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

All right. Good afternoon, everybody. We're going to go ahead and get started. My name is Madison Suhr. I'm the payments and fintech analyst here at Raymond James. I'm happy to be joined by Peter Walker, the CFO of Corpay. Today's format will be that Peter is going to run through a presentation. And with that, I'll kick it over to him.

Hey, good afternoon, everyone. So excited to be here with you this afternoon. It was 2 years ago today at the Raymond James Conference that we announced that we were changing the name of the company from FLEETCOR to Corpay. So I thought it would only be fitting to kick off our presentation with a view of a brand awareness campaign on Corpay that we're kicking off this year. So give you guys a quick little video and get your reaction to it. If I can get it to work. [Presentation]

So how do you guys like us now? Is that good? Hopefully, just gives you a view of kind of a quick snippet into the company's history and into the company's future. So let's just take a look back in terms of the evolution of Corpay. So company started around 2000 really and the fleet card space, really a niche provider within fleet card. Company went public in 2010 with the IPO. And then the company did its largest acquisition in 2014. And in that acquisition, is when we acquired a nascent corporate payments business and really started to grow out the corporate payments business. And then from 2014 to today, we've really continued to organically grow the business and inorganically grow the business to become the corporate payments provider that we are today. Think a really stand out statistic on this slide is that we are in a market a TAM of about $150 trillion. This is a very large market that we operate in today. Banks dominate the majority of this market space. So our overall belief is a lot of room for the company to grow given the size of the TAM and the products we offer. We've spoken a lot in earnings calls about our rotation in the corporate payments, about rotation into deeper, not wider, meaning deeper businesses. So I thought this was a great visual. If you look at the top part of the columns here, on corporate payments. You can see corporate payments in '21 represented about 21% of our revenue, growing to 36% of our revenue in 2025. Projected to be 40% of our revenue in 2026. So again, just continued growth in corporate payments large TAM, higher multiple business for us to be in. So pleased with what we've been able to achieve there. This represents a 30% CAGR over the 5-year period in terms of corporate payments growth from '21 to '25. I think the other thing that's really important to note here is there's some other KPIs on the bottom of the slide that we've been able to achieve this growth while still delivering a margin -- EBITDA margin, call it, in the mid-50s, still maintaining a CapEx-light business. CapEx is about 4% of revenue and still having a really high free cash flow conversion, so call that about 90% free cash flow conversion. This kind of a setup on how we're performing. So why don't we jump now to what do we actually provide to businesses in a little bit more detail? So when you think about a business income statement, everybody in the room can relate to that. There's really 2 types of expenses that are running through it. There's people expenses and there's non-people expenses. Our focus is on that non-people expense side of the income statement and really helping businesses put in the effective controls around purchases and the global payments related to that side of their business. I'd say the additional value that we provide is the majority of our products actually result in revenue that we can return and is a profit-sharing model with our clients. So the solution is, let me help you spend less money, let me help you control your expenses, oh, and by the way, you're going to get hard dollars back from the programs that I put in place. What gives me the most passion about this business is the CFO or the office of the CFO. We are the purchasers of all of Corpay's products. So it's great to work in a business where I can really sit back and say, would I buy this product or not? What can we do to improve this product, et cetera. So hopefully, that sets a good context of kind of what we're up to, where we focus. If we double-click on this a little bit further, it's really focused on 2 sides of controlling and managing expenses. First is enabling controls around what is purchased, right? So all of you are probably sitting here with a corporate card in your pocket. Most likely, you guys have pretty good authorization. You can use that corporate card at most places. As you move down an organization, you can set up all kinds of controls to limit the amount of expenses. You can't use it in a restaurant grocery store, et cetera, or you can use it depending on your type of business. So those are the type of controls that we can put in place in the expense management space. In terms of products, we really have 4 offerings here, business