Corpay, Inc.

Please stand by, your program is about to begin. If you need audio assistance during today's program, please press star zero. Today, I'd like to welcome everyone to CORPAY second quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during that time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question plus please press star, then the number two on your telephone keypad. Today's call is being recorded. I would now turn the call over to Jim Egglestetter. Please go ahead.

Good afternoon, and thank you for joining us today for our earnings call to discuss the second quarter 2025 results. With me today are Ron Clark, our chairman and CEO, and Peter Walker, our CFO. Following the prepared comments, the operator will announce that 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 corepay.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 discuss organic revenue growth. Now, 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 in other companies. Reconciliations of the non-GAAP to GAAP information can be found in today's press release and on our website. It's important to understand that our comments may include forward-looking statements, which reflect the information we have currently. All statements about our outlook, expected macro environment, new products, business development expectations, future acquisitions, or synergies are based on that information. They are not guarantees of future performance, and you should not put under-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 in Form 8K and in our annual report on Form 10K. These documents are available on our website and at sec.gov. Now I'll turn over the call to Ron Clark, our Chairman and CEO. Ron?

Okay, Jim, thanks. Good afternoon, everyone, and thanks for joining our Q2 2025 earnings call. With me today here is Peter Walker, our new CFO, joining his first earnings call with us. Hopeful that you'll get an opportunity to interact with Peter over the coming weeks. At the top here, I'll plan to cover three subjects. First, provide my take on Q2 results along with rest of your forecast. Second, I'll provide a brief update on our 2025 top priorities. And then lastly, provide a bit of an update on our M&A activities. Okay, let me begin with our Q2 results. We reported Q2 print revenue of $1,102,000,000, up 13%, and cash EPS of $513,000,000, also up 13%. Cash EPS would be up 17% on a constant macro basis. The Q2 results really right in line with our expectations, both in terms of revenue and profits. We did enjoy a bit more favorable Q2 macro than expected. But that was mostly offset by both weaker lodging performance and fewer gift card shipments than we had planned, really landing us kind of right back at our Q2 revenue target of $1.1 billion. Q2 overall organic revenue growth, 11% in the quarter. That's up 2% sequentially from Q1. Inside of that vehicle payment segment grew 9%. Our corporate payment segment grew 18% in the quarter, and our lodging segment declined 2% year over year. Trends in Q2, quite good. Q2 sales finishing up 31%. That's on the back of 36% growth in Q4, and 35% in Q1. three consecutive quarters of 30% plus sales and bookings growth. Again, we think the best indicator of demand. Retention in the quarter ticked up to 92.3%. That's the highest level we've seen in quite some time. Same store sales really essentially flat in the quarter. So look, in summary, Q2 really finishing right on expectations. We did enjoy accelerating vehicle payments revenue growth, continued high teams, corporate payments revenue growth, and again, really solid fundamental trends. Okay, let me make the turn to our rest of year guidance. So updated full year 2025 guidance today, mostly unchanged. So after Q1, we provided $4.4 billion in revenue and $21 of cash EPS at the midpoint. So today, we're inching up a full-year revenue, $25 million to $4.4 billion, and full-year cash EPS to $21.06. So our second half outlook does reflect a bit more positive macro, particularly more favorable FX. Some of that will be offset by continued lodging revenue softness, so results in $25 million of incremental print revenue. Really, most everything else in the second half is tracking the plan. We do expect our second half vehicle segment revenue growth to reach 10%. So hallelujah. And inside of that are U.S. vehicle growth accelerating to mid-single digits. Outlooking corporate payments to report high teens' organic revenue growth for the full year. So this updated guidance would imply full-year print revenue growth of 12% and full-year organic revenue growth of 10%. Okay, I'll transition now to our 25 top priorities, which are intended to first simplify the company so that it's easier to manage and understand, and then second, to better position the company for the long term. So first priority, the portfolio, working hard here to have fewer bigger businesses, rotating the portfolio to more corporate payments, with the recent AVID and Alpha announcements, and we are expecting the corporate payment segment to reach $2 billion in revenue and represent over 40% of the company next year. Second priority, USA Sales. We're now live in market with our new Corpay brand advertising. That targets CFOs now with our entire solution set. We do have some impressive sales