Pluxee N.V. (PLX) Earnings Call Transcript & Summary

Good evening. Good afternoon, everyone, and thank you for joining us today for Pluxee Third Quarter Fiscal Year 2024 Earnings Call. So I'm Pauline, Head of Investor Relations. So today, our call will be driven by our CFO, Chief Financial Officer, Stephane Lhopiteau, based on the investor presentation that is now available on Pluxee website. Turning to Slide 3. Here is our agenda for the call. Stephane will start by walking you through the highlights and the key figures for the third quarter before taking a deep dive into our financial performance for the top line. We will then provide an overview of the first step we have taken in indicating our M&A strategy, and we will finish with our fiscal 2024 and midterm outlook. Before closing the call, Stephane will answer your question during the [ Q&A session ]. And with that, I will hand you over to Stephane.

Thank you, Pauline. Hello, everyone. It's really my pleasure to be with you today to present the revenue performance that Pluxee delivered in the third quarter of its fiscal year '24, starting with our key highlights and achievements on Page #5. Q3 was another quarter of strong growth for Pluxee. We continue to deliver solid performance across all the key business indicators. Such performance was fueled by sustained positive market trends and disciplined execution. As a result, we delivered double-digit organic revenue growth, we see a notable contribution on float [ revenue ]. At the same time, our operating revenue organic growth in [ employee ] benefits proved to be robust despite the tough comparison basis in this quarter. We also made the first milestone in the execution of our M&A strategy. We signed an agreement to acquire Cobee, a Spanish fast-growing digital-native player in employee benefits, which will help Pluxee strengthen its position and offering in Spain. And we also formally closed the terms of our strategic partnership with Santander in Brazil. I will talk in more detail about these 2 transactions later. Turning back to our financial performance, the strong revenue growth in Q3 allows us to raise our full-year organic revenue growth target for the second consecutive quarter and now up to circa plus 18%. At the same time, we reaffirm both our fiscal '24 recurring EBITDA margin objective and the medium-term outlook that we presented back at our Capital Markets Day in January. Focusing back on our current performance, let's now look at our revenue trend over Q3 on Slide #6. In Q3, we continued to deliver on our solid revenue growth trend. Total revenue increased by plus 17.9% organically to EUR 297 million with a 4.1% negative currency effect, mainly related to Turkey. This achievement is a result of our capacity to deliver continued strong business performance in employee benefits while facing progressively a higher comparison base. Float revenue also contributed substantially to our Q3 performance as, first, growing business volumes have continued to increase the float baseline in the balance sheet year-on-year and second, interest rates have been maintained at a high level. Overall, for the first 9 months, total revenue came in at EUR 889 million, corresponding to a plus 21.8% organic growth rate. Such revenue growth was fueled by strong delivery on our business development KPIs over the first 9 months, as disclosed on Page 7. Pluxee has seen continued strong business momentum over the first 9 months. Year-to-date, we recorded new client wins for more than EUR 1.2 billion in annual recurring business volumes, tracking well above our full-year target of EUR 1.3 billion. Our net retention rate year-to-date stands at 103%, slightly ahead of our midterm objective as we worked with our clients in renewing existing contracts, growing the [ relator ] portfolio and cross-selling them new opportunities. In this respect, the further increase in average face value of EUR 1 billion over the first 9 months was a key contributor to net retention, reflecting our capacity to translate existing [ bigger ] cap headroom and further [ bigger ] cap increases into business volume growth in all our markets. This gives us confidence in our capacity to deliver on our business volume target as set for the full year. In terms of financial performance, since the beginning of the year and in Q3, we are indeed on track with all key revenue metrics, starting with business volume issued, BVI, on Slide 9. In Q3, we recorded a total of EUR 6 billion in business volume issued. Such BVI increased to EUR 4.6 billion in employee benefits, representing a plus 