Corpay, Inc. (CPAY) Earnings Call Transcript & Summary

Okay. Thank you all for joining us. We're now on the afternoon on the first day of the 3 days over the Wolfe Fintech Forum. Really happy to have FLEETCOR with us today, and we have 2 great executives from the Corpay business, along with Jim from IR. But look, before I get into introductions, I mean, this is a business we've been spending a lot of our time on, given how much of an opportunity we see overall B2B payments being, but really accounts payable, cross-border and a variety of the assets that I think Corpay has built and compiled together really checks a lot of the boxes and the themes that we're seeing. So we're really happy to have both of you guys with us, Mark and Rick, to talk about the business, both of whom are Group Presidents on the Corpay's side for FLEETCOR and Comdata. And maybe I'll let you guys just introduce yourselves, and we'll go into a little bit about what you need to do within the business, and we'll go from there, if that's okay with you guys.

Sure.

Rick, you can jump in, and then, Mark, I guess.

Yes. So, hey, everybody, this is Rick Fletcher. And my experience with the corporate payments team within FLEETCOR is unique, and then I was there right at the beginning. So about 10 years ago, FLEETCOR was a customer of Comdata, and Comdata had a set of products that were non-fleet and fuel related, namely payroll cards, T&E and virtual cards. And we're selling that in both what we now call it direct and the channel model. But it was very nascent and it really fit in the overall businesses, a tuck-in under -- as a cross-sell. Was it dedicated either from an operations or product or a sales organization. And so my assignment was to start pulling some of those assets out and making them unique and distinct. And so over that 10-year journey, we are probably $25 million, $30 million in revenue at the time. We're probably with a plan of about $400 million on just those particular products alone in addition to the acquisitions that have been made to expand the portfolio of services within corporate payments, and that's a great segue for Mark in the cross-border business, which is one of those important segments and points of diversification. So Mark, why don't you introduce yourself?

Yes. Thanks, Rick. Hi, everyone. I'm Mark Frey, Group President of the cross-border business. I've spent my entire career in the cross-border business and focusing on FX and international payments, joined Cambridge a little bit more than 11 years ago, which, of course, was the precursor company before FLEETCOR entered into the space with the acquisition of that business in 2017. We certainly have been focused on building both a direct go-to-market strategy as well as a channel partner strategy, very much in line with Rick's business in the payable sector as well, and really focused on trying to drive international adoption. We started out as a very much a North American-centric business, and that has really evolved over the last number of years to really a much more sort of balanced revenue contribution from EMEA and APAC as well. And certainly, something that we're excited about in the future.

That's helpful, Mark. Great. Well, thank you both. Guys, I mean, the Corpay business, as we -- as it's branded today, is really a combination of a number of different assets that's been acquired or built out organically over the past several years. And again, as I mentioned earlier, I think a lot of these assets are some that are pretty standout among the industry and competitors. But you're really unifying them now, right, under this Corpay brand. And I think more than just branding, but integrating them into the offering to customers. And so I'd love to hear from your perspective on the different assets you have underneath the hood, and why it makes sense and why it's going to be a real benefit to really consolidate that as 1 offering, more seamless offering for customers? What's differentiating you now?

Yes. So I'll start. I mean, there is a very practical benefit to having a single brand in terms of being able to leverage the go-to-market or to do cross-sell as we have acquired businesses and having multiple different logos and colors, and you can imagine how that adds an element of complexity and our ambitions are to continue to acquire and obtain and to grow ourselves. And so we felt like we were at an inflection point where going to market under a single brand brought some cohesion to the go-to-market, brought leverage over time. So it was very practical and tactical. But I would also add that the brand is a component of an overall vision. And that vision is really to play in the corporate payments landscape in a very both broad and deep way. And so it means that we've got very specific point solutions that are dedicated in deep and are decades old in the making in both their technology and their operations and their infrastructure and their know-how. And so we can play in very specific segments by vertical, by size, by product. But really, this is a company that plays in all aspects of corporate payments. And by that, I mean, we can fund and we have a huge balance sheet to help you actually benefit from our working capital, which fintechs typically don't have. We have process solutions that help you make better decisions to get visibility, which fintechs may have, but banks do not have. We have the ability to execute payments both internationally and at home, in the field and in AP through distinct payment motions that companies have. And again, we, both Mark and I mentioned, we do this for both direct and channel partners. So really, in all gamuts of commercial payments, our company is playing. It has additional ambitions to both acquire and develop and further strengthen those positions. And so I just bring this up, that the Corpay brand is both a tactical element, but really an overarching theme in vision.

