Corpay - Q4 2022
February 8, 2023
Transcript
Operator (participant)
Good afternoon, and welcome to the FLEETCOR Technologies Inc. Q4 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one. Please note that this event is being recorded. I would now like to turn the conference over to Jim Eglseder, Senior Vice President of Investor Relations. Please go ahead.
Jim Eglseder (SVP of Investor Relations)
Good afternoon, everyone. Thank you for joining us today for our Q4 and full year 2022 earnings call. With me today are Ron Clarke, our Chairman and CEO, and Alissa Vickery, our Interim CFO. Following the prepared comments, the operator will announce that the queue will open for the Q&A session. It is only then that you can get in line for questions. Please note our earnings release and supplement can be found under the Investor Relations section of our website at fleetcor.com. Throughout this call, we will be covering organic revenue growth. As a reminder, this metric neutralizes the impact of year-over-year changes in foreign exchange rates, fuel prices, and fuel spreads. It also includes pro forma results for acquisitions closed during the two 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 that 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 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.
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 on our annual report on Form 10-K, both filed with the Securities and Exchange Commission. These documents are available on our website and at sec.gov. Now with that out of the way, I will turn the call over to Ron Clarke, our Chairman and CEO. Ron?
Ron Clarke (Chairman and CEO)
Jim. Thanks. Good afternoon, everyone, and appreciate you joining our Q4 2022 earnings call. At the top here, I'll plan to cover four subjects. First, I'll provide my take on our Q4 results. Second, I'll recap our full year 2022 performance. Third, I'll share our initial 2023 guidance. Lastly, I'll update you on a few of the key priorities that we're working. Let me make the turn to our Q4 results, which exceeded the top end of our guidance range, better than we expected. We reported revenue of $884 million, that's up 10%, and cash EPS of $4.04, that's up 9%.
Our cash EPS was helped in the quarter by a Brazil tax holiday, which did lower our Q4 overall tax rate. Organic revenue growth coming in at 7% overall. Inside of that, our corporate payments business super good, growing 20% in the quarter. Against the prior year, our Q4 organic revenue growth was negatively impacted by about, I don't know, $20 million-$25 million of one-time revenue sitting in Q4 of 2021. That reduced organic revenue growth by about 2%-3% in Q4. We do expect Q1 2023 organic growth to return to the 9%-10% range. Cash EPS in the quarter pressured by both higher bad debts and significantly higher interest expense.
As a result of the rising delinquencies we're seeing in our U.S. fuel business, we did make the decision in Q4 to slow what we call our new micro digital sales, so our very smallest accounts. We also began tightening terms of our existing SMB account. Both of those things really a cautionary move to try to control bad debt expense here in 2023. Fortunately, our credit risk is really narrowly concentrated in what we call these very small micro accounts, and also in our newest vintages, you know, think 12 to 24 months. Really impacts a pretty small portion of our overall business. Turning to the trends, fundamentals in the quarter are quite good. Same stores finished +2% for the quarter.
Our retention remaining steady at 92%, and sales grew 19% in the quarter, despite our decision to again slow the micro sales in fuel. Look, all in all, you know, a bit better finish than we had expected, and continuing strong trends helping us here as we roll into 2023. Okay, let me turn to our full year 2022 performance, along with the progress that we made to better position the company for the midterm.
For the full year 2022, we reported revenue of $3.4 billion, that's up 21% and up almost $600 million over 2021. Cash EPS of $16.10, that's up 22% versus prior year and a full $0.85 ahead of our initial 2022 guidance. Full year organic revenue growth of 13%, full year sales or new bookings growth of 21%, and we closed five capability acquisitions if you include the GRG deal on January 1. Really good, really outstanding performance against the primary objectives that we set.
In addition to the financial goals, we really did advance pretty meaningfully our Beyond strategy in 2022, in which we extend either or both the product set of the business or the customer segment that we serve. This is helpful obviously because it grows the TAM and obviously better positions the business for long-term growth. Just a few of our Beyond highlights for 2022. In global fleet, significant progress on our EV capabilities. You know, we acquired, you know, a European public charging network. We've got mapping and payment applications. We've got at-home charging software, and we've integrated all that to our ICE fueling solutions. Great progress there.
In corporate payments, we added an AP automation software front end to our whole AP payment execution business, which is the company's fastest-growing business. Super delighted with that. In lodging, we've gone beyond our workforce, core workforce business to two new verticals, the airline vertical and the insurance vertical, each of those reaching almost $100 million in revenue in 2022. Finally, in Brazil, we keep expanding our tag fueling solution. We've gone to even more accepting sites now and more users. I think exiting Q4 reached about 10 million annualized transactions. Look, the combo in 2022 of really good financial performance and what I'd call significant strategic progress. We're quite pleased. All right.
Let me shift gears and make the turn to our 2023 outlook. We've worked hard to build a plan to meet our most important objectives in what is a challenging environment. Here is our 2023 guidance at the midpoint. Revenue of $3.825 billion, that would be up 12%, or approximately $400 million. EBITDA of $2.025 billion, that reflects up 15% or up about $260 million. Cash EPS of $17 at the midpoint. That would reflect up 6%. We're certainly outlooking a pretty unfavorable macro environment this year with a smidge lower fuel price, and significantly higher interest rates.
Those two things are expected to reduce our 2023 cash EPS by about $1.75, implying we'd be giving a $18.75 cash EPS guide in kind of an apples to apples environment. Our 2023 plan does set out a number of pretty important objectives to deliver organic growth 10%+, to grow new sales 15%+, and to diet or control our operating expenses, with a plan to expand margins about 150 basis points for the full year, and 200 basis points exiting 2023. Major assumptions underlying our 2023 guidance are first, that our 2022 acquisitions will add about 2%-3% to our 2023 print revenue growth.
This 2023 guidance does include Russia, and will until we have certainty of the divestiture. Guidance assumes that we can manage bad debt equal to the 2022 level, although we do think it'll be more elevated in the first half than the second half. Finally, we have not assumed a U.S. or global recession, but rather built our 2023 plan and volumes really just based on what we can see and project from there. Our confidence in this 2023 plan or outlook is bolstered by a few things. You know, first, we've now seen our 2022 finish good, you know, better than we thought. We closed the Global Reach cross-border deal, that's in our numbers. We've made expense cuts already, those are behind us.
We're seeing some recent improvement, slight, but improvement in both fuel price and FX trends. We just recently implemented two interest rate swaps that will lower our 2023 interest expense at obviously fixed rates. Lastly, we qualified for Brazil tax holiday that will slightly lower our 2023 consolidated tax rate a bit better than our earlier expectations. Let me transition to my last subject, which is an update on some of our important priorities. Russia, let me start out with Russia. Making good progress on the sale of our Russia business.
