Corpay, Inc.

Welcome to the FleetGuard Technologies first quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jim Egglesetter, Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for joining us today for our first quarter 2023 earnings call. With me today are Ron Clark, our Chairman and CEO, Tom Panther, our new CFO, and Alyssa Vickery, our Chief Accounting Officer. Following their prepared comments, the operator will announce the queue will open for the Q&A session. It is only then that you can get in line for questions. Please note that our earnings release and supplement can be found under the investor relations section of our website at fleetcore.com. Now, throughout this call, we will be covering organic growth. As a reminder, this metric neutralizes for the impact of the year-over-year changes in port exchange rates, fuel prices, and fuel spreads. It also includes pro forma results for acquisitions closed during the two years being compared. We will also be covering non-GAAP financial metrics, including revenues, net income, and net income per delivered share, all on an adjusted basis. These measures are not calculated in accordance with GAAP and may be calculated differently than other companies. Reconciliations of the historical non-GAAP to the most directly comparable GAAP information can be found in today's press release and on our website. I also need to remind everyone that part of our discussion today may include forward-looking statements. These statements reflect the best information we have as of today, and 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 also 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 8K and in our annual report on Form 10K filed with the Securities and Exchange Commission. These documents are available on our website and at sec.gov. With that out of the way, I will turn the call over to Ron Clark, our Chairman and CEO. Ron?

Okay, Jim, thanks. Hi, everyone, and thanks for joining our Q1 23 earnings call. Also joining us here today is Tom Panther, our new CFO who is now official, so delighted to have Tom here with us. Up front here, I'll plan to cover four subjects. First, provide my take on Q1 results. Second, I'll share our updated full-year 2023 guidance. Third, discuss progress on our value creation and simplification plan. And then lastly, I'll comment briefly on our newly formed strategic review committee. Okay, let me turn to our Q1 results. We reported revenue of $901 million, up 14%. and cash EPS of 380, that's up 4%. Both results finished above the top of our guidance range. The cash EPS of 380 clearly weighed down predominantly by higher interest expense. At constant interest expense for the quarter, cash EPS would have been 430, up 17%, so our model's intact. The macro environment did cooperate, basically coming in as we anticipated. EBITDA for Q1 exceeded $460 million, up 17%. Margins there up 100 basis points year over year. We invested incrementally about another 100 basis points of margin and a set of capability acquisitions from 2022, those intended to better position the company for the midterm. Trends in the quarter, quite good. Organic revenue growth, Q1 was up 12% overall. That accelerated sequentially and is above our 9% to 11% target range. Same store sales finished plus 3%, so healthy. Retention finished at 91%, slightly impacted by the credit actions we took in Q4 to contain credit risk in the micro segment. That does drive a bit of involuntary attrition. Sales performance, absolutely terrific in the quarter. up 31%, setting new record levels of new bookings. So look, fundamentals in a good spot. I do want to highlight our Brazil performance in Q1. So that business really doing a nice job of transforming from a toll-centric business initially to now a broader vehicle payments business. again, for both businesses and consumers. The vehicle-related payments now include not only tolls, but fuel, parking, fast food, and recently now even vehicle insurance. Another super good sales quarter for Brazil, new toll tags, record level, and those were helped by a new a bank relationship with Santander, which added almost 15% to the overall sales in the quarter. We also had terrific fuel transaction growth, up 39%, as we continue to increase the fueling acceptance sites. But most surprisingly, in the quarter, of our approximately 5 million customers, active consumer users there. Three million utilized our new SEMPRA app, mobile app, in the quarter. And that engagement helped drive almost a 15% attach rate of insurance policy add-on sales. So consumers coming to the app, looking around, seeing offers, and actually transacting with us. So we think... This engagement opens up, you know, big-time cross-sell opportunities. So, look, all in all, a very good start here to Q1. Sales, revenues, profits, all of those above our expectations. Okay, let me shift gears and turn to our updated full-year 2023 guidance, along with assumptions behind it. So we are revising full year revenue and cash EPS guidance up by our Q1 beat. So revenue at the midpoint now $3,840,000 and cash EPS at the midpoint now $17.15. We are expecting the rest of year environment to be pretty consistent with what we forecasted 90 days ago. A few puts and takes, but overall in the same place. Also, we've got an early view of April trends and results, so continuing to track to our plan. I do want to point out that we're expecting rest of the year organic revenue growth in the 9% to 11% range. Inside of that, fuel improving to kind of mid-single digits Brazilian lodging in the mid-teens, and corporate payments in the high-teens. We're expecting rest-of-year earnings to accelerate. That'll