Corpay, Inc. ($CPAY)

Hello, and welcome, everyone, joining today's Corpay Teach-in On Cross-border Business. [Operator Instructions] It is now my pleasure to turn the meeting over to Jim Eglseder, Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us today for our Corpay Cross-border Teach-in and discussion call. With me today are Ron Clarke, our Chairman and CEO; Peter Walker, our CFO; and Mark Frey, Group President of Cross-Border Solutions. . Please note, the presentation associated with this call can be found under the Investor Relations section on our website at corpay.com. Our remarks today will include forward-looking statements about our outlook, new products and expectations regarding business development and future plans and are based on that information. This discussion and any forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. Some of those risks are mentioned in the forward-looking statements in today's presentation and in our annual report on Form 10-K. These documents are all available on our website. So now with that out of the way, I will turn the call over to Ron Clarke, our Chairman and CEO. Ron?

Jim, thanks. Hi, everyone, and thanks for joining today's cross-border call. We thought this call might be helpful for a couple of reasons. First size, the cross-border business becoming a large part of our overall company. Clocking in at about 30% of the overall revenue this year. And second is risk. We want to address the rise of the stable coin and blockchain narrative and the implication to our business. So look, the goals today for the call are really threefold. So one, bank structure. We do want to lay out how the very bank structure itself, namely the idea of local and licensed footprints for banks that, that creates the opening really for nonbanks to fill a pretty big underserved middle market need, a global need. Second, as I mentioned, risk, we do want to share our view today on how the advent of stable coin and blockchain will likely impact the B2B cross-border business. And then third, growth. We do want to lay out how we grow the business, how we grow in the high teens. And that's a combination of both sales and M&A. Okay. Let me introduce Mark Frey. He's the executive in charge of our cross-border business. Has been with us from the very beginning when we first entered the cross-border space back in 2017. Mark's really entire career has been in the B2B cross-border industry. He's got incredible knowledge of the space, terrific relationships in the industry. So with that, let me turn the call over to Mark here to run us through the presentation. Mark?

