Corpay Inc (CPAY) 2024 Q2 法說會逐字稿

Good day everyone, and welcome to today's Corpay second quarter 2024 earnings conference call. (Operators Instructions) Please note this call is being recorded. I will be standing by if you should need any assistance.

It is now my pleasure to turn the conference over to Jim Eglseder of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us today for second quarter 2024 earnings call. With me today are Ron Clarke, our Chairman and CEO; and Tom Panther, our CFO. Following their prepared comments, the operator will announce the queue will open for the Q&A session.

Today's documents, including our earnings release and supplement can be found on investor relation section on our website at Corpay.com. Throughout this call, we will be covering several non-GAAP financial metrics, including revenues, net income and net income per diluted share. All on an adjusted basis. We will also be covering organic revenue growth.

This metric neutralizes the impact of year-over-year changes in FX rates, fuel prices and fuel spreads. It also includes pro forma results for acquisitions and divestitures or scope changes closed during the two years being compared none of these measures are calculated in accordance with GAAP and may be calculated differently than at other companies.

Reconciled deviations of the historical non-GAAP to the most directly comparable GAAP information can be found in today's press release and on our website. It's important to understand that part of our discussion today may include forward looking statements. These statements reflect the best information we have as of today.

All statements about our outlook, new products and expectations regarding business development and future acquisitions are based on that information. They are not guarantees of future performance and you should not put undue reliance upon them. We undertake no obligation to update any of these statements.

These expected results are subject to numerous uncertainties and risks which could cause actual results to differ materially from what we expect. Some of those risks are mentioned in today's press release on Form 8-K and in our annual report on Form 10-K. These documents are available on our website at [sec.gov].

So now I'll turn the call over to Ron Clarke, our Chairman and CEO. Ron?

Okay, Jim, thanks and good afternoon, everyone, and welcome to our Q2 2024 earnings call. Up front here I plan to cover three subjects. First, provide my take on Q2 results, along with an update on our problem children. As second, I'll share updated 2024 full year guidance, including up close look at our expected Q4 exit. And then lastly, our speak to our portfolio and our commitment to deeper versus wider.

Okay. Let me begin with our Q2 results. We reported Q2 revenue of $976 million, up 7% excluding Russia and cash EPS of $4.55, up 14%, excluding Russia. Result, really right in line line with our expectations. Both revenue and earnings are finishing on the high side of our guidance range.

Most importantly here, the trends in Q2, improving overall retention improved nearly 92% that's up to 100 basis points from last year. Same store sales improved to flat in the quarter. That's up 2% sequentially. And sales or new bookings were strong, up 21%, of particular strength in our corporate payments business, sales, they're up 28%.

So clearly a noticeable improvement in all three of our key business trends. Organic revenue growth for the quarter 6%, but clearly it's a tale of two cities. Our corporate payments business, Brazil business and international fleet business performed exceptionally well.

While our lodging in North America fleet business is not as good presented a drag on growth. So taken together averaging out to 6% overall. So let me update you on the two problem children. So first, North America fleet performed really in line in Q2 against expectations, but still a drag on growth. We've now mostly lapped the infamous micro pivot and the implications there around late fee revenue and bad debt.

Some real progress, though, happening in the business on a few fronts. Retention is better, a 150 basis points better. In fact, I think Q2 last year softness improving, a 100 basis points better sequentially in sales growing.

In the quarter, 80% of all of our digital sales, now five card and plus size accounts. So significant pivot new business there. A third of our field sales now being booked to our new Corpay 1 fuel card business card in virtual card in one. In 25% of our SMB trucking sales. Now on our new Archon Data Connect Card that has no credit exposure.

Additionally, we signed some important new accounts [gas buddy] and [AT&T]., which are now coming online. So look, the evidence is building that there's demand for our new products and that this larger prospect segment sales can be grown. So that's happening. So on the back of these trends We're outlooking North America fleet to grow revenue organically in Q4 and get back in the plus column.

Okay, over to lodging, our second problem, child lodging finished a bit weaker in Q2 than we expected, mostly the result of lower flight cancellations and fewer homeowner insurance claims. Progress, though happening on the lodging front, the first IT, they're much better uptime and search response time now exceeding our SLAs, a big improvement in client softness and client retention in the business.

Our new differentiated pricing now in place and increasing our yields where we've lowered room rates, if you will, to bigger accounts and increased pricing on to walk in travellers. Then lastly, sales in lodging growing up 36% in Q2.

Again, evidence to us that there's demand for solutions. So again, the progress that we're seeing, we do expect the lodging business to turn positive organic growth in Q4. So hopefully, as we exit Q4 this year, problem children, no more.

So the so the wrap on the quarter, again, no real surprises in Q2 results, kind of right on expectation. Trends same-store sales, new sales and retention trends significantly improved across the board and our two problem children progressing on a path to growing again.

Okay. Let me make the turn to our 2024 a full year guidance. So today, we're reiterating the full year 2024 guidance at the midpoint that we provided in May. So as a reminder, $4 billion in revenue on a cash EPS of $19. For sure, some changes, some puts and takes kind of in this guide.