cards, fleet cards, offering in tolls in Brazil and then offering and lodging. If you go to the other side of the business, this is really about controlling what is actual paid. So what are the vendor payments that are being made. And where we do that is in the U.S., we do that in spend management and AP automation. And then within our cross-border business, we do this with international payments, and we do this with global and multicurrency bank accounts. So really a comprehensive offering for the office of the CFO in terms of controlling and managing expenses. So this is our scorecard where we sit in terms of size, scale and capabilities, I think, pretty impressive and really critical to the growth of the business. So if we look at 2025 as a snapshot, $4.5 billion in revenue, we delivered 10% organic revenue growth for the year. That number is projected to be $5.3 billion for 2026. Also growing at 10% organic revenue. So high organic revenue growth from the business. Next, we move to adjusted net income. We delivered about $1.5 billion of adjusted net income in 2025. Adjusted net income is a proxy for free cash flow for us. This number is expected to grow to $1.8 billion in 2026. So think of that, think of the arsenal we have. We wake up every year and say, oh, I've got a fresh $1.8 billion to spend in cash flow this year. How am I going to deploy that? Am I going to lower my debt? Am I going to do more M&A? Am I going to do buybacks? We'll get further into capital allocation in the presentation. But I think what I want you to walk away from is, this is a high free cash flow generation business that gives us a lot of optionality, and we look at our revenue midterm guidance algorithm, you'll kind of see the power of that come through. So what delivers these results. We're in 150 countries today, 51% of our revenue is international. You'll see our concentrations of the U.S., Brazil and U.K. So highly diversified global company. We have over 800,000 business clients, and we have 4 million -- over 4 million merchants and vendors. The other thing is really critical to point out is that we have over 30 proprietary networks. This is not a software business. Let me just say it one more time. This is not a software business. We make very little of our revenue based on software. We make our revenue based on moving payments and our key advantage there is a proprietary network and our ability to move those funds at lower cost and our clients being able to take advantage of the fact that we're doing that. Next, I thought it would be helpful to just take a pause and say, hey, what are you guys working on in the near term? What's exciting in terms of product innovation? What are you doing to drive this company forward. Really 4 key areas that we're focused on right now. One is bank accounts. So this is a relatively new area for us within the cross-border business. We offer 2 types of bank accounts today. We just closed on an acquisition called Alpha, which is cross-border business based in London, on the London Exchange. And with Alpha, we bought what was called a global bank account alternative, this has about $3 billion in deposits, so by no means a small business. What's very interesting about this business is it is a targeted bank account product. It is a companion bank account pitched at asset managers and private equity firms who are looking to do a deal in a currency where they don't typically have a bank account today. So they're looking to us to open up that bank account for them so that they can transact in the asset and typically hold out those funds for about 5 years. The key advantage here is that we can open up the bank account and call it 20 days versus if they were to work through a typical regional bank that could take up to 5 months. So really exciting area of growth for us. The next areas are multicurrency accounts. This is sold to our corporate clients within cross-border. The multicurrency account is also a companion account, and what this allows, for example, is a U.S. business who begins to transact in Europe and in the continent. They can open up account where they can have euros and they can have pounds in that account along with U.S. dollars. This also allows us in both of these accounts to provide international payment services and provide risk management services really important growth initiative for us going forward. The next place I thought it goes AP monetization. We've been with investors most of the morning. I think we've got a lot of questions in terms of hey, there was a lot of enthusiasm, call it, 2020, '21 around AP monetization, virtual cards, kind of what's the next step in this journey of AP monetization. And so what we're focused on here is ending paper checks. Believe it or not, almost 50% of AP today is still done by paper checks. This is definitely a generational thing in terms of who is running AP department. So what we're focused on is digitizing this process and introducing new monetizable products being at a debit card, instant payment or e-checks as different alternatives. But the main goal here