Q2 2025 Corpay Inc Earnings Call
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Good day. I would like to welcome everyone to Corpay's second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.
If you would like to ask a question during that time, simply press star, then the number 1 on your telephone keypad. If you'd like to draw your question, please press star, then the number 2 on your telephone keypad. Today's call is being recorded. I will now turn the call over to Jim Eglseder. Please go ahead.
Good afternoon, and thank you for joining us today for our earnings call to discuss the second quarter 2025 results.
With me today are Ron Clark, our Chairman and CEO, and Peter Walker, our CFO.
Following the prepared comments, the operator will announce that the queue will open for the Q&A session.
Today's documents, including our earnings release and supplement, can be found under the Investor Relations section on our website at corpay.com.
Throughout this call, we will be covering several non-GAAP financial metrics, including revenues, net income, and net income per diluted share, all on an adjusted basis.
We will also discuss organic revenue growth. This metric neutralizes the impact of year-over-year changes in FX rates, fuel prices, and fuel spreads.
It also includes pro forma results for acquisitions and destitute or scope changes closed during Q2.
None of these measures are calculated in accordance with GAAP and may be calculated differently than other companies.
Reconciliations of the non-GAAP to GAAP information could be found in today's press release and on our website.
It's important to understand that our comments may include forward-looking statements, which reflect the information we have currently.
All statements about our Outlook, expected macro environment, new products, Business Development, expectations for future acquisitions, or synergies are based on that information.
They are not guarantees of future performance, and you should not place reliance upon them. We undertake no obligation to update any of these statements.
These expected results are also 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 and Form 8-K, as well as in our annual report on Form 10-K. These documents are available on our website and at sec.gov.
Now, I'll turn over the call to Ron Clark, our Chairman and CEO. Ron.
Okay, Jim, thanks. Um, good afternoon everyone, and thanks for joining our Q2 2025 earnings call.
With me today is Peter Walker, our new CFO, joining for his first earnings call with us. We are hopeful that you'll have the opportunity to interact with Peter over the coming weeks.
Um, at the top here, I'll plan to cover, uh, three subjects. Uh, first, I'll provide my take on Q2 results, along with the rest of the year forecast.
Uh, second, I'll provide a brief update on our 2025 top priorities. Uh, and then lastly, provide a bit of an update on our M&A activities.
Um, we did enjoy a bit more favorable Q2 macro.
Uh, than expected. But that was mostly offset by both weaker lodging performance and, uh, fewer gift card shipments than we had planned. Really landing us kind of right back at our Q2 revenue target of $1.1 billion.
A Q2, uh, overall organic revenue growth of 11% in the quarter. Uh, that's up 2% sequentially from Q1. Uh, inside of that, the vehicle payment segment grew 9%, uh, the corporate payment segment grew 18% in the quarter, uh, and our lodging segment declined 2% year-over-year.
Trends in Q2 were quite good. Q2 sales finished up 31%, which is on the back of a 36% increase.
Uh, growth in Q4, um, and 35% in Q1. So, uh, three consecutive quarters of 30% plus, uh, sales and bookings growth. Again, we think, um, the best indicator of demand retention, uh, in the quarter.
Ticked up to 92.3%, that's the highest level we've seen in quite some time.
Um, same store sales were really essentially flat in the quarter. So, in summary, Q2 really finished right on expectations. We did enjoy accelerating vehicle payments and revenue growth.
Uh, continued, um, high teens, corporate payments, revenue growth, and again, uh, really solid, uh, fundamental trends.
Uh, okay, let me make the turn to the rest of your guidance. Uh, so updated a full year 2025 guidelines, mostly unchanged. Um, so after Q1, we provided $4 billion, $420 in revenue and $21 of cash EPS at the midpoint.
Today, we're inching up a full year revenue, uh, $25 million, to $4 billion. Uh, $4445 and full year cash EPS, uh, to $21.006.
So our second half Outlook does reflect a bit, uh, more positive macro, uh, particularly, uh, more favorable FX. Um, some of that will be offset by continued lodging, uh, Revenue softness. So results in, uh, 25 million of incremental, um, uh, print Revenue.
Really, most everything else in the second half is tracking the plan. We do expect our second half vehicle segment revenue growth to reach 10%. Um, so Hallelujah. Um, and inside of that, our U.S. vehicle growth is accelerating to mid-single digits.
Our outlook in corporate payments is to report high teens organic revenue growth for the full year.
So this updated guidance would imply full year. Print uh, Revenue growth of 12% and full year, organic Revenue, growth of 10%
Okay, I'll transition now to our 20, uh, 25 top priorities, which are intended to first, um, simplify the company. Uh, so that it's easier to manage uh and understand and then second to uh, to better position the company for the long term. So first priority, the portfolio uh working hard here to have fewer uh bigger businesses uh rotating.
The portfolio to more corporate payments.
Uh, with the recent Avid and Alpha announcements, we are expecting the corporate payment segment to reach $2 billion in revenue and represent over 40% of the company next year.
A second priority: USA sales. We are now live in market with our new core pay brand advertising that targets CFOs, along with our entire solution set.
Um, we do have some impressive sales momentum—a streak of three straight quarters with 30% plus sales and bookings growth.
So, uh, now in search of our next, um, enterprise client.
Um, additionally, we have just launched our Core Pay Complete payables tech platform in the UK, bringing those capabilities now into the international arena.
And then, the fourth priority is cross-border. We have successfully extended our cross-border business to now serve four of our market segments. You can see that on page 15 in the supplements.
So we've moved Beyond um, our original Core Business, um, serving just Middle Market, corporate accounts. Um, to now also serving, um, faeces and more aggressively. Um, now with the MasterCard partnership,
Um, we're serving and plan to serve more institutional asset managers, um, as a result of the, uh, Alpha acquisition. Um, and we're beginning to serve, um, digital asset and stable, uh, coin providers like Circle. Um, and ripple with our on and off ramp Services, um, super excited about the circle, uh, partnership. Uh, we announced earlier should give us, um, a fast, start in the space.