Thanks, Ron, and good afternoon, everyone. We've got a lot to cover, so I'll jump right in. Our discussion today is a focused deep dive into our cross-border business. This is our largest and fastest-growing business, and importantly, one where we see a very long runway ahead. You've all had the pre-read, I'm not going to walk through the slide deck slide by slide. Instead, I'll focus on the parts of the story that really matter and go deeper where it's most useful. In terms of framing the session, I'll cover 5 key areas. First, how the market is structured and why that creates opportunity. Second, what we actually do and how we make money, Third, why we win and why it's hard to replicate. Fourth, the key risks and opportunities presented by blockchain and stable points; and finally, how the business compounds over time. In terms of the market opportunity, at the very top end of the cross-border B2B market, Tier 1 banks like JPMorgan, Citibank and HSBC do a very good job of servicing large multinational clients. They have global infrastructure, deep FX liquidity and broad relationship coverage. As might be expected, they serve a very large revenue pool, about USD 735 billion annually, and that is where they focus. But they don't meaningfully try to serve the mid-market, in large part because their fixed cost base does not make it economically attractive to do so. It's also worth noting that while Tier 1 banks are dominant in the enterprise segment, many of these institutions still rely on Corpay to be a key provider in terms of FX liquidity and payment execution key corridors, making them some of our largest clients in our FI segment. At the same time, Tier 2 to Tier 4 banks, the regional and national champions on the middle market relationships. They're very strong domestically in lending, cash management and local banking, but they typically lack global reach, FX depth and modern technology, especially as it relates to cross-border. So what you end up with is a clear structural gap, mid-market companies with complex global needs, but without global banking support. In practice, these mid-market companies are often operating across multiple currencies and jurisdictions real complexity but without access to infrastructure or a service model that large money nationals get from Tier 1 banks. And that's exactly where we target. We focus on companies with turnover between USD 20 million to $1 billion in revenue, businesses that are becoming global but are underserved. The mid-market segment alone represents about $161 billion revenue opportunity. It's growing faster than global GDP. It's highly fragmented, and we have less than 1% market share today. So stepping back, this is not just a large market. It's a structurally advantaged entry point into a large market with significant runway to grow. Now focusing on what we do. At a high level, we provide 3 core services, global payments, FX risk management and multicurrency accounts. But the more important point and the one that's often misunderstood is how we make money. We're not just moving money and making payments. We're solving for the entire regulated cross-border workflow around the transaction. That includes onboarding and compliance FX conversion, integration into client systems, reconciliation reporting and automation, payment orchestration, the delivery of remittance data, payment tracking and local delivery. The payment rail itself is just 1 piece and a relatively small piece of the equation. Put differently, the majority of our economics come from FX conversion and the workflow around it, not the fees related to a settlement rail. It's also important to note that we don't take market risk. We are not proprietary traders. We facilitate client flows and we lay off that exposure in the market in real time after netting across our portfolio. To that end, approximately 60% of our overall volume is offset by customers buying and selling in opposite sides of the same currency pair, which is a key benefit of our overall scale. As the largest nonbank B2B cross-border payments firm in the world by revenue and trading volume, our size and scale affords us a very real advantage in this area. In terms of customers and platform, we serve more than 25,000 customers globally across 4 primary customer segments: corporates, private capital, financial institutions and increasingly digital asset platforms. What ties them together is the need to operate across currencies, jurisdictions and banking systems. What enables us to serve that need is a single global platform 1 point of integration, 1 API and 1 operating system. Underneath that, we've built a global licensing footprint integrated customer-facing technology, local bank connectivity and access to multiple payment rails that allow us to meet a wide range of use cases, whether that's for time-sensitive payroll, global vendor payments or high-value treasury flows. So whether a client is paying them in Germany or settling in the U.K., we can deliver those payments in a locally optimized way through a single platform. Now why we win? We win because we built a combination of capabilities that are very difficult to replicate. That includes a global commercial organization of more than 800 highly specialized people, a single integrated technology platform licensing across multiple jurisdictions that can take years for a single license and deep local market infrastructure. Individually, competitors can replicate pieces of this, but replicating the full operating model at global scale is extremely challenging and time consuming, and that's what creates the moat. We often describe it as a flywheel, broader capability improves win rates, more customers increase scale, more scale funds for their investment, and that strengthens the platform again. That dynamic has been compounding for years. Next, the key risks and opportunities related to blockchain and stable coin. Now let me spend a few minutes on what is probably the most common investor question given the broader market environment. around stable coins and blockchain and both the risks and opportunities that this technology brings to the business. There are really 2 concerns embedded here. First, will stablecoins reduce the need for FX conversion and thus, overall cross-border payment volumes. And second, will they compress FX spreads by inviting more competition into the space. On FX volumes, even if settlement moves on to blockchain rails and the underlying conversion requirements don't change, companies still required to invoice in local currency, pay employees in local currency, settled with taxes authorities in local currency and settle obligations into local bank accounts. Treasury teams still manage FX exposure across entities and currencies. Stable points can improve how money moves between systems, but they do not eliminate the need for local currency conversion. Compliance, liquidity or delivery. There's also a structural constraint here. central banks and governments are not about to give up control of monetary policy in local currencies. We're already seeing regulation evolve in ways that reinforce the need for local currency settlement and regulated intermediaries. Money may increasingly move by a blockchain in USD link stable coins, but the recipients of those funds will still need them in local currency to meet their local business needs. That conversion has to happen somewhere, either at the source or the destination, and we have a platform that allows us to do either. So when you step back, the idea that stable coins eliminate FX conversion demand really doesn't hold up. On spreads, FX is already one of the most efficient markets in the world. Spreads are typically very tight and settlement rail costs are already very low. But more importantly, spreads are not driven by the cost of moving money or the rail that has selected. Rather, they're driven by transaction size, currency pairs, workflow, compliance, tech integration and orchestration, the full solution around the transaction. And that's where the majority of the value sits. And that's what customers are actually paying for. Blockchain or stable coins won't eliminate the current drivers of spread and won't remove compliance oversight. They won't replace ERP integration. They won't solve local fee delivery into bank accounts. It's also worth noting that the limitation of all native stable coin providers in crypto exchanges is that they are very much reliant on fiat currency rails to facilitate the movement of funds on and off the blockchain through the process of on and off ramping. Further, while the larger layers in the space are now maturing their compliance frameworks in the digital virtual asset space, they do not generally possess the fee at currency money transmission or the capital markets licenses to support cross-border payments and risk management services, meaning that these firms are not set up to really compete and win in the FX centric cross-border space. As evidence of this, we are increasingly seeing these native digital firms move to onboard with us as a client of our services. In this manner, we see our digital segment as a growth avenue in servicing these firms directly earning a share of their overall economics rather than them being a competitive threat. So when we think about new rails, whether it's real-time payments or blockchain or even stable points for that matter, we see them as additive, not disruptive to our business. Our role is to select and orchestrate the best rail for each transaction based on cost, speed, reliability and traceability. We're already doing this today, including integrating new capabilities into our payment network like BV NK for stable coins and the JPMorgan Canexus private blockchain platform. And in many cases, particularly on the institutional side, we're seeing private blockchain networks scale effectively because they integrate more seamlessly into existing financial systems. They deliver the same value as stable coins in terms of speed and lower costs, but with less operational friction while removing the need for on and off ramping. We're leaning into this area significantly with the expansion of our private blockchain networks aimed at increasing the always on 24/7 capability of our network. In this respect, we think that private blockchain networks will actually win the volume wars over public blockchain solutions like stablecoin. So stepping back, we believe FX conversion demand will remain as governments protect national currencies and independent monetary policy. Spreads at the core level are already very competitive and based on factors related to transaction size and currency payer. Further, digitally native firms don't pose a competitive threat to our core business, but rather represent a significant growth opportunity as we become the primary counterparty for firms in the space who need access to our feed capability. Our conclusion, therefore, is simple that stable coins and blockchain rails will find a place in B2B cross-border payments but will not replace existing national currencies. Though they will augment existing bank-sponsored rails, a strategy that we are materially leaning into. Now in terms of our growth model, our growth model is quite straightforward. We retain roughly 97% to 98% of our revenue annually, and we add over 20% new sales each year. That drives consistent high-teens organic revenue growth per annum that we can sustain with significant runway. On top of that, we layer in accretive M&A. We've completed multiple acquisitions, improved sales productivity significantly with each of those deals and consolidated everything onto our single-stack technology platform to optimize both the cost structure and the customer experience. Deals often add new capabilities, new geographies, new distribution, but we'll always deliver scale. So the business grows FX volumes selling more than we lose while adding acquired companies to accelerate growth and bolster the flywheel. So to bring it all together in conclusion, we operate in a large, growing and underpenetrated market focused on a segment that is structurally underserved by the banks where our primary competitors. The mid-market is USD 161 billion revenue opportunity where we just own 1% of the market share today. We built a global platform with meaningful and difficult-to-replicate competitive moat. That moat and our scale affords a significant competitive differentiation from both banks and digitally native firms as it relates to our mid-market target customers. We have a proven and repeatable growth model that compounds over time. As rails evolve, our platform becomes more useful because our clients need one partner to orchestrate them. Put simply, this is a durable compounding growth business with a long runway ahead, and we believe we are still early in that journey. So with that, operator, we'll now open the line to questions.

[Operator Instructions] We will take our first question from Sanjay Sakhrani with KBW.