And sort of echoing on what Rick has said. So many of these different components of the business, we were partners before we were part of the FLEETCOR family. Nvoicepay was a long-standing partner, the cross-border business of Cambridge before that business was acquired. And I think it really does build a compelling overall capability for our channel partner who's looking for a one-stop shop, if you will, in terms of access to international, to card payments, to AP solutions ultimately as well. And up and down the customer segments, we talk a lot about being focused on the mid-market direct sale business, but we really can go down market into the very small business sector and have a platform play that we think works really well in that segment. And especially in the cross-border business, we can also serve the multinational and the large corporate space as well that's operating in multiple jurisdictions around the world. So it really does create a very compelling value prop up and down the customer segmentation universe and as well as channel partner to direct market as well.

Daniel is going to jump in a second on the mix and the growth rate of each of the pieces for a moment. But I guess before we go there, just where are you guys on really tying all the pieces together appropriately so that it's seamless for our customer and then it can be so bundled and packaged? In other words, where was the integration along the way?

So I think we're on this point. A lot of the branding work and those tactical elements are done, and we're officially Corpay. That's [indiscernible] off the process. So we -- this is the first full year that we will really be going to market under this brand. And that's going to take time. I mean, a lot of our brands, very well-known, high position, high heritage, high equity. And so we're going to have to attach all of that experience and those relationships to this new brand. So that's going to take some time, but we've got a lot of the foundational work underway and are fully going to market as Corpay. In terms of bringing those pieces together to the market, I think it's an ongoing evolution. So there will be components of our go-to-market that I think really benefit from dedication in the stand-alone wherewithal and specificity of a point solution. Mark knows cross-border better than anybody, and we'll continue to go there. Rick knows from the payables game. With the 10 years experience I've had on that, I'm at the top of the list in my game. So we'll continue to go to market with the specificity that's required for those particular endeavors or segments. However, the ability to package ourselves up and go to market more broadly and evangelize ourselves more broadly is something that we're actively doing. The ability to cross-sell within the base and bring a broader set of services is something we're doing. The ability to bundle those in terms of the financial offerings that you might get better credit lines or better fees or better rebates when you do more than with us than last, which is some function of the financial offering and how we dial up, but also some function of the back office infrastructure that we can provide shared administration, shared customer service. Those things will take a little bit longer over time. And then there's other areas that we're starting off where we're literally trying to make the bundle from its inception. So Corpay One is an example, which is a platform for small business, was born with the idea of being a single-point platform solution for multiple payment categories from its very start. It won't go to the depth of our upper middle market or enterprise solution in terms of what it's able to do because it's built for SMB, so it will be good in a lot of things, but not great. And in that particular platform, we've made a lot of progress being able to bring that to market and have a very specific bundled sort of Corpay vision out of the gate.

Yes. And I think the vision, especially for channel partners as well is to get to the stage where we have 1 point of integration that connects to the full breadth of the capability across the payables, the virtual card capability as well as cross-border as well. And we're starting to do that at the enterprise sector with some of our larger corporate customers that they have that single point of integration to access all products and services. And we're now in the process of packaging that up for our channel partners as well.

Yes. So if you could dig in a little bit to the revenue mix of each of these pieces. And could you remind us what the contribution is approximately 50% cross-border, 1/3 direct sales and the rest channel partners? How should investors think about this revenue mix moving forward in terms of each of those pieces growth rates?