We've had lots of interest, a number of parties that have bid for the asset, and we've recently moved a select group of buyers, potential buyers into the diligence phase. Timing is probably somewhere late Q2. At this point, our plan would be to use the Russia sale proceeds to buy back FLT stock. If we did that with kind of a mid-year close, we're looking at about $0.30-$0.35 of in-year cash EPS dilution. Okay, let me turn next to the FTC matter. Appears to be finally in the home stretch. We're at a point now where we do expect the court to issue an order, likely here sometime in Q1, detailing incremental processes and disclosures that we'll need to implement.
Obviously, once clear, we'll move quickly to implement those things, although we will require some time. I mean, just as a reminder, the disclosure enhancements and process changes that we have voluntarily made over the last few years have not had a material impact on our financial performance, nor do we believe that this court order will have a material impact on our financial performance going forward. Last up, EV, again, you know, really good progress on that initiative. In this case, it includes the U.K. public EV charging network, at home charging software and of course, traditional ICE fueling, all of those integrated into one.
I think we've got about 1,000 of our U.K. commercial fleet clients using the solution. Doing well there. Additionally, we're in the market in continental Europe with an EV solution, really for new customer segments, so beyond commercial fleet. The new segments would include EV car manufacturers, charge point operators, you know, even EV drivers. Fortunately, we are seeing adoption by all three of those customer segments, which for us is clearly all incremental to our fleet payment business. Look, the goal again is to be a big, a major player in this EV transition, and I do wanna report, you know, we are officially out of the blocks. Okay, in closing, again, we finished 2022 pretty well. Again, positive sales and retention trends.
That obviously helps the setup for this year. 2022 full year financial performance, you know, super good. 21% and 22% top and bottom line, you know, way ahead of the initial guide. We've advanced last year a number of important beyond ideas that supports the future growth of the company. Our outlook for 2023, we think positive. Outlooking double-digit revenue expectations, you know, improving operating margins and EBITDA, although our absolute profits for sure will be weighed down by the interest rate spike. We do expect to clear our Russia and FTC overhang here in the first half. At the same time, we're gonna continue to stake out our position in the new EV world. Big opportunity for us. And lastly, our midterm objectives remain intact.
We wanna grow cash EPS in the 15%-20% range, once we lap the 2023 interest expense headwinds. With that, let me turn the call back over to Alissa to provide a bit more detail on the quarter. Alissa?
Alissa Vickery (Interim CFO)
Thanks, Ron. First, the financial details. As mentioned, we posted 10% growth in revenue in the quarter, driven by 7% organic growth or $57 million, which I'll delve into in a moment. The remaining percentages came from $20 million of macro tailwinds and $4 million from acquisitions made over the past year. Organic revenue growth was negatively affected by the impact of one-off items not expected to repeat from the Q4 of 2021, including breakage, backlogged card orders, accounting true ups in the normal course, and acquisition accruals. We expect 2023 organic revenue growth to meet our double-digit targets. Corporate payments average revenue growth was 20%, driven by continued strong new sales across both direct and cross-border. Specifically, our direct corporate payments business grew 27% and continues to demonstrate very robust growth.
Cross-border was up 24%, another very good quarter, as new sales remained strong. Activity levels were robust across nearly all geographies, and we completed the full tech integration of AFEX into our cross-border platforms. Lodging continued to perform well, up 14%. While we've largely lapped the airline COVID recovery benefit, the airline business was still up 38% in the quarter. The suite of services we've bought into this business substantially enlarges the TAM and durability of our lodging growth profile over the medium term. Fuel was up organically 2%, with growth in international fuel largely offset by softness in our U.S. micro SMB customer segment. By micro, we mean companies with less than five vehicles, so the smallest of the small.
The economic cost of higher fuel prices, inflation, and in the case of micro SMB trucking, lower spot rates, have negatively affected their ability to manage expenses, including their fuel bills, which has resulted in higher bad debt. We've also seen some negative mix shift among that micro-trucking segment as higher margin independent trucking volume is moving to lower margin volume as those drivers move to the larger contract carriers. This micro segment generated more than 75% of our U.S. fuel bad debt losses in both the Q4 and full year 2022, fully feeling the brunt of these economic headwinds. Given the higher loss rates of the micro client segment that we are experiencing, we have significantly tightened credit approval standards in a purposefully targeted and narrow way in order to get ahead of any further stress in this micro segment.
The result was a drag on organic fuel growth in the quarter. We are taking a balanced approach to new customer demand gen activities, prioritizing customer segments and industries that are healthier to drive fuel growth in 2023, all while limiting our bad debt exposure. We will continue to feel the residual effect of tighter credit and higher losses in that micro segment in the first half of 2023, but would expect to clear this overhang and return to normalized fuel growth rates in the back half of the year. This will likely cause 2023 fuel organic growth to be at the low end of our normal range. Tolls was up 6% compared with last year as the impact of strong new sales was masked by almost $5 million of non-recurring revenue in the Q4 of last year.
Toll sales were strong in the current quarter, recovering from softer sales mid-year and helping offset some of the prior year one-time benefit impact. We expect tolls to return to its low-to-mid-teens growth rate in 2023. We've made great progress building out the Beyond Toll network and now have over 5,400 Beyond Toll locations, including 2,200 fueling stations, 2,300 parking lots, 750 drive-throughs, and 150 car washes that accept our tag. As an additional service to our customers, we are a reseller of insurance from other companies to our more than six million tag holders in Brazil for whom we have negotiated preferential pricing. This insurance offering is growing quite fast. We sold more than 58,000 insurance policies in the quarter. We also signed up Santander as a tolls distribution partner, which is the fifth-largest bank in the country.
All in all, we're very bullish on the outlook for our Brazil business. Gift organic growth in Q4 was down 11% over prior year Q4 as the card orders that pulled forward in the last two quarters and in Q4 prior year did not repeat. Due to the lumpy nature of card orders between quarters, it is best to look at full year gift organic growth, which was 11%, as the newer online card sales programs and the B2B program have improved the growth of that business. Looking further down the income statement, operating expenses of $514 million represented an increase over prior Q4, primarily due to recent acquisitions, higher bad debt, and volume-related increases.
We did recognize $5 million in expense associated with reductions to staffing levels and the termination of office space leases as we adjusted our expense base for the current challenging environment. We will continue to manage our expenses with a very close eye on our outlook. Bad debt expense was $41 million or nine basis points, consistent with the Q3 2022 level. I've already talked about what we're doing to manage this, but suffice it to say, we're very focused on it. Moving below the line, interest expense was $74 million for the quarter, up 168% over the prior Q4, and $165 million for the full year, up 45%. These increases were driven by higher reference rates on our floating rate debt, as well as incremental borrowings for share repurchases and acquisitions.