10% organic growth over the quarter. Looking at the first 9 months, we recorded overall EUR 18.3 billion of business volume issued, with employee benefits BVI increasing to EUR 13.8 billion versus EUR 12.5 billion in the year before. The related EUR 1.3 billion increase in employee benefits at constant rate represents a plus 12% organic growth, driven by higher net retention, including increased average [ face ] value and by robust business development. BVI from other products and services amounted to EUR 4.5 billion as the positive underlying new business trend was offset by [ phasing ] effects, including the fiscal year '23 major contracts in [ Atria ], [indiscernible] 2 in our prior releases and by the discontinuation of the public benefit contract in Latin America. BVI being a major contributor to our top line, let's now look on Page 10, how it translated into strong organic revenue growth across all regions in the first 9 months. In Latin America, total revenue grew by plus 23% organically year-to-date, including plus 16% in Q3. Double-digit growth was delivered by almost all countries, including Brazil and Mexico, despite the more challenging comparison basis. In Continental Europe, total revenue grew organically by plus 15% year-to-date and by plus 8% in Q3. Positive business trends, particularly Meal & Food in Belgium, France and Spain on one hand, and continuous high interest rates on the other hand; were partially offset by high comparison basis, especially in Eastern and Central Europe. Finally, turning to Rest of the World, the region posted total organic revenue growth of plus 34% in the first 9 months, accelerating to plus 42% in Q3. This resulted from the good performance delivered across the region, especially in Turkey, India and Israel. Such global growth in total revenue was powered by both operating and float revenue, as you can see it when turning now to Slide #11. In the third quarter, we recorded total revenue of EUR 297 million. Operating revenue reached EUR 257 million with double-digit organic growth, while such revenue continued to benefit from our strong business momentum despite the last year's high comparison base. Float revenue increased by plus 76% organically to EUR 40 million in absolute value as a result of the continuous float expansion year-on-year and the interest rate stabilizing at a high level overall. Looking at the first 9 months, operating revenue grew organically by plus 15% to reach EUR 774 million and float revenue grew organically by plus 89% to reach EUR 115 million. We will now go into more detail for these 2 categories of revenue, operating and float, starting first with how operating revenue has evolved by activity on Slide 12. In Q3, we recorded EUR 220 million operating revenue in employee benefits, representing plus 15% organic growth. This was driven by the rise in average face value as we continued to benefit from the increase in the [ legal ] caps seen over the last 2 years, coupled with new client wins. This positive business trend was also supported by the elevated take-up rate, and our excellent sales team continued their effort in demonstrating and delivering Pluxee's strong value proposition for both clients and merchants. Operating revenue in other products and services decreased by minus 6% organically to EUR 37 million as growth in engagement solution could not fully offset the effect of a discontinued public benefit contract in Latin America. Excluding the impact of this contract, operating revenue in other products and services would have recorded positive growth in Q3. Turning now to float revenue on Slide 13. Float revenue increased by plus 76% organically in Q3 '24 to EUR 40 million, in line with Q2 '24. This is a likely plateau in quarterly float revenue, depending on how interest rates will evolve going forward. This was driven by sustained favorable business trend in BVI, increasing the float baseline on the balance sheet year-on-year as well as by the stabilization of interest rates at a high level overall. Looking at the first 9 months, float revenue increased to EUR 115 million, representing a plus 89% organic growth year-to-date, fueled here again by both the growth in negative working capital, thanks to rising business volumes issued and a more favorable economic environment in terms of interest rates in our fiscal year '24 versus '23. Looking ahead, we see a slight moderation in float revenue in Q4 compared to Q3, which will represent strong year-on-year growth. Thats it for our strong organic growth in Q3. And now, I would like to introduce the two significant