We're outlooking weaker FX here in the second half than we were at 90 days ago and a bit weaker second half lodging revenue. That's offset by some [payment rang] revenue and some expected synergies that will capture there along with some expense management actions that we're putting in place to maintain profitability. I do want to put special emphasis on our Q4 guide, which you can see in our earnings supplement or outlooking, accelerated double digit print and organic revenue growth and $21 of run rate cash EPS heading into 2025.

Additionally, we are expecting to capture some meaningful synergies from our Paymerang and GPS Corporate Payments acquisitions next year, likely in the $0.50 of accretion ballpark. So look, the main message to take away here is that Corpay is headed to a better place for leaving behind some challenges.

The Russia divestiture, a Fed hikes, the fleet pivots, lodging softness or even the strategic review and heading to a place with accelerating performance driven by problem children improvements, a lower interest rates, a higher sales and fewer shares. Our expect had arrival to the better placed is Q4.

Okay. On the last up, let me transition to an update on our portfolio, which again calls for a deeper on not wider company. Squarely focused on three segments. We're well under way with our integration and synergy planning for our Paymerang and GPS acquisitions.

Initial thinking there calls for conversion and shuttering of the acquired IT systems, a significant streamlining of back office operations and G&A, and really leveraging of our broader product line to increase revenues in both businesses.

We expect these two deals to add about 15% to our corporate payments business revenue next year and with corporate payments overall representing about 40% of the overall company. We're also on progressing a couple of small vehicle related divestitures, totaling approximately $400 million of after-tax proceeds. We anticipate using any proceeds from these de-stock to minimize dilution heading into next year.

Lastly, we are working a couple of interesting deals in the pipeline where we'd maintain our target leverage and frankly, have liquidity to pull the trigger. If, in fact, the deals survive diligence. So in conclusion, then today at Q2, again finishing in line but don't miss improving trends base. New sales and retention, maintaining our full year '24 guide at $4 billion in revenue and $19 and cash EPS, tracking to a better place with accelerating revenue and an EPS run rate of $21 exiting Q4 on an ongoing simplification of the company, doubling down on corporate payments and aggressively working the synergies all of our two newest deals.

So with that, I'll let me turn the call back over to Tom to provide some additional detail on the quarter. Tom?

Thanks, Ron, and good afternoon, everyone. There are some additional details related to the quarter. Revenue was $976 million, which I was pleased to see at the high end of our guide. Despite a $3 million macro headwind from both fuel and FX.

Organic revenue grew 6%, led by 18% growth in corporate payments. Reported revenue growth was 3%. However, excluding the impact from the same all of our Russia business, revenue grew 7%. Strong expense discipline and another quarter of lower bad debt resulted in EBITDA margin expanding to 53.1%.

We generated $325 million of free cash flow, which translates into $4.55 per share and cash EPS $0.05 above the midpoint of our guide, up 8% versus last year and up 14% excluding the impact of the sale of our Russia business.

Overall solid results for the quarter. Now turning to our segment performance and the underlying drivers of our organic revenue growth. Across all of our segments sales increased 21%. Retention improved to nearly 92% and same-store sales were flat compared to down 2% in the first quarter.

Corporate Payments Revenue increased 18% during the quarter, driven by impressive 19% growth in spend volume. Our direct business revenue grew 22%, with sales up 34% and solid growth across spend volume, transactions and customers. Revenue per total spend sometimes referred to as the take rate increase during the quarter. And our card penetration, which measures the percentage of total spend and processed via virtual card, increased approximately 6% and is now above 11%.

Both of these measures reflects the strength of our business relative to recent sector trends. Also on July 1, we closed the payment transaction and we are squarely focused on integrating the business inclusive of our initial synergies, we expect Paymerang to contribute approximately $25 million to $35 million the second half revenue. Cross-border revenue increased 19% and sales grew 25% during the quarter.

Client spend volume was robust against all geographies, which reflects our ability to further penetrate our large addressable market. It's clear from our consistent strong performance that our go-to-market strategies are working.

Consequently, we continue to make significant investments in the business through increased sales and marketing resources. In addition, we announced in June the acquisition of GPS, which will add over $125 million of revenue in 2025 and increase our scale, particularly in the US.

Currently corporate payments as a segment contributes 30% of Corpay revenue, but on a pro forma basis, at the end of next year, corporate payments will be approaching 40% of our company. Now turning to vehicle payments, Organic revenue increased 5% during the quarter, with growth driven by Brazil and international fleet. Our international fleet business continues to perform very well, led by low double digit revenue growth in both Australia and our UK maintenance business.

In the UK, we've expanded the pay by phone and parking app into a multi-point solution consumer vehicle payment that by adding the ability to purchase insurance and search for nearby fuel stations and EV chargers. And we expect to integrate our vehicle maintenance and repair network into the app in the third quarter.

It's early days in terms of customers transacting on the app, but we've made good progress and we're excited about the opportunity. In Brazil, business performance was extremely strong with revenue growing 20% and sales increasing 27%. The business is clicking on all cylinders.