momentum, a streak of three straight quarters with 30% plus sales and bookings growth. Third priority, payable. So we have successfully implemented the new enterprise client, which I spoke about. That client has reached $1 billion in spend in the month of July. So now in search of our next enterprise client. Additionally, we have just launched our Corp A complete payables tech platform in the UK, so bringing those capabilities now into the international arena. And then fourth priority is cross-border. We have successfully extended our cross-border business to now serve four market segments. You can see that on page 15 in the supplements. So we've moved beyond our original core business serving just middle market corporate accounts to now also serving FIs and more aggressively now with the MasterCard partnership. We're serving and plan to serve more institutional asset managers as a result of the alpha acquisition. And we're beginning to serve digital asset and stable coin providers like Circle and Ripple with our on and off-ramp services. Super excited about the Circle partnership we announced earlier. Should give us a fast start in the space. In terms of products and cross-border, our new MCA multi-currency account product off to a terrific start We've got 10,000 accounts live now from zero a year ago, and we've reached 1 billion in deposits in July. So clearly one of the best new product launches in the company. So overall, we're making terrific progress, transforming the company into some faster growth categories and across more geographies. should extend the company's runway for years. All right, last subject up. Let me cover the progress on the M&A front, beginning with our 2024 acquisitions. So Paymerang, an AP automation and payment company, acquired last July. That's on track to double EBITDA this year. It also extends the verticals that our core payables business can serve. GPS, a cross-border company acquired in December, performing quite well. We have shuttered the GPS IT infrastructure and also seeing the GPS sales or bookings double from the same sales group as a result of them being in our system. And last is the Zappay Gringo Brazil car debt companies. They are growing literally like crazy. The combined revenue of those two businesses in the first half growing over 50% versus prior year. Additionally, we've cross-sold about $4 million of car debt alerts services to our existing SEMPRA client base. So really an exciting new vehicle payments category to ride. We're advancing our two newest partnerships, MasterCard and Avid. Both of those investments are tracking towards a Q4 closing. The MasterCard partnership's out of the blocks. Both companies, we believe, taking the opportunity seriously. We've held a number of senior level planning sessions and are literally in market now with our initial set of prospect calls. Avid, our Avid take private investment with TPG, again, tracking to close in Q4. We've now cleared HSR and still expecting the Avid transaction to be accretive to earnings in 2026. And then Alpha, again, just recently announced our agreement to acquire Alpha, the European cross-border company, for $2.2 billion enterprise value. Couldn't be more excited about the addition of Alpha's global alternative bank account solution. As you might recall, that targets the institutional asset managers, but we think it would be quite interesting to the Tier 2 FI partners, which we can accelerate via the MasterCard partnership. We are reaffirming again that the alpha acquisition will be at least 50 cents accretive in 2026. And then last on the M&A front, non-core divestitures. We have formally teed up two non-core vehicle divestiture candidates. We've hired investment bankers and expect to launch post-Labor Day. Both of these are very good businesses. and our divestiture candidates, because of their relatedness or lack thereof, not performance. We're hopeful that the net proceeds from these couple of businesses will exceed 1.5 billion if we can successfully transact. So look, all of this recent M&A activity intended to go deeper, not wider, and again, result in fewer bigger businesses. So look, in conclusion today, the story of 2025 is that we plan to basically finish where we started out the year, approximately 4.4 billion in revenue, approximately 21 of cash EPS. We do expect a bit more favorable macro, but a bit weaker lodging business. The vehicle segment really tracking the plan and expected to accelerate to 10% here in the second half. Corporate payments business continuing to rock. Outlooking high teens grow for the full year. Progress, again, lots of progress repositioning the company towards corporate payments. Again, in the payable segment, we've added this upmarket enterprise opportunity Again, also taking that business internationally to the UK and cross-border. Our new MCA product looks like a hit. We've also added three really brand-new customer segments to serve, the FIs, the institutional asset managers, and now here most recently the digital asset providers via these new partnerships. So, look, these moves go a long way to extend the runway and potential of the company. So with that, let me turn the call back over to Peter. He'll provide some additional detail on the quarter and outlook. Peter.

