Corpay, Inc.

Good day everyone and welcome to today's CorpAid Third Quarter 2024 earnings conference call. At this time all participants are in a listen-only mode. Later you will have an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. Please note that this call will be recorded and I will be standing by should you need any assistance. It is now my pleasure to turn today's call over to Head of Investor Relations Jim Eglseter. Please go ahead.

Good afternoon and thank you for joining us today for our third quarter 2024 earnings call. With me today are Ron Clark, our Chairman and CEO, and Tom Panther, our CFO. Following the 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 under the Investor Relations section on our website at corpaid.com. Now throughout this call we will be covering several non-GAAP financial metrics including 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 -over-year changes in FX rates, fuel prices, and fuel spreads. It also includes pro-forma results for acquisitions and investitures 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. Reconciliation 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 is important to understand that part of our discussion may include forth-looking statements. These statements reflect the best information we have of today. All statements about our outlooks, 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 8K and in our annual report on FORP 10K. These documents are available on our website and at scc.gov. Now I'll turn the call over to Ron Clark, our Chairman and CEO. Ron?

Okay, Jim, thanks. Good afternoon everyone and welcome to our Q3 2024 earnings call. Up front here I'll plan to cover three subjects. First, provide my take on Q3 results, share our Q4 guidance along with a 2025 preview. Second, I'll discuss our USA opportunity and our recent sales reorganization. And then lastly, I'll provide an update on our M&A activities. Okay, let me begin with our Q3 results starting with we surpassed one billion in quarterly revenue for the very first time. So, quite a big milestone for us. We reported revenue of a billion 29, up 7% excluding Russia, and cash EPS of $5, up 14% excluding Russia. The results really in line with our expectations, both revenue and earnings finishing on the high side of our guidance range. EBITDA margins in Q3, 54.2%, that's up about 100 basis points sequentially. Our trends in Q3 really quite good. Same store sales remained essentially flat