The anchor toll product grew tags 9%, and toll related revenue grew 20%. Our product offering now includes nearly 7,000 acceptance locations, including 2,800 gas stations, resulting in fuelling transactions being up 24% year-over-year. We have sold nearly [2.5 million] insurance policies, up 3 times from last year.

Additionally, that pay users and revenue are both up approximately 40% compared to last year, which is all organic as we are in the early stages of cross selling the product. In the US, our local fleet business continues to be a drag on revenue growth. Excluding this business, North American fleet grew 3%. While the shift away from micro accounts has impacted our sales and revenue, we are beginning to see increased sales from our up market, digital and field efforts.

Sales of our proprietary fuel Mann products grew 29% in the quarter. We are seeing signs. This trend has momentum. Sales to companies operating five plus vehicles were the highest they've been in the last three years, which puts us on track to surpass our 2022 revenue from that customer segment.

So our plans are working just taking longer than we would like. Lodging revenue declined 10%, which was a bit worse than we expected due to slightly lower room nights and rate sales of our overall lodging product were quite good, up 36% over last year, which gives us confidence that our customers like our Advantage product.

Digging deeper into the segment's performance, we are encouraged. We see same store sales which had been the primary source of businesses recent [softness] improved through 300 basis points compared to the Q1. Specifically workforce showed improvement as we lapse some of the weakness from the last year. Insurance was the primary cause of this quarter's weakness in revenue. Insurance results were impacted by the decline in claims activity and some one-time benefits recognized last year that did not recur.

Excluding last year's one-time insurance commissions, revenue would have declined 3%. Now looking further down the income statement, Q2 operating expenses of $542 million were up 1% versus Q2 of last year. Expense growth from acquisitions and sales investments were essentially offset by lower bad debt expense, 4% decline in G&A expenses and the sale of our Russia business.

Bad debt expense declined $7 million or 20% from last year to $28 million or 5 basis points of total spend, substantially all of the decline within US vehicle payments as we realize the benefit from our higher quality customer portfolio.

EBITDA margin in the quarter was 53.1%, approximately 60 basis points of improvement from last year. The positive operating leverage was driven by solid revenue growth, lower bad debt expense and a disciplined expense management.

Excluding our Russia business sold in August of 2023, EBITDA margin increased approximately 165 basis points. Interest expense this quarter increased $6 million year-over-year due to a decline in interest income from the sale of our Russia business and the impact of higher interest rates and debt balances.

Our effective tax rate for the quarter was 24.7% versus 26.6% last year, driven primarily by tax benefits from specific tax planning strategies.

Now turning to the balance sheet. We ended the quarter with nearly $1.4 billion in unrestricted cash, and we had approximately $850 million available on our revolver. We have $5.9 billion outstanding on our credit facilities, and we had $1.4 billion borrowed under our securitization facility. As of the end of the quarter, our leverage ratio was 2.6 times trailing 12 months EBITDA, which remains within our target range.

As previously mentioned, we acquired Paymerang on July 1, which increased our leverage to 2.8 times. Our ability to generate over $300 million in quarterly free cash flow will increase our capacity on the revolver and cause leverage to decline during the rest of the year. In the quarter, we repurchased 2.2 million shares, and year to date we've repurchased 3.3 million shares for $949 million.

We have $610 million remaining under the current Board authorization, and we will continue to evaluate additional buybacks over the course of the year, based primarily around the timing of some potential non-core vehicle-related divestitures and the acquisition of GPS, which we expect to close in early 2025.

Now let me provide some details related to our outlook. As Ron indicated, we are maintaining our guide at the midpoint of $4 billion of revenue and $19 per share. We are tightening the range reflecting increased visibility into our second half performance.

However, the unsettled macro-environment, particularly of late increases the possible we have coming in towards the lower end of the range. For the overall economy, last week's economic data in the US reflected a slowing economy, which triggered significant moves in the equity and fixed income markets.

However, a broader view of economic data continues to point to low single digit growth in our major markets, giving us confidence that business spending will grow in similar level. We have analyzed recent historical and forward-looking information to inform our fuel and FX projections.

Overall, we're estimating a modest macro headwind based on lower fuel prices and weaker FX, namely the Brazilian AI. But financial markets are fluid, causing a degree of variability regarding our macro forecasts. Nonetheless, we remain focused on what we can control, which is running the business and optimizing the performance related to our core business.

We are maintaining our full year guide in each of our businesses, except for lodging as we continue to work through the softness. While we see indications of the business improving, we're electing to further de-risk the forecast by assuming room nights to be relatively flat in Q3 and seasonally decline in Q4 compared to Q2.

The impact from the macro headwinds and lodging is offset by $25 million to $35 million of revenue from Paymerang. From a cash EPS perspective, we expect Paymerang to be EPS neutral, and we've taken actions to offset the revenue headwinds through a range of expense initiatives, the flow through effect from lower FX rates and fewer shares.