Yes. I think the focus is it's going to be relatively similar as we go forward. We're both sort of mid-teen to high-teen growers in terms of businesses independently. There is a lot of collaboration across the platform as well of getting these businesses to work together and integrate to a holistic solution. So I think the composition of that revenue is going to remain relatively static in terms of the split between payables and cross-border. Even within the cross-border business, I would say, historically, it's been a direct go-to-market, direct-to-corporate customer, and that's increasingly being developed as a channel partner solution. That's a growing part of the franchise. I think Rick's heritage has sort of gone in the other direction, originally sort of a channel partner business that is an increasing focus on the direct side over the last number of years. The businesses again look very similar in that regard. From a cross-border perspective, I think one of the things that we've really been focused on is internationalizing the business and moving beyond North America. So a year ago, prior to the AFEX acquisition, we were -- 75% of our revenue was generated in North America. That number has moved down to about 60% now with a much stronger component coming from EMEA, especially in APAC as well, and trying to build out that balance. That geographic balance across the cross-border business is a big part of our focus, too, going forward.

That's definitely interesting. You mentioned channel partners a few times now. It seems that, especially with the shift in sales strategy to digital top of funnel and focus on the direct sales that channel partners may kind of have taken a back seat. But you've mentioned it a number of times today. Are there any specific new channel partners to call out or new initiatives? Or how are you continuing to grow that channel partner business as we move forward?

Yes. So we've got a variety of different channel partner models. So we've got really resellers and referrals and a variety of different commercial types of relationships, which are important to us. Some are really kind of true channel where they're leveraging the infrastructure that we have and they're going to market in their unique way. Other partners were having more of a joint solution where it's both of our products really working cohesively together. And then some -- again, it's primarily a commercial relationship where they're really funding and providing support to our direct selling model. So that's the first point I'd make is the varieties. In terms of the types, in my business, we're basically a commercial credit card engine in a box. And to be able to do that, you have to have a processing platform, which we have our own and is proprietary and rather unique. You have to have a relationship with networks. You have to have compliance and bank sponsorship and money transmitters. You have to have vendors and some set of relationships of people who know how to ingest your payments and what that's built. And so we take all of those assets, which again have been built over decades, and we bring them to a variety of different business models. So 1 example that's new and exciting now is expense management companies that are using technology to help the process of engaging with their employees and improving expenses and making those decisions and can tack on a credit card and do those credit cards in very unique ways with controls and onetime use in virtual cards and all those types of things. And so they come into our platform to basically enable their payment processes. We have payment aggregators that are making billions of dollars of payments, maybe on a check or an ACH that we can then convert to card. We have other types of bill payment companies that are providing a set of services that want to tap in to the ability to use our vendor network. And so there's all types of channel partner relationships that we enable. And so while we think that, that will continue to be an area of focus, but while that's the case, we have put increasing energy on our own ability to go direct to market with our services, which we find to be intriguing and interesting and diversified. And so it's not one or the other for us, which makes us very unique compared to most payment players. They typically play in 1 game or the other. We very much appreciate the symbiotic aspects of playing in both worlds.

Yes. I think Rick makes a number of great points. And I think there's a couple of things that are a little bit unique about the cross-border business as well, and that we have been really focused on trying to build out sort of a coopetition model to a certain extent with financial institutions. So that's both Tier 2, Tier 3 financial institutions operating in the U.S. that need international payment capability as well as some of the Tier 1 money center banks, some of the biggest banks in the world that come to us looking for liquidity and payment delivery in specific corridors in Latin America and Africa, where we have really well-honed niche capability that is somewhat unique. And so this is a part of the business that is, I think, somewhat unique in our space, has really taken off and is providing some solid growth. And more of a coopetition model where these financial institutions are our clients, their partners, their service providers, it makes for a much more balanced overall relationship, which is an important part of how we look at it as well.

I would also add, they're incredibly complementary to one another. So when we do product development, perhaps on behalf of a specific partner in a nuanced way, well that development and scale gets leveraged to other channel partners or us indirect. And so there's front-end benefits that we get from that go to market. But then also from a cost perspective, they're highly complementary. And so we, again, like -- unlike many other players in the space have a dual model that has -- that's upright, right? That financially works, that allows us to continually invest where our partners not only choose us for the technology and the services that we provide, but the fact that we are not subject to the next round of funding or the flavor of the day. This is our space that is -- that we've already made a good mark on and that we've got a cost structure that is able to be sustainable.