Our effective tax rate for the quarter was 24.2% versus 25.6% last year and lower than our guidance. The primary driver was the impact of a pandemic-related tax benefit election in Brazil, realized for 2022 in the quarter. Turning to the balance sheet. We ended the quarter with over $1.4 billion in unrestricted cash and approximately $600 million available on our revolver. There was $5.7 billion outstanding on our credit facilities, and we had $1.3 billion borrowed on our securitization facility. As a reminder, earlier in the year, we upsized and extended our credit facility by approximately $500 million and extended the maturity through June 2027 at quite attractive rates.
As of December 30th, our leverage ratio was 2.8 times trailing 12 month adjusted EBITDA, as calculated in accordance with our credit agreement. Our capital allocation was once again balanced in 2022. In the quarter, we repurchased roughly 600,000 shares at an average price of $188 per share. In total, we repurchased about 6.2 million shares during 2022 for $1.4 billion. Our guidance for share count for 2023 is five million shares lower than what we guided to a year ago. In total, we've bought back 11.7 million shares over the last two years. We still have over $1.2 billion authorized for future repurchases.
In 2022, we spent $217 million on acquisitions and minority investments, excluding Global Reach on January 1, 2023, solidifying our positions in EV, corporate payments, and lodging. Let me share some thoughts on our Q1 outlook and our full year assumptions. Looking ahead, we're expecting Q1 2023 revenue to be between $875 million and $890 million, and adjusted net income per share to be between $3.55 and $3.75. This is largely due to revenue seasonality, where certain businesses such as fuel, lodging, and tolls tend to have lighter Q1 due to weather and holidays. The Q1 tends to be the lowest in terms of both revenue and profit for our company.
We have a bit of a preview for the first few weeks of the year. We are tracking to the guidance we are providing. Of note for the full year 2023, we anticipate managing bad debt flat to the 2022 levels, expecting it will be higher in the first half of the year and then improve into the second half. We expect 2023 net interest expense to be between $312 million and $332 million based on the forward curve as of February 1, 2023, which implies reference rates will peak sometime during the Q3 of 2023.
As we disclosed in the earnings release, and you can see on slides 21 and 22 of our supplement, we entered into a series of interest rate swap agreements to fix rates on approximately $1.5 billion of our floating rate debt. These swaps will provide some relief on our 2023 rate and helps limit the downside risk from further rising interest rates. The inverted forward rate curve enabled us to reduce 2023 interest expense by locking in lower future rates over a three year period. With these new swaps, along with our previous outstanding swaps, we now have fixed interest rates on a total of $2 billion of our variable rate debt for most of 2023.
Last week, we also entered into a euro cross-currency swap to benefit from the lower euro interest rates with an implied interest savings of 1.96% on $500 million of notional debt. With these various swaps, we have now managed interest rate and FX risk on two and a half billion or 47% of our debt, excluding the securitization. We believe these actions will help mitigate the risk associated with continued increasing interest rates in 2023. We estimate these swaps to reduce interest expense by approximately $35 million in 2023.
Finally, our tax rate in 2023 is expected to be slightly higher, between 26%-27%, as the continued benefit from the Brazil tax holiday is more than offset by higher tax rates in the U.K., as the U.K. statutory tax rate increases from 19% to 25% in April 2023. The rest of our assumptions can be found in our press release and supplement. As I complete my prepared remarks, I would like to extend our gratitude to our more than 10,000 employees around the world who helped us deliver such a strong finish to a great year and who will be the driving force to even greater heights throughout 2023. Thank you for your interest in our company. Now, operator, we'd like to open the line for questions.
Operator (participant)
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press stars and two. At this time, we'll pause momentarily for the first question. Our first question today will come from Sanjay Sakhrani with KBW. Please go ahead.
Sanjay Sakhrani (Managing Director and Senior Analyst)
Thank you. Ron, you talked a little bit about this rising delinquencies among the micro SMEs. I'm just curious, was that fairly contained inside of fuel or the fleet business? Or was there any other weakness among the SMEs? I'm just curious if you think that this might be a leading indicator of more things to come if you go up market. I know you guys haven't assumed any additional macro pressures and such.
Ron Clarke (Chairman and CEO)
Yes, a good question, Sanjay. Yes is the short answer. The fuel business and really the U.S. fuel business, because the terms and the way we collect money and bill internationally is fundamentally different. The terms, we pull all the money, et cetera. Yeah, the only place that we've seen the micro, and again, we're talking super-duper small, mostly one and two card accounts and super-duper new on the books, again, a year or two, that portion of the overall sell is about 75% of the credit losses. Although the credit losses from that group are sizable, the amount of business from that group is not super sizable. Yeah, that's the only place we're seeing it.
In fact, when we study the cohorts, you know, that are a bit larger, or more mature, longer on the books, it's super ratable with the trailing, you know, 12 to 24 months. It's super-duper pocketed for some reason.
Sanjay Sakhrani (Managing Director and Senior Analyst)
You don't think it's a leading indicator or anything, like, historically?
Ron Clarke (Chairman and CEO)
Yeah. I mean, look, your guys' guess is as good as mine. We've been talking about, you know, macro and recession for six months now. We study and look everywhere, and we just don't see it. We don't see it in volumes. We don't see it in sales. This is the one place where it showed up, and it started, oh, I don't know, call it maybe six months ago, kind of September, October, we saw the delinquency start to step up. My personal view is that, you know, these are quasi consumer businesses. You know, and as the funds ran out and as the savings got depleted, there's just more pressure, you know, on these kind of businesses than others. Which is what Student Body write.
When we saw that, we said, "Okay, you know, you guys always ask me, "Hey, grow corporate payments faster." We giddy up and go and moved sales dollars and implementation dollars away from our tiny fuel business over there until we see how that plays out.
Sanjay Sakhrani (Managing Director and Senior Analyst)
Okay, great. Just one quick follow-up for Alissa on, you know, some of these impacts that happened to the growth rate in the Q4. As I look across the different segments, you know, there's been a lot of variability in the growth rate. I'm just curious, did that affect multiple lines, those one-off items?
Alissa Vickery (Interim CFO)
It did. We saw it a decent amount in our tolls business as well as a little bit in our fuel business.
Ron Clarke (Chairman and CEO)
Those two.
Alissa Vickery (Interim CFO)
Yeah.
Sanjay Sakhrani (Managing Director and Senior Analyst)
Okay. Great. Thank you.
Alissa Vickery (Interim CFO)
I would just add, you know, this is all normal course of business stuff. It just seemed to be a collection.