I would also note that there was about $5 million of gift revenue that was pulled forward in Q2 from Q3 based on customer shipment demand, which is simply timing and why we don't flow through this quarter's B to the full year guide.

So in total, some minor changes to our full year outlook, but no changes to print. For Q3, we're expecting revenue to grow 5% to 7% and cash EPS to grow 9% to 11%, which is supported by our preliminary July results.

This translates into $1.015 billion to $1.035 billion of revenue and $4.90 to $5 per share of cash EPS, a little over half of the sequential increase in revenues driven by Paymerang and the seasonal lift from our gift business. The remaining sequential increase is driven by the implementation of new sales, same-store sales remaining flat, improved retention, especially in the US vehicle payments business and specific business initiatives, which are up underway we're projecting to exit the year with organic revenue growth in the low to mid 10s led by corporate payments growing in excess of 20%. However equally important North America fleet and lodging are projected to have turned the corner and return to growth. These estimates exclude the impact from our pending acquisition of GPS that is scheduled to close in early 2025. Pending regulatory approval, we expect at least $0.50 of accretion next year from the combination of Paymerang and GPS.

However, more importantly, we expect earnings accretion of approximately 2 times that amount once we've completed our integration plans in the back half of 2025. Throughout our assumptions related to our guide can be found in our press release and supplement.

With that, thank you for your interest in Corpay. And now, operator, please open the lines for questions. Thank you.

(Operator Instructions) Darrin Peller, Wolfe Research.

Hey, guys. Thank you. It's great to hear about the confidence in reacceleration on both the lodging side and North American fleet. I guess just one quick one on the other lodging and then a little more color on fleet also. But on lodging, just the conviction around that is coming from I think you were saying just the signings you're already seeing evidence of and just want to make sure that the tech side of it is it is all good now ready to go in terms of new volume coming on?

And then really on fleet, if you could just reiterate a little more of what you're saying around conviction on that, just why you see the confidence there, but it's great to hear given the trends?

Darrin, this is Ron. The short answer [rigs over] the logic is really a right to client base flex down, call it about a year ago. It was started in Q2 last year. Both the IT issue and kind of just saw this macro in those areas. So it's really less about the lodging business accelerating in more basically that the base went down is saving lives. So effectively, you look sequentially, as I said to you, which I guess we. Yes, hey, our print for launching a due to acts of it being mostly stable or flat sequentially.

So what that does is it tasted declining, right? Which was whatever 9 and 10 and first couple of quarters. That lists obviously the whole company in Israel with the same story for NAF right? It's a the business was in decline, but we've made sure that we kicked out of that micro business were added to on that debt.

So effectively, we took the red is down and fortunately, we refill the bucket was more stable. Revenues at the same floor or have is not a function of or NAF really growing sales of them is honestly just flat and mostly it is not declining anymore. And again, the main thing is really just lead asset base is going down in both businesses. It stabilizes.

Okay. That's really helpful, Ron, guys, just one more follow-up is on the corporate payment side, the growth has continued to be strong. I just want to make sure we've had good feedback on the deal, especially payment ring and the accretion coming. But Ron, how do you feel about your positioning now? I mean, given the number of deals you've done, where the assets are all placed on, do you think strategically where we're where do you want to be or do you anticipate more?

Very good question. We've targeted for, I would say, like the humpty dumpty don't work sales mostly or are we have a pretty broad product line and we've got card products think the new tag line in the and ran it and Brexit as we have those products, we've obviously got the full 80 AP automation products.

I think from a product perspective, we spent lots of time and money assembling a pretty broad set of products to this middle market. So the gain that was really selling. So we will resume you guys a the [Zynga] 28% presents a summary of the quarter.

So that's again, at the end of the game has shifted from are assembled, remain competitive in that business to now really just selling a lot of it as it did not show that were not only selling it, but the business has gone into. So we're in that spot.

That's great.

But there are expected to continue to become Dare, I say, as we expected to continue to become a bigger piece of the overall core pay portfolio, one just its growth rate will cause us to continue to be a bigger portion of what we said 30% now at 40% by the end of next year. Certainly from a capital allocation perspective, we would still view it as attractive ways to deploy cap.

That's great. Makes sense, guys. Thank you.

Tien-Tsin Huang, JPMorgan.

Hey, Ron. Good to talk to you guys. Just a follow-up on them during the first question there, just on the corporate payments side, the acceleration to the 20%, what's fueling that? I know there's a slightly easier comp. Just want to make sure there's anything else in there.

And I think, Tom, you talked about take rates and trends there being positive. Maybe just on and on that with the direct business. And I know there's some concerns out there around virtual card, monetization and adverse minimum payments selection, that kind of thing. What's your view on that?

Hey, Tien, it's Ron. Till end of the first part of the acceleration is mostly sales run rate that I think you know as well. But in that business, the revenues driven by sales literacy from a year before. So when we step up sales like we did, and it is a '23, we get the benefit here really through our 2024. And the business basically hit record sales last year.