Can I jump in for a minute. I mean, before we go, I'm going to want to talk about the cross-sell opportunity with the fleet side of the business as well. But before we even do that, I guess, I just want to understand, thinking of your assets now in combination, I mean, I always looked at Nvoicepay as a strong software platform for accounts payable that I think we should -- I would have liked to have seen more growth out of in the last year or so. And I'm curious to see what that could be for you guys now in a more packaged offering. I'm curious what you're going to lead with it. I've talked to Ron about how sales is going to try to leave a little more with the software side than maybe the virtual card side in the past. But maybe just touch on it overall and more holistically, if you guys don't mind, strategically, your go-to-market approach going forward versus what you've done in the past.

Well, I definitely think we're going to lead with it. And so on, we're going to do a couple of things. The first thing we're going to do is in the back, in the way that our different operations and implementations and better databases work, we're going to bring those things together to create the best of both worlds from the old Comdata world and the Nvoicepay. And so that will both strengthen the offering for our clients, will also for ourselves reduce the amount of complexity to sale and pitch and to manage and to implement. So I think we'll get benefit from that. On the front end then, I think that is definitely the product that we want to lead with and differentiate ourselves with. However, we also appreciate that there's many types of models and [indiscernible] if you will. So if we're in the treasury bank, we may have more of a working capital base pitch. If we're with procurement, it may be more rebate-oriented. If it's AP, it's process-oriented. We've also got the ability to add on a set of AP automation and electronic invoicing capabilities that will enhance our ability to make process improvements. And so for us, we want to be able to go to market and serve multiple types of objectives for multiple stakeholders with the least amount of trade-off. And so I think that's one of the things that we'll try to do as we go forward is as we integrate the back office, the ability to offer kind of where I scratch all the [ edges ], and they're on working capital, and they're on rebate and they're on back office. And I can actually give you administrative leverage where I'm moving from the AP also to the field-based side and providing a point of administrative leverage over like a bank. Those are the ambitions that we have.

I think similar to what Rick just described there in terms of consulting that back-office capability from the traditional Comdata business into that Nvoicepay platform that lead with the software play, we're doing the same thing with the cross-border capability as well and embedding that within the Nvoicepay platform. So even as the cross-border business on a direct basis is going to market, we're leading with the cross-border value prop. When we come across that customer that's looking for that all-in-one solution, we can pivot to positioning that software solution from the Nvoicepay product as the no-compromise solution for both the domestic and the cross-border names of the enterprise.

Cross-border, I mean, clearly, it was an area that I think is -- it's never been easy to replicate across the market, and it's been a barrier to entry for a lot of companies in the space. So if you could expand on that for a minute, Mark, since I know that's a focus of yours, obviously. And just think about what the barriers are there, how many of your competitors can really offer us a strong cross-border solution in concert with an accounts payable offering and a virtual card offering?

Yes. I think there are some significant barriers to entry, and it's a business where scale matters as well. And scale, not just in a particular geography, but across all geographies, is really important. So we benefit significantly from having the capability of the domestic payables business in North America that we can pivot to both Canadian and U.S. customers. It's certainly part of our value proposition as we talk to multinationals around the world that want to do business in Europe and APAC and North America. And having that strong domestic capability is an important part of how we go to market. It's the licensing footprint and capability in each of the jurisdictions around the world in which we do business. It's the bank relationships, the network that we built up over the course, the better part of a generation of building those deep bank relationships. The in-country payment networks and direct connectivity to various in-country payment schemes. So we're not just truly sending international payments across borders, we're sending local payments in each market in which we do business. There's over 70 countries around the world where we actually send local in-country payments now, not just cross-border payments, which is really important in terms of having on-time guaranteed full value transfer for customers and really minimizing costs. So it's certainly a business where scale matters, where the growth that we've been able to achieve allows us to make investments in technology and software in the network itself that becomes self-reinforcing.