and

that's consistent with Q2. Retention improved slightly to a bit above 92% for the quarter, that's a return to record levels. Sales, or what we call new bookings growth, 14% inside of that corporate payment sales growth leading the way with a 28% sales growth in the quarter. And payables, spend monetization levels remaining steady sequentially. Organic revenue growth finishing at 6% overall. Again, strong growth in corporate payments, Brazil and international fleet, and a continued drag from North America fleet and lodging. Although lodging did show signs of improvement in the quarter. So the wrap on Q3, really no surprises here. Lodging a bit better, North America fleet a bit worse, but more importantly trends, same store sales, retention, sales and spend monetization all stable or improving. So really a good result. Let me make the turn to Q4 and full year 2024 guidance. So we're out looking a very strong Q4 finish. We're expecting organic revenue growth to accelerate to 13%. An early view of our October revenue flash supports this acceleration. Outlooking EVDA margins of 55.6%, which should be up about another 140 basis points sequentially. Cash EPS of 535 at the midpoint, up 21%. And hopeful for Q4 sales growth coming in above 20%. So really firing on all cylinders. A couple additional positives. We expect lodging revenue growth to turn positive here in Q4. And the infamous corporate payments channel segment expected to finally grow again here in Q4. So both of these things support our overall revenue growth acceleration. So as I said back in August, our expected arrival to a better place is now Q4. For full year 2024, we're staying put with $19 of full year cash EPS at the midpoint. That implies 16% year over year EPS growth excluding Russia. So really in line with our 15% to 20% midterm earnings growth target. Let me transition to a 2025 preview. Obviously early days, but we think it's setting up quite well. In terms of organic revenue growth, we're out looking 9% to 11% driven by recovery of our North America fleet in lodging businesses, both moving into positive territory next year. Corporate payments in Brazil maintaining mid to high teens growth rates. Even our gift business out looking double digit growth next year. We do expect an incremental 3% of print revenue growth that's above organic from the combination of the two corporate payments acquisitions. Planning our 2025 sales growth around 20% next year. That's driven by the demand for our new products along with incremental investment in sales coverage. So taken together, we're targeting 2025 cash EPS at a $22 per share ballpark. Still lots to work through. The couple of big assumptions behind the 2025 cash EPS will be FX assumptions, particularly the Brazil REI, along with the net impact of lower interest rates offset by higher 2025 tax rates. So look, net net, we're out looking a pretty good 2025 setup. Okay, let me make the turn to our USA sales opportunity, along with the recent decision to reorganize US sales and appoint a new CRO. So recently our US sales growth has not been as good as our international sales growth and particularly our North America fleet and lodging solutions. We see the US opportunity for all of our lines to be enormous. Take for example our payables business. We've got about a 2 or 3% share of the mid-market. Recall that's a business of about $500 million of annualized revenue. And yet there's a couple hundred thousand prospects to convert and we've got 2 to 3%. So look, a big opportunity. So to get at this opportunity more urgently, we've taken the following actions. We've established a consolidated US sales organization with the associated marketing and sales support functions, reporting into one new CRO exec. His name is Mike Jeffrey. We've rebranded sections of the vehicle, lodging and payables, lines of business to Corpe to leverage the brand. And we've established a dedicated cross-sell team that will take each of our solutions back to our existing client base to drive sales. So lots of energy, focus and urgency around selling more here in the US. Finally, I'll move to my last subject which is an M&A update. So quite busy in 2024 on the M&A front. Four deals finalized, a couple still in the pipeline. So first, PayMurang, the AP automation company. We close that July 1st. Good news, it's tracking closely to our second half plan and we're seeing significant synergies here in Q4. GPS, a cross-border business that we signed up this summer, still on track to close at the end of the year. Through Q3, the business is performing at forecast. So good news there. So we'll be excited to bring that business across. Taken together, these two corporate payment deals should contribute about 50 cents of cash EPS accretion in 2025. Third is our Zappay Brazil deal, which is a vehicle car debts company helps drivers pay for registration renewals and tickets. We acquired that business in the spring. It gave us entry to really a new payments TAM that is five times the size of the Toll TAM. So pretty big. And the Zappay business year to date, up 45% in revenue. We've also signed up 90,000 Sempera toll users to using the Zappay solutions in the first six months. So good start. Lastly, the CommData Merchant Solutions business. It's a POS solutions business for truck stop merchants. It's being sold to a PEBAC company, planning that sale to close by year end. You might recall this divestiture is tied to the strategic review. From last spring, it meant to simplify the company. We do have a couple of active deals now that we're still working and although relatively small, if we do proceed, we would close those early next year. So look, in conclusion today, Q3 again results finishing on the high side of our guidance range, stable or improving same store sales, retention and spend monetization trends, out looking meaningful revenue growth acceleration here in Q4, along with record earnings, early take on 2025 good out looking revenue and earnings growth kind of in line with our stated midterm objectives. And lastly, very pleased with our 2024 M&A activity, the two corporate payment acquisitions, tracking and the business really just positions better overall for faster growth. So with that, let me turn the call over to Tom to provide some additional detail on the quarter. Tom? Thanks,