The second one is where our really out of the blocks in terms of synergies with the pain. Right now. We're back to the old fleet or Corpay wheelhouse deals rise when we buy stuff right in this space that we're in. And we know our profit pools are revenue pools or able to basically get at on improving businesses like down like super quickly.

So I'd say those are obviously retention to stay super good at doses, searches per bottle of the sales relative to the base in this case, a little bit extra from the synergies. But let me let Tom take because I know there was some question in part of our business with one of the other guys, you're going to go to a higher share.

So Tien, you want to say the health related to the health of the network? We feel like our network related to the merchant portfolio really stands out is differentiated relative to what we see. Others having launches its sheer size is it crosses multiple industries and verticals, not where it is in particular one, obviously, we have a fair amount of focus on construction and field services and transportation. It's wider than that. As we've noted over the years.

Our customer segment is much larger than what we would say is the sum of our peers in the marketplace and reduce customers that are $100 million to $200 million to $500 million in revenue. So that gives them the ability to really influence the merchants on. On the other end, we have to offer merchants are much more customized acceptance program where we can do things for them in terms of the levels of of acceptance that they're going to have and what expenses they'll accept versus what they want to set.

So it's not a one-size fits all model and we've got the merchant portfolio and the numbers that that we reference in terms of seeing take rates on the on move up in card penetration gradually moving up that that's something you expect to see raise up. That's going to grow gradually all kind of points to a healthy merchant portfolio. The acquisition we did in Paymerang will only make that larger. So we feel good about what we're seeing from mobile network perspective.

Great. Thanks for going through that. My quick follow-up on the M&A front. I know you've got some divestitures are going to buy back stock with those proceeds are going to cause UPS later are coming early '25. Can you how quickly can you replenish the acquisition pipeline, similar type deals?

It is sort of [blend]. Is it in my opening. We got a couple of deals on active wear city, you know, looking to pull the trigger on now. So I think, you know, we're kind of mostly never out of that business. It's really just a question of whether on the prices that sellers are looking for is down something we can meet.

So yes, we're in the game. We're going to buy stuff, as we said in the spaces that Rand and I think digging into these two most recent ones run one we signed and when we close, it helps your confidence on playing the game again and going after the synergies.

So I'd say we're full speed ahead on that. And I'd say the confidence in the divestitures is much higher than my exposure. Last time is a 100% will exit one, probably 75% will exit to buy out by Christmas.

And thank you Ron, Thank you, Tom. Got it. Thank you.

Sanjay Sakhrani, KBW.

Thank you. Wanted to dig in to the commentary on North America. Clearly, I think Tom talked about the growth in 3% micro pivot. I'm just curious on what should we expect is embedded in the guide for the second half growth? And then maybe just elaborate on what's driving the weakness there isn't any macro headwind, but I'm just trying to think through what we should think about the normalized growth rate on a go-forward basis.

Hey, Sanjay's, it's Ron. So I'd say the best way to think about it is flat to get, you know, plus or minus a percentage to if you look at things sequentially, the goal this year exiting this year is to have our North American fleet business revenue flat, the 100%, as I did it with a higher quality revenue city and there is obviously got better retention rates, which I called out has better same store sales rates and stuff like that.

So the real question is next year. Okay. Hey, you've made to pin you down SDH. You have ever revenue better trends in the US. So what's going on? It's just sales. The million-dollar question is these couple of new products in this new channel investment, will we sell enough business relative to the days that that this is going to be as a single or high, you know, mid digit grower again, so that that's the question. It'll be excesses of the two products that I called out with one of the core pay one, which is kind of the 300 product to the other local accommodated Connect, which is your trucking.

So those two products is a build in the field independent and digital, which I called out of those things, create enough absolute amount of sales that days grows decently next year that that's the call. And obviously the 90 days we'll give you our answer of what we're planning and what we think we can do, but both the early returns, which is why I called it out good ,when you launch new products for the question is always does the market like (inaudible) , the acceptance.

And as you can see in the quarter, which is leaves a third quarter of the sales of the channels, are these new products, which is which is quite good. So we're optimistic that we see that we've got the right things and we'll give you a better outlook in 90 days and Sunday related.

Your second question, nothing material from a macro perspective in the second half, there's of course there are five leases on where fuel price lag in terms of where that could be, but nothing that would be overly significant to the overall give or take billion dollar business.

Okay. And just to follow up on the contingent kind of alluded to come in terms of the virtual card businesses out there. I mean, it just seems like there's been a little bit disappointing growth there. I guess, like is that creating an opportunity for you guys to go and buy companies that are in that field? I'm just trying to think about how you guys look at some of the data around that, how it affects you.

I think the good news, Sanjay, is it hasn't been as a no on the look at what other people are doing. But as Tom said, it earlier or all of our setups or different right here, right, have super low and inability to inflows there versus other people are more highly monetized.

We have a different business than other people, right in terms of the amount of card. Sure. Target is still a piece of the first thing is, I'd say is you got to be a little careful drawing conclusions across the businesses. But look, it's working for us. You know, we're calling out that higher monetization is growing into Tom's point. We have a couple of things going on with those of partner and and with [Daimler] and a deal that will increase our monetization is going to go through the second half. So we're right now kind of outside of the problem is you will people experienced a, you know, a lot less car penetration.