Thanks, Ron, and good afternoon, everyone. I'm thrilled to join Corpay during such an exciting time. The last several weeks have been super busy and a great opportunity to learn the business and meet the team. I look forward to meeting more of our investors and analysts soon. I'm impressed by the exceptional talent and high-caliber capabilities that support the organization. Corpay has a proven track record of generating top-line and bottom-line growth, and I'm excited to dig in and drive the company forward to achieve our objectives. Now, on to some additional details about the quarter. As Ron mentioned, Q2 print revenue of $1.102 billion was just above the midpoint of our guide. In the quarter, our print revenue benefited from a favorable FX environment partially offset by weakness in our lodging business. Print revenue increased 13% year-over-year, driven by organic revenue growth of 11%, a 500 basis point improvement over the prior year. Q2 adjusted EPS of $5.13 per share increased 13% over the prior year due to strong top-line performance paired with solid expense management. Adjusted EPS grew 17% over the prior year on a constant macro basis. The headline for the quarter is double digit top and bottom line growth, excellent organic growth, all while maintaining strong margins. We've also produced significant sales growth this year that will fuel our business over the balance of the year and into next year. All of this puts us halfway down the path to delivering both the revenue and profit targets laid out back in February. Turning now to our segment performance and the underlying drivers of revenue growth. Corporate payments delivered 18 percent organic revenue growth for the quarter, with similar results in the payables and cross-border businesses. Overall, the performance was driven by growth in spend volumes, which increased 36 percent on a reported basis and was up 19 percent organically. Spend volume was just over 58 billion in Q2, which puts us on pace to be well north of $200 billion annually. The Payables business continues to perform, driven by strong execution on Paymerang synergies and solid progress implementing and ramping enterprise customers. We remain confident and excited about the future of the business and our laser focus on customer acquisition. Cross-border sales were excellent in the quarter, setting a new record high. While there is little incremental clarity on U.S. trade policy and tariffs, the global coverage and nature of our business is such that markets outside of North America are doing quite well and made up for some softness in North America. There's no shortage of opportunity in cross-border, regardless of the macro backdrop. Vehicle payments delivered 9% organic revenue growth for the quarter, our third quarter in a row delivering high single-digit organic growth. and a 400 basis point increase over the prior year. U.S. vehicle payments organic revenue growth turned positive in the quarter, a significant improvement over a prior year. This was driven by improved sales production, applications and approvals, onboarding new customers, and stronger retention. Brazil and international vehicle payments continued to perform well. In Brazil, the combination of 7% tag growth, Growth in our extended network, including the car debt offering, is driving the strong results. International vehicle payments continues to deliver consistent results, driven by strong sales and performance across the UK, Europe, and ANZ. The vehicle payment segment is tracking to 10% organic growth in the second half of this year. Lodging organic revenue is down 2% for the quarter. Room nights decreased 1% as lower emergency services and distressed airline rooms offset some improvement in workforce. We feel good about the progress we've made here to position the business for the future, but the recovery is yet to show through in a meaningful way. We don't expect organic revenue to improve in the second half. The other segment was up 18% as the gift business generated significant year-over-year growth from new gift card orders delivered in the quarter. Given the pent-up demand due to new regulations to upgrade gift card packaging to reduce fraud, we expect continued strong gift card performance in Q3. In summary, we delivered 11% organic growth in Q2 and are pleased with the continued strong high-teens corporate payments organic growth and all other segments delivering significant year-over-year organic revenue growth improvement. Now, looking further down the income statement, second quarter operating expenses of $623 million increased 15 percent compared to Q2 of last year. $32 million of the increase was due to the net impact of acquisitions and divestitures compared with Q2 of last year. Excluding the M&A activity and normalizing for lower FX rates, operating expenses increased approximately 9% versus Q2 of last year. The increase in operating expense was driven by higher transaction volumes, sales activities to drive growth, and one-time M&A deal fees and integration-related expenses. The increase would be 7% if we exclude add-backs. Our adjusted EBITDA margin was 56.3%, relatively consistent with the prior year. Our adjusted effective tax rate for the quarter was 27.7 percent. The increase in the rate was driven by a discrete tax item, Pillar 2, and a change in the mix of earnings. Pillar 2 is effective in 2025 and resulted in multiple jurisdictions implementing a minimum tax rate of 15 percent. On to the balance sheet. We ended the quarter in excellent shape, continuing to delever and resulting in a leverage ratio of 2.53 times. We have over $3.5 billion of cash and revolver availability, which gives us ample flexibility in how we fund our growth, including our recently announced alpha acquisition. Capital deployment in the quarter was again limited as we prepared our checkbook for transactions. We did spend $32 million on share buybacks associated with employee option exercises. We continue to work on non-core divestitures. including the recent announcement that we are divesting one of our legacy private label fuel card portfolios that will free up $100 million of capital. Executing our non-core divestitures will bring focus to our portfolio of businesses and provide additional capacity in preparation for closing the alpha transaction in Q4. So now, some updates and details on our Q3 and full-year outlooks. We're increasing our full-year 2025 revenue guidance to $4.445 billion at the midpoint, representing print growth of 12%, primarily driven by the continued benefit of improved foreign exchange in the back half of the year. We are also increasing our adjusted EPS guidance to $21.06 per share at the midpoint, representing growth of 11%, as a result of our slight Q2 beat and continued expense discipline in the second half of the year. Our organic revenue growth range is updated to 9% to 11% due to the expected weaker performance in our lodging segment that I mentioned earlier. For the third quarter, we expect print revenue of $1.165 billion at the midpoint, representing growth of 13% and adjusted EPS of $5.60 per share at the midpoint representing growth of 12%. We provided additional details regarding our rest of year and third quarter outlook in our press release and earnings supplement. This concludes our prepared remarks. Operator, please open the line for questions.