Ron, and good afternoon, everyone. Here are some additional details related to the quarter. As we announced last week, Q3 revenue was 1.029 billion, which I was pleased to see at the higher end of our guide despite lower fuel prices. Organic revenue grew 6% versus Q3 last year, led by 18% growth in corporate payments. Strong expense discipline and another quarter of lower bad debt resulted in EBITDA margin of 54.2%. We generated 355 million of free cash flow, which translates into $5 per share in cash EPS, 5 cents above the midpoint of our guidance, up 11% versus last year, and up 14%, excluding the impact of the sale of our Russia business. Overall, our first billion-dollar revenue quarter reflecting the quality and diversification of our business. Now, turning to our segment performance and the underlying drivers of our organic revenue growth. Corporate payments revenue was up 18%, driven by 7% growth in spend volume and stable card penetration rates. Strength in our direct business, which grew 21%, was again led by strong growth and full AP. We closed the Paymering Deal in July, which contributed $14 million of revenue in the quarter, and we continue to migrate the business to our platform. Everything is progressing according to plan, and we expect meaningful synergy contributions beginning in the fourth quarter. From an adjusted EPS perspective, we still expect Paymering to be EPS-neutral in Q4. Cross-border revenue was up 21%, led by 40% sales growth. Both new client acquisition and recurring client transaction activity was robust as our scale, technology, and talent advantages continue to power share gains from legacy financial players. Our previously announced acquisition of GPS capital markets continues to progress through the approval process, and we expect it to close in early 2025. Turning to vehicle payments, organic revenue increased 4% during the quarter. Growth was driven by 7% increase in transactions and higher revenue per transaction, which were both broad-based across all businesses and geographies. Organic revenue growth was again driven by Brazil and International Fleet, which both grew double digits. We're beginning to see some progress related to our sales and marketing investment in our local US fleet business. As a reminder, this customer segment services middle market and SMB field services businesses that use vehicles to deliver their goods and services every day. During the quarter, transactions and spend volume on a constant fuel price basis showed signs of accelerating growth. In addition, we're seeing a quarterly trend of improving performance across same-store sales, new sales, and retention. There's more work to be done to increase sales, but it's encouraging to see some initial progress. In the UK, we continue to expand the -by-phone parking app into a multi-point consumer vehicle payments app. By leveraging our proprietary networks and partnerships to add relevant products and services. In Q2, we launched the ability to acquire car content insurance when parking and added a search function for nearby fuel stations and EV chargers. We've gone live this quarter with two additional services. One, our first vehicle maintenance and repair product for the UK's mandatory annual vehicle inspection service. And secondly, EV charging payments, where app users can directly pay for EV charging from their -by-phone app. We continue to be quite excited about the future prospects from repurposing our B2B networks and payment solutions to a large consumer segment. In Brazil, business performance was again quite strong with revenue growing 18% and sales increasing 22%. Tag growth was 8% and toll-related revenue grew 20%. We continue to see success not just in selling tags, but also selling additional payment solutions. Both insurance policies sold and car debt payment transactions were up over 100% in the quarter. Additionally, car debt app users and revenue were up over 30% compared to last year. These additional products are quite popular and continue to support our cross-sale success. Lodging revenue decreased 5% and improved five points sequentially from Q2. Room nights increased 10% in part due to an improvement in same store sales, as well as storm-related emergency services. The softness in the business appears to have bottomed and we're expecting the segment to grow slightly in the fourth quarter. Now, looking further down the income statement, operating expenses of $561 million represent a $70 million 7% increase versus Q3 of last year, driven primarily by acquisitions. Excluding acquisitions and divestitures, operating expenses were flat. Bad debt expense declined 3% from last year to $28 million or five basis points of spend, so credit remains controlled. EBITDA margin in the quarter was 54.2%. The slight -over-year decline was impacted by acquisitions and divestitures over the last 12 months. Normalizing for these transactions, EBITDA margin increased 77 basis points. Our positive operating leverage is driven by solid revenue growth and disciplined expense management, both of which we're quite good at. Interest expense increased $21 million versus Q3 of 2023 due to higher debt balances from acquisitions and share buybacks. Our effective tax rate for the quarter was .9% versus .6% last year, quite a bit lower as a result of option exercises during the quarter. Now, turning to the balance sheet, we ended the quarter with $1.3 billion in unrestricted cash and we had $800 million available on our revolver. We have $6.2 billion outstanding on our credit facilities, which includes an additional $500 million of term loan B we issued in September at substantially similar terms to the existing credit facility. We used the proceeds to pay down the revolver after our purchase of hammering on July 1st. As of September 30th, our leverage ratio was 2.82 times trailing 12-month EBITDA. We also took actions in September to reduce our interest expense by entering into an additional $500 million, .19% fixed rate swap and restruck our Canadian dollar to USD cross-currency swap at a more favorable rate. The combination of these transactions is expected to reduce interest expense next year by approximately $7 million. We repurchased 300,000 shares in the quarter for $90 million, entirely related to employee stock option exercises. We have over $500 million authorized for share repurchases, and the board recently authorized an additional $1 billion of share repurchases, so we now have over $1.5 billion available for buybacks. We will continue to pursue near-term M&A opportunities, and we'll also buyback shares when it makes sense, while maintaining our leverage within our target range. Now, let me provide some additional details related to our outlook. For the full year, we are maintaining our cash EPS guide of $19 per share and slightly lowering our revenue guide to $3.995 billion at the midpoint as a result of unfavorable fuel prices and FX rates. We are not flowing through the third quarter beat, as most of that $4 million of revenue was driven by the timing of customer transactions near quarter end. For the fourth quarter, we are outlooking 13% revenue growth and 21% earnings growth at the midpoint. We expect revenue growth acceleration across each of our segments in the fourth quarter, driven by new sales, strong retention, and the realization of synergies from the Paymaring acquisition. So all in all, quite similar to what we expected in August. For more details regarding our fourth quarter and full year outlook, please refer to our earnings release. Thank you for your interest in CorpA, and now, Operator, we'd like to open the line for questions.

