these days.

Add keeping on the acquisition front, we expect to see good acceleration on just sheer volume increase. And some of that is from sales and some of that is just from deepening with our existing customer base, getting implementations onboarded and also working real hard to try to get as much cardable spend as possible. So all of those things in terms of the front door and mining the existing portfolio all drive that impressive growth level.

Your next question comes from Andrew Jeffrey from Truist Securities.

Thank you for your question. The results in Corpay are very encouraging. Tom, could you explain what the mix might indicate for yields in that segment? Are you indifferent between full-stack payables and foreign exchange in terms of gross profit? If foreign exchange remains strong, should we consider anything regarding the mix, contribution margin, or gross profit margin in that segment?

No, they don't differ materially between the subsegments within that overall business. Both are attractive, though they operate in different domains. Our payables business is more domestically focused, while our cross-border operations lean more towards international dealings. We appreciate the diversification this brings. However, there isn't a significant margin difference that needs to be factored in. As Ron mentioned, both businesses show strong sales results and have a solid pipeline. Each has ongoing business with existing customers. While it might seem that cross-border transactions are more one-time deals, they actually involve customers who engage in regular cross-border transactions, leading to a consistent revenue stream from these businesses. Apart from differences in products and geographic focus, their economic structures and compositions are more alike than one might expect.

Hey, Andrew, it's Ron. Just one other difference to point out on top of Thomas made. The cross-border business not only do we make a lot of sales and their sales are way up, but their cost of sales are super attractive. They're the second most efficient sale in our company in terms of what it costs us to get $1 of sales, so we love that. And then second, they start super fast. So the start rate, what you would call implementation is super duper quick from kind of when we roll out or say it's contracted. So those are 2 things actually about that particular line of business that make it really attractive.

Okay. That's helpful. And then I wanted to touch a little bit, if I could, on the digital marketing initiatives. It sounds like they're starting to gain some attraction up market. Any sort of LTV to CAC considerations as you sign those bigger accounts that we need to be thinking about?

Yes, I'd say not really, Andrew. I'd say it's pretty complicated to move a big machine like that. It gets tuned right a certain way, like a piano or something gets tuned to work a certain way, and then we kind of haul the thing and say, okay, repoint the machinery in a different way. So it needs to grab lots of data to start it to kind of sort itself out again. So it's taken probably a bit longer. But as I said in my opening, it's working; the number of bigger new accounts coming to us digitally is growing now. So I don't want to say it was easy, but it's way easier to stop the problem. They just don't tune up the small ones. It's way harder to get more of the big one.

Okay. So it sounds like only upside from here.

Yes, it was significant for us to halt our operations because we were not going to present an unrealistic credit figure. Thankfully, that approach has paid off, and our credit numbers have decreased as predicted, with expectations for a continued decline. The first objective has been achieved. Now, starting in the second quarter, we're focused on improvement. We've seen an increase in the number of larger accounts. I've encouraged the team to ramp up efforts, and we'll keep you updated on our progress as we move through the second half of the year.

And field sales remain strong. And those are obviously already at a larger client segment level, and they continue to be a significant portion of the overall and they've been doing quite well as well. So that kind of buffers a little bit of the impact from our pivot in digital.

Your next question comes from Nate Svensson with Deutsche Bank.

I wanted to ask about monthly trends in the organic fleet business as we move through the second quarter? And then any update on what you've seen in July and August month-to-date. And the reason I ask is that previously you had pointed for sort of a continued acceleration off of that 3% organic growth that you saw in the first quarter through the remainder of the year. So kind of just wondering how that trended through the quarter. And I know you got it to mid-single digits for the full year, but just wondering about the potential for a continued sequential acceleration as we move into Q3.

Yes, I'll take it, Nate. I mean really from a monthly perspective, there weren't really anomalies. Obviously, there are certain day counts and how many weeks within a particular month that can kind of skew the numbers from month to month. So it can be a little bit misleading to kind of just look at pure months. But just from a business momentum perspective, I would say, we saw significant shifts in terms of volumes and transactions and things like that. As we head into July, I'd say, probably more of the same. Maybe with the benefit of what we've seen more recently, uptick in crude, that will translate into higher retail. And so that should provide a number that's right within the guidance number that we referenced. So nothing really out of the ordinary to call out. I think we'll continue to expect some level of seasonal growth as the summer continues. We think it into some of the heavy agricultural months. Those months can also drive a fair amount of usage. So all of those things, I think, point us to kind of the direction we've commented on here earlier on the call.

Got it. I appreciate all that color. And I guess for my follow-up, I'll ask on lodging. I don't think that's come up here in the Q&A. So revenue growth, 14% off a very difficult comp was impressive. But I noticed that revenue nights were down sequentially and year-over-year. And I also believe in the prepared remarks, you mentioned some softness in managed accounts. So maybe you can give some color on that softness that you're seeing? And then relatedly, I know you maintained sort of mid-teens growth for the full year, but any color on the cadence of growth as we move into the back half and comps get a lot easier moving past the second quarter?