In terms of products and cross-border, our new MCA multicurrency account product is off to a terrific start. We've got 10,000 UM accounts live now from zero a year ago, and we've reached $1 billion in deposits in July. So clearly, this is one of the best new product launches in the company.
So overall, we're making terrific progress, uh, transforming the company into some faster growth categories and across more geographies. This should extend the company's runway for years.
All right, last, uh, subject up. Um, let me cover the progress on the m&a front, uh, beginning with our 2024 Acquisitions. So, pay meringue, um, an API Automation and payment company, uh, acquired last July that's on track to double, um, ebta this year. Um, it also extends the verticals that our core, uh, payables business conserve,
Uh, GPS, um, across border company, uh, acquired in December performing quite well. Um, we have shuttered the GPS IT infrastructure, uh, and are also seeing GPS sales or bookings double from the same sales group. Um, as a result of them being in our system.
Um, and last is the Zap, Pay Gringo, uh, Brazil, uh, card debt companies. Um, they are growing literally like crazy. The combined revenue of those two businesses in the first half is growing over 50% versus the prior year. Additionally, we've crossed about 4 million of car debt alerts services to our existing, uh, SRA client base. So really an exciting, um, you know, new vehicle payments category to ride.
Uh, we're advancing our two newest partnerships, MasterCard and Avid. Both of those investments are tracking towards the Q4 closing.
The MasterCard Partnerships out of the blocks. Um, both companies, uh, we believe taking the opportunity, seriously, we've held a number of senior level, uh, planning sessions. Um, and are literally in market now, with our initial, uh, set of prospect calls, um, Avid our Avid, um, take private investment with tpg, uh, again, tracking the clothes and Q4 we've now cleared, um, HSR and still expecting, um, the Avid transaction to be a creative, uh, to earnings in 2026.
2026.
And then last on the m&a front non-core de vestures, um we have formerly teed up, uh 2 non core vehicle. The vesture candidates uh We've hired investment bankers uh and expect to launch uh post Labor Day.
Um, both of these are very good businesses. Um, and our devices are candidates because of their, uh, relatedness, um, or lack thereof, uh, not performance.
Um, we're hopeful that the net proceeds um, from these couple of businesses will exceed 1 Point, uh, 1.5 billion. Um, if we can successfully transact. So, look, all of this recent, uh, m&a activity, uh, intended to go deeper, uh, not wider and again result in fewer, uh, bigger businesses.
So look, um, in conclusion today, the story of 2025 is that we plan to basically finish where we started out the year, approximately $4.4 billion in revenue, and approximately $2.1 of cash EPS. Um, we do expect a bit more favorable macro but a bit weaker lodging business. The vehicle segment is really tracking the plan and is expected to accelerate to 10% here in the second half. The corporate payments business is continuing to rock.
Uh, outlook: high teens growth for the full year.
Um, progress again, lots of progress, repositioning the company, uh, towards corporate payments again in the payable segment. We've added this up market, um, enterprise opportunity again also taking, uh, that business internationally to the UK. Um, and cross-border, um, our new MCA product, uh, looks like a hit. Um, we've also added three really brand new customer segments to serve the FIS, uh, the institutional asset managers. And now here most recently, the digital, um, asset providers, um, via these new partnerships. So look, these moves go a long way, uh, to extend the runway, uh, and potential of the company.
So with that, let me turn the call back over to Peter. He'll provide some additional detail on the quarter and outlook. Peter.
Thanks, Ron, and good afternoon, everyone. I'm thrilled to join Corpay. During such an exciting time, the last several weeks have been super busy and a great opportunity to learn the business and meet the team. I look forward to meeting more of our investors and analysts soon.
I'm impressed by the exceptional talent and high-caliber capabilities that support the organization.
Corporate has a proven track record of generating topline and bottom line growth, and I'm excited to dig in and drive the company forward to achieve our objectives.
Now, on to some additional details about the quarter.
As Ron mentioned, Q2 print revenue of $1.12 billion was just above the midpoint of our guide.
In the quarter, our print revenue benefited from a favorable FX environment, partially offset by weakness in our lodging business.
Print revenue increased 13% year-over-year, driven by organic revenue growth of 11% and a 500 basis point improvement over the prior year.
Q2 adjusted EPS of $0.0513 per share increased 13% over the prior year, due to strong topline performance paired with solid expense management.
Adjusted EPS grew 17% over the prior year on a constant macro basis.
The headline for the quarter is double-digit, top- and bottom-line growth, excellent organic growth, all while maintaining strong margins.
We've also produced significant sales growth this year that will fuel our business over the balance of the year and into next year.
All of this puts us halfway down the path to delivering both the revenue and profit targets laid out back in February.
Turning now to our segment performance and the underlying drivers of revenue growth.
Corporate payments delivered 18% organic revenue growth for the quarter, with similar results in the payables and cross-border businesses. Overall, the performance was driven by growth in spend volumes, which increased 306% on a reported basis and was up 19% organically.
Spend volume was just over $58 billion in Q2, which puts us on pace to be well north of $200 billion annually.
The payables business continues to perform, driven by strong execution on pay meringue, synergies, and solid progress implementing and ramping Enterprise customers.
And confident and excited about the future of the business and our laser focus on customer acquisition.
Cross-border sales were excellent. In the quarter setting, a new record high.
While there is little incremental clarity on U.S. trade policy and tariffs, the global coverage and nature of our business are such that the markets outside of North America are doing quite well and have made up for some softness in North America.
There's no shortage of opportunity in cross-border trades, regardless of the macro backdrop.
Vehicle payments delivered, with 9% organic revenue growth for the quarter. This is our third consecutive quarter of delivering high single-digit organic growth, reflecting a 400 basis point increase over the prior year.
U.S. vehicle payments and organic revenue growth turned positive in the quarter, a significant improvement over the prior year. This was driven by improved sales production, applications and approvals, onboarding new customers, and stronger retention.
Brazil and international vehicle payments continue to perform well in Brazil. The combination of 7% tag growth in our extended network, including the car debt offering, is driving the strong results.