I guess first question, if we could talk a little bit about the growth algorithm and how you guys arrived at that 20% in new sales. Specifically, I guess I'm just trying to think about if that assumes the take rates remain stable or they move around and then sort of can that take rate go higher or lower depending on new products and services you provide? And maybe how does it translate if you move to Stablecoins?

Sanjay, thanks for the question. So I think there's a few different ways I would look at this. If we go back and we look at the recent history in terms of that onboarding of new customers, that has been slightly accelerating from 18%, 19% 4 years ago to now over 20%. So it's been getting a little bit better. We've been selling a little bit more effectively as a percentage of the base each year for the last 4 or 5 years. There is some rate expansion in that as well. So while we expand or grow the business, let's call it 18% per year, we're growing volume. 16% we're getting some take rate expansion, 1 to 2 percentage points each year. Some of that is from mix shift of just higher value products, higher solutions in new segments but we see good stability and strength in the core business and the core geographies that we're operating in already. So when we look forward, we're seeing that sales is accelerating as a percentage of growth against the base. Rates remain firm and are growing a little bit as well and just continue to acquire volume in the geographies and the segments that we're choosing to serve.

Okay. Great. And then maybe just one on the competitive dynamics? I understand sort of the bank side of this. But maybe you could just talk about, even on the fintech side, if you feel like there's anyone that kind of does what you guys do specifically? Because I know there is a fintech that talks about having proprietary connections to the major Fiat rails and specifically licenses to real-time networks around the world. Maybe you could just help us think about how your model compares to some of the other fintechs out there that might be doing kind of similar things.

Great question. So I'd say there are some fintechs that have chosen to focus on sort of the embedded side of the business or the mass payments at scale and that's a business that focuses on the rail connectivity and the geographies and really leaning into things like ERP integrations and API connectivity to produce mass payments at scale. . And that is primarily a partner-driven rather than a direct sales driven sort of growth model in terms of customer acquisition and volume acquisition. There are another -- I'd say the other side of the spectrum is there are fintech firms that are a little bit more traditional that are largely direct sales model. They are more geographic in terms of their concentration in less global. I'd say part of what sets us apart is we play at both ends of that spectrum. So we have much broader geographic coverage in terms of the areas which were licensed in the geographies in which we onboard customers. We certainly have the mass payment scale where we have embedded capability that we put into ERP systems into accounting packages that we do API connectivity to banks, to marketplaces and other financial technology firms. But then we also have the direct sales business as well, where we go out and hunt and find mid-market customers and geographies, and we provide FX cross-border payments, scale, solutions and that we sell into the bank account products as well. And every one of these firms are targets in terms of M&A as well. So we look at the traditional sort of portfolio deals that bring customers, geographies and licenses, we look at opportunities for scale players that bring new licenses and payment integrations and then we also now, I'd say, increasingly are looking at the digital space as well that's opened up a new category for us from an M&A perspective of those digital native firms that are leading into stablecoin infrastructure technology.

We will move next with Andrew Jeffrey with William Blair.

I'll extend my thanks and appreciation for this call, too. You mentioned, and I think it's a very comprehensive Cogent call. Mark, you talked about the benefits of stable coins and where they don't solve problems necessarily. One of the things I didn't hear you talk about is programmability and I wonder if that factors into your thinking and if that influences your views on open stable coin networks versus private civil coin networks or closed loops like Canexus, I wonder if you could just comment on the role you think programmability plays in these cross-border transactions given latency time differences, smart contract integration, those sorts of considerations.

Andrew, this is [indiscernible] Thanks for the question. It is a smart question. I think programmability is going to be a key thing from a treasury perspective in particular. So doing things like international cash, overnight suites and cash management consolidation. We certainly see that stablecoins and the programmability of these digital solutions is super helpful in that treasury work day. I would say, much less so in terms of the mass payment scale where we are processing third-party payments to thousands of beneficiaries at a single time. But that programmability is, I think, particularly interesting in the stable coin world rather than the private plugchain rows.

Yes. Got it. Okay. Yes, I think that's an important distinction. And then the other thing I'll ask about is, again, I think you're 100% right about the liability or the requirement the need to settle in local currency. There's been some talk, if you look at some of the purpose built out on blockchains, plasma, I think, in particular, that speaks directly to the desire to hold or have U.S. dollar exposure. Do you think open stablecoin sandwich is something that might become more pervasive? And how does that influence again your thoughts about sort of the revenue sources and competitive positioning of your offering?

Yes. It's an interesting question. I would say at this time, no, we don't see necessarily as that becomes something that's more prevalent in the space. And why I'd say that is because you already have firms that are moving U.S. dollars internationally in a fiat currency world. I think some of those firms will move or progress more to stable points rather than using traditional feed rails to move the U.S. dollars internationally and transacting business in U.S. all-reserve. That's part of the business that we do today in terms of mass payment processing where there is an FX side to it, but we actually just process payment type scale. So I think we will see some of that business transition away from rail to a stable point. I would say, honestly, work towards private blockchain just because of the inherent operational efficiencies of moving money by that particular modality. But I would say, yes, you will see some cannibalization volume from PET into the blockchain worlds in that particular arena. But that's a part of international commerce today. I'd say that the overall trends towards dollarization, if you will, has actually been decreasing over time. So that's not to say that the U.S. dollar is going to be replaced and the store value and unit of account for global commerce anytime soon. But certainly, the overall intensity of U.S. dollar payments is declining slightly by 1 to 2 percentage points each year as other global currencies take up a little bit more of that share. So we see that solarization is actually -- or the lack of tolerization is a positive trend for the business and just it's more FX

We will move next with Darrin Peller with Wolfe Research.