milestones that we have just achieved in the execution of our M&A strategy, starting with the acquisition of Cobee on Slide #15. We are excited by this transaction. Cobee is a fast-growing digital-native player, which [ prudently ] offers 12 distinct benefit solutions through its best-in-class technology suite and that are distributed to more than 1,500 clients. Cobee is a rapidly growing business, with organic revenue growth over 100% expected in Pluxee fiscal 2024. And Cobee is highly complementary to Pluxee. It also offers growth opportunities outside Spain with an emerging and fast-growing business in Mexico. With the acquisition, we will reinforce our position in the Spanish market while enhancing our existing employee benefits offering and tech capabilities. The transaction will be fully funded from existing financial resources, with limited impact on leverage. In terms of value creation, it is expected to be neutral to EBITDA and free cash flow in fiscal '24 and accretive to recurring EBITDA margin and net income from fiscal '26. Let's now look at our second key M&A milestone on Slide #16. Following the approval by the Brazilian regulatory authorities, I am pleased to announce that we have now formally entered into a strategic partnership with Santander in Brazil. This is a significant step in our development in the country. It sees us entering into a 25-year exclusive distribution agreement, giving access to Santander's 1.4 million B2B clients and integrating Santander's employee benefit activity in Brazil. It provides a unique opportunity for Pluxee to extend its leadership in the Meal & Food benefit market in Brazil by leveraging Santander 4,000 sales managers, especially in accelerating SME penetration. The deal structure will see Pluxee retain 80% controlling interest in our combined entity, and Santander will hold the remaining 20%, with both partners being strongly incentivized on the partnership success. We expect this partnership to be accretive to organic growth and recurring EBITDA margin as early as fiscal '25, with further acceleration onwards. Then, we expect the deal to be notable to net income post minority interest in fiscal '26 and accretive thereafter. The [ EBITDA ] scope effect is negligible for fiscal '24, as presented in appendix #1 on Page 21, where you will also see our other modeling consideration, including exchange in other operating income and expenses. This is mainly a function of M&A activity, higher restructuring and impairment charge. These items will also affect the effective tax rate in fiscal '24. After this update on these two M&A milestones, I will now move to our final section, which is about Pluxee's fiscal '24 and midterm outlook on Slide #18. Our continued strong performance over the first 9 months, especially the strong tailwind from high interest rates, enabled us to raise for the second time, our organic revenue growth target for fiscal '24. As such, we now expect organic revenue growth to reach circa plus 18% compared to plus 15% to plus 17% previously. Our recurring EBITDA margin target remains unchanged, meaning at least 35%, including stand-alone costs. Then, in light of our recent business trends, we reiterate our midterm financial objective to reach low double-digit organic revenue growth for fiscal '25 and '26, circa 37% recurring EBITDA margin in fiscal '26 and the growth 70% cash conversion on average over fiscal '24 to '26. Before opening the Q&A session, I will now conclude this presentation by a quick wrap-up about our recent achievement on Slide #19. We are pleased with this set of results delivered both in Q3 with plus 18% organic growth and over the first 9 months with plus 22% organic growth in total revenue. Supported by well-oriented and sustainable macro market trends, we are executing on our strategic initiatives with discipline. It has enabled us to continue building a track record of sustained growth driven by a compelling value proposition for all our stakeholders, clients, consumers and merchants as well as by product innovation. The growth in business volume will continue to support both operating and float revenue, underpinning our midterm financial objectives. Alongside the growth in business volumes, our business model built on operational leverage will allow us to extend our recurring EBITDA margin. Last but not least, our constant focus on cash generation will reinforce our net cash position, which will enable us to continue to deploy our targeted M&A strategy in line with our capital allocation plan. And with that, Pauline and I will be happy to take your questions.