International vehicle payments continue to deliver consistent results, driven by strong sales and performance across the UK, Europe, and A&Z.
The vehicle payment segment is tracking the 10% organic growth in the second half of this year.
Lodging organic revenue is down 2% for the quarter. Room nights decreased 1% due to lower emergency services and distressed airline rooms, which offset some improvement in workforce. We feel good about the progress we've made here to position the business for the future, but the recovery is yet to show through in a meaningful way. We don't expect organic revenue to improve in the second half.
The other segment was up 18% as the gift business generated significant year-over-year growth from new gift card orders delivered. In the quarter, we saw pent-up demand due to new regulations to upgrade gift card packaging to reduce fraud. We expect continued strong gift card performance in Q3. In summary, we delivered 11% organic growth in Q2 and are pleased with the continued strong high teens corporate payments organic growth, with all other segments delivering significant year-over-year organic revenue growth improvement.
now looking for down the income statement,
In the second quarter, operating expenses were $623 million, an increase of 15% compared to Q2 of last year.
$32 million of the increase was due to the net impact of acquisitions and destitutes compared with Q2 of last year.
Excluding the M&A activity and normalizing for lower FX rates, operating expenses increased approximately 9% versus Q2 of last year. The increase in operating expense was driven by higher transaction volumes, sales activities to drive growth, and a one-time M&A deal.
Fees and integration-related expenses would see an increase of 7% if we exclude add-backs.
Our adjusted even margin was 56.3%. Relatively consistent with the prior year, our adjusted effective tax rate for the quarter was 27.7%.
The increase in the rate was driven by discrete tax items, Pillar 2, and a change in the mix of earnings.
Pillar 2 is effective in 2025 and resulted in multiple jurisdictions implementing a minimum tax rate of 15%.
On to the balance sheet.
We ended the quarter in excellent shape, continuing to de-lever and resulting in a leverage ratio of 2.53 times.
We have over $3.5 billion of cash and revolver availability, which gives us ample flexibility in how we fund our growth, including our recently announced Alpha acquisition.
Capital deployment in the quarter was again limited as we prepared our checkbook for transactions. We did spend $32 million on share buybacks associated with employee option exercises.
We can continue to work on non-core devices, including the recent announcement that we are divesting one of our legacy private label fuel card portfolios. This will free up $100 million of capital. Executing on non-core divestitures will bring focus to our portfolio of businesses and provide additional capacity and preparation for closing the alpha transaction in Q4. So now, some updates and details on our Q3 and four-year outlooks.
Also increasing our adjusted EPS guidance to $16 per share at the midpoint, representing growth of 11%. As a result of our slight Q2B and continued expense discipline in the second half of the year, our organic revenue growth range is updated to 9% to 11% due to the expected weaker performance in our lodging segment that I mentioned earlier.
For the third quarter, we expect print revenue of $1.165 billion at midpoint, representing growth of 13%, and adjusted EPS of $5.60 per share at the midpoint, representing growth of 12%.
We provided additional details regarding our rest of year and third quarter outlook in our press release and earnings supplement. This concludes our prepared remarks. Operator, please open the line for questions.
Thank you at this time. If you would like to ask a question, please press the star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. And once again, that is star 1 to ask a question. We'll take our first question from Andrew Geoffrey with William Blair. Please go ahead.
Hi guys, I appreciate you taking the question.
Uh, I guess I wanted to...
dig in a little bit on on corporate payments. Uh, it seems like you you've built and are building, certainly 1 of the most complete vertically, integrated Tech Stacks in the market. And when we think about GPS in the very strong sales and and the pending acquisition of Alpha and very good performance, could could, as we think to 26, and 27, that organic Revenue growth. Could even Accelerate from these levels or how how are you framing that in uh as you as you plan out of the next couple years?
Hey Andrew, it's fine. It's a it's a good question. So yeah we're we're pretty pretty pleased with the setup so I think
Um, it'll be mostly a function of what we elect to spend. I think we've told you before that we try to design businesses to grow at a certain rate based on the sales and marketing investment.
Um, which has been high in that business, which is why it's high teams. So, I don't want to get out over my skis, but I'd say the filming that we continue to pour money into, that these incremental segments should be additive. So, again, that business will finish high teams this year. I think if we spend enough, we could probably take that up another couple points. Again, we don't overspend where we, you know, things become unproductive. Um, but the width of the thing I think creates even more runway.
Would be my headline. I think the diversity of the segments, right? Not not just end accounts, but Banks the asset class the new digital players that to me that's the super attraction is really the the diversity really of the client base going forward.
Okay, that helpful. It's pretty exciting to watch. And then just on the circle deal, which, which I think is also notable. Uh, are are, are they going to be both a customer using on-ramp and off-ramp and and uh, you know, you going to be a customer of theirs or a distribution partner of theirs. Um in terms of incorporating usdc into your MCA product.
Yes, that, that, that's the concept. That's kind of a reciprocal partnership. So they've got, as you know, the currency, the rail.
Chain and, and even the wallet. So we'll plan to use that in in certain use cases. And then just what you said that we would help them, uh, in certain geographies uh, on on and off ramp so, yep, that that's the hope.
Okay, excellent. Peter, I look forward to working with you. Welcome to corporate.
Thanks Andrew.
Our next question comes from Darren Peller with Wolf Research. Please go ahead.
Guys, thanks. Um, maybe we just hit on the U.S. vehicle acceleration and just to help us understand what underpins the acceleration that you're anticipating into the second half. And just to hit on whether to contemplate the BP portfolio too, guys.
Thanks.
Hey Darren, it's Ron. So um yeah, the the couple of drivers of that thing getting a bit better in the second half are retention. Uh, which we can see sequentially in the in the report that I'm looking at. So for example, uh, Q2 of this year versus Q2 of the prior year, the retention of about 130 basis points and we're out looking at the inch up a bit more as we head into Q3 and Q4. So less businesses will fall away this second half that. Did last year and then number 2. It's the the sales are better.