Yes, Nate. It's Ron again. So yes, you're right. I did call it out. I'd say, we're a little surprised. I'm not really super sure why, but when we go through our managed accounts, which in English means something like groups of people, consulting groups or an environmental group, the utility going somewhere, so larger groups like going to a place like to do something, merchandising groups that would go to Walmart. I think that's kind of what that business is. And so for some reason, some number of accounts just on their own did less of it in Q2 than what we were out looking. And so when we call, it's not super clear, we say, 'Hey, is that going to be at that level?' or 'kind of where you were before.' So that was kind of a bit, call it, a couple of points of growth of the soft pocket that we didn't outlook. So I'd say we're not super certain what that's going to look like going forward. It's not like a lot of them quit us, as you can see in the retention rate. So look, we're hopeful that whatever that is, was kind of transitory for the quarter.

There on that, Nate, is that we have a nice diversification of airline and insurance that kind of helps offset that as well where we've seen some pretty good strength as we commented earlier.

We have a significant custom business, including accounts like railroads and trucking firms, as well as a smaller direct SMB business. There are many other segments in our business. I want to highlight our consulting group. Overall, we are still satisfied with mid-teens growth, which we planned and is currently performing above that level. I want to make it clear that we remain pleased with this aspect of our business.

Your next question comes from Trevor Williams with Jefferies.

So on Russia, I appreciate the updated sale impact on the reported numbers, but I was hoping we could get some help on what the organic growth in fleet in the quarter would have looked like ex Russia. And same thing for the mid-single-digit target for the full year for fleet, just what that growth rate would look like without Russia?

Yes. Trevor, we'll update all of that when the transaction closes and we kind of refresh all of that. Let's come back to you on that. I think until we kind of get the transaction closed, we'll wait and reset after that, if that's okay.

Okay. Fair enough. And then on the guide, Ron, you alluded to, there is still a decent amount of sequential growth implied both for the third and fourth quarter. Maybe just talk us through, especially for Q4, kind of the level of visibility you think you have in, I think it's $20 million that's implied quarter-over-quarter in Q4. It sounds like maybe you're getting some of the new sales into the larger fleet customers that might start layering on, but anything else just on kind of level of visibility into that?

Yes, good question. The first thing I'd say is we had a decent look at July. So that's always helpful. So that's tracking to our guide. So when Tom and I built the second half, the output we have is on track. Yes, the thing does build sequentially, which is Ron's favorite thing about the business. I think I told people this is a snowball. It started downhill and there's more snow as you roll down the hill. So that's the nature of a recurring revenue business as we beat sales, so we're ahead of sales year-to-date. And I call it like corporate payments, which is way ahead as that stuff gets implemented. That attaches more snow; the ball rolls and obviously, sequentially, I think we're up about $40 million sequentially already Q2 versus Q1. So I'd say, look, our confidence is pretty high. We're on track. We have the sales in the bag. We just need to get them implemented, and then there's the seasonality, right? Q3 is always a super duper quarter and Q4 is better than Q1. So we get some benefit of strength. For example, Brazil is always super duper good in Q4. So we've been having a long time, I think, unless something goes sideways on the planet, that we're pretty comfortable with the guide.

Your next question comes from Mihir Bhatia with Bank of America.

I wanted to ask a little bit more about take rates or just the revenue per transaction or per spend in corporate payments. You saw some pretty good growth there. I think in lodging, you called out, it was product and channel driven. But maybe talk a little bit more about the fleet segment in particular. What drove the strength in revenue per transaction there and also in corporate payments, if you wouldn't mind.

Yes, that's a good question. It's take rate in both corporate payments and fleet, Mihir? Generally, just kind of mix. There's really nothing in particular to call out. You see a little bit of an increase in the take rate when you refer to our release. Again, it's a pretty modest increase. So I think it's just a matter of just mix of business and really nothing more to really call out besides that. We're always competitive with respect to our pricing and things like that. So I think fuel will also factor into what our overall spread and how those things have played out. And so it's just a combination of things, but nothing really out of the ordinary. And that's kind of what you're seeing in the numbers in terms of just kind of a slight increase in rate.

Mihir, it's Ron. Just to add to that, which is in corporate payments, the mix shift that Tom refers to, we think will go on. So when we tell you guys today that we're growing mid- to high-20s in the direct corporate payments business and that the channel business is going backwards, the delta in those take rates is significant. Call it, 4 or 5x different. So every turn of that, every forward quarter with the direct business is growing, let's say, 25% or higher and the channel business is shrinking, that will improve that rate prospectively.

I appreciate that information. I'd like to ask a broader question. Earlier, you mentioned enhancing digital marketing and increasing cross-sell efforts. Meanwhile, you're also reviewing the strategy regarding the potential divestment of some businesses. Can you elaborate on the balancing act involved? How aggressively will you pursue cross-sell opportunities in the short term while awaiting the results of the strategic review?

That's a great question. We're in a learning phase right now, and one key observation is that we have successful cross-selling among our larger clients, many of whom utilize multiple products. Additionally, since consolidating our brand, we are seeing a significant increase in leads by providing more solutions to the same potential customers. This factor plays a role in considering synergies or dis-synergies related to the separation. If we proceed with the separation, there's a possibility for some kind of post-separation commercial agreement. We're exploring these options separately and gathering insights that will inform our separation decision.