[Operator Instructions] The first question is from Julien Richer, Kepler.

Three questions for me, please. The first one is more on the clarification of float revenue evolution in Q4. So you mentioned the slight moderation in Q4 compared to Q3 in float revenue. Does it mean something like mid 30s for Q4? And then going forward, I know it's maybe a little bit early and it depends on how interest rates will evolve, but if we -- all else being equal, let's say, how do you think float revenue might evolve in 2024, 2025? Then another clarification on Continental Europe, the slowdown you observed in Q3 in organic revenue. You mentioned Eastern and Central Europe. Could you please give us the exposure of Eastern and Central Europe at the group level, what is the contribution of those regions to total revenue? And the last one on the situation in France, any news on the regulation front in France? Any update? Especially with the low visibility we have today with the elections. But any beyond that would be appreciated. Thank you.

Okay, Julien, Thanks a lot for your question. So regarding the evolution of float revenue in Q3, yes, I mean the slight moderation is very hard to precise, and we don't guide precisely on a quarter-by-quarter basis on float revenue. But yes, a slight moderation versus what we delivered in absolute value in Q3. What you just indicated might be a fair estimate so far. But we'll see. Again, that will depend on potential evolution of interest rates in a way or another. And going forward, it's even harder to say. What we can repeat again is that we will have the float baseline in the balance sheet. We will still grow, going forward, based on our ability to deliver improvement in the business volume. And that would be the third driver, the second one, that we don't master, except that, as we said before, we have already started to expand the [ B2B ] maturity of our investment, which will protect us [ legally ]. On the slowdown of Continental Europe and with this high comparison basis in Central and Eastern Europe, now this is more related to the mid of [ contract ]. We had a high comparison basis the year before. And so we don't disclose details for some regions or countries. What I can tell you is that behind these areas, we have countries like Czech Republic, Poland or Romania with a high comparison basis. And this is not a trend for the long term. This is just what we had in Q3 for these countries. And your third question, what about the potential evolution of regulation in France? So we are all waiting for what will happen next Sunday. And what we can only tell you that we are still highly committed to push for the modernization and digitalization of our business in France. And whatever is the outcome, we will see if what was contemplated, it's likely is going to be put on the road for a few weeks, a few months, we'll see. But we still consider that whatever is the final outcome or business is really at the heart of purchasing power improvement for the citizens and with a lot of value to bring to all stakeholders, to our clients, to the merchant. So we'll see what is going to happen, but we're going to go on pushing for the digitization.

The next question is from Pravin Gondhale of Barclays.

Just a follow-up to Julien's question there on French regulatory environment there. In May, we had a French court of auditors pointing -- highlighting social security deficit and advising government to curb on some of those to fund that deficit. Do you see any possible risk in medium term to relevant employee benefits in France, including meal vouchers, on the back of that particular report, not just the current political environment? And then currently, the use of meal vouchers in supermarkets is allowed till December. Do you see any risk of future government not extending this beyond December 2024? I appreciate visibility is very low on this. And then finally, on the other operating expenses, can you just clarify more on that? What's exactly driving this rise to EUR 90 million to EUR 100 million versus around EUR 80 million previously? What was the provisions stated to Santander or Cobee acquisitions, who have not previously factored in? What else are we missing here?

Okay. Thanks, Pravin, for your questions. Regarding the deficit that was reviewed by the [ Cobee ] in France, this is true that our business was quoted in some press releases, but it's a really very, very smooth part of this deficit. And what matters even more is that I think it should be fair to consider all the value that our business brings to the French economy. When you make a pure tax calculation, again, this is a very small portion of the deficit versus much bigger things. And there is this very strong value that we can bring overall. And I think that there are many people who are aware of this strong value that we bring overall. Regarding the use and the potential extension of the use of the meal voucher to food [ voucher ], so we'll see what's going to happen. We have always said that for us, we should -- that should be the right thing to do to find the right balance between -- initially all these [ voucher ] were developed for -- to be meal benefit. So the extension to food makes some sense to -- for the purchasing power of our citizens in the current situation, but we strongly believe that we should keep something just for the restaurants in order to protect the initial purpose of these benefits. Regarding the other operating expenses, so the rise is not related at all to a spinoff or rebranding or [indiscernible] in the very slight -- there's small increases versus what we had initially estimated. And the [ 60 ] million that we had unveiled at the time of the Capital Market Day was fully related to lease. And at that time, we didn't have a view about the potential impairment which came, and we disclosed this potential impairment as part of our H1 release, which is related to a digital platform that we developed with a partner, and now we are focusing on our own digital platform. And so this is the first big part, it contributes to approximately 1/3 of the increase. Then we're going to have some restructuring costs, which are partly related to our new situation as a stand-alone company with the need to renew a few people overall in the company. And here and there, in some countries, we are also optimizing the way we're going to deliver our business going forward, which led us to rightsize, I may say, our business, so there is a bit of restructuring. And last but not least, we have confirmed, announced in mid-June that confirmed the Cobee transaction, confirmed today is the closing of the Santander transaction. We have a bit of M&A activities and -- with some costs related to this acquisition, which are going to it, as well our other operating expenses. So it's really that and nothing else. And we will -- it's too early to make a detailed disclosure. But of course, as part of our full-year disclosure, we will disclose all the details on our earnings.

The next question is from Hannes Leitner with Jefferies.