A couple of big elephants like gas, buddy. I think we did announce that back in the spring, which is a pretty big account, um, and Amazon that were both sold a while ago, that are kind of beefing up volumes in the second half. So it's really just super basic. You know, incremental volume through those new sales and better retention.
okay, Ron
Thanks. Just a quick follow-up on the corporate payment side, just the contribution of the Enterprise domestic payables client to the uh corporate payment segment. Was there anything there and then just what were the underlying signs in the segment from the same store sales activity just house house activity from uh either domestic or International AP payments as well if you if you don't mind. Thanks again guys thanks John.
Yeah, let me, let me take the first part. Bye! Peter can take the second and like it, it's crazy. Exciting there to me that, you know, I think we mentioned this the first time whenever 90 days ago that we contracted that account at the end of the year and literally went lies and literally, you know, moved a billion dollars of spend. I don't know if people heard that, you know, in the month of July um, and outlooking. That thing as we finish the, the Halloween month to be at about 1.5 billion, uh, in spend for the month of October. So it's a, it's a super big contributor to volume obviously. Um, the monetization and the rates not as good as as, as the rest of the spent but
Still, you know, super contribution and profit. I think the key to the thing is really the extensibility. Now that we've learned, we can go to like super duper big enterprise accounts.
Through some of these relationships, can we get the pipeline? We've got a few accounts in the pipeline. Can we get more accounts like this big Enterprise to fall, which again will create some acceleration in that business? So, yes, I was super pleased with it.
You want to take the same story? Yes. So, uh,
Again, nice to meet you. I think the same sort of sales were our expectation for the...
Year, you were looking for.
Just what you're seeing in the underlying trends right now, more than anything else in the last quarter and then into this quarter coming up.
Yeah. So for the total, same-source sales are relatively flat year-over-year, and that's what we've assumed for the rest of the year.
Yeah. Hey, Darren, it's Ron. I was just looking at the page for corporate payments. It's um...
uh, let's see here, 4
The period is.
Basically, pretty steady as she goes over the last few quarters. No, no big changes. Same store sales.
So, again, all the increment, all the growth rate is really just on the ad side. Losses have actually improved, dispensing 100 basis points better than a year ago, even in that business.
So really, the map there is that the sales just massively outpace the losses, and same-source sales are steady. That's great to hear. All right, very helpful. Ron, thanks, guys. Thanks for the cheerleading again on the space. We'll take our next question from Tingen Hong with JP Morgan. Please go ahead.
Thank you so much, Peter. Welcome to the call. Just on the, um, on the lodging.
Um, I'm just curious about the visibility there and what could...
You know, things can turn out differently than what you forecasted, either on the upside or the downside. I'm sure you've got some plans, I assume, to reenergize growth as well.
Not asking you. No, no, no. And um, yeah, on the, on the down side. Um, a, you know, a couple things 1 is, which is kind of weird to to wish for maybe worse weather, but probably half of the
Softness in the second half versus what we thought back at the turn of the year is basically in what we call, kind of, the emergency or distressed.
Segment, which shows up for us in like the theme of contract.
Right? Where people run out to a location, or in our airline business where people get stranded and have to, you know, hurry into the hotel room. So that's about.
That runs softer. And so we're just out looking and softer in between us, who knows? But I didn't want to make up a number that's better, and then the other one I have is just the sales aren't good enough. I said it before.
That the positive here if there is any is the business is stabilized. That's that divot. We had you know, a year plus ago. Um as I had hoped as as stabilized back to the same store sales, um, and now it's just what goes into the top versus what goes into, you know, go out the box and so the the second problem is we're just not selling enough and implementing enough uh, new business. And so again, we built the plan 6 months ago, we thought implementations of that thing would be high.
Right. It's a hundred and a thousand million business per quarter. You're talking about, you know, 2 or 3 million bucks or something. And that kind of a range. So when we say it's off of what we thought it, it's it to the company, it's not a material amount. But, but it's just not obviously, it's not working, the way we want. The, the fix again is super clear. It's mostly sales now that we've stabilized the base, we've gotten put a bunch of product fixes in to make the product um more competitive and and the segment that we have problems with. So it's really just
You know, harping on the same thing, it's just getting the sales engine to fill the top so that that thing turns positive.
I put more people in it. I put a new sales leader in it in the spring. And so, like, we're going to keep an eye on it and kick out of it a bit harder here.
But fortunately, 85% of the play.
Working right, getting the vehicle back, you know the second hit because back to 10, I think it was probably 4 and 23 or whatever, you know, Q2 last year, and keeping the corporate payments thing. Um.
Coming in and expanded. I'm glad that the bigger section is working. Well,
Gotcha. Then just my quick follow up, just on the, on the, on the destitutes Ron just on the
if, if you achieve your, your target evm, assuming that, you know, you you've got sounds like, you got some Target DV in mind, the billion and a half, just thinking about the earnings impact and, uh, you know, how much Flex you have, and, and what you're thinking, and, and achieving your, um, your goals there with the best of yours,
Yeah, so this the second question is engine. I mean, I think that the headline I want to give is this is a different sign and then the last time around, right? Was it get business that we're looking at exiting? You know what? We would call good businesses, right? That are that are growing revenues and and and have Futures and stuff. Good Futures. And so it's really just a function of multiple, right? We've laid out a target of kind of net proceeds, obviously we're not telling these assets if the if the multiples aren't, you know, in the jeans right against dbza. So we pencil out a model where those things are, you know, kind of a push, they're not diluted. So we get out of them.
They're kind of a push. We get the capital back.
The contribution to the Alpha deal. So,
I'd say it's, um, it's obviously just a function of what prices we get the assets. If we don't get a good enough price, we'll hold them because they're good businesses.
Got it, understood. Thank you.
Don, we'll take our next question from Nate Spinson with Deutsche Bank. Please go ahead.
Hey guys. Um, I know the last part of, we were talking a lot about tariffs. Um, so I I guess I'm just wondering if there was any impact to 2q numbers from tariffs, any sort of poll for strengthen the FX hedging business. We talked about loss last quarter, anything on volume impacts. Um and then I guess the related question in the prepared remarks you called out record across border sales. And so I guess I'm just wondering like given how Dynamic the environment is this is actually helping to go to market motion and and your value prop as as your end consumer, or your end companies that you're serving deal with an environment that's changing on a daily basis.