Your next question comes from Ken Suchoski from Autonomous Research.

I just wanted to ask about corporate payments. I think you mentioned, Ron, that the cross-border new business is up 80% quarter-over-quarter. Those new sales ramp pretty quickly. So I guess, is the expectation that this business grows above 20% or maybe even north of 22% for the rest of the year and into 2024?

Yes. So look, I want to make sure it's clear what I said. I said the corporate payment sales, which are both, what we call payables internally and cross-border. Collectively, that book was up 80% year-over-year. So that's the first one. And then the second point is, yes, cross-border implements quickly; payables does not. So to the extent that some amount of that incremental growth is in payables, it's actually a 2024 benefit more than is 2023. But on the guide, I don't have in front of me, my guess is that we're still guiding in the overall to 20% plus in the Corporate Payments business. And I don't know if you guys are hearing it, but it's kind of working. Sales are working, revenue is working. So the trends are certainly in a good spot.

Yes, totally. And then, Ron, I guess just real quick, just on the strategic review and the separation, sales, spending, et cetera. I mean are there certain kind of segments that stand out in terms of having a greater opportunity to create more value? And anything else that you see just on the dissynergies, I know you mentioned some of the overlap in the customer base, but just anything on dissynergies as you think about the different segments?

Yes. Again, I think the strategic review of what we call value creation plan, it's just pretty complicated. So that's why I try to tick through kind of the 4 different pieces, kind of how we operationalize review, right? From the Russia thing, which is kind of political and emotional to the noncore assets of the fleet reinvention to the separation. And so we're full speed ahead as you heard on the Russia thing, we're full-speed ahead on the noncore businesses, including a couple of small things that sit inside the vehicle business. So I think the question everyone has, we really have 3 big businesses, we have fleet, lodging, and Corporate Payments. And I think people are focused on fleet, which is half the company or 40%, and Corporate Payments. So that's really where we're focusing the attention on the separation. Would the company be better off if fleet and corporate payments were not all part of the same mothership, but in some way, separate, whichever one was separated. So I'd say that's the primary issue, if you will, the question that we're trying to answer. And as I mentioned before, we're looking not only at pure separation or stand-alone separation, but looking at the idea of some combination in parallel with the thing, so that's what we're working on. And yes, unfortunately, in any separation, there's dissynergies. I mean, to me, it takes away the most important thing, which is really the ability to sell something where you can get a defined price. I'd like to know what something is and have my eyes open. And so losing whatever, 25% or 20% after the cost base makes a straight sale of one of those businesses pretty difficult. You got to get a really good price, right, to cover that tax dissynergy. But there we're looking really particularly around both IT and management, which is what IT is co-mingled and how would we run the stuff manage early. So we're kind of digging through all that and want to make sure that anything that we pull would be worth it, right? That the benefits would far outweigh the cost here. So we're still working it. And we did commit to it to work because we can't study it forever. We're going to have an answer when we talk in a few months.

Your next question comes from Sheriq Sumar with Evercore ISI.

I have a question on the tags business, on the Brazil tag business, strong growth of around 15% and tag growth was like around 7% and strong sales growth too. Can you talk about what's working in terms of the products? The take rates in that segment were also up pretty much sequentially. So what's driving the take rate higher? And how should we think about the take rates for Q3 and Q4 from here? Any color would be appreciated.

Yes, I think. First of all, I think it's a great question because it highlights the pivot and strategy there, right, that what you said, the volume of tags is up 7% of the revenue; the revenue is up double. And so 2 points. One is the volume is healthy, partly because we keep widening the distribution channels. So in the last year, we signed 2 of the 5 biggest banks in Brazil to sell our stuff, our Sem Parar tags. And so those things are pretty added at that channel, which doesn't cannibalize much the other ways that we sell tags. So we're reaching prospective customers that we weren't reaching before; so that's super helpful. The second one is the take rate and the incremental growth is really from the add-ons. So the fuel that we're selling back to the tag holders is compounding. I don't have it in front of me, but it's around 40% or 50%. And then these insurance add-ons, vehicle insurance add-ons, for like contents and micro-insurance are in high demand. We're bolting incremental revenue onto the same account without adding any more tags. And so I think that's what we said to everybody was the idea that this business was to keep expanding distribution to sell more tags. But because we have millions and millions of customers there, find more things that are vehicle-related like fuel and parking and insurance that we could add on, and the answer is we are.

Yes. Like I have said in my prepared remarks, it was right at just under 40% this quarter again in terms of our B2C customer base. In terms of how much revenue is coming from products other than our tag subscription. So it's showing good success. And their sales success has been just continuing to add to the momentum of that business.

Yes, Just on to things getting tired or whatever the sales, the absolute sales year-to-date or at a record level. And for the last 3 years, every year, it's been a record level of overall sales versus the prior year. So there's been no slowdown at the rate that we're reaching new customers. So again, it's another business that I'd say is working.

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