Thank you.

Nate Svensson, Deutsche Bank.

Hey, guys, thanks for the question on. I guess on margin that, you know, really nice to see another quarter of solid margin expansion in margins up 60 basis points, even more ex-Russia. Can you just wondering your thoughts on the ability to continue expanding margins in the back half of the year, particularly given you'll be lapping some really strong margins expansion in the back half of '23 and then you start to their Paymerang in there. So anything we should keep in mind our malls with regard to Cadence or magnitude of margin expansion and and what that exit rate might look like heading into next year? I is the headline?

Hi, Nate. [high, right]. I think we said repeatedly that we've got significant operating leverage in this business. So I think our friend was what Tom low 53, 53 and change, let's say, look, sequentially, they were revenue to go out city 50 here in [23,975, call it 10 to 25] and then up, I think another 40 as we had into the Q4. So the flow through the margin flow through of that incremental revenue is now 80% or 90% of our business. So margins will expand another 200 to 250 basis points between Q2 and Q4.

So this is a [minor model] is, if you get, you know, sequential incremental revenue on the books that you'll have significantly good [flavour].

That's great to hear. I guess, for the follow-up, kind of want to talk about retention. So obviously, really nice to see the step-up in retention both sequentially and year-over-year. So I was hoping you could unpack a little more what's driving that. How much of this kind of the external environment getting a little better? How much of that is explicit actions they can buy you at core pay and and I know for the growth algorithm and the back half of the year, you talked about a number of factors, retention, same-store sales, new products, et cetera. So I guess just any way to help size each of those metrics and their contribution to growth for the remainder of the year. With that with a focus on retention there.

Let me I take the first part and then Tom can pick up just on the hay retention, we called out that retention trend was good, nearly 92%, which is the best. And while it's really mostly mix. And what I mean by that is simplistically, the retention of a company like ours is really most fundamentally based on the size and the health of the clients. We provide credit and we probably kick out past the people so over 92% retention. So 8% plus most probably closing in on half of that is us not liking the Client enough anymore, right to extend credit.

So the mix, like we talked about in the quote, [Ensign], this and North America fleet pivot, we're pivoting into higher quality, better credit worthy accounts, more stable accounts. So that structurally low grade retention improvement. And then corporate payments at the business is bigger accounts. Tom said it earlier call you average it down $200 million to $300 million of cash company and its own, right? And so when you have clients that their waste stable and generally decent credit recovery, so is Corporate Payments grows from whatever it was 20s to call it 30% now and the way the 40 that's another part of mix. So I would say that we the outlooking improving retention, So I would say that we certainly as we run through the next, you know, [board] a quarters.

Nate let me kind of walk you through the sequential quarter from Q2 through Q4. It's important for kind of understand the pieces. So we printed $975 million in Q2 and are guiding toward a midpoint of 10 to 25. That $50 million increase, half of that, a little over half of that is related to Paymerang and coming on board, what drives that have a lot of visibility into and the seasonal uplift that we have seen from Gift that over half of the $50 million increase .

The other increases, really the snowball kind of what we would call really are outperforming companies, the Brazil, the cross border, the payables that makes up the lion's share of remaining sequential increase will be getting some lift from some of the other businesses, but not meaningful as more. Back to your question about a pretty similar retention base sales kind of model with a snowballing of cross her payables and Brazil is what coupled with the Paymerang and that gets you to the to the [1025].

And then Q4 is more to say is both the growth of Paymerang, right, because we will then start harvesting some of the synergies. So that gets you to the $40 million between Q3 and Q4 or half, again is Paymerang and gift. I get typically has a high seasonal second half. I mentioned the third quarter and also dividends a strong fourth quarter for the reasons of the holiday season and vendors wanting to refill their vertical Shell's, if you will, gift cards and then the rest of that increase, call it, another $20 million is a snowballing, again of our growing businesses in the sales that we've been talking, cross border and payables growing almost 30%, Brazil growing 27%. Those just pour into the second half. That then drives the right. As you know, it's certainly not without some risks. I mean, clearly, we've got to execute and deliver. You don't look at those numbers and say, oh, that's a lay-down forecast for the second half of the year.

But is it something that we do have a discrete planned as against and the plans are up against things that we've got a fair amount of visibility and and things that are, I would now like to describe them the way we get from here to there.

Ron, Tom. Appreciate the color. Thank you.

Peter Christiansen, Citi Bank.

Good evening. Thank you, gentlemen, for the question. I wanted to dig into the transaction momentum we're still seeing in the Brazil business looks fantastic. As we think about like parking, fuelling stations, that kind of the growth that you're seeing there.

I was wondering if you can attribute that more on like footprint expansion versus kind of what seems to our growth of more user engagement and on the footprint expansion kind of story, can you just remind us where we are? And do you see more opportunities to expand that those two networks?