Yeah hey hey Nate it's Ron. It's a, it's a, it's a super good question. I mean, I think the summary is, it's a mixed bag. I think the Tariff um, situation uncertainty or whatever you want to call is landing differently on on different companies, both geographically, like it's Landing, you know, affected us more here in North America because of the early, you know, Canada and Mexico posture. So I'd say those those geographies are still a bit softer for us than than anticipated. Whereas the the
UK, European, and Asian sides are...
Stronger. And then, second, I think it's just the individual companies. Some companies are super committed; they have to be international. They're figuring out ways to deal with it. They're looking at risk management ways to deal with this thing, and then other companies are like, "Oh my God."
Um, it's freezing me. Maybe I should find different suppliers or target customers at different places. So, there's not, I don't think there's one, you know, across the board.
The answer to it because it is uncertain. I mean to your point. Certainly the just the the volatility if you will of of currencies is generally a help. We say it probably is a plus 10% in a in a period of Time Versus completely flat, you know, non-volatile periods. But
So, again, the overall kind of a mixed bag.
That's helpful. Thanks Ron um for the follow-up. Uh you know the the zap a and Gringo growth really stood out. I think you classified it as growing like crazy Ron. Um and like leaving aside currency fluctuations, the Brazil business has been a really strong performer. So maybe you could talk about more about some of the strengths you're seeing there and kind of what's embedded in the vehicle payments acceleration, outside of the, the US vehicle payments that we talked about earlier and then maybe you could extend that topic to something we've touched on. In the past. It's the the broader consumer vehicle payment effort. So, any update on how things are progressing in the UK update on plans in the US, Etc.
That's a that's a load or a. Let me start with, I can remember the first 1 of hey zap and Gringo growing like crazy. So yes, I mean, I think the the headline on that for everybody is the core business there. Which we started with, you know, is a toe business. Um, relies on vehicles, in Brazil, running over toll roads, which call it is maybe 20 million of the, of the 60 million vehicles, um, registered there. Where is this vehicle car? Debt thing, which is, hey paying for tickets and, and doing an annual registration, is all 60 million. So you start with, you know, kind of 3 times, The Tam um, in in this business and then second it's just super early days, like this digital
Digital idea of how to see you've got a ticket and pay for a ticket or register, you know, digitally on a phone is like a super brand new way versus the old fashioned way of going with bank and stuff. And so, the, the market share in the space is super early days. We estimate, you know, it's still under 5%. So when you, when you put those 2 things together, it is just, it is just a runaway hit of the service that that people there want both businesses and consumers want. And so we're, we are selling like an acid pile of it and it's and it's for sure helping the the growth rate in Brazil. So initially, our our biggest Focus was on crosso which was also not bad. I think I called out 4 million.
Of of those companies Services were so bad by our by our core business. But the, the the the, the great thing here is this is just a, an extended vehicle payment category that is just super attractive on its own. We've got a good position, it's early days, it's growing like a weed getting more profitable. So you know we're delighted I I want to report back that it's another, you know, super good acquisition for us.
On the on the broader question of, um, the consumer thing, I'd say, still unknown, I say Obviously the Brazil experience including the thing, I just spoke to is, you know, reaffirming that extending, you know what, what 1 service is into many is a is is the world beater in Brazil? Not so much. So far in the UK. I I wouldn't go maybe all the way to struggling but I say it's a lot of hard work to get that thing stood up and get the first set of customers and stuff across. So we're continuing, I kind of put the group on the clock. Hey, take the rest of the year, see if you can get this thing humming, if you can. I'm going to, I'm going to redeploy the capital. If you can, hey, we'll stay with you. So, I say we're still um, a work in progress, uh, on the UK side.
Thanks, Ron. I get paid by the question, so I appreciate you obliging the multi-part you got.
Our next question comes from Sanjay Sakari with KBW. Please go ahead.
Yes, I have a question for Peter and Ron, maybe you too. Um, you know, as we see, the growth is really strong in the setup for the second half for vehicle and corporate payments, obviously.
For payments with the Enterprise relationship coming on in July, looks good. Um, but you know, the fourth quarter is a pretty difficult comparison. In terms of the growth rate, I mean, could you just talk about the cadence of the growth? Like, do we need to worry just about the fourth quarter growth rates?
Um, just trying to think through all of that. Thanks.
Yeah. So, uh, so I'm Jay. Nice to meet you. Uh, so, uh, you know our belief, uh, when we kind of look at the growth rates where I've recorded on a print basis, right delivered, 13%, this quarter that sort of projecting for uh, Q3 and then just a pick up uh, in in Q4. So again, pretty consistent on a
Based on growth rates, and then to your point, you know, vehicle payments, we expect to improve 10% organic growth. Corporate payments are expected to continue in that, you know, high teens arena.
So, you expect the growth to be just fine into the fourth quarter.
We do.
Okay, got it.
Um, and
follow up just on same store sales, uh, obviously tick down a little bit, just curious like is there anything that you're seeing from an economic standpoint that concerns you in terms and and what can drive a re acceleration there? And and how much of that I know you you said you've kind of
Figured for flat same-store sales for the rest of the year. But just trying to think through what the, um, the puts and takes there are.
Yeah, it's a it's a good question. Uh, Jay we did we did study it. And you know, when you go from plus 1, I don't think it's exactly there. It's like plus 0.3 or something like it. It is just such fine. Um, I have the reports set up in front of me across all the different categories. And there's literally barely anything moving. It's, it's almost literally Mass. So I wouldn't say,
Hey, take a lot of away from that, you know, hey, that it went from plus 1. So yeah, there's no there's no super duper, um, Trend in the thing. And, and I'm looking again across all the categories and they're mostly kind of tracking to where they've been over the prior 4, you know, 4 or 5 quarters. But but you know this whole you know, housing economy that we're just we're not seeing anything again. Significant on that front. I know we all keep looking.