is really to reduce fraud, get people off of checks. Next area, which we get asked a lot about is stable coin. Kind of what do you guys think about stable coin? How are you adopting it in your business? I'd say overall, we're excited about stable coin. We're making some investments here, and I'll walk you guys through kind of what the use cases are. So first and foremost, was in the digital currency space. Today, we're supporting major crypto providers as they look to convert off of their stable coin into a fiat currency. So we're actually providing that FX conversion for those large institutions. The other thing that we're doing is as a first mover advantage, we're adding digital wallets into our private capital markets accounts. So when I go back to the global bank account alternative that we bought with Alpha, where we're providing that to private equity and alternative asset managers, we're introducing stable coin companion digital wallet account. What's exciting here, these guys are in the business of doing deals. And one of their biggest things obstacles in doing a deal is doing things outside of banking hours. So the use case of stable coins, it's pretty interesting here, is that they close a deal 24/7 via stable coin versus waiting to be in banking hours. We've had initial conversations with clients. They're interested in that this nobody's calling us today and saying, where is my stable coin. But our goal is to be a first mover here, set up these digital wallets and stable coin and create this capability. We also believe this going to exist within our cross-border business payments and our merchant network in the U.S. and international. So it is another place with our large vendors that we're setting up digital wallets. Again, we're not seeing the volume yet today. Nobody is calling us up and asking us. There has been movement obviously into stable coins recently. A lot of that seems to be kind of a haven -- a safe haven for crypto versus true corporate payments moving into stable coin. So I think my message to this audience is we're excited about stable coin and when the volumes come, we're ready. What would the presentation be if we didn't talk about AI, right? So huge disruptor. Obviously, there was an article in the last week about 2028 in the Dooms Day that we all could wake up to. Hopefully, that's not the case. What I would tell you is we see AI as an advantaged amplifier for this business. We don't see this replacing the business, but we see AI as a way that we can enhance the current products that we offer today. So we have AI instances installed in the U.K., EU and Brazil and where we think the best opportunity is with AI first is in product innovation directly with our clients. We are also using AI to reduce our expenses. We've not taken expense reductions. We're more getting productivity gains and engineering out of AI. So we see a benefit not only a top line of our business, but also reinvesting in our business. So hopefully, that's helpful in terms of kind of hot topics that we get asked about around innovation in the business. All right. Next, let's take a look at the actual businesses themselves. So I'm going to focus on corporate payments and vehicle payments as that makes up over 80% of our revenue today and is really our key focus. So when we go to corporate payments, a lot of people kind of say, okay, what do you mean corporate payments pretty broad category. So corporate payments today really think of this as 4 businesses that sit in corporate payments. First business is spend management or commercial cards. So we kind of talked about that business. You guys are all probably sitting with cards in your pocket that would fit into this part of our spend in our Corporate Payments business. The next piece is AP automation. So this is where we're working with clients, and we actually take over their AP process, and we automate that process for them. The next piece of corporate payments is cross-border. This could be international payments and risk management services that we're providing to our clients. And then lastly, the bank account business that I spoke about. So hopefully, that's a way to kind of demystify what sits in this large business that we see really is the future growth of Corpay. Corporate Payments makes up about 36% of our revenue in '25. That's going to grow to over 40% in 2026. You can see there's over $250 billion of annual spend processed in this business and we are the largest nonbank FX provider. Our customers here in terms of the industries that we work in has stayed pretty consistent over the years, construction, transportation, logistics and business services also financial services and manufacturing. And then lastly, just some kind of key interesting things to point out. largest virtual card acceptance with over 1 million vendors, we are the largest Mastercard B2B issuer, and we settle FX in over 200 countries. I think the other thing that's really important to point out about our cross-border business is over 90% of our volumes in cross-border are in G20 currencies. So when