Ron Clarke (Chairman and CEO)
I do wanna point out, Sanjay, it's Ron again, that, you know, we view it kind of as more of a bump than a trend. I did try to call out, you know, a bump in the opening basically that we're outlooking this quarter we're sitting in to think back at nine or 10. Really in our minds, it's a comp issue, not a run rate issue.
Sanjay Sakhrani (Managing Director and Senior Analyst)
Got it. All right. Thank you so much.
Ron Clarke (Chairman and CEO)
Yeah. Good to talk to you.
Operator (participant)
Our next question will come from Bob Napoli with William Blair. Please go ahead.
Bob Napoli (Partner and Senior Research Analyst)
Thank you. Good afternoon. Appreciate the question. I mean, Ron, the corporate payments business, you know, very strong. Within that, you talked about AP being strong. Maybe just a little more color on what the stronger areas and were in the quarter. Did you see any deceleration, significant deceleration in any areas, you know, a lot of focus on the SMB market?
Ron Clarke (Chairman and CEO)
Yeah. Hey, Bob. It's always good to hear you and hear you're doing well. you know, we posted 20% organic for the quarter for the category, and that's probably our number for 2023. You haven't asked me yet, but I'd say inside of our overall 10%, we're out looking really about 20 now. So more than high teens. Really inside of it, everything did well except the channel, the partner thing. You know, we've said it before that some of the partners that have been with us four or five years moved some volume to other people to get different rates. That business has been flat or going backwards, which means the direct businesses are growing probably 25%. and it's...
I think, you know, the full AP where we, you know, have every modality is the fastest growing. I think that particular line of business is probably up 40%-50% in the quarter. Now we've stuck some software on the front end, so even our lead volume is up. I'd say the whole business is doing well. Again, the cross-border sales were rocking. I'm looking at the page in front of me. They were up 60%, the sales, in Q4. We've obviously just eaten or in the process of eating, you know, another piece of business which deepens us in the geography. I'd say other than the partner thing, it's firing literally on all cylinders.
Bob Napoli (Partner and Senior Research Analyst)
Thank you. Your investments in EV, I appreciate the continued, you know, forward-looking moves there, if you would. Can you give any more color? We get this question a lot. I'm sure everybody else does, is, you know, the economics. As you have more experience, you know, especially in Europe, I guess, where you have. Can you give any color on the economics of EV versus gas and your confidence in that?
Ron Clarke (Chairman and CEO)
Yep. Another super good question. The best place for us to look, really kind of the only place to look for us is the UK, right? We've got a big, right, commercial fleet business there, and they've been out of the blocks pretty early. We've got a, I think about 1,200 when I looked, active clients that use both our, you know, traditional fueling, and some amount of EV. I think the average is about 15% penetration of EV among those accounts. What I know for sure is that the enterprise, the bigger accounts, the economics are super favorable to us as they move to EV. The reason's probably pretty obvious that you get less fees generally from big accounts, right, that bid and negotiate.
They need these new EV things and so the ability to get fees from enterprise customers. In a report that I looked at, a sample of, I don't know, 10 or 20 accounts, it's up something like 50% our revenues among the enterprise. I'm guessing that that probably won't be exactly the same story with a super small account. What we'll agree to do, I told our guys, is come back probably in 90 days and report out, provide some actual data on this question because it's the million-dollar question, right? For the commercial fleet business is if the stuff comes across, you know, are we indifferent based in the economics? I'd say early on it looks like yes, we are. More to follow.
Bob Napoli (Partner and Senior Research Analyst)
Are EVs growing rapidly in your opinion?
Ron Clarke (Chairman and CEO)
You know, not really. I mean, again, it's The new sales are obviously, right? The mix of every 100 new vehicles, the % EV is growing. The base, as you know, like in the U.S., I think there's, I don't know, 300 million registered vehicles and the new car sales are 18 million a year. If half of themOr EV, it's nine on 300. It's super hard bought to move, the base is what I'd say. Which is again, the other things you know is the EV adoption is happening more in consumer and lighter vehicles, right? Versus like 18 wheelers, which is the other motivation for us to chase these, you know, EV car manufacturers and EV consumers, because there's gonna be way more of those in the coming years than there are gonna be, you know, heavy trucks, on EV.
Bob Napoli (Partner and Senior Research Analyst)
Thank you.
Ron Clarke (Chairman and CEO)
Thank you.
Operator (participant)
Our next question will come from Darrin Peller with Wolfe Research. Please go ahead.
Darrin Peller (Managing Director and Senior Analyst)
Hey, guys. Thanks. Ron, can we go back to the corporate payment segment for a minute again, just because, you know, there's obviously been a lot of data points in the industry around SMBs having some challenges and B2B activity being a little bit more, you know, having decelerated. You don't seem like you're seeing that as much, so maybe a little color on what you are seeing in the marketplace. Then more importantly, just medium to long term, you know, that's obviously an area that we've talked a lot about in terms of convergence of some of the assets to really offer a more holistic solution on the account payable side and combine that with payments, you know, whether it's invoice pay and some of the other assets you've acquired. How has that been progressing? Just maybe a little update there as well.
Ron Clarke (Chairman and CEO)
Hey, Darrin, it's a good question. The good news for us is that our corporate payments business is a middle market business. Our average, you know, account there would look like $200 million-$300 million in revenue for the client. You know, a decent, you know, size company, you know, credit worthy kind of company. I'd say 95% of our corporate payment business is what we all would call a middle market client. The SMB move that we made, whatever, a year and a half ago, was really, you know, trying to be upside, us trying to extend kind of down market. Given what's going on with some of our friends in SMB, maybe we're lucky we, you know, we haven't made as much progress there. That's the headline.
We're seeing nothing, you know, volumes are up, spend is up. As you can see in the numbers, the, the revenue is, again, if you, if you kick out the partner piece, it's compounding at 25%, and we're out looking at the same kind of number on the direct business, you know, here in, here in 2023. On your second question, which is also a super good one, is we've got all the stuff now. I feel like it's, you know, making a Thanksgiving dinner. There's eight million ingredients to go get, and all of a sudden, someday there's a plate, and there's the, you know, the six items on the plate. We're kind of, I don't want to say done, but close to done. We've got all the stuff. We've got smart cards. We've got front-end AP automation software. We pay every modality.
We've got a global, you know, international payment capability. We've got networks. We kind of have the stuff, Darrin Peller, to offer the whole package now to these middle market clients. We're getting more and more of the clients to buy both our smart cards and our AP stuff because we're in, you know, we're in the CFO office. As you know, we moved the branding, so it makes more sense now. One company is coming in with a full line. I would say that it's the marketing challenge in front of us. We've got the stuff to have an integrated pack, and now between the brand and educating sales guys and the market, I think we're gonna sell way more of the package stuff as we move forward here.