Looking. But but I'd say whether it's in the in the fleet business or in the corporate payments, you know, the spend business or even in the Brazil business, there's nothing we see yet that this material that's giving us concern around, kind of the health of the clients
Thank you.
Thank you. We'll take our next question from Ramsey. Also, with Barkley's, please go ahead.
Hi. Thank you for taking my question and and welcome to you Peter. Um, I wanted to ask about retention, it was another nice result in the quarter. Um, and I'm not implying that necessarily this was the driver of that result, but given the structurally, higher retention rates and corporate payments versus some of the, your other, you know, historical businesses should we expect retention overall, company retention rates to climb up over time, just given the mix shift to corporate payments and then I guess the the next logical step is will that have an impact on driving some Revenue acceleration as you don't have to turn you know, replace so many clients that sort of churn through sort of longer term philosophical questions but just curious your perspective.
Yeah, Randy, that's quite. It's Ron that's quite um observed by you. So the the the best, you know, retention in a while is really 2 things. The first thing that you called out which is uh corporate payments, mix being higher, and it and it's got a the kind of Best in Class retention rate, but the second 1 is the vehicle.
Like I'm looking at that, um, better, and particularly the U.S. vehicle. And I think, you know, it's an old song now, but it's super related to that pivot a couple of years ago of, you know, large clients. And so life is about really the mix of small, medium to large clients in every business, and retention rates are dramatically higher with larger and enterprise accounts than in smaller micro. So those.
Are the 2 big things that are happening. Um, yeah. So on your second question of structurally, given those 2 things that the vehicle business keeps acquiring a higher, makes a bigger clients and corporate payments keeps growing. Should it should it go up? Yes, but I had moderate you, I would say that's not the magic, you know, let's use 7% not to hurt our head, you know. Hey, you think about the mix over the next year? Is, could you maybe get a point? Could you get 7 to go to 6? Remember, half the losses are us, cutting clients off, right? People who don't pay, credit issues, mergers Bank, you know, stuff going on, that, really? They're not going somewhere else or quitting us.
So, the number is really small and although I, you know, constantly be our guys up. Hey, get me half a point. Give me a point of attention. If I'm trying to get a 10% or 12% growth rate, the game is sales. I just don't want you guys to miss that. Obviously, we have to hold this and try to improve it, but the key to this company's long-term growth is really at the top of the funnel, more than inches. This thing up a point.
Got it, got it, thank you. Um, a quick follow-up on gift. I know it's non-core, but um.
Packaging. And I'm just curious in terms of your visibility to what arrived in Q2 versus what may come in Q3. Are we what ending are we in there? Should we expect kind of a daily boost to come? Or are you already sort of past the halfway point with that whole cycle?
Yeah, although the thing is, um, you know, bumpy because literally they ship, you know, Dick's Sporting Goods or Macy's or somebody. "Hey, wants cards?" and they got some campaign or something. So, shifted to me or, "Hey, you don't," or whatever. So, despite the thing being bumpy, it's processing quite well.
Um and our forecast for the full year is the thing to be probably somewhere in like the mid teens in terms of, you know, growth over the prior year. And it's not only this, this card uh improved kind of card, Tampa proof, packaging thing, it's freaking new sales. They're they're on a tear of signing, a bunch, and implementing a bunch of kind of new gift card clients and stuff. So it's it's pretty fun to now. So,
I’m going to go out on a limb here. Um, Ramsey, and say, hey, it’s probably like the best.
Period of gift performance, as a bother thing, whatever it is like 8 or 9 years ago. So, so it it it is, it is this, you know, tamper proof packaging. But the, the core underlying part of the business is, just way healthier than it was before. And yes, we expect the second half, um, growth over the prior Year, and that segment, to be quite good.
Got it. By the way, I think you bought the business 11 years ago. So, time flies, right? When you're having fun, time flies. I understand, Interactive.
Thanks a lot.
You got it?
We'll take our next question from John, Davis, with Raymond James. Please go ahead.
Hey, good afternoon guys. Ron I just want to Circle back to lodging. Uh, you're not known for owning businesses that that don't really grow. So as we think about that segment, you know, the flattish, plus or minus growth how much of that macro. Like, what do you think you can do to re accelerate growth and if you can't get it back to something that's more reasonable from a growth perspective, it doesn't make sense to own it and would you potentially offload it to redeploy Capital to corporate payments or a faster growing segment of the business?
Yes. John I think the the yes is the answer to your question. The Mandate in our company is to be a growth company and this is kind of the non-negotiable part of that is 10%. I've said that for years here is the floor 101319. I got a 10% organic, it's a little operating leverage and then use cash or buying earnings to to get the to get the, you know, the yield and so um it has to perform it. It again, this is not a business that's always been crummy. Like if you looked over the longer history since we've been in that going back, even 2 3, 4 years ago, the thing was growing you know, 15 20% year after year. So it it we had the position.
And the and the market to to be a good business. We did some bumbling, we took a huge debit that we're digging out of. So what you said is write it either gets fixed and it gets growing or or it goes. And so the question is just just how long and you know it it is disappointing that kind of half of its its missed this year is kind of this emergency weather macro stuff which obviously the group running it in the have no control over but it it's not an excuse. We, we have to do better in that thing, I think we will. But if we don't, we we will not be in it long term.
Okay, great. And then I’m just switching to the balance.
Switching of the balance sheet here. So, you know, Ron, you laid out kind of a mid to high twos pro forma kind of leverage, you know, at your end closing Alpha with some of the deves, you know, giving kind of the integration of GPS and Alpha. You know, should we expect more buybacks given? You know, kind of you do have some balance sheet flexibility, but you are also integrating a couple acquisitions, you know, at the same time. Just curious what kind of the appetite for M&A from here? You called over the next 12 months versus buybacks and how we should think about it?
And that's a super good follow-up. So the kind of the bow model for us is getting into the low twos. I think we printed $2.5 million here coming out of Q2, calling, you know, $22 million to $22 million. You know, exiting the year on a bow basis, which gives us, to your point, a lot of room in our revolver.
I think the size is now a billion, seven, and change that.