Hey, Ron. Good question. Yes, the headline is the Brazil business is doing great. So divided between the core title business or tech, which I think we said the pay volume headcount grew 9% in the quarter. And the reason again, so that is, you know, we're coke. We had every distribution channel known to man to buy a tag Oriental. Those were in malls where retail stores were in digital. We're in all of the new hires they make on that windshield coming out.

So that a vehicle we as you can buy our tech. And so there's just nobody of 2,000 people in those areas, you know, plays is helping health seasonality's tags.

And then second, we told you in this country have been that the cross-sell and you have 6 million, 7 million active users, including more than half of our comments here at every time you can sell other vehicle related stuff. And we are horizontal pilot and fuelling compound and everything and 25% or 30%, [I kind of we call Hardisty, it's like tickets] and registration for your car so that they found anything at 40% in the quarter.

But literally were up like five banks selling that to our own user base because when users now com on their phone into the holidays, we know who you all for your decreases in your house oil to we know your registration. They literally graph on the whole day, hey, that to be their outstanding partner.

They are due on Friday. And so the power of I hope you learned this in this matter, the size of the days and the number of you know, new users we at and the broadening line has vehicle things that we're selling now week, the model work, people can see it, but we're well on the platform of the flagship product because of our distribution, and we're broadening the data on things. And your related question is yes, the footprints of those related things with [Greg's], we've added another, I think, 400, 500 fuel stations this year or next year.

We've added thousands and thousands of incremental parking locations on through a deal with that as his car gets a from one of them, largest companies in the country doing it. So we are doing now why me where the users in use these add-on services, which helps us reach more of the base. So the models work day, it's April, incrementally profitable, obviously, because we're cross cell and right versus just getting new accounts. So I'm holding the model that we articulated a few years ago. People can see it is working.

That's really encouraging. And I hate to beat the dead horse on virtual cards and some that's very encouraging about the mix being really healthy there overall team and file. But just curious if you could give any color on rebate levels in your business?

Yes. I'd say stable. I mean, we're not going to get into those details and they can vary dramatically based on customer base side of the transaction. But there's nothing from a rebase standpoint that knowing, you know, the numbers that the trends there or how they've been over the last several quarters.

That's helpful. I appreciate that, Tom. Thank you.

Ramsey El-Assal, Barclays.

Hi, thanks for taking my questions evening. Ron, I wanted to ask about lodgings contribution to your longer-term growth algorithm. I mean this segment is undoubtedly recovering. What's your confidence level that lodging will eventually get back to? It's kind of historical growth Watermark?

And the reason again, as I say to you go back to the very beginning of this thing is if you think about travel and US travel, the different pockets tell that, you know, white-collar and blue-collar big companies will companies this area that we go after is just completely uncertain.

The word they use is kind of unmanaged. So as people there on the call, then it goes to that and manage their travel for forever and ever by a group of guys going to fix why there's, you know, in Tampa after storm do not have very good. You know, travel health is stuff.

And so I think that the the mission of product line and a network that we've got serves is incredibly underserved market segment of which we've got a decent share. And then finally of 20%, something like that. So there's plenty of time and there's really not many good all term and as to how those competencies.

And so this isn't as bad as the IT think the thing we did, whatever six or seven years ago, but obviously, we we created some of the problem in the fact that the days is stabilizing, tells me that we've retained at that. The people that didn't relate what we did on the year, though, that we're not doing that and the rest of the client base.

So as long as the client sitting on our books, you know, in July are happy on and we can keep selling land. We said we were 36%. Then then the answer is we'll leave that on the other side. And the [now you Ramzi too] to the customer, I think the spreads, which is our cost versus retail hit $50 a night on in June or July $50. I think we turned over $25 of that back to the company. So your ability to have a simple way to book, you know, say and then pay for all that stuff in an organized way and control it.

So the people go and where you are not spending other stuff, the combination of those things it's just such a great value prop is probably the best that I probably have at the company. And so, we just have to just have to execute well, I would now like we did a year ago. So confidence is high to do better again.

Super helpful, Ron, and thanks and one more for me. Can you unpack the same store sales improvement, which was really meaningful in the quarter? Where was that localized in terms of industry verticals, products kind of across the business? I think throughout your remarks, you've addressed that a little bit, but maybe just kind of roll it up for us, where are you seeing the best improvement there on same-store sales?

The two big ones would be North America fleet and again, that's structural, right? We were ever a year-and-a-half ago stops the [Nypro] thing. And so your base gets way more stable when you have a better clients at it, right, more steady kind of advice. And you don't kick them out again for credit and any other logic because again, that based on the road in Q2 of last year and so the customers that they didn't use them for, again, we kind of contain that. So those would be sequential really the two businesses that carries the most improvement in Q2.

And that was the inflection point that we were looking for and anticipating to make sure that I didn't wide and this was at the quarter, we were able to see that in fact that this wide and it's coming back. So that's gives us a little bit of a few guys ran it is running out of this models .