I have a couple of questions. So the first one, I would say is in regards to your M&A strategy, could you maybe elaborate what are the kind of the missing parts in the offering you are having? And then in terms of the float revenue -- sorry, and then the other -- second question is in terms of the face value. You mentioned that you see some tailwinds here. Can you maybe talk here for different regions where you are standing and where basically the regulations are? And how much of the corporates have passed on already some face value increases?

So regarding the M&A strategy, I don't have in mind any missing part. I think we have been clear on what we might be interested in, in terms of M&A opportunities. We have explained that on this M&A level, we have a very targeted approach, very targeted and disciplined approach in order to be able to seize opportunities and with key levers, clearly identified levers, which have the ability to increase our market share and even more in underpenetrated market to see the -- to be able to expand our product offerings and/or to acquire new tech capabilities. The good thing being with an acquisition such as Cobee that we have been able to take all these objectives, and so we are more in this approach to focus first on organic growth and then accelerate by seizing opportunities. And so we don't have in mind any specific missing parts that we should target in order to complement our offering. Regarding the face value, there are some tailwinds relating to the increases in [ legal ] caps, to fully connect your question, with some specific regions. As we disclosed it at the end of H1, we are seen in this -- in the first half of fiscal '24 increases in [ legal ] gaps in 14 countries and some -- meaning in almost half of the number of countries in which we operate. So meaning that this is quite well spread. So we have this tailwind in all the regions and then the pace of increasing the [ legal ] caps either through specific decision, indexation or negotiation because there are many different situations in all the countries, it's quite well spread.

So maybe just a quick follow-up. In regards to your guidance upgrade by -- guidance implies 8% organic operating growth in Q4. How should we think about this exit rate relating to your medium-term double-digit growth guidance?

The main reason behind this is -- this limited and math -- when you made the math, when done on this, and you did it great. The main reason is the high comparison basis. So we have a very high comparison basis in Q4 of last year, especially as related to the [ exchange ] in regulation in Brazil at a time when we fully benefited from the value in discount in negative commission while this was afterwards far more [ amortized ] all along the quarters, which followed by additional agreements with our clients. So this is really the main reason. And to be even more reassuring, if you look at the growth in business volumes, we are still delivering right now in Q3 which are some kind of leading indicators on what our revenue will look like going forward. You can be reassured that yes, with this double-digit organic growth on employee benefit business volumes plus the potential upside that we always have with the take-up rate, we are confident on our ability to deliver on this [ low ] double-digit organic growth in terms of revenue, going forward.

[Operator Instructions] The next question is from Justin Forsythe with UBS.

I've got six questions, just kidding. But a couple for me, actually. So I wanted to hit on the growth in business volume. It looks like if I take the 9-month run rate and I deduct the 6-month run rate that you gave at the 1H, to me, that looks like if you add up the face value increases and client wins and incremental in 3Q of EUR 750 million -- maybe I'm not doing the math right, but it looks like your face value -- or your volume increased about EUR 400 million. So was there a negative impact somewhere there in business volume? And it also looks like your take rate went up pretty significantly, even maybe above where we had expected it to in employee benefits. Was that solely the impact of the regulation in Brazil? Or was there something else at play there? And I just wanted to ask a broader holistic question. You've answered a couple of questions on the French snap elections coming up. I just -- can you be clear with us in terms of whether there's any proposals that the Le Pen party has in relation to meal vouchers or if there's been any dialogue that they've had in terms of new propositions that they might roll out to benefit small businesses or anything like that?

Okay. Can you repeat your second question? Because you've been on [indiscernible] the question about the election at the end. But in the middle, that was about?

Just on the take rate, if there was anything outside of the negative commissions in Brazil.