Was when does The Masks aren't the enclosed? When does that have a closed? Um, we do have a pipeline, I don't we've done a lot of deals, but but once kind of price is reset, you know, we we've been back at it. So the answer is our, our first priority is always to buy attractive growing businesses, that that strengthen our scale, our business, if if we can make good Returns on it. So that that's always the first call on Capital but at the stock price that I'm looking at, um, we're obviously buyers of our stock and so if our stock were to stay around this level and and we've got liquidity, uh, we we'll be buying stock back too. So I think if you look over the last 4 or 5 years, we could send the chart out. It's been a pretty balanced, you know, set of spending between, you know, buying businesses and buying earnings if you will and buying the stock
And we've had a rotation back to m&a over the last whatever, 12 to 18 months. So it's it's a function of liquidity, um, the pipeline of attractive stuff versus the stock price. And so we're always, you know, trying to manage both between those sets of factors.
Okay, appreciate the caller. Thanks, guys. You got it.
We'll take our next question from Beta with Bank of America. Please go ahead.
Hi, good afternoon. Thank you for taking my questions and welcome you. Um so I wanted to take a step back maybe and ask a question about stable coins. Um, just from a big picture perspective, you know, lots of announcements in recent weeks uh, around stable coins including from you all. And I was wondering if you could talk a little bit more about everything you're doing there and particular.
interested in the
Weeks, you see to your existing business.
And also, if you like, you know, where are things? Where? Where? Where? What parts of stable coins are exciting for you and what parts are you looking at and saying, hey, maybe we need to rejigger the business a little bit to accommodate stable coins?
Maybe even talk about the transaction economics with stablecoins versus without. Thank you.
That was a long but but interesting question and I I guess an important question. So the first thing I say is um, that ages stable going to me, it's just it's kind of a bit of a new, you know, payment ecosystem, whether it's, you know, crypto or stable coins and and blockchain and digital wallets. It's the different, you know, currency and pipe, right? To to move money. Um, and so I kind of think about the things related, right? You got Pia currency going, you know, over Swift to a tradition.
County. You've got us able going on a blockchain to do a digital wallet and so the the the way we think about it is we are and will incorporate that incremental or new or modern, uh, Rail and we will use it. We are using it so there'll be use cases with our clients to me. The biggest 1 will be outside of kind of banking hours. I think the biggest Edge that the, the, the new the payment train has here is the, is the 24/7 you can move money. You know, after the, the banks are closed every day and then selectively, we'll probably use it in some geography. Some kind of, you know, exotic geography. So the first thing I say is we just view it as another tool. Another way, um, to move money for our clients that has certain applications in certain situations. It's better than kind of the traditional
Rails. But the second 1 is the, the opportunity side is is it's creating a new set of of players, right? That that that meant the stable coins and a variety of different blockchain providers and stuff. And so they need help. Um getting their new kind of ecosystem to talk to the traditional 1 and so given the fact that we have a big position in the traditional and we're all in in the New World.
And so we're generally pretty excited about it because we think, ultimately, it'll be better for clients.
So, if you just touch on transaction economics.
Yeah, the economics I think people don't get it super good so if you're in B2B cross border which we're in, you know, 90% plus of um the value creation. And our Revenue comes from the actual conversion of the currency, you know, buying and selling, you know, dollars into into Sterling is the actual liquidity. It's the, it's the, you know, the exchange the conversion, um, you know a handful call it 3 to 5%. Um, is in the is in the moving, is in the rails and stuff and so whether you use Swift, which is the most expensive, uh, way to move, you know, Global funds or use the, the proprietary Network we have, which is, you know, a quarter of the cost, we use blockchain, which is free. It has a minimum is impact really on the on the overall kind of Revenue equation for us. So but we don't see the impact being economic here. We see it being
Speed. We see it being 24/7. We see the programmability part of it. There are other aspects of this that we think are more interesting than a few cents cheaper to actually run the rail.
Thank you so much.
You're welcome.
We'll take our next question from Trevor Williams with Jefferies. Please go ahead.
Hey guys, thanks for taking the question. I want to go back to corporate payments and the 18% growth on the Q1 call. It had sounded like April had been a very strong month. So if you could just talk us through what the sequencing and puts and takes look like from there and in May and June. I think Peter, you called out some softness in North America, but any more detail there would be helpful. Thanks.
Yeah, so the when we think about the 18% organic Revenue growth in corporate payments, I'd say it was you know, really the same. When we look at the payables business and the cross border business in the cross border business. What I shared is, we've seen some weakness in North America, but that have been more than offset, uh, outside of North America. So overall, we were really pleased with the results of the quarter.
Okay, Trevor, like, not a lot. Like, I did a little better. I think in April, across for, I think the payables, that Peter's point was steady as she goes every month. I can't remember whether it was May or June, but was the mids soft or, I mean, broad border beat their plan by a bit. So they had, you know, a better April. And I think it was a bit soft or June.
The other one was "Steady As She Goes." I've seen July, and we're kind of tracking. You know, we try to obviously give her the call here. Here's today, whatever it is, August 6th. So we've got.
July in the tank. And so we're tracking good here, sitting at the, you know, 1 month, 4 or 2.
Okay, got it. Um, and then just going back to the full year revenue guide. If you could put a finer point on the moving pieces, just within the organic guide, it sounds like it's mostly lodging. That's a part of the 1-point cut, but the relative sizing of that against the better FX—just how we net to the $25 million full year race. Thanks. Yeah, I think just use 1%.
Um Trevor Simplicity, if you said hey you know, the revenue is Ball parking 2 billion, you know, 2 billion and change in the in the second half. Hey, you know, a percent happy um, you know and macro percent sad and and and lodging. And then remember if you get 2 points of revenue from from macro which is the print you lose half of it back on the cost side, which is why you get no real earnings Improvement. So to your point the really the only change from 90 days ago, in the second half is is macro up.
Lodging down a point, which takes the organic, you know, call it again, $20 billion on $2 billion a point. Everything else kind of tracking, and I mostly don't want you to miss that. Tracking of what we said is up, right? So vehicle, you know, getting from whatever it was to then a 9 and then getting to 10 and then particularly the U.S. getting to 5.