Darrin Peller (Managing Director and Senior Analyst)
Okay. Okay. Timing wise, Ron, on that? Then just I actually do have a quick follow-up for Alissa Vickery, if that's okay, on the revenue growth rate. Maybe I'll just throw it in now, which is when we look at the cadence on revenue growth trends, I know there's some seasonality to it, but, you know, again, you're coming off of this 7% rate. Obviously, there were those one-time items that you called out last year's quarter. Just to make sure, do you see any other kind of impediments to that growth rate this year beyond macro in terms of one-time items that we have to grow over or anything else? Do you see that being pretty clean from a macro-adjusted basis?
Alissa Vickery (Interim CFO)
Yeah. I mean, I would expect that short of the macro adjustments we make always for organic revenue growth, which neutralizes those items, that we wouldn't expect anything meaningful, other than as we perhaps call out in the same quarter prior year. I would encourage you to look back at those notes. No, I mean, I think that we other than as we've spoken to the micro SMB customer segment in our fuel business.
Darrin Peller (Managing Director and Senior Analyst)
Yeah.
Alissa Vickery (Interim CFO)
Yeah, I think that's going to be, the only item to speak of.
Ron Clarke (Chairman and CEO)
You know, the guide, Darrin, today, it's Ron again. The guide is, you know, 10 and 12, right? We're guiding kind of 10% organic at the midpoint and add a couple of points for the role of the acquisitions for the print at 12.
Darrin Peller (Managing Director and Senior Analyst)
Yep.
Ron Clarke (Chairman and CEO)
That's what we're sitting here telling you. That's what we're chasing. That's the number.
Darrin Peller (Managing Director and Senior Analyst)
Yeah. Understood. Thanks, guys.
Ron Clarke (Chairman and CEO)
Good to talk to you.
Jim Eglseder (SVP of Investor Relations)
Our next question will come from Tien-Tsin Huang with JPMorgan. Please go ahead.
Tien-Tsin Huang (Managing Director and Senior Equity Analyst)
Thank you so much. good to chat. I wanted to ask on the margin outlook. I think you'd mentioned up 150 basis points, Ron. I think 90 days ago, you previewed 200-300 basis points. I'm curious what's changed in the last 90 days. Is it more about investing or changes in thinking around cost, things like that, or mix?
Ron Clarke (Chairman and CEO)
Good, good question, Tien-Tsin. The plan that we've landed is, I guess, $150 full year in Q4, $200. The short answer is I just decided to spend more money on the acquired businesses. If you look at our Core OpEx. Kick out all the 2022 acquisitions we did, it's below 5%. I think it's literally 3% or 4%. The pile of acquisitions, we're spending another, I don't know, $70 million or $80 million incremental year-over-year. A bunch of those are dilutive things. They're EV things. They're, you know, one-time things to integrate, like Global Reach, they're sales investments and stuff. That was the call.
The call was really to make sure that we gave enough oxygen to these sets of new assets that we just got so that we can get a return on them. Since we could kind of make all the numbers work, you know, we start with the design. We start with, you know, what's the goal? Then work our way around it. I felt like we kind of, you know, made the number we want, kind of 10-12 on the top, you know, sales in the high teens, profit kind of where we guided to. EBITDA growth of 15%, so growing obviously, you know, operating earnings faster. It kind kind of fit into the envelope, so we made the call to do it.
Tien-Tsin Huang (Managing Director and Senior Equity Analyst)
Gotcha. No, I trust that's the right investment to make. Just as my quick follow-up then on your appetite to do deals. I know I always ask you this, Ron, but just from a deals perspective, how does the pipeline look? I know you have a lot going on. You're spending more on acquired assets, including in EVs. Is there more to do in the short run, or could we see a little bit of a pause from a deal-making standpoint?
Ron Clarke (Chairman and CEO)
Yeah, you certainly know us well, Tien-Tsin. We are never without some kind of pipeline. Yeah, we had deals. I'd say there's kind of, in my mind, a little bit of good and bad on the deal front. I think the good is I really am seeing some reset on the valuation side, right? Prices have been down longer. I think people that were waiting, you know, have waited longer. They're not seeing the bids. People aren't hitting the, you know, the bids they're looking for, the asks they're looking for. The bad is obviously the cost of capital. It raises, you know, your confidence in your thesis, right, to pull the trigger, to make sure we're generating the right kind of returns. I'd say there's, you know, a little bit of tension between those.
Better maybe valuation outlook, but a bit higher cost of capital. Look, we've always, as you know, not been a financial buyer of things where we just buy it and absorb it. We've always had some view of how to double profit. Again, we have, you know, things in the pipeline that we like, that we think we can make returns on. If we, if we can, we will. We'll pull the trigger on them. I'd say we're probably back to capital allocation, you know, less excited about buybacks sitting here again, given the, you know, the cost of capital, the appreciation at least short term, maybe longer term's okay, but short term isn't quite as attractive. De-levering frankly is a bit crazy, more attractive, you know, given the spreads are wider, right, between deposit rates and borrowing rates.
I'd say that the kind of some of these changes is affecting a bit how we're thinking about, what's it, $1.3 billion, Alissa? $1.3 billion is the planned tension. I'd say my first and foremost is always deals that we can make go, make returns on.
Tien-Tsin Huang (Managing Director and Senior Equity Analyst)
Okay. It's clear. Grateful for your thoughts.
Operator (participant)
Our next question will come from Ramsey El-Assal with Barclays. Please go ahead.
Ramsey El-Assal (Managing Director and Senior Equity Research Analyst)
Thanks so much for taking my question. I wanted to follow up on your response to Darrin's question earlier about having all the ingredients in place within corporate payments to kind of, you know, realize that sort of power. My question is actually broader across the entire enterprise and maybe all the segments within the segments. Are you now kind of organizationally, technologically well-positioned for cross-selling, or are there still initiatives and capabilities and linkages that need to be made in order to kind of unlock the synergy potential in the broader enterprise?
Ron Clarke (Chairman and CEO)
Yeah. Hey, Ramsey, it's Ron. It's a super good question. I'd say we're out ahead on the synergy and relatedness in corporate payments. The primary reason is it's a middle market business. Whenever you go to a client that's got you know, $200 million-$300 million in revenue, it has more needs, right? It does more things. Obviously, it's got a lot of AP, right? If it's got $200 million-$300 million in revenue, it's obviously got a lot of employees probably running around, you know, in vehicles. You'll see us selling fleet cards, for example, to our corporate payment clients. Fuel runs 10%-12% of all the spend volume among our middle market corporate payment clients, which I guess wouldn't, you know, wouldn't be shocking.