And certainly at this time, again, if you would like to ask a question, please press star 1 on your telephone keypad. You may withdraw your question at any time by pressing star 2. Again, that is star 1. And we will take our first question from Ramsey Asal with Barclays. Please go ahead.

Hi, this is Shrayan for Ramsey. Thanks for taking my question. I was just wondering if you could break down the retention by segment and how much of the retention improvement that you saw, how much of that is from corporate payments becoming a larger part of the business versus just improving retention trends throughout the remainder of the business?

Yes, Shrayan, thanks for the question. We really don't break the retention down by segment. We talk generally in terms of how the segments perform relative to the overall line average. The corporate payment business is much better than the line average, and some of the SMB businesses within fleets vehicle payments are below. I think generally what we've seen is improving signs of retention on an absolute basis. Yes, as the mix gets more directed towards those higher retention businesses, it will naturally rotate up. But that's going to move at a slow pace, and you haven't seen a dramatic shift in mix just from one quarter to the next. You'd have to look out over a 12-month period before you probably start seeing that have much of an impact. I think you can assume or take away the point that the improvement that we saw in retention is just core retention improving within the businesses versus a mixed story.

Got it. Very helpful. And then just a quick follow-up on – sorry.

Go ahead.

And then just a quick follow-up on lodging for me. I was wondering if you guys could size if FEMA had any contribution to lodging payments in the quarter given the hurricanes, and if you guys are expecting any further tailwind from just extended disaster relief efforts.

Hey, it's Ron. It's a good question. I'd say it's probably about a million each quarter, maybe a million above kind of the normalized emergencies we get, and maybe a million this quarter. Very

helpful. Thank you.

Got it.

Thank you. We will take our next question from Tianjin Huang with JP Morgan. Please go ahead.

Hey, great. Good afternoon. Good to talk to you guys. I just want to ask on new sales if that's okay. Just a couple questions there. How did the third quarter come in versus planned, and how quickly can the new sales reorg and the CRO here produce results in your mind? Thank you.

Tianjin, hey, Ron. Good question as always. I'd say corporate payments was rocking in Q3. I think I called it out. It was in the high 20s over the prior year. The NAF business was still a bit soft. I think it was 14 in total. The outlook is kind of low to mid 20s for Q4. So the full year would be around 20% for the full year. In the preliminary plan that we built for 2025, kind of ditto that to be up again 20% next year. The hope is that we're going to get some leverage from this thing, which is why we did it both on the expense side, right, consolidating some of the back office things so we can have more line people, right, out with customers. And then also the cross-selling, right, it's cheaper to sell things back to clients we have. In terms of the contact rate, you know, it's much better. So he's a terrific guy. The guy we put in the job ran about half of the field at Paychex. So, you know, a pretty big group. And so, look, I'm super bullish both on the structure, the advantages the structure creates, and then second just on the guy, you know, just the super-duper guy. So with the products that we have, the structure now, and that guy, I'm hoping that things are going to do better next year.

Okay. No, that's great to hear. And just my follow-up, just thinking about visibility into 2025, I know we've got certainty on the election, and, you know, we'll see what happens with rates here. But double-digit growth at this point, how do you feel about visibility there, Ron, versus 90 days ago or even same time this time last year?

Yeah, I think better attention for a couple reasons. One is that we're out looking the acceleration right now, sitting in this quarter. And I've had a chance to peak in October, right, which supports the port, which is good. So to sit here today and say, hey, I think organic is going to go from 666 to 13 is the first statement I'd make. And then the second one, I think, is just the mix helps us. And as we look at the next year, I think the confidence is higher because the two problem children moved to flat or kind of low single digit, and the corporate payments in Brazil that are super good, you know, mid to high teams or bigger shares, right, of the business. So I think the mix, the ratios, we get back to line average is better. So I think, you know, business is the business you can plan where we go into, you know, next year with kind of 90% of the revenue that in the next year. And we've got, you know, whatever is 20 years of stats now on, you know, retention, same store sales. I mean, you guys are good at math. So that helps us basically, you know, frame what the revenue is going to be.