Okay. Okay. So I'm not sure that I was able to capture all the way you did this calculation regarding the change in business volume, but what I can maybe precise that the growth in business volume is related to three levers. The first one is the growth in average [ trade ] value. For the first 9 months, we had EUR 1 billion increase in the net volume related to deleverage face value. Then we have the growth of our client portfolio, including cross-selling. So the growth of portfolio is related to cross-selling and also the change in the number of employees that we might have with our clients. And we have another key contributor, which is a net client win, which is the net of client that we win, less client that we lose. And we disclosed clearly the client wins for EUR 1.2 billion. And what I can tell you is the client win is much bigger than the client losses. So when you combine the average face value, the extension of the cost of the cost savings and portfolio plus this net client wins, you come with a EUR 1.5 billion increase that we see in the business volume. Regarding the take rate, we are currently trading -- for the first 9 months of fiscal year '24, the take rate that is approximately 20 basis points bigger than what it was in fiscal year '23. And this is what we have for the full year. Coming back to the question, which was raised by Hannes just before, this is, again, a good example to be confident in our ability to deliver on low double-digit growth, going forward. We are still improving this take-up rate. And it's more related to the ability -- the strong capacity of our sales force to convince clients and merchants to provide them with our strong value proposition. Regarding your third question, no, I have -- we have no view on this right now. We have been in discussion with some civil servants, which are part of the of the ministries so far. And then we see -- we have no specific view on what might come from one party or another. We have just been in discussion so far with the Pluxee teams, with the people who have been in-charge. For the rest, nothing was -- to the best of my knowledge, nothing was indicated from any other parties regarding this.

The last question is from Ed Young, Morgan Stanley.

My first question is on your guidance. You've obviously upgraded your organic growth expectations again by around, I guess, [ 200 ] basis points at the midpoint, but you've left your EBITDA margin guidance where it is. I just wanted to sort of ask you to sort of maybe talk through how you think about setting that guidance. Is that stayed the same because you're just trying to be conservative? Is that because you're sort of mindful about reinvesting some of that excess maybe to drive stronger growth? Or is that because the organic growth has been driven by better Turkey hyperinflation, so FX nets it off, and you're not expecting to see sort of much better in terms of an absolute revenue number if useful? Perhaps you could talk about how you think about setting that guidance and the basis behind it. And then the second question was on Cobee. You said it will have a very limited impact on leverage. It's obviously got a very high growth rate or [ suggest ] a very sort of small business. So is this a really material acquisition for the group in terms of where it can be in several years? Or is this a sort of a -- should we think of this as a sort of small bolt-on in the kind of signal about the kind of deals you'll do over the coming months and years?

Okay. So regarding your first question, it's always a challenge for any company to balance the organic growth in revenue and the improvement in the EBITDA margin. I think we are doing quite good with -- when you think about how we started beginning of the year with this low double-digit objective, and we have been able to raise this organic growth up to 18% now. And we also had committed beginning of the year on this [ 30.4% ] EBITDA margin, including stand-alone costs, and we raised it as part of our H1 release. So we are on a good track to deliver very well on these two indicators, and there is no -- it's -- so we are very pleased with this. And of course, you're right, there is a little bit of opportunity for us to invest and to prepare for the future and deleveraging, especially the growth in float revenue. A significant part of our investment goes through OpEx and not CapEx intake. And yes, we are also investing in order to prepare for the future in order to feed the low double-digit organic growth, going forward. Regarding the Cobee acquisition, so this is not insignificant, but this is not the big transaction. It's not very, very material, but -- and we have very strong expectations. It's going to help us to gain this strong leadership position in the Spanish market. We have strong expectations, strong synergies based on the high complementarities of Pluxee. We're going to bring is very strong merchant networks and Coby's, which has a fantastic benefit offering. So we expect strong synergies from this. So it's not going to be a very material change to Pluxee, but this is a very satisfying first milestone in terms of acquisition, meaning that the Santander is also very exciting, but it was already engaged in the year before. And regarding your -- the beginning of your question in terms of leverage, yes, it's going to be small because it's not a very significant price. It's a fair price. We have a fixed price. And then there's going to be some earn-outs, which are going to be related on the ability of this company together with our teams because we're going to combine everything to deliver the strong synergies. So the current shareholder of Cobee are also highly incentivized on the ability to deliver all together the strong synergies. I think there are no more questions. Thanks a lot, everyone, for attending the call. As said before, we are pleased with this set of third quarter results. We are confident that we can build on these results in the final quarter of fiscal '24 and beyond. Thanks again, and looking forward to speaking to you at the end of October for our 2024 full-year results. Have a good evening, good day. Goodbye.