And guy. So when I say, hey, I've got two Provigil inside the home to do for our job here. And I'm going to go from the line A2 stable. They trust our loan, trying to say is don't miss the trends. What are the what are the two businesses to same store sales have improved both sequentially, the two-pronged, your crews retention was better raw materials. And so we're seeing already in the trends, those businesses getting better. So when we run the models forward, that's a big part of what creates the improvement of these that to stay within those businesses.

Got it. Thanks so much.

John Davis, Raymond James.

Hey, good afternoon, guys. I think if we go back to 4Q of 2.2, there was a lot of travel disruption in the lodging business benefited. So just curious, did you see any benefit from the Crowd Strike outage on the trial and the associated travel disruption there?

Hey, John. I hate to admit, yes, we did on which we saw kind of in our July flash. So I don't necessarily like to wish which problems on the river. Yes. Remember that if you took our entire lodging business, if you looked at the pieces are right, we sell the last three or four different verticals there. We saw the what we call our workforce blue-collar, resolve that airlines and the sell-to insurers and stuff in the in a couple of those businesses, we have either what we call them or disease a hurricane or distressed, which is like the airlines not daily flights across. That's that probably is, I don't know, 10% or 15% of the entire business.

So even if it's, you know, 50% better roll year like the world, as you know, upside down. So I wouldn't say that it is super duper meaningful to the overall thing, but it's certainly helpful. Certainly our numbers in that segment will be better in this quarter.

Okay. No, that's helpful. And then for us to dig in a little bit, you saw nice acceleration sales growth that you called out corporate payments of 21% versus overall 21%. And I think, Tom, you called out North America fleet, five card plus new sales being really strong. But maybe overall only what is North America fleet, new sales look like and the other segment, the core of the corporate payments driving that 21% and a nice sequential improvement.

You have been tough on the North American fleet, John is kind of mid single digits, but it's really kind of a tale of two cities in there because there are some segments have been there that you were just kind of deemphasizing if you look at our proprietary fuel product is actually a 30%. So it just gives you the range of variability that that's going on the North American fleet business. So I think you really have to kind of decompose it to get to what's going on there.

Then as you said, you work down the page in terms of launching, we referenced that payments of 30%. So we're focusing our sales efforts. We're seeing that. So I think that the message replacing it with.

Okay, pretty strong color. Thanks guys.

Andrew Jeffrey, William Blair.

Thank you very much. Good afternoon. Appreciate taking the question on other calls, gotten a long. So I'm going to ask you one for Ron. Just big picture and I think about corporate payments of and the two big deals you've announced recently that the profile of the businesses has really pretty meaningfully shifted and will continue to do so next year. And I know you did an exhaustive quarter review last year, but does there come a point where you kind of look at it, the merits of being a pure play, we call it 20% scale, public B2B company and what that might mean for some of the parts for fleet core. This has just -- it's such a distinctive unique business where I think there could be scarcity value. I wonder if you revisit some of that vast potential shift in corporate structure?

No, not that. I spent the last year studies that I think referenced our conclusion that the greatest value creation of the company is two things. one, keeping corporate payments going, which we're doing on time against the 20% and buying and creative deals into two acceralting rating. And that's gone on. With that said, there's always that everyday wages as a different day and we'll see where we are announced six, 12 months.

You know, I think we said we like the company we have. We like the fact that we're in three vein and lines and we've obviously got some fixed at work to do with a couple of the businesses. So I'd say we're not on a revisiting the three segments today, period against our eyes are always open. And our years, not today.

Okay, that's helpful. Glad it's not off the table completely in the future, though. Thank you.

Dave Koning, Baird.

Yes. Hey, guys. Thanks. And just one question for me. So Q4, you've guided the 14% growth. Just the math around that. I mean, it's pretty outstanding, like is that corporate 20% and everything else kind of over 10%? And then is that sustainable? Is there anything in Q4? That's really good at that. That falls off in that 25%?

Well, I'm glad you said that. Yes, please. Where does that help at a better place than nice places. So yes, at 14% organic revenue growth and 40% rent growth is attractive. So for the first part of your question, yes, obviously, virtually every business is performing. Tom mentioned before, obviously the other category with guests would go way into the positive column and corporate payments will go well into the 20s because we're picking up some planned synergies on the Paymerang side.

And again, just the snowball of the sales there then continued, you know, great performance in Brazil. And then the two problem children, as we said, kind of stabilizing. So that's what this thing looks like. So soon as you get the problem children from declining to stable, high-performing businesses pull up, obviously, the average growth rate quite a bit. In terms, hey, does that mean that we're at 14%, hey, we're at 14% forever. No diligent on their question. What can we sell next year, particularly in North America fleet in launching those bases and have stabilized? Can we sell in that? That was those businesses, as you know, what frantically again on. But I would say certainly those for double digit growth rate, which will certainly that you guys at 90 days with the view of '25, but it will be a great outcome to get there. And I think it sets us up well to be nor was it 10% in 2025.

Great. Thank you.

Thank you. We have reached our allotted time for questions. This does conclude today's Corpay second quarter 2024 earnings conference call. Thank you for your participation. You may disconnect at anytime.