be driven by these record levels of sales flowing into the second half, a stronger Q2 and Q3 seasonality, again, a second-half fuel acceleration driven really by the pivot in sales in that business for micro to a bit up market. We'll see better operating leverage as we run through the year. Revenues will expand faster than expenses. That should result in EBITDA margins in Q4 about 200 to 250 basis points better than last year. Second half EPS will also improve mostly as we lap the interest expense and higher bad debt levels that we experienced last year. Finally, we will keep a close eye out for any signs of macro weakness so that we can react quickly if we need to. Again, our solutions are generally pretty essential, pretty important, and demand for our services is tends to actually run higher in inflationary times. Okay, let me transition to the progress that we're making on our value creation or simplification plan. So we're working across three areas there. First, to eliminate overhang related to the Russia and FTC case. We're working to reduce complexity and present a simpler company. And finally, EV, we're working to demonstrate that we can basically succeed in this energy transition. So first up, Russia, we have signed definitive documents now to sell our Russia business to a local firm. We're awaiting Russian government approval for the deal. And if we can get through the various hoops here, we would expect to close at the end of the quarter, the end of Q2. Tom Panther will provide some additional details on the impact of the transaction. Okay, next up, the FTC case. So not much new to report here. As a reminder, both we and the FTC filed proposed orders back in February outlining some additional disclosure enhancements that we had been discussing with the court. So now it's really up to the court to decide what the conclusions will be and what the order will be. Given, again, that These are disclosure-related subjects. We continue to believe the court order will not have a material impact on the go-forward financial performance of the company. Over to simplification, we are evaluating ways to simplify our company. Three things under consideration. First, we are actively exploring the divestiture now of a few non-core assets. So that's underway. Second, we're considering moving to three reporting segments versus today's five. And then lastly, we're continuing to evaluate a brand change for the entire company to Corpay that would better reflect really the broad set of corporate payment solutions that we're offering. So expect to make decisions on these simplification ideas over the next 90 days. Okay, let me make the turn to EV and reference pages 11, 12, and 13 in our earnings supplement. So we've launched a pretty unique solution, an EV solution in the UK. We call it our three-in-one solution. So that solution provides our fleet clients with a single program, one program, where they can make you know, traditional diesel purchases, on-road public EV recharging, and manage at-home EV recharging and reimbursement. So three in one. The early indications are that the EV economics could actually be favorable to us. So we looked at a sample, 271 clients in the U.K., that have been with us over the last eight quarters and examined the revenue pattern. And what you can see in the supplement is that the EV revenue per vehicle is actually higher than our ICE revenue per vehicle. So although early days, really pretty good news. So the driver here is really the need for businesses to measure and reimburse recharging at potentially, in our case, a million homes, right, the number of users we have. So it will be quite a task. I also want to point out that we're continuing to pursue the consumer EV payment opportunity, so providing some potential upside to the EV energy transition. Since we are you know, building, acquiring EV networks and EV technology for the B2B market, we decided to repurpose those capabilities to serve consumers. So underway doing that in Europe, we're building a consumer EV payment business. We've signed 10 EV vehicle manufacturers and we're serving their new EV consumer buyers. So when a new EV consumer drives off the lot, they will be using our EV network and payment app. So out of the blocks there. Okay, let me make the turn to my last subject, which is our new strategic review committee form to evaluate the portfolio options for the company. So we did retain Goldman Sachs to support the assignments. They have shared their preliminary analysis and thoughts with both the committee and our board. I do want you to know we're taking this portfolio assessment quite seriously, and we're evaluating really all options to potentially increase shareholder value. I want you to know that I am personally aligned here with shareholders, both in terms of the importance of re-rating our multiple, but also the urgency of doing so. So early days, but we're digging in, we're evaluating options, we're meeting folks, we're sizing, disenergies, we're getting at it. We do expect to have much more to report when we speak again in 90 days. So look, in closing, again, Q1 out of the blocks in a good way, ahead of our expectations. Our rest of year guide up, assuming 9% to 11% organic revenue growth with improving margins and earnings. Working aggressively to close out our Russia and FTC overhangs. begin communicating, hopefully a simpler company, and advancing the EV capabilities. And lastly, as I just said, we are just underway evaluating portfolio separation options. So a lot going on. So with that, let me turn the call over to Tom Panther, our new CFO, to provide some additional details on the quarter.