In that area, I would say for sure there will be a broad package of services that will all be sold into the same client. As you move into the SMB thing, I think we're gonna move organizationally towards a more integrated model, like you're saying, 'cause the tech, I think, frankly, is ahead of our org. We're looking at starting to consolidate the vehicle-related purchases. If you're sitting in a car and you buy fuel or you recharge on EV or you pay for a toll or you go into a parking spot, whatever, all of those, even 92% of our lodging clients drive a company vehicle, you know, the tree-cutting truck to the actual hotel.
We're in the business mostly of vehicles, company vehicles running around and us helping make the payments. Though that's a way more super related thing than what we've talked about before, as though they're discrete things. You'll see us start to move organizationally more to looking at that set of solutions as vehicle, you know, related payments, and then the corporate payments again as the thing for the middle market.
Ramsey El-Assal (Managing Director and Senior Equity Research Analyst)
That was super helpful, and it makes a ton of sense. A quick follow-up from me. I think on the 2023 guidance you were able to call out in the course of the call a segment specific expectations for corporate payments, and I think Alissa mentioned something for tolls and fuel. Would you mind rounding that out and just giving us your expectations for lodging and if applicable gifts for the year just for sort of modeling purposes?
Ron Clarke (Chairman and CEO)
Yeah, sure. Again, it's at the midpoint, it'd be 10% overall. Fleet kind of mid-single, but weaker first half, stronger second half. Lodging in Brazil, mid-teens, maybe a smidge below 15%, a smidge above. Corporate payments, even with the channel in it, I'm gonna give a number, probably 20%, you know, maybe north of 20% and obviously way north of 20% if you kick out the channel. That's the mix that rounds to 10%.
Ramsey El-Assal (Managing Director and Senior Equity Research Analyst)
Okay.
Ron Clarke (Chairman and CEO)
Again, you guys have heard this before, you know, we're super thoughtful on the design. When we saw the super micro segment weaken, we just literally reallocated. Like you said, okay, I'm gonna pour in terms of marketing and sales investment more into the middle market, you know, that Darren brought up earlier that has, you know, not many, certainly not as many macro kind of risks. Basically just kind of, you know, tread water a little bit until we see more about how this, you know, micro and SMB segment plays out this year. We're kind of de-risking the plan a bit, I tell you.
Ramsey El-Assal (Managing Director and Senior Equity Research Analyst)
Fantastic. Thanks, Ron. Appreciate it.
Operator (participant)
Our next question will come from Sheriq Sumar with Evercore ISI. Please go ahead.
Sheriq Sumar (Director and Equity Research Analyst)
Hey, thanks a lot for taking my question. I have a question on the 2023 outlook, and especially on the share count. It says 75 million for the full year. Does that assume any sort of buybacks throughout the year or it does not? If it does not, then would there be more upside to the EPS, assuming that you accelerate the buyback throughout the year?
Alissa Vickery (Interim CFO)
Hey, Sheriq, it's Alissa. That's a good question. you know, on share count, I'll first say in our guidance, we never include the impact of potential buybacks because we see it similar to a capital allocation decision like a acquisition or a divestiture. We're gonna hold those decisions until they make sense. We do not build that into guidance. I guess in terms of the share count as we run in, the number you see that we presented in our assumptions is consistent with what we expect for the rest of the year.
Ron Clarke (Chairman and CEO)
What we printed for Q3 and Q4. Correct.
Alissa Vickery (Interim CFO)
Yes. And fairly aligned with where you saw us come out of Q3 and what you can now see in the Q4 number.
Ron Clarke (Chairman and CEO)
Yeah, Sheriq, it's Ron. Our default is always just de-levering, right? We plan to generate $1.3 billion of free cash flow, our models assume that we just, you know, reduce debt, you know, as we run through the year. To the extent that we take money to do a buyback in Q2, we'll update the guidance to reflect that different use of capital.
Sheriq Sumar (Director and Equity Research Analyst)
Understood. Yeah. Thank you so much.
Operator (participant)
Our next question will come from Jeff Cantwell with Wells Fargo. Please go ahead.
Jeff Cantwell (Managing Director)
Hey, thanks, congrats on the results. Ron, you know, this is a follow-up on Darrin's question earlier. In your prepared remarks, you said that in 2022 you added an AP automation software front end to your whole, you know, AP execution business, we all know what that is, what you've been doing there. My question is, you know, what does that mean, that your execution there on the front end going forward would impact others that you've been partnering with over the years in any way? You know, does that mean that you're trying to capture those volumes on the front end? Can you just help us understand the strategy there and how to think about that going forward? Thanks.
Ron Clarke (Chairman and CEO)
Jeff, I'm not positive I'm picking up the question. Can you just rephrase it for me?
Jeff Cantwell (Managing Director)
Yeah. We've been, you know, watching what you did with Roger and Corpay, and we know that you have, Comdata as well. We're trying to figure out if there's some, you know, competitive angle to what you're doing on the front end as you start to bring that into, you know, the picture with how you're going to market with SMBs.
Ron Clarke (Chairman and CEO)
Okay. Yeah, there's clearly a competitive angle. I think, you know, historically, AP standalone AP automation software companies sold AP automation software. Knock, knock. I've got software that simplifies your processes, you know, automates approvals, digitizes stuff so you don't lose it. Hey, that's what we do. Then knock, a bank said, "Hi, I can help you actually execute, you know, electronic payments for you or cross-border payments." So, you know, the idea we've been at a long time is well, let's do both. Which we've connected them already, obviously. Hey, knock. We can help you know, make the process work better in your company and save you time and reduce risk. B, we'll pay, you know, all the different ways, every modality. We'll execute it all.
You don't need to call your bank or FX specialist or your. You know, printing company to print out paper checks. We'll do the whole thing. We think that it's a huge advantage to have that package to provide, you know, more value to clients. It seemingly early on generates more leads because historically people have been interested, you know, on both sides of that thing. I think, you know, we're not the biggest. We gotta be one of the biggest non-bank, you know, full AP payers already. I think it is a pretty big advantage for us going forward.
Jeff Cantwell (Managing Director)
Got it. Okay, great. Just wanted to follow up on. Sorry. Just on Bob's question earlier, you know, on EV. You know, and, you know, I guess the question is just to frame it for you is, you know, you're a $16 billion market cap company, and you're generating over, you know, $3.8 billion annual revenue this coming year. Can you just remind us? Can you size that revenue opportunity for us in EV, call it, you know, two, three, five years out? We're all just trying to figure out the substitution effect and, you know, incremental revenue impacts, et cetera, et cetera. How would you frame that as we think about our models? Thanks.