That's helpful. This is probably going to be a bit of a basic question, but I think it will be helpful to us and others, hopefully. When you say that 2/3 of Corpay CBS revenues for appliances using basically 1 product, and then you land and expand. I think it'd be helpful if you give us an example -- a more specific tangible example of round up, you start with the customer, what's the one product they start with, what's next and where does it go? And why are you winning in that ability to go to the next product -- maybe just -- if you don't mind walking us through a little more tangible example in a real-life example of some of your clients that would be really helpful just to start.

Yes. No, that's a great question. So I'd say the vast majority of our customers in the corporate space start using just our basic payments products. So they have third-party payments, and they have invoices in foreign currency that they need to pay and they're perhaps upset with the service or the technology and the friction of doing that with their bank and we're able to find those customers and convince them to do business with us and their trading effects and then instructing third-party payments that we process for them around the world. . And they might start out with sort of the nuisance payments if it's a large corporates of those geographies that are just difficult to do. sometimes it's as G7 or if they are major currencies that they're trading in their business, and they just want better service and better overall operational processing. But then once we get that payment flow, we begin to win more in the payment flow, we usually do because it's sort of a scale-based value proposition. The more payments that we process, the more efficient it becomes. So we tend to win more wallet share over time. And then as we get insight into that wallet share, we then begin to cross-sell risk management products. So once we have a view of how much euros they're purchasing each month, then we'll begin to sell risk management products of technology that allows them to quantify the risk that they're actually experiencing with those euros that they have to purchase each month. And then we [indiscernible] management products with those customers. And then it would be the bank account products that we would sell when they expand into gas -- so that's all sort of on the corporate side. On the private market side, it's a little bit different. We actually start out typically by selling a bank account to a new manager that's launching a funds so you have a big fund manager that's launching Fund V, let's say, and they need a bank account, and we can spin that up for them in 24 to 48 hours, and that's our entry point. And then once the fund is actually up and running in their capital calls, when we begin the payments for both operationally and potentially from an FX risk perspective. So it's a little bit different between the private market space and the corporate space, but we lead with, I'd say, simple products in some cases and then upsell them to integrated actions.

All right. That's really helpful, Mark, to get an order of operations there. I guess I just had one follow-up on the earnings call last week. You said future corporate payments M&A is more likely to be about new geographies and new verticals. Just given you already have quite a bit of product now in the death, I think you want after today's discussion, cross borders, you mentioned $161 billion mid-market TAM, where do you see the largest white space opportunities or is it by geography or vertical? And within those opportunities, which products are customers really looking for, whether it's payments or risk management or accounts or some combination?

Yes. Good question. I'd say in the cross-border space, we really see 3 categories of M&A that are super attractive to us. So one is just sort of the traditional portfolio expansion of new geographies or adding more scale to our existing geographies so there are lots of fintech players, let's say, that are concentrated in the U.K. or in the U.S. and that we want to add scale in those markets, those can be attractive. It's typically what we do when we've acquired one of those races can sales, operating margins and operational performance, and it becomes super accretive, especially over time. I think the other thing that we're always looking to do as well is break into new geographies. So if there can be an acquisition that comes with many licenses and geographies that we're not operating at or in today in terms of originating markets that's always attractive to us and that have more in-country rail connectivity in the emerging market worlds in the secondary world, that's attractive. And I think the newest category that we've been looking at is the digitally native space. So those firms that are operating in the stable point worlds ultimately and trying to build businesses there where we can really leverage our inherent capabilities to accelerate the growth of those businesses because of what we can do from a fee and rail perspective.

We will move next with Ramsey El-Assal with Cantor Fitzgerald.

I wanted to ask about AI and how it impacts this segment versus the rest of the business. Is there anything to call out here in terms of the way you're looking at things that could be on the front end from an agent commerce perspective on the back end? Do you think AI will have an impact here?

Yes, great question. It's definitely something that we've spent a lot of time on. I'd say, over the last 12 months or so and have looked at with intensity. I'd say we sort of break it into 3 different categories. So building AI into our workflow processing solutions. So getting better scale, better operational efficiency and reducing operating expense and by embedding AI capability directly into the products themselves. . Certainly, on sort of our back-end processing, which is an important part of the business. We are using AI today that we're building into things like transaction monitoring from a compliance perspective. Customer screening from a KYC perspective and really just using it to drive efficiency of the head count ultimately across the business. And then I think looking at our analytics have become very AI-driven ultimately as well. So we are a business that competes on analytics and competes on our ability to do math. We're trying to drive intelligence from our own data and from data that we have access to in the marketplace. To better target our go-to-market efforts for our direct sales business. It's certainly something that we're leaning into. And then also looking at it in terms of how we price and how to serve our customers as well.

Okay. A quick follow-up for me. You guys mentioned, I think you net 60% of volume internally across pairs. Customer pairs. Does that netting ratio improve as the book continues to scale? And is that a significant margin driver of the business? In other words, will margins improve as that ratio improves?

Yes. That ratio has definitely gone up significantly over the last 5 or 6 years. So I think it's in a very meaningful fashion. I think in part, we've tried to create a balance within the overall portfolio because of the operational efficiency and the gains that we get through pricing. . So this was part of the reason why we've expanded significantly in European continent over the last number of years to better balance our portfolio of euro-based buyers versus euro-based sellers. And there are numerous examples of where we've done that across our business. So we do expect that ratio to continue to improve. It definitely gives us an advantage in terms of how we price and how many times we cross the bid offer spread and how much rate we get to keep versus have to pay away to the market in terms of transaction costs. And certainly, it gives us -- our scale and size gives us an advantage over the fintechs because of this.

We will move next with Nate Stenson with Deutsche Bank.