Makes sense. Now let me just jump in on the Corpay sell -- cross-sell potential into fleet. And then I know Daniel has some questions on some of the specifics around it. But, I mean, guys, I think you've talked about potentially reaching as much as 10% to 20% cross-sell into the fleet base -- customer base. I think the company has mentioned, Jim, correct me if I'm wrong, but by end of this year, potentially 10% plus, right?

Yes. It was originally the target that Charles has mentioned a few times over the last few days that we went back to reengineer the platform based on some customer feedback, and we've just launched it, the all-in-one, the two-in-one, the three-in-one platform a couple of weeks ago. So -- and we slowed it. We wanted to make sure the process was way more efficient and easier and a better experience. And now we're just starting at it again. So my guess is we will not reach those targets this year.

Okay. But regardless, I mean, it's obviously a medium, call it, long-term target that makes a lot of sense. And so I mean I know, Daniel, you had some questions, but maybe I'll just start off with -- if you could just help us sizing the opportunity across cross-selling that bill pay business? Or just broadly speaking, the offerings into the fuel customers. And maybe when you're specifically targeting SMB, it seems, what percentage do they make up as a percentage of the fuel customers that would actually make sense for you guys?

Well, I mean, I think those -- if you're asking like how -- what's the overall penetration rate, I don't know that we exactly know where -- what the limits are. I think we've got some ambitions to get started in this 10% range, which is really meaningful in and of itself, right? And because there is such a large SMB space within FLEETCOR, it's natural that, that's the place that you would start. Now the question is how do you bring those different assets together to work in cohesion, which is part of the good challenge that we have, you've got different underwriting and different onboarding and different structures to go make that work. But ultimately, the SMB segment for non-fleet and fuel in bill pay is really underserved. The idea that how companies are making payments today is rather rudimentary, how they're making credit card payments beyond fuel is rudimentary. And so what we're building, first of all, we would say, is not entirely dependent on cross-sell, but it's only amplified and supported by those relationships and those assets.

Yes, I think the exciting part of [indiscernible] is the ability to acquire new customers at scale across the platform where the economics of those customers on an individual basis are super attractive that we can use more digital selling, low-cost acquisition in terms of onboarding those customer relationships. And we can ultimately make them sticky through the cross-sell, if you will or the making available the entirety of the value spectrum from virtual card to the AP solutions, to the field solution, to the cross-border business. One of the things that we've always been very, very cognizant of is that 100% of my customers in North America are within Rick's target market. And really, we're scratching the surface of being able to unlock the value that exists in those relationships. And it's something we're definitely more and more focused on going forward.

Yes, that makes sense. Daniel, do you want -- you want to take the next?

Sure. Yes. And you just brought it up. So FLEETCOR has mentioned in the past a 50% to 100% potential revenue uplift from cross-selling these corporate payment solutions into the SMB fleet segment. I guess, just what factors determine whether or not a business lands on that lower end or the higher end as we think about how successful this could be moving forward?

Well, there's a couple of different ways to get the uptick. One is through credit cards and expanding what -- where a fleet card can go to a broader set of categories and purchases. And so that has some credit risk underwriting dynamic to it. But then there's other elements of bill pay that don't have the explicit kind of funding requirement of which the amount of upsell then really becomes around the categories the spend of the company themselves. So transportation has high fleet and fuel as one of their largest expense categories, the uplift on that segment wouldn't be high as somebody else who really only has a couple of vehicles, but really has a broad set of payables. And so it's a little a function of the credit and underwriting, it's a little function of the company makeup. But in all instances, typically the amount of expense that is being paid outside in fleet and fuel is quite significant in relation.

Okay. And then I guess, just to clarify, this is -- this cross-sell initiative while resetting now and not looking at the 10% to 20% this year given the reengineering of the initiative there, but this is, at least for now, a domestic initiative, right? And will this have the ability to expand into cross-selling internationally as well moving forward years down the road?

Yes.

Yes, it's certainly something that we are focused on the cross-border business now. So leveraging the international fuel business, whether it be in Europe, in Asia and APAC as well. We see there being significant upside and overlap between the small business customers that are a fuel card customer in the U.K., Continental Europe and Australia. Those are direct overlaps with our customer base. And the cross-border intensity of those businesses is also much higher than what it is in North America typically as well. So we see that as being a target-rich environment for us and vice versa, knowing that many of our mid-to-large corporate customers can be repositioned to a fuel solution as well. And so we see that as absolutely a small business play, and we talked a little bit about that with Corpay One with [ 2 and three-to-one ] value proposition, but we also see that in the larger corporate customer space as well.