Ron Clarke (Chairman and CEO)
Yeah, that's another super good question. First off, it's obviously a long time out, but the first thing I'd say is, you know, on the defensive side, so on the commercial fleet side, the opportunity is the size of our whole business, right? If you went 40 years into the future and we've got a, what, a $1.5 billion revenue global fleet business, the hope is if we replaced the business 50 years from today, everything was EV, we'd have a $1.5 billion business plus however we'd grown between now and then. For us, I think the bigger opportunity that's nearer in is this consumer lighter vehicle thing that we're gonna get to through the EV car makers and through the new gas station operators. They're called, you know, charge point operators.
The big part of our strategy that we're spending money on is going offensive and chasing two new segments that aren't any part of our business, excuse me, today, that we think are gonna show up sooner because the vehicles work better, right, the light vehicles. That's. I mean, again, it's just a function of adoption. That's a massive, obviously, right? It's every vehicle that's not a commercial fleet you're into there in terms of the TAM. It's a massive business. I think I said repeatedly, our strategy in the thing is to be the network guy. You know, our company's built on proprietary networks that have unique data that we pick up and then volume that we have that creates better economics, and our idea is the same.
We're gonna put together EV acceptance networks where we collect data that's interesting to clients, like what kind of chargers are there? Is the charger open out if I drive there? We think that providing that in some simple way is gonna be, you know, super interesting. We've got five or 10 already big EV car makers using our software and our network to try to reduce, you know, charge anxiety, right, of new buyers. It's massive. The question is just when. How long, right, before either side, either the commercial side or the consumer side, you know, gets big.
Jeff Cantwell (Managing Director)
Okay, great. That's super helpful. Thanks so much. Congrats again.
Ron Clarke (Chairman and CEO)
Thank you. Cole? Hey, Pete, can you hear us?
Speaker 14
Hello?
Ron Clarke (Chairman and CEO)
Yeah, Pete, we can hear you.
Speaker 14
Oh, okay. Sorry about that. I didn't hear the intro. Thanks for the question. I appreciate that and clean up here. I just wanted to dig into the fuel card business a little bit. You know, given some of the pockets of weakness that you called out on the credit side, Ron, are you gonna sell any differently in 2023? How are you augmenting your sales strategy there? As a follow-up, on the partner side of the fuel card business, just wondering if you could shed any color on, like, RFP activity or if there's any major contract renewals coming up. Any help would be great there. Thanks.
Ron Clarke (Chairman and CEO)
You got it, pal. On the first part of the question, hey, what are we doing for selling in 2023? The answer is yes, there'll be some different things. The first thing we've done, which we're about 90 days into, is we're repointing our digital machine and algorithm to larger accounts. The guy that runs our digital sales business, tweaked the models effectively to point at what I would call larger and more creditworthy accounts. You'll see that for sure. Our sales size of new accounts will go up starting here in Q1 versus Q4. That point one will modify the targeting of our digital engine. Then number two is I've moved dollars. We've reallocated dollars into the corporate payments business.
It just said, okay, I'm not gonna grow sales investment or sales as much in a space that has potentially more macro risk. We're gonna earmark it at least here in 2023 into the middle market that we have, you know, there's more stability, if you will, in the macro. Those are really the two things we're doing selling-wise, and again, it's pretty small. It's a pile of bad debt, this micro super-duper new thing, but it's not big per se, right? Against the total business, right, the total revenue. Anyway, that, that's, that point. On the second one, there's not much. I'd say it's pretty quiet. Us and the other people that play the game have a lot of long-term contracts both here and in Europe, so there's really nothing on the radar, I'd say, significant that we're looking at in 2023.
Speaker 14
Great. Thank you, gentlemen.
Operator (participant)
Our next question will come from Nik Cremo with Credit Suisse. Please go ahead.
Nik Cremo (Director and Lead Equity Research Analyst)
Hey, good afternoon, and thanks for taking my question. I just wanted to touch back on the fuel segment first. How did same-store sales come in across the various parts of that business in the quarter? In just looking to 2023, what parts of the fuel business give you confidence the segment can reaccelerate in the back half given the deceleration we've seen in the last few quarters? Thanks.
Alissa Vickery (Interim CFO)
Yeah. Hey, Nik. It's Alissa. It's a good question. Make sure I got all your question. I think you're asking what is how does same store sales look, and how are we outlooking?
Nik Cremo (Director and Lead Equity Research Analyst)
No. How would you get to the reacceleration?
Alissa Vickery (Interim CFO)
Oh, reaccel. Okay.
Nik Cremo (Director and Lead Equity Research Analyst)
Yeah.
Alissa Vickery (Interim CFO)
Yeah. For same-store sales, I would say, you know, we always say that, same-store sales short of a massive, easy comp is usually in the -1 to +1 range. I would say that, you know, we did see it soften just a little bit more than that in the Q4, to -2. As we look into reacceleration, it really is just retweaking the engine as we head into 2023, repointing that digital engine to higher credit quality customers and then just refocusing the entire sales engine across the board to target those, I'll just call it healthier customer bases and segments.
Ron Clarke (Chairman and CEO)
Let me make sure, Nik Cremo, you're clear that, you know, we pull this trigger. Like, we're super conscious that the health of these super-duper small accounts was deteriorating, we said, "Okay, let's stop selling to them." Stop, then repoint the thing. Second, because their delinquency was up, it creates more involuntary attrition, it creates volume softness too. Basically, both of those things happen, right? We're not going to keep the spigot open. We're tightening terms if you look, you know, shaky. We did it to make sure that a small, little, tiny part of our business didn't turn into a bigger problem, we went right with our eyes wide open doing this thing. The answer is we've been for 90 days repointing the thing to bigger fuel accounts and then moving money to the mid-market.
We're happy. There's nothing wrong. We're not worried about the thing. Again, our plan is to have more of it in the second half. I think if it's 5%, it'll be two and seven or something, right? First half, second half. I want you to hear it. We made the decisions to do both of these things for precautionary reasons and not get run over later.
Nik Cremo (Director and Lead Equity Research Analyst)
Understood. Thanks for all the incremental help.
Ron Clarke (Chairman and CEO)
You got it.
Operator (participant)
Our next question will come from Andrew Jeffrey with Truist Securities. Please go ahead.
Julian Pomfret-Pudelsky (Managing Director)
Hey, guys. Thanks for taking the question. This is Julian on for Andrew. I have a quick modeling one and then kind of more general one. Is the lodging business a normalized growth rate, how we think about that, high teens still to 20%? Is that the right way to think about that long term?
Ron Clarke (Chairman and CEO)
Yep, 15-20.
Julian Pomfret-Pudelsky (Managing Director)
Long term?