I had a couple of questions related to the slides. So I guess on Slide 19, where you talk about the cost of the block train rails. I guess it's interesting to see that the public blockchains actually look a lot more expensive today relative to where Swift or ACH or other legacy rails are. So I guess 2 questions here. First, is your expectation that these blockchain costs trend down over time and get to levels that some of the legacy rails are? Or are there regulatory or intermediary costs that may keep those elevated going forward? And then the second question, when you talk about costs, is Corpay relatively agnostic as to which rail the client wants to choose as it relates margins. I would guess that those costs are initially passed on to the clients. So maybe the more expensive ones are accretive to revenue, but just wondering if there's any different margin impacts across the rails, especially with the focus on able coins.

Yes, that's a great question. So I would say on the public blockchain side with respect to stable coins that yes, we've seen that those costs have come in. Think the cost of on-ramping and off-ramping has significantly reduced over the past couple of years. And I think there's probably still more efficiency that will come from the market as adoption increases. I think gas fees are already relatively efficient. It's more of the offering from a stable sandwich that is I think the particularly intensive from a cost perspective, and that will come down. I would say today, private blockchain rails are very price competitive versus Swift. I'd say, much less price competitive versus in-country ACH equivalent rails in each geography. Ultimately. So I think there will be some improvement there, but it's still, yes, to your point, public blockchains and stablecoins today versus what we're seeing in the marketplace is a relatively expensive way to move money. Especially when you start it and with it in terms of on and offering. And then in terms of payer modality overall, I'd say it's quite rare that a customer comes to us and says, I would like to specify how you send this payment. They don't say that they wanted to go by a Swift or in-country or real-time necessarily. They sort of described the business challenge that they're aiming to achieve, and then we pick the right modality to solve their business so if it's a payroll thing, ultimately, we're processing at a day in advance and it needs guaranteed full value transfer, it can be perfectly on time and a relatively small transaction. So transaction cost per line item is important. Will use in-country rail with ACH equipment rail in a particular market. If speed is super onboard will lean towards either real-time or low means towards a private blockchain rail that will land that payment in 20 minutes or less time of process. We're relatively agnostic in terms of -- it doesn't make a big difference to our economics, which real they choose. It's really about finding the best solution for their particular need and then making sure that we can deliver that at scale.

And Nate it's Ron. The point we're trying to make is we don't care whether it's a [indiscernible] that we spend $600 million or $700 million in this business per year, and we spend $20 million or something on rails. So the message we're really trying to make is super duper cheap or free rails is the yard.

Helpful. That's really interesting color. The follow-up question I had was on Slide 18, where you talk about your 55 basis point spread on average. The largest bucket of that spend coming from transaction-specific and value-added regulated workflows -- we're just hoping for a little more color on those components. I know the transaction-specific stuff probably varies pretty widely transaction by transaction, customer by customer. So I guess I may be more interested on the value-add and regulated workflow side of things. Just -- how have those yields trended over time in terms of their contribution to total spread? And do you see additional opportunity to continue to grow that portion of the spread calculation going forward?

Yes. Great question. So yes, we do see an opportunity to expand rates in that category over time. So this comes from the value-added services of being able to direct debit the funds from the customer's account as a specific example as opposed to them pushing a piece to us. It's about providing a reconciliation file and that's the file that we contract to them but we can actually push the reconciliation file into their ERP or accounting package that completes their fee account entries ultimately and automates the accounting for them. It is delivering the remittance information to the beneficiary. It's doing the prescreen and the validation of the beneficiary payment instructions to ensure that the payment is going to flow through straight through and there aren't going to be any difficulties of landing that payment. So with all these incremental things that we do to make it a more efficient workflow for the processor for the customer, so it ties up less time. What we simply say to our customers is when you're processing payments with us, we want you to focus on your business of selling widgets. We'll take care of all the process behind the scenes, and we'll do it in an automated fashion to make this less part of your business so that you can focus on running your core enterprise as opposed to trying to run a treasury operation that's very subscale for a mid-market corporate customer. And that's a value proposition that resonates with these clients because they want to deploy their operational resources towards selling more clients. They don't want to build out finance departments and back office reconciliation teams. They want to focus on doing their own front office and selling more to their clients.

We will move next with Tien-Tsin Huang with JPMorgan.

I wanted to ask on the distribution moat and your ability to replenish new sales to get to that 20%. I know that's the superpower of Corpay in general. But just -- I know in the slides, is this $1.5 million in new revenue per direct seller. Is it as simple as just adding more headcount there. Tell us a little bit more about how easy or hard it is to regenerate that 20%.

Tien-Tsin, this is Ron. Let me take a [indiscernible] The first thing is I told Jim to send out of bar chart to everybody that we've done the same thing in the last 5 years. So although we showed a bridge, I think it was, what, '24 '25 the purse 1 report is that growth model would look literally almost the same the last 5 years where we've sold 20% plus in last -- so the answer to the thing is it's a giant premium plant, right? In the middle market, this $160 billion. We have a $1 billion business. So think of the -- when we originate [indiscernible] continents, right? Pensions is in the U.S. business, we get people in the U.K., the continent Australia or everything else. Think of just the coverage like spots, we can go, right, in terms of putting more origination power, not only in terms of like corporates, which was the whole business on. Now like business is these other segments, right, like serving FIs or the asset managers like Bain or even the new guys. And so the playing field to go originate business is it's frigging math. I think I ask chat or something, it's the largest single flow, I think the flows like $9 trillion a day of FX money being moved. And so yes, so the short answer is -- there's plenty of segments and geographies for us to have coverage. And then the second one, which is why we bought this company is the pro getting into the deposit side of the business. Not just the disbursement side is a huge deal for us. So going back to all these people that we send disbursements for and helping them stand out new deposit accounts as they expand in the other way to get more juice, right? We don't need equally any more coverage there, right? We just added this product. So look, there's plenty of opportunity. We've done it. It's mostly just more people in these different segments. And then I'm hoping that this deposit thing will -- this bank accounting will add a ton of revenue too. So look, it may not always be 20, but it is going to be a or number because one of the thing is big and two, the incumbents are not great. And I almost laugh to try to say this, you guys are like disruptor. People going into the legacy banks that are crummy this thing with a new way of doing it or says, oh my not who's going to disrupt us. So I would say of all the areas we sell in the company, this we've got a lot of confidence. And we've got a lot of really good people. Markets included like the best and brightest we pay people a lot to come out of banks like yours and stuff. And so we really do have a lot of super quality people.