Great. Thank you for that.

Thank you. We will take our next

question from Nate Svensson with Deutsche Bank. Please go ahead.

Hey, guys. Sorry

about that. I wanted to ask about North American Fleet. Still remains a little bit of a drag on overall growth. And I know one of the other players in the space recently talked about some macro-driven softness there. So wondering if you call out some of the broader trends you're seeing in that business. I know you mentioned same store sales flat and three-queue, but any call-outs you have on trends quarter to date and then maybe more importantly, your 25 outlook calls for North American Fleet to return to positive growth. So if you talk about your confidence, maybe follow up on Tingen's questions about visibility into that positive inflection sort of beyond the sales or changes that you mentioned.

Hey, Nate. It's Ron. So on the first one, the same store sales, we're seeing nothing. So again, the thing is basically flat sequentially. And again, it's improved from the couple of previous quarters, point one. Point two, the retention in that business has improved a smidge sequentially in quite a bit from 12 months ago. And so at this point now that we finally last the infamous pivot of two years ago, it's really just a function now of sales. The retention levels are good. We're not seeing anything unusual in the same store sales. And lastly, we're not setting that big a target to try to get to

our overall number.

In the 9% to 11% number, we're saying, hey, let's look for that thing to be low single digit, better than it was this year, but no world beaters. So we're not trying to plan some crazy amount of sales next year, but we do expect sales to be up. So we're not seeing many of the same things that the other companies call those.

Got it. That's helpful. And then another question with regards to the 25-hour outlook, I think you mentioned a couple of the key assumptions being the net impact of lower interest rates and higher taxes. So hoping you could drill down into each of those a little more. So on interest rates, obviously, lower interest rates impacts interest expense, but wanted to ask about the impact of float revenue, particularly within corporate payments. I know it's not something you manage the business for, probably spend two seconds thinking about it, but it's obviously been a little bit of a tailwind to growth there year to date. So how should we weigh lower rates versus maybe higher average cash balances that you hold for clients and anything else you should be aware of with regards to the lacking float revenue? And then on tax rates, I know there's been a lot of talk about Pillar 2 and the impact facing other companies. So I just wanted to clarify if you had any impact there. And then beyond Pillar 2, any other things we should keep in mind when thinking about the tax rate next year, whether it's impact to share options, any impact with the election, et cetera.

And that is one loaded thought. Hold on, Nate. Let's write that down. Hold on.

Let me try to move through each of those quickly to leave some time for another caller. So first on rates, obviously, we have about three billion of our debts still rate sensitive. So as the Fed moves, continues to cut up, so they cut today, and the expectation would be to continue to move down. We will get the benefit of that. So you can apply that against the three billion notional. We pencil that out based on what we're seeing in the rate curve is that rates go down average to average. Call it 70 basis points. With respect to float, it doesn't have an overly material impact in terms of the overall impact, you know, effect to our revenue or to our interest income, depending on where the balances are classified. There'll be a little bit of a headwind, but the numbers that we quoted in terms of the overall guide, take that into account in terms of being able to power through any impact from the float side. With respect to your question on taxes, we do have some exposure to the global minimum tax as that rolls out into 2025. It's not overly material. I think what I would say is that this year we've commented that our tax rate was benefited from some discrete items, namely the exercising of some stock options just by employees given where the stock prices moved over the course of the year, not necessarily counting on that to always continue. And so I think you can look at a tax rate that's closer to our recent history versus where we were this year where we benefited from outside employee exercises.

Thanks for the call. I appreciate it. I move up to that question.

Thank you. We will take our next question from Dave Koning with Baird. Please go ahead.

Yeah, hey guys, thanks so much. I guess first of all, the growth is so good in Q4 and then obviously it's good next year too, but what's in Q4, the 13% that if we look at next year at 10%, that's not totally sustainable. It would seem lodging would probably get better next year, not worse. So what is going to be different in Q4 than the rest of next year?