we go back to stable coin use cases, today, a lot of the stable coin use cases in cross-border is in exotic currencies, which is not in places we're in today. Our business within cross-border operates very efficiently under the current rails that we have. We have proprietary rails in the cross-border business, and we run them in about 60 countries. Taking a double-click on cross-border. We've made several investments or partnerships in cross-border this year. So I thought it would be important to kind of slow down a little bit and tell you guys where we're at on our cross-border journey. So today, as we sit, we've got 4 segments that we sell into and cross border. We've got the corporates, which we've been in for several years since we began in the business. Financial institutions. This came to us mostly through the Mastercard partnership. We had a little bit of business there already, but we think the Mastercard partnership is a huge enabler of growing this business. Next, investment funds or private equity funds. This is the Alpha business that we purchased, so the ability to sell to this segment. And then the last is digital currency. And I mentioned earlier when we were talking about stable coins, we're active in terms of having partners in the crypto space and providing the on-ramp off-ramp of foreign currency conversion for them. What we're super excited about as we went into this year really as corporates as our main business within cross-border. We've now expanded substantially into these 3 other segments, and we think this positions us really well as we go forward with the business and think about continued 10% organic growth for the overall organization. Next, vehicle payments. Another really large part of our business. It's actually interesting if you kind of reflect back, right? We say we're a corporate payments company. We've just talked about the Corporate Payments segment. The vehicle payments is really just another flavor of corporate payments, right? It's a very specialty form in terms of very much focused on companies with large fleets, right? But it is another form of vehicle payment -- our corporate payments. When you think about the vehicle payments business in 2025, we operated in 3 geographies, about a $2.1 billion business, the 3 geographies we operated in were the U.S. Europe and the rest of the world and Brazil. Each of those were about similar size in 2025. So this is a very global business. The growth rate on this business, what we shared is that it will grow about 9%, high single digits in 2026. So still really encouraged about the overall performance of this business. And don't want to leave off kind of like some key advantages that we have here. So proprietary fuel networks, over 80,000 sites. EV charging stations, 1 million charge points. Really important to note that while EV has fallen out of favor in the U.S. EV is still, very much in favor on the continent and in the U.K. And so when we go to market, why that Europe and Rest of the World business continues to deliver a 9% to 10% organic growth rate is that we pitch not only a fuel solution but an EV solution, which is really powerful for the markets that are interested in it. And then lastly, in Sem Parar -- sorry, in Brazil, Sem Parar is our go-to-market brand in Brazil. This is really a super app that we built in a B2C business all around the car ownership experience of the customer. This has continued to be a really strong performing business for us delivering kind of mid-teens to high-teens organic growth consistently. So hopefully, a nice overview of the 2 businesses that we're in without going into too much detail. kind of stepping back of, okay, well, what does this mean in terms of your growth algorithm, et cetera? And what I would say to you is really strong growth algorithm in the business, the headline would be 10% organic growth every year, and we expect cash EPS to grow faster, I call it, 15% plus. So let's maybe pull each of those apart and talk a little bit about what that means. So if we look at the performance drivers on organic growth, as we've said, a large TAM, we've got a very efficient selling system revenue retention, 92% was the latest statistics, a high revenue retention and call it, flat to slightly up same-store sales. What that results in is a 10% organic growth rate. Next, we move to EBITDA. We expect that revenue growth to flow through and have operating leverage. So we expect EBITDA to grow, call it, low double digits year-over-year. In terms of capital deployment, as I shared with you, we have a significant amount of free cash flow, about $1.5 billion. and we can use that to deploy against accretive M&A, buybacks or to pay down debt. So I've got a lot of things in my arsenal in order to make sure that I deliver that 15% cash EPS. And that's what kind of leaves us here with 15% cash EPS, and we've had a 10-year-plus history of delivering that. One important stat to take away is these growth rates put us in the top 10% of companies in the S&P 500. So really an elite space to be in terms of the returns we