Yes. No, that sounds that way. And you're right, it's good to hunt and rather be the hunted which maybe is a good question in general there. Just thinking about the customer retention, it is high, 97%. And Ron, you appreciate this think about ADP, right? And retention is so important for the company. What explains the high retention in your mind? And is it sustainable? Is it as simple as that there isn't a lot of competition that's developing? Or is it really the I don't know the technical integrations with the ERPs like you talked about the pricing, the service, the tech or is it just as simple as limited competition?

Yes. I think it's a little bit of that, Tien-Tsin. I think the thing that's unique in this business is the account managers, lots of other in payroll or other businesses you have how people that kind of keep track of important accounts, keep them happy and all that stuff. In this business, the account managers like those stuff, and they actually help the client like figure out stuff like, oh my god, currencies are moving right? And you're not hedged properly in this area. They say smart things all the time. So I think the nature of the ongoing adviser relationship between smart guys and the client keep us in there. And we get a lot of wallet share gains. We might only have 20% of the business with a client. And then because the guy is smart and helping the guy that thing grows over the year, which adds to that 97%, we might lose 10% of the clients but grow wallet share and another 20% of the client. So it's set up pretty well, I'd say, to keep the retention high for those reasons.

I'd say the thing that I would add, too, is we've always had very good retention. But as we've added products and we cross-sell more products into the same accounts, that certainly makes them stickier. And we see the math that retention rates improve when we cross sell multiple products into the customer. But I think the big driver in addition to the relationship management that Jan mentioned, is the tech integration. Once a customer is integrated with us from a technology perspective, integrated into their ERP or into their accounting package or we're connected to their front-end website that they sell products on. It's very, very difficult to dislodge us from that relationship once they've made that investment. And so as we've improve the tax footprint of the business and a focus on integrating our capability across all 3 of our products, making that available on one platform and then integrating with the client and mix is super sticky and harm to leave.

We will move next with Michael Infante Morgan Stanley.

I was just curious on the relative pricing versus the Tier 2 to Tier 4 banks that serve the middle market. Can you just expand on that in particular. And also why you view the fixed cost base of the Tier 1 banks being relatively prohibitive for them to mix shift towards the middle market?

Yes, it's a good question. So I would say the overall pricing in the marketplace is relatively efficient. So we don't aim to win based on price. We need to be price competitive. We win on the value-added service. We win on the technology, and we win on the customer centricity and our ability to act fast. So we don't necessarily need to price better. We probably sort of at market to a certain extent versus the regional banks in the Tier 2 Tier 4 category. I think the biggest driver of why we don't necessarily see the Tier 1s come down into the market. It's the fixed cost base, yes, but it's just the size of the TAM that's available in the enterprise space. So if you say overall, that's a $900 billion market, ultimately in the cross-border arena from a revenue perspective. It was $750 million of that or $735 million of that is in the enterprise space. They can spend all their time there into a very target-rich environment, and they trade share with the other Tier 1 banks. It's not a fertile hunting ground for them to come down into the down market space. I would say the other part of the note too is you really specialization in order to win the space. So a corporate banker that is selling financing and selling overall corporate banking solutions, M&A liquidity to a customer is not really going to have the FX expertise to come down market and to really compete with us when it comes to a business that has the need that are intensive it by the cross-border payments or expense. So the specialization, I think, rather than the generalist approach of the big banks that allows us to say the other thing is it's really, really hard. Even if the Tier 1s come down to the mid-market space and they've got good technology. They're just not very customer centric, and they're pretty slow in terms of the way they do things. And I'll give you a specific example. You're a mid-market customer and you want to open up a bank account. So you're operating in the United States, and we want to open up a opening account for your new division in Europe. Had might take you anywhere from 2 to 6 months to get that bank account. If you're banking with the JPMorgan or Citi. And that's a very real and normal experience versus with us, we'll have that account open in 24 to 48 hours, if not faster. And so that customer centric, the ability to be agile for the technology to just simply work in the mid-market space, it's really how we compete with -- even when we do come across the cities and the Base.

Michael, it's Ron. Different view to me is that's where the game is for the big guys. It wouldn't be Tier 2 and Tier 3 and Tier 4 banks right, if the big guys that serve the whole world like this is just one product, right? They're really in the game of lending and their game is the giant companies that they hold all these deposits for to all the lending to be a little weird in a way, he take one of my products and go run into a different market and hey, work on that. So I think it's more like they have 3 or 4 big products, mostly lending. And so they focus their stock where the rest of their business is and leave kind of the Acorn stuff to regional and local banks have a lot of relationship people. So I think it's pretty normal, right, that it's that way. In fact, they even look to people like us and other people to try to resell right, to be more arms and legs for them. And so it's a pretty natural structure of the thing. So the great thing for us is we compete with people who are good at local deposits and lending, but don't have a footprint anywhere else. So honestly, they don't have people to know much. So I tell Mark all the time expected to do better, like the guys serving the mid-market company are just not super good at the product that we offer.

No pressure, Mark. As you guys sort of look at the innovation in the space, mainly with respect to some of the on chain FX providers, how do you sort of assess the solutions being built within that ecosystem and the probability or lack thereof of expansion between -- or beyond the crypto and digital asset natives to traditional corporates in the middle market, for instance.