Yeah, hey, Dave, it's Ron. So the cons would be the main thing. So let me start with just the acceleration from Q3 to Q4, so kind of 6 to 13. So call that what we report, 1029, so call it 25 million, 1055. Sequentially, we've got three businesses that basically will do way better in Q4 than Q3. So Brazil because it's seasonality, our corporate payments business, partly to the synergies of the latest acquisition are big and that business is snowballing, it's just growing fast, and then our gift business, which is a big seasonal business super active in Q4. So those three businesses will add 25, 30 million incremental. So I'd say our confidence plus peaking at October is pretty high. So then when you roll the clock to the next thing, some of those things roll off, right? That Brazil and gifts aren't super powerful in the other quarters, they're big quarters Q4. And again, like last year with the cons, the gift thing got pushed out, I think I mentioned, into 2024 for 2023. So it's really just how things line up against the prior period. But as I said, for the 2025 number, 9 to 11, we're just taking the problem children going from negative to low single digits into the plus column. Corporate payments in Brazil, mid to high, and then kind of international, call it around 10%. So when you add those things together, our confidence in that number is pretty high for next year.

And then also one thing to clarify, the 10% midpoint in that range is exclusive of the PayMorang and the GPS acquisition. So on a print basis, it would be closer to the 13% that we've referenced. Gotcha.

Yeah, that makes sense. And maybe a quick follow up, just corporate mix of growth in volume and yield, yield was super strong this quarter, volume decel. Was that just purely the mix of what was happening?

Yes, that's exactly right. It's just purely a mix of story and behind

that. Thank

you. Thank

you. And as a reminder, it is star one for your questions. We will take our next question from Sanjay Sukhrani with KBW. Please go ahead.

Thank you. Ron and Tom, you guys talked about a pipeline, an M&A pipeline. I'm just curious sort of what's in there. I know there's more on the Sharebuyback, but as we think about where you're going to allocate your capital next, I mean, is it M&A? More so than Buyback given some of the valuations have compressed?

Yeah, let me go to the first part of the question, the pipeline. So I think you said last time we're focused really on corporate payments, transactions, and then the consumer vehicle, things that could help us build bigger volume fast in there. So no shock that the things were out looking or in that group. In terms of the split between buybacks and acquisitions, it's always the same. If we have attractive earnings and assets that we can buy that create forward growth, that's always our top priority if the business case turns. And to the extent that the stock price rates out of a range that we like, we use liquidity for that. So I don't think anything materially different in terms of the priority ahead in the next year. Although I think the board did at the last meeting increase the authorization by another billion. So we've got liquidity again next year. We've got the authorization. So we'll see where the stock goes.

I guess to follow up, I know you talked just on that previous question about the acceleration and then the comps and stuff. I guess as we think about this acceleration, I mean, you said you peaked into October. It looks good. Where is there any risk in the numbers? I mean, it seems like things are progressing quite well. But you're calling for a pretty decent acceleration in the fourth quarter. I'm just curious as we look at these, is it just all comps and therefore you're pretty comfortable? Because sometimes the comp thing doesn't work either. Just curious.

It's a good question to say we're going to have a 13 percent revenue growth and I think a 21 percent earnings growth in Q4 is obviously what we've arrived. I'd say the biggest risk, we tend to look at the business sequentially, would be in that gift thing. Last year we had it in the Q4 number because it's historically been the big quarter. Not only do retailers order tons of gift cards, but then people activate them like crazy late in the quarter. So it's a late game call. And so there's only so much science in that. So I'd say if we were back on a call in 90 days and were short in Q4, I would say that would be the most

likely answer as to why. I find that the

other,

just building off what Ron said on the sequential point. So it's going up 25 million sequentially. So we've got the gift piece, call that 10. And then the other piece, I think we've got a pretty good line of sight into some realization of pay marine synergies is another piece of that. And then Brazil, given the summer season down there, we have a high predictability around the sequential increase there from Q3 to Q4. So I think those give us added confidence that we'll

be able to hit the Q4 number. Yeah, there are also record numbers, right? There's comps in this growth over the prior year, but there'll be record revenue, record earnings, almost record margins. So everything I say to you guys is pretty positive, separate from having easier comps from last year. Good

spot.