Ron Clarke (Chairman and CEO)
15-20.
Julian Pomfret-Pudelsky (Managing Director)
15-20? Okay. Got it.
Ron Clarke (Chairman and CEO)
Yeah.
Julian Pomfret-Pudelsky (Managing Director)
Thank you very much. You know, I know you said you're off the block on EV. Obviously airline did really well this quarter, 38% up. Is there anything there kind of maybe? I know that you had an in-house prior option. Any updates there? Like, is that something in the pipeline in terms of deals that you're seeing? Like, are you looking to expand there? Kind of elaborate on that a little bit.
Ron Clarke (Chairman and CEO)
Just really a couple comments I think on the airline growth. One of it is just, you know, continued recovery, right? Airline was super down. I think there's still some, you know, quote, "long tail COVID recovery." Still, sitting here today, we still don't have Asia back. There's still more to come if the Asia, you know, volume picks back up. I think the new things that we've done, you know, we bought a company a year ago that's really working. I think I mentioned we, you know, won a couple of accounts that we had where we put this app in to speed, you know, distressed people, right, to their hotels instead of queuing up at the line.
Now we've added, sold the first contract, which you'll see in the forward numbers, for basically rebooking simultaneously with the lodging. Your plane gets canceled, you know, here in Atlanta tonight. First, you gotta find a place to sleep, and then you gotta figure out how to go. Let's say you're on, you know, Air Canada, and it doesn't have any flights or any flights available. Our tech basically looks and books you on other airlines literally as you're walking off the plane. You're getting a hotel and getting rebooked. The customer sat that the airlines are getting from having less unhappy people when they get off a plane, I think this is gonna become table stakes, that a couple airlines see the couple that are picking this thing from us early. That this thing, we could literally run the table on this.
This is an example of bringing kind of some tech to kind of an old-fashioned, problem and it's working.
Julian Pomfret-Pudelsky (Managing Director)
Got it. Thank you. We're gonna sneak one more in. Could you talk maybe a little bit about your digital marketing, how that's coming along, maybe any recent examples of success there?
Ron Clarke (Chairman and CEO)
Yeah, I mean, other than the micro thing, I think the answer is it's representing obviously in every business a larger and larger piece. For example, lodging, which we just talked about, I think it's up now about 15% of the sales in that line of business. It was probably 5%, two or three years ago. It's taking a way bigger chunk of the marketing leads. We used to do old-fashioned, you know, trade shows for middle markets and things like that. I'd say that not only are digital sales that we close on, you know, compounding at a good rate, but I think the lead sources from digital are also way up. Again, a lot of this is the world, right? We're just chasing along with the world, making sure that we're in the right places.
Julian Pomfret-Pudelsky (Managing Director)
Got it. Thank you very much.
Operator (participant)
Our next question will come from Trevor Williams with Jefferies. Please go ahead.
Trevor Williams (Managing Director)
Great. Thanks. Good afternoon. I guess with Global Reach now closed, just wanted to see if you could give us an update on the revenue mix within corporate payments between FX, cross-border, virtual card, full AP. Within the 20% growth outlook for the year, just any sense for which of those buckets you expect to be the primary contributors. I know this is a really good FX year with elevated currency vol, so just kinda how you're thinking of the moving pieces within the segment for 2023. Thanks.
Jim Eglseder (SVP of Investor Relations)
Trevor, this is Jim. I mean, the best way to think about it, you know, is that cross-border is probably gonna be closer to 65%. You know, we'll call it 25% direct and then 10% channel.
Ron Clarke (Chairman and CEO)
60. 60.
Jim Eglseder (SVP of Investor Relations)
Sixty/forty?
Ron Clarke (Chairman and CEO)
Yeah.
Jim Eglseder (SVP of Investor Relations)
All in cross-border 60%, domestic corporate payments 40%. They're gonna move around a little bit in there.
Ron Clarke (Chairman and CEO)
Your question's a good one, Trevor. In terms of the growth thing, having, you know, markets that are pacing interest rate moves differently, right? Like Brazil got out super early, and then I guess we, the U.S., got out, and now Europe is chasing. Having, you know, different timing and differential in the rates obviously, you know, creates FX volatility. That obviously is helpful running here into the beginning of 2023.
Trevor Williams (Managing Director)
Okay.
Ron Clarke (Chairman and CEO)
For all of these things are working, right? To get to an aggregate number, we're giving you, hey, look, we're looking, you know, so year-over-year from today, a 20% revenue growth organic, plus obviously the print would be way higher because we're adding this deal. Clearly most everything, Trevor, has to be working. I'm telling you that the channel, which is a pretty small piece, less than 10% probably, is going backwards. Everything else has gotta be somewhere in the low to mid-20s to get the entire thing to be 20%. I don't wanna sound too cocky on it's like all working. We're just selling a lot. Retention is super great, you know, in those sets of businesses. Obviously spend is growing in the middle market, right?
As smaller companies fall, there are obviously bigger companies, particularly like in trucking and other areas are picking it up. I think the message to you guys is. Our product line is better and more complete. I just think that this business is kind of coming into, really coming into its own now for us.
Trevor Williams (Managing Director)
Correct.
Ron Clarke (Chairman and CEO)
It's big finally, right? It's gonna surpass $1 billion. It was I don't know what it was, but not $1 billion a few years ago. It's become a sizable thing now for the company.
Trevor Williams (Managing Director)
Yeah. That's great. Just one more on Corpay. Corpay One, I think last year, you know, any update you can give us there? I think last year you were talking about taking more of a measured approach with some of the migrations, but just any update on progress there or just overall strategic thinking on your plan for it over the next couple of years and the cross-sell opportunity? Thanks.
Ron Clarke (Chairman and CEO)
Yeah. That one is really still a work in process because the core business is middle market. You know, say this is an acorn, but this is a pretty small part. When we took a swing and missed at the cross-sell, we did not a super smart thing. We've really said, "Okay, how do we get the product to be right for the SMB, and how do we get the distribution to be right for the SMB?" What we've concluded is we are not gonna chase super-duper small accounts that don't have much AP, you know, that are at the very bottom. We're really kind of retooling the product and distribution to be upmarket a bit, so still below middle market, but kind of off of the floor.
Particularly given, you know, what we're seeing and hearing in the marketplace, that seems like the right call to have not rushed into like, you know, super micro kind of AP accounts. We'll report more. I'd say it hasn't been our highest priority since we did the swing and the miss, you know, on the cross-sell, but we are continuing to work it.
Trevor Williams (Managing Director)
Okay. Got it. Thank you.
Operator (participant)
We've reached the allotted time for questions today, we'd like to thank you for attending today's presentation. This will conclude the question and answer session. You may now disconnect your lines at this time.