Yes, it's a good question. So I would say we're a consumer payment rentals as well. So we're always looking for new technologies, new payment rails, new methodologies to move money, whether that's in-country connections or real-time rails, private look chain, public blockchain. So we're used to scanning the market, looking for the best ways to move liquidity the best ways to organize ourselves in terms of bank accounts. So that's something that we've been doing for the entire time that I've been in this business, it's just constantly scanning for better ways to run back-end operations. So it's sort of a natural pivot for us to be able to look at this digitally native space now, public and private blockchains and to continually scan for the technologies that we can use but the other part of it is because this is a focus segment for us, we have specialist people that all they do is look at blockchain universe, and they're looking at opportunities in stable coin space. They're looking at opportunities with digitally native firms, whether they be crypto exchanges, or stable in providers or firms that are offering in adjacencies, tokenized deposits or token blending, whatever the case might be. So this is a big area of focus for us and has been for a few years, and thankfully now, it's a segment that's beginning to take off because we've been doing that stonework now for the last 2 or 3 years.

[Operator Instructions] We will move next with Mihir Bhatia with Bank of America.

Very helpful presentation. and quite informative. I guess one question I did have though was just how does spreads vary by customer segment or by product? So I can ask your customer segment starts shifting maybe towards a little bit more waiting for digital asset platforms does that affect where the spreads that 55 bps spread that you're adult-that change? And similarly, with like just the product between spot versus hedging, does the spread vary greatly?

Let me take the first part, and then I'll turn it to Mark on the payments side, which is the blockchain, stable coin thing, right, running risk management contracts. The answer is it's incredibly efficient. Don't think about an average. We probably don't have a single transaction at 55 basis points, right? We have a massive distribution that and think about the R squared is completely related to transaction size. So think about some small little payment. $300, right, is the payment. Payer going to charge $20 or something or $10. It's 300 or 600 basis points but it's no money. The spend is dining, the revenue per [indiscernible] time, not going to a real transaction, $5 million or $50 million, we get 8 to 10 basis points. but we get thousands of dollars for the transaction. So the main thing that I want people to get here is the risk notching is an average. There's a curve that's incredibly efficient when we look at the IR square. And so I don't want people hanging the phone of, oh, someone's going to just kick off these stupid guys and these banks -- they don't know what they're doing. There's a lot of people working in the space for a long, long time to Mark's point, a pretty smart at it. And so -- and as I mentioned before, the rails are beating us. There's nothing to the cost structure. They're all free forever. I have no impact on anybody. The game of your guys is acquiring client spend and transactions. The who does that wins. And if you acquire a lot of big transactions to move like $50 million or $100 million like for the asset guide, you make lots of revenue because you're providing like a lot of liquidity, like a giant amount of liquidity for the guy to make the trade. And so I just hope everyone hangs this thing up with it's pretty efficient. It's on a curve that makes sense and we're pretty good at it. And innovation in rail is not the key. The innovation is going to be in selling guys. The key here is the tinges to Vogue more customers and more big pieces of payment spend will be the one that gross revenue.

Yes, I think that's exactly right. And I would offer just a couple of other things is that the average spread between the payments business at scale and the risk management business is very, very similar. There's not a lot of delta between those but what we do see is the more that we sell technology and integration into the customer, the stickier it is over time and the more great we get over time as well. So this is a big part of our focus has been for a number of years, really selling the ERP integration, the technology adoption across the business. We do see slightly higher rates, the more integration that we have, the more embedded we are with the customer. So that's really a key part of the focus after we acquired the customer.

We will move next with Ken Suchoski with Autonomous Research.

Mark and Ron, you guys provided some really helpful detail on the 18% organic, I think, 16% volume, 2% yield. Just on that 16% volume growth, I mean, how much of that is, say, new logos versus just wallet share gains with retained accounts versus corridor expansion. And maybe related to that, just when you work with the client, is there a typical percentage of their cross-border flows that you ultimately capture?

Yes. Great question. So I'll sort of tackle the last part first. So I would say overwhelmingly, we become the customer's primary provider. And so ours is sort of a wallet share gain. Yes, there is always an incumbent bank that we're trying to dislodge and once we land the customer, certainly is trying to expand and grow as much wallet share as we possibly can. I'd say in that first year, we almost always establish ourselves as the primary liquidity provider with the bank serve being the redundant provider of the fallback and then in terms of the overall churn rate, so when we say we retain about 97% to 98% of our revenue, there's certainly some structural loss just like any business, you have customers that go to business, customers that are acquired from an whatever the case might be. And then we make up for that with some wallet share expansion in particular customers. So that's how we get to the 97% or 98% that little bit of portfolio churn. In terms of the growth that we get of 16%, it's predominantly new logos. It is signing up new accounts and dental volume. And I would say, over the first 12 to 18 months, really begin to scale that volume. So we start off with maybe 20% voluntary to get to 80% or 90% volar within the first 12 to 18 months.

It's Ron, just to 100% because that's how we define it. So for us, when we give you that bridge and we say whatever the pace said, hey, it's 21%. We literally say that you had to be a new logo here in calendar 2026 when we count the revenue just from those new logos. The wallet share thing is the retention number in the 97%. So I want to be clear, we define it to be 100% .

Right. Okay. That makes sense. So it's a net number on the 97 net of all the moving pieces.

Yes, that would be -- think of that as their base clients. We have the client, right, we have more or less. You just look across so we have more suddenly had less. But when you get all done we keep 97% of the revenue from all the base clients that we had is the way we think about it. .

Okay. That's really helpful. And then, Ron, I know I mean, lodging has been one of the problem children in recent years, but I recall you saying that you like that business because there's negative working capital. Could you guys just talk about the working capital needs to run this cross-border business? I heard the 60% netting. But just outside of that, what does that look like? And how do Stablecoins change that, if at all?