And once again, as a reminder, that is star one for your questions. We will take our next question from Peter Christensen with Citi. Please go ahead.

Good evening. Just for the question here, really nice trend, some results. Cross-sell has been an initiative in the past, granted. You've had to pivot the business out of the micro accounts in between that last effort. Just trying to see how you're going about cross-sells differently this time around and what makes you confident that you see this as a more viable opportunity in 2014

and the South Side. Hey, Pete, thanks for reminding me of the prior success, but it's a super fair question. I think a few things. Every day we get a little bit smarter. So the handful of differences this time around is first and foremost the targeting. I think I mentioned that before. We were romanced by the numbers instead of by the targets. So this time we're much clearer who among our client base makes sense to bring our other products to. It's a smaller group of larger accounts. That would be the first one. The second one I think is the brand, bringing products back that share the brand. We've moved a bunch of existing clients, let's say in the fleet card business, to what we call a CorpAE 1 fleet card. So when you go to them with a CorpAE business card or a CorpAE AP automation solution, they're like, oh, that's that company C-Pay. It's the same thing. And then lastly, I think this dedication of sales people that are just doing this. So it's not a part-time job, but it's kind of what they do. And we have marketing people focused on it. So I think the whole approach to the thing is just better organized and better set up this time around. You get smarter in the cycles. And so we should have some pretty decent read over the next three to six months whether this version is going to be way more successful. It should be.

I appreciate that, Colin. It certainly sounds more encouraging this time around. I did want to ask a little bit about the preview for 25, super helpful. I appreciate the initial preliminary look there. Just curious on view on margins generally. Obviously, there's going to be a lot of factors that could influence that over the year. But at least from what you're looking at now, do you see that as a component to earnings growth next year? Thank you.

Yes, for sure. Again, you get a little bit of noise right from the acquisitions that generally come across as lower margin. But I think the answer is yes. We expect some operating leverage again rolling into next year. You

just have the structural advantage of the business where the significant amount of fixed costs. So when you're growing revenue 13% at the midpoint inclusive of the acquisitions, you're just going to get positive operating leverage. We've been pleased with the sequential increase of margins quarterly this year. I don't know if the numbers are in front of me, but it's like a 51, 52, 54, 55 kind of number. And so I think that some of that quarterly variation is seasonal. But exiting at that mid-50s and overall at about a 54 for the year, I think, gives us a reason to believe that it will rotate up next year as well.

That's really helpful. Thank you, Tom. Thank you, Roger. Great results. Thank you. Thanks, Steve. Appreciate it.

Thank you. We will take our next question from Rufus Holm with BMO Capital Markets. Please go ahead.

Hey, guys. Thanks. Sorry, I joined the call a little late, so hopefully it hasn't been asked. But on corporate payments, the gross sales performance looks really strong. And you noted 40% growth in cross-border. I think about the retention there is slightly better than the core pay average. So how are you thinking about the organic growth in that segment heading into 2025 with that kind of sales traction, obviously moving pieces from the acquisitions? But any thoughts? That would be great. Thank you.

Yeah, Rufus, it's Ron. High teens is what I say we're looking at. You're right. The sales have been literally record levels now for the last two years. And you're right. The retention in the business is a bit above, a bit better, I should say, than our line average. And so when you put that math together, you get back to high teens and revenue and obviously faster to Tom's point. There's operating leverage in that business that runs off of one system. So you're probably in the mid-20s in terms of either the growth of the business. So it's been compounding at that level for a couple of years now. And then, as you recall, that's an interesting area for us in terms of deals. We're going to add, obviously, an asset that we hope to close at the end of the year that their synergies end and continue to look in that space for other assets. So we do have the ability to layer additional transactions in that

space on our platform. Thank you.

Thank you. And there are no further questions at this time. I'll turn the call back over to Jim Eglesetter for closing remarks.

Thanks for being here tonight, guys. I know it's a busy night. So if you have anything else or you're working through your models, feel free to shoot me a note. Happy to help. Thank you for being on the call.

Thank you. This does conclude today's program. Thank you for your participation. You may disconnect at any time.