would love to be in an elite space in terms of the multiple for this business. Unfortunately, obviously, what's been happening in overall payments and disruption and worries in the marketplace. Don't have as high as we'd like to be, but just make sure investors know that we'd like to see that multiple pick up given the results of the business. So just a quick snapshot at organic revenue growth. You can see for 4 out of the last 5 years, we've delivered 10% or greater organic revenue growth. And in 2026, we're planning on delivering 10% as well. So that would be 5 out of 6 of the last year. So a consistent track record here. We're really proud of our track record in terms of compounding revenue and compounding cash EPS. So we did these charts from the time of the IPO. On the revenue side, you can see we're about $400 million in revenue, predicted to be $5.3 billion in revenue for this year 2026. So that's compounding at 13%. Similar on cash EPS, $1.66 is now $26 compounding at 14%. I don't know how many other companies could put up this kind of a track record. So message to audiences, we've had a great track record. We can believe we can continue to deliver on this going forward. It wouldn't be an investor conference if we didn't hit our capital allocation really quickly. So let's take a look at our capital allocation philosophy. I'd say, in general, our leverage ratio 3x is the highest that we want to take our leverage ratio. We have communicated for a unicorn. And as you know, they don't come around very often. We would pierce 3x with a plan to march it back down pretty quickly because you see the cash flow generation of the business. The 3x is where we plan to stay are lower. So how do we think about capital allocation. First and foremost, we're a growth business. We've got to feed back growth. So feeding the organic growth at the efficient frontier, meaning we need to deliver 55% margins in that range. So that being the balance of feeding the organic revenue growth. Next, we've done over 120 accretive deals since the company was started in 2020. So accretive M&A is very attractive to us. I'll show you a slide coming up where you can see we've really been excellent allocators of our capital and been able to drive the growth of the business through it. And then lastly, share repurchase is always an attractive tool for us when there's not interesting M&A to do and when the shares are still undervalued. So for example, in the fourth quarter, right, there was a pullback in the stock. We issued a leverage ratio for a full year. When I went on investor meetings in the fourth quarter, I asked investors, hey, if I go up to 3x for the quarter, you guys are okay with that if I buy back shares and like I got high fives from everybody in the room. So when we're in those positions of really being depressed in the stock, we're definitely going to buy back because we believe in ourselves more than we would necessarily believe in an M&A transaction. So this is the slide I was talking to you about in terms of capital allocations. Maybe the first thing that I'll draw your attention to is let's go all the way over to the right and look at the leverage ratio at the end of the year. You can see it's varied between 2.4% and 2.8%, but we've always stayed at that 3x or below level. And then if we go over to the left, what you'll be able to see is we said, okay, this is our adjusted income -- net income for the year, let's go to the bottom, so call it $10 million -- $10 billion, sorry. And then how did we deploy this, right? So $15 billion, we deployed $7 million in M&A and 8.5% in share repurchase. So just a track record over the last 9 years of how we been able to deploy this capital. I think what should be really exciting to investors in the room is if you look at the amount we've deployed in M&A in 2025, 3.2 billion, obviously, a lot of money. What we're excited in that is we acquired Alpha, and we also made the investment in Avid. We own 1/3 of AvidXchange. And we bought a business in Brazil to continue to grow the Brazil business. So message here is we've been excellent at allocating capital and managing M&A in buybacks. So lastly, I've got 2 minutes left, so pretty good timing there, I think, is business opportunity we really see our ability to create value for our clients is very high in terms of controlling their payments and controlling our expenses, making their payments. Very large TAM called $150 trillion in TAM. We do have market-leading products, and we specialize in sales, and we have the proprietary networks that I spoke to. And what does this result in? This results in the medium-term guidance that I shared with you, organic growth of 10%, relatively fixed cost basis. So the ability to scale against that cost basis for 2025, $1.5 billion of free cash flow and strong overall operating metrics. So hopefully, that was helpful. We're going to have a breakout session following this. We've got about a minute left. If we've got any questions in the room. Otherwise, we'll cover in the breakout session. All right, guys. Appreciate your time.