Yes, that's a super good question. So the great news is on the payment side. It looks a lot like our full AP business, where there really -- there isn't any working capital. We mostly work with good funds -- so you're a company, you want to make a EUR 10,000 payment and come grab USD 13,000 for your business, I converted and I send it. So payments, I'd say, it's kind of balance sheet light. . On the risk management products, I think of like forwards and options, there is some kind of be ready, right, if currencies move to have some balance sheet to make our counterparties whole while we're waiting to kind of call money, if you will, from clients. But the great news and one of the dirty little secrets of why we bought Alfa in the fall was the deposits and so what I'd say to you is we expect the next year or 2 for this thing to be a total positive working capital business where we're getting deposits from clients or holding deposits from clients while we're also using capital sometimes short term to pay our counterparties. And so that would be the hope that this would be kind of close to a 0 working capital business going forward.

And then the other area where we do use blockchain payments ourselves, both stables and private blockchain is to move liquidity from 1 jurisdiction to the other after hours ultimately. So trying to reduce the trapped cash that sits in Asia and our sort of follow the sun capital market and our follow on operational market where our full cash starts out today in Asia and then it travels to Europe and when it comes to North America. We don't have any liquidity materially speaking, that gets left behind in accounts at the end of the day anymore after the wire base because we can use private blockchain to move that money after cut on time. So that allows us to be quite a bit more capital efficient today than where we just start to bid.

Thanks, Kevin, guys. This is Jim. We don't have any more questions on the phone, but I did have a few e-mailed in, but I'm going to tee up for the guys here at the table. So the first is what stops digital payment providers from adding the FX capabilities that they currently need.

Yes. I think what we're seeing is a trend in the marketplace is those digital firms are partnering with firms like us to be able to deliver that capability because it takes a lot of time to get the money transmission licenses up liquidity with banking partners to build the infrastructure that is FX centric, rail connectivity and the fee of currency world, the competitive moat that we have is really just difficult just to swim across ultimately. And I think what we're seeing very actively in the marketplace is these digital firms are partnering with companies like us to become their fee rail providers as they're leveraging our strength and capability to do the ramp. We're providing the treasury liquidity for FX at scale for them rather than them building it themselves.

You would ask this, Darren, I don't know if he's in a lot, but it was a pretty good question about the a couple of products and stuff. Hey, you tend to start with payments then get risk management. So when we bought the business, we're a payments company like, oh, we have payments and I meet my comp I should like as we risk contracts on this stuff, what is the stuff we need this. And so the question that someone asked earlier is the other reason the native blockchain, stable coin guys or debt on a thing like they can't just go to a company to payments. We learned that once you get in there and you figure out what the payment flows are there's risk that service around the currencies and the client wants to basically protect against that. And so they're going to have to go get 800 of our people that know how to do this. So you're back to, again, it's another moat. The clients want both payment capability and risk management contracts -- so not only do they need licenses and liquidity and stuff, they need people that know stuff to be able to write these contracts and devise clients. So like anything, it is a way hard thing to be in and have all the things you need to win in the space. So not easy.

Great. Next question is, what are potential reasons why your clients are not using blockchain versus why versus some providers, other newer public providers are putting large and increasing blockchain transaction volumes that appear to be taking share from the incumbent players.

So we are seeing, I'd say, pretty spectacular growth in our private blockchain placement. So if we look at our overall business today, I'd say at the beginning of 2026, we said it's about 40% of our payments by Swiss ultimately. By the exit of 2026, we expect that, that will probably be reduced to less than 15% of our payments and that fleet largely cannibalized by private blockchain. So we are seeing significant growth in those private blockchain rails because of the inherent advantages that they're always on 24/7 are programmable, they're traceable and they're near real time in terms of delivery. And more cost effective than ultimately stable. But the other part of whether it's just a little bit more operationally efficient as well. There's less friction. There's less -- there isn't a need to do on ramp but off ramp. So when we think of it in terms of our old payment processing, we are definitely shifting towards the private blockchain rails, and that is winning in our own lines because of those efficiencies. And I think we're seeing that in the broader marketplace as well. and they're going to see the big network providers that provide these private blockchains or want you to begin to [indiscernible] it rather materially. And I think you're going to see transaction counts grow way faster on private blockchain than you will on public blockchain progress.

It's [indiscernible] My only add other thing is whatever Chad says, it's $9 trillion a day. Like I don't want people to miss like the existing rails are pretty good. They get most of the money there, the same day as you saw on the page, they're cheap and that cheaper than blockchain. So I don't people have missed it, like the thing works pretty good. With that said, there's clearly a role for timing that gets outside of the banking hours, right, the 24/7 nature. So that, I think, is our view that they're not necessarily faster. There's all kinds of instant fed now other kinds of ways of different countries to move things instantly and you saw the page to move it cheap. And so our sense is when the world gets clear on this, there will be some percentage of payments, particularly ones that need to move outside of the banking hours and system that would go into this new category but the loss of it would still stay on rails that have been working pretty well. So I don't think it's a complete flip swap would be the notes to you guys. So look, I think we've taken the time today. And again, we hope the goal here was to try to drive a bit more briefing on the business. I do like to take away that we like it. I like the thing. If you like these numbers. And again, our view is the thing is pretty durable this is giant playing deal to go after lots of places and lots of segments. We've got tons of capabilities. We're going to embrace these new things to the extent that they're useful and stuff. And so the message we want to give people is also no cherry here to go crush the economics. It's super efficient, follows a super smart curve in terms of size and stuff. So the message to everybody is we're March and on with a plan to double this thing again over the forecast period. So I think it land out. Thank you to all of you guys for making time and ask the questions today. I think we're

Thank you, everybody.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.