I want people to miss it. Like that is super important to this company for us to sit here today and say, hey, we're headed to get that number and I, and, and keep corporate payments rocking that getting the 85% of the company in a good spot and following orders.
I want to make sure everyone's clear. There was more important than me. I wish the lodging was doing what it was supposed to, but the other two things are and that's super important to us.
Okay, I appreciate all that. Thanks, Ron.
We'll take our next question from Kuasi with Autonomous Research. Please go ahead.
Hey, Ron and Peter, thanks for taking the questions. Um, maybe I'll ask on us vehicle. I mean, it's it's nice to see, um, the momentum and and the, the, you know, moving in the right direction and and getting some mid single digits in the back half. I guess I'm curious to get your view on whether us vehicle can be a sustainable sort of mid single digit grower. And then I guess when you think about the drivers behind that mid single digit growth, like how do you, how do you think about the building blocks? Whether that's new customer growth, same store, sales, volume growth or pricing.
Yeah. Hey Ken, it's Ron. So yeah, we're we're pleased to do and yes it it has been um, a long journey. So the hoping that business would be kind of somewhere where it is, you know, mid single to maybe a a a smidge better. You know, assuming we get there. That's what we're saying. We're going to do so.
Running at that thing would be good. So the main thing is we've got the retention in a better place and part of that is the mix. So continuing to acquire, you know, less micro clients and more kind of small and mid-size, you know, is the key. I did mention we had a couple of elephants that that came in and then second we're still at with some of our new products trying to wrap some corporate payments, use around this huge base. You know the
Company started in this us lead space, we still have a giant uh client count and a lot of super high quality you know, midsize accounts there. So that's the second piece of the idea is um get revenue from that take. Take some of these products that are kind of All In 1 that have the fleet specificity in them. But basically give the client the ability to buy other things in the control, way, and pay for other things in the controlled way. And so, keep selling the stuff, sell bigger accounts, keep the retention high and, and then wrap and love this thing. If it was a corporate payments would be the the ingredients.
Yeah, no, that makes sense, Ron. And maybe just as my follow-up. I think Sanjay maybe asked about it, but just revisiting that 3 Cube versus 4 Cube growth rate. I mean, when we look at...
Um, pretty much every segment has a harder comp on the year of your growth rate in Q4. Um, even total company I think is like 6 points harder. Um, so why doesn't that impact the year-over-year growth in Q4? Cute, Ron, I know you look at the business sort of quarter over quarter, but just.
You know, optically year-over-year, it looks like it's harder. And then I guess if you could just give us like what is the expectation for organic growth in Q3 versus Q4? That'd be helpful. Thank you.
Yes. A specifically on the uh, 4 Cube guide, right? I mean is ticking up 14% uh versus 13%. Uh but last year we did experience a higher, you know 4q uh than 3Q, right? So it's kind of consistent on Trends and dollar over dollar. It's not a significant uh dollar amount on on the print side.
Yeah, I'm not sure.
It's, it's, I've read the question right? He's saying, hey.
How y'all looking, organic growth, then the difference between Q3 and Q4?
Yeah, I think the organic growth in Q3 versus Q4, Ron. But I think, you know, 1-ish.
...was so much harder versus Q3. So if you just look at that, the run rate sort of implies some acceleration. I feel like in the fourth quarter...
Yeah, I think it's probably actually the other way around. I'd say that the, the organic guide, uh, in the Sprint guide that we're giving you kind of this 10%, right? This in the second half and 10% for the full year. If anything I say the organic growth rate in Q3 will be better. So if you said hey the the the second half is 10, you know, think 10 and a half to 11 versus, you know, 9 and a half and 10. And the main reason is, is we have some stuff. We had some 1 time, happy stuff in Q4 last.
Last year around, you know, the corporate payments business and the payables business related to, to a transaction. So I'd say it's nothing, structurally per se. It's just, it's just the prior period. It's just, it's just the grow over. So I, I would have you guys think that? It's kind of steady.
As she goes that the you know the vehicle business is in that, you know, call it 10% range and and the other stuff is you know, plus or minus half a point between 23 and 24.
Okay, great. Thank you, Ron.
Please go ahead.
Yeah, hey guys. Thank you. Um, just one question on free cash flow. Look, massive in Q2; looks like your best cash flow ever. And just a question, I guess a lot of companies actually guide the cash flow and a lot have less cash flow than earnings. In your case, you've had better cash flows than earnings. Maybe just philosophically, would you ever guide to that? And then maybe why is your cash flow so strong? And is it sustainable?
You want to take it, you want me to is that Dave? It's wrong lendi. Let me try and I think Peter's earning some pages here. So um, there's 2 ways to look at cash flow. There's the accounting way, which maybe you're looking at that brings the balance sheet in, which is, you know, obviously a function of, you know, AR and AP and the way I look at free cash flow, which is really kind of when I call Cash and income which is really the operating um cash. And so, you know the the full year, the way I look at it, we're trying to get to a billion 5 to the full year about what I call, you know, um, cash that income. Um, what you're probably seeing out there in front of me, the accounting 1 that Peter stern of the page is, would be some change really in the working capital uh in the period that that goose it up. So I wouldn't get, maybe you can get excited. I, I don't get super excited about that. I'm just trying to make sure that the real free cash flow generated by operations.
You know, it continues to run hot and grows, which again, that thing is planned to be up, you know, 10% to 12% again in 2500.
Yeah, yeah, just confirming that the accounting methodology is presenting, you know, something favorable in the quarter that is accounting methodology driven. And really, the method that we're on points to is the correct one to measure us by, which is, you know, an 11% growth of cash CPS year over year.
That's great. Thank you.
Thank you. At this time, I'd like to turn the call back over to our speakers for their final closing remarks.
Uh, thanks Margaret and thanks everybody for sticking with us. Uh, that's it for us if you need anything else, uh, please let us know.
Thank you, and ladies and gentlemen, that does conclude today's conference. We appreciate your participation. Have a wonderful day.