I was actually getting a question inbound from a couple of clients to ask about the competitive landscape, which is something we had anyway. And so in interest of time, maybe we could just shift there. On that topic, I mean, maybe you could, first of all, talk about who you see as your competitors in the marketplace, whether it's cross-border or it's on the software or the AP side in Nvoicepay? I mean, obviously, we covered bill, we [ cover added ], but really, I wonder if there's others as well. Where your sweet spot is? And then the differentiation you have. And I want to also touch on some of the growth potential, but go ahead.

Sure. So I'll start. I view, in the payables world, our #1 competitors being banks and then #2 would be banks and #3 would be banks. The vast majority of all payments are run by banks. They are the ones that are controlling the funding and the execution and are the vast, vast majority of the overall landscape. And so when we compete against banks, the interesting thing about us is we're competing against them through dedicated programs with better technology, better customer service, better cardholder bases, vendor enablement. I mean, I could get into the specifics per category of why we might be a bank in a very nuanced spend category. So that's what I would ultimately say. In terms of what makes this company different, we've touched upon it before, but I don't think it can be understated. There is no company that goes to market in direct and channel, in field and AP, in funding in execution and in payment process and does it in a global way and does it upmarket and within SMB. There's literally no other profile of company, including banks, that would ambition to participate in corporate payments and the way that we would help a company in that broader scope. And so I would say that at a highest level, at an investor level, certainly makes us a differentiated type of company and asset. But the way that we compete on a per category basis can be incredibly nuanced. And so in my place, I'll just give you a flavor. It could be the way that I handle the vendors and my remittance. It could be the way that I submit a payment to people. It's the way that I handle issues in the remediation. It's the way I integrate to somebody's ERP and can create a custom process because I own the processing platform and the operational platform. So those assets manifest themselves in competitive differentiation in hundreds of ways.

And the answer is very similar for us as well. More than 90% of our takeaway wins come from banks. So we compete with Tier 3 institutions, Tier 1 institutions around the world. And part of what we really do is package up the best of what Tier 1 money center bank, our partners offer. We offer in 1 software wrapper to our customers that is a better technology solution that's easier to integrate with a more customer-centric approach in all of our markets around the world. And so that's really how we win, is we have a more robust product in many cases because we leverage the best of all of our relationships into a single package that is easy to integrate and easy to connect to from a customer perspective.

We're actually just about out of time now. I mean, somebody -- we have another e-mail asking us about if you can help us understand your goal for growth on the segment. But Jim, you can probably jump in there and let us know what's been said or what can be said around that.

Yes. I mean, ultimately, corporate payments is a mid- to high teens growth. We've always looked at it as a high-teens growth. I think it will continue to be that way. The investment merits that -- and the guys here on the call running the business seem to be pretty good at it. So I'll let them pick up from there.

Yes. I think that's always the focus is we want to be mid- to high teens. We want to have a few extra basis points that we tack on to the bottom line so that we gain a little more operational leverage all the time and we drop top line to the bottom with increasing intensity. And I think that the key thing that we've been able to do it as the businesses have scaled, we've been able to sustain those growth rates. And the business has become more technology-focused, less direct sale focused or quality of personnel. It's much more of a software play, I think, across the corporate payments business, and that gives us scale and allows us to connect to both channel partners and direct market with efficiency.

Great. Guys, this has been extremely helpful. Thank you. It's a topic we're very focused on. So we hope to stay in touch on it. Anyway, listen, be safe. Thanks for joining again. For everyone on here, the next one, we have a break now, and then we have a CEO of Euronet on in 15 minutes. So all right, Jim, Rick and Mark, thank you again for joining. Appreciate it.

Thanks, guys. Lots of fun.

Really appreciate it.

Have a good one.

Thanks, Darrin.

All right. Thanks, Jim.