Thank you. At this time, if you would like to ask a question, please press the star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. And once again, that is star one to ask a question. We'll take our first question from Andrew Jeffrey with William Blair. Please go ahead.

Hi, guys. I appreciate you taking the question. I guess I wanted to dig in a little bit on corporate payments. It seems like you've built in our building certainly one of the most complete vertically integrated tech stacks in the market. And when we think about GPS and the very strong sales and the pending acquisition of alpha and very good performance could, as we think to 26 and 27, that organic revenue growth could even accelerate from these levels? Or how are you framing that as you plan out over the next couple years?

Hey, Andrew, it's Ron. It's a good question. So, yeah, we're pretty pleased with the setup. So, I think it'll be mostly a function of what we elect to spend. I think we've told you before, we try to design businesses to grow at a certain rate based on the sales and marketing investment, which has been high in that business, which is why it's high team. So I don't want to get out over my skis, but I'd say assuming that we continue to pour money into that, these incremental segments should be additive. So again, that business will finish high teens this year. I think if we spend enough, we could probably take that up another couple points. Again, we don't overspend where things become unproductive. But the width of the thing I think creates even more runway would be my headline. I think the diversity of the segments, right, not just end accounts, but banks, the asset class, the new digital players that To me, that's the super attraction is really the diversity, really, of the client base going forward.

Okay, helpful. It's pretty exciting to watch. And then just on the Circle deal, which I think is also notable, are they going to be both a customer using on-ramp and off-ramp, and you're going to be a customer of theirs or a distribution partner of theirs in terms of incorporating customers USDC into your MCA product?

Yes, that's the concept. It's kind of a reciprocal partnership. So they've got, as you know, the currency, the rails, the blockchain, and even the wallet. So we'll plan to use that in certain use cases. And then just what you said, that we would help them in certain geographies on and off ramp. So, yep, that's the hope.

Okay. Excellent. Peter, look forward to working with you. Welcome to Corpe. Thanks, Andrew.

Our next question comes from Darren Peller with Wolf Research. Please go ahead.

Guys, thanks. Maybe we can just hit on the U.S. vehicle acceleration and just help us understand what underpins the acceleration that you're anticipating into the second half, and just to hit on whether it contemplates the BP portfolio too, guys. Thanks.

Hey, Darren, it's Ron. So, yeah, the couple of drivers of that thing getting a bit better in the second half are retention, which we can see sequentially in the report that I'm looking at. So, for example, Q2 of this year versus Q2 of the prior year, the retention's up about 130 basis points. And we're out looking at the inch up a bit more as we head into Q3 and Q4. So less businesses will fall away this second half than did last year. And then number two is the sales are better. Specifically, we have a couple of big elephants like GasBuddy. I think we did announce that back in the spring, which is a pretty big account. and Amazon that were both sold a while ago that are kind of beefing up volumes in the second half. So it's really just super basic, you know, incremental volume through those new sales and better retention.

Okay, Ron, that helps. Thanks. Just a quick follow-up on the corporate payment side. Just the contribution of the enterprise domestic payables client to the corporate payment segment, was there anything there? And then Just what were the underlying signs in the segment from a same-store sales activity? Just how's activity from either domestic or international AP payments as well, if you don't mind? Thanks again, guys. Nice job.

Yeah, let me take the first part. Peter can take the second one. It's crazy exciting, Darren, to me that, you know, I think we mentioned this the first time, whatever, 90 days ago, that we contracted that account at the end of the year, and literally went live and literally, you know, moved a billion dollars in spend. I don't know if people heard that, you know, in the month of July, and outlooking that thing as we finish the Halloween month to be at about $1.5 billion in spend for the month of October. So it's a super big contributive volume. Obviously, Um, the monetization and the rates not as good as, as, as the rest of the spend, but, but still, you know, super contribution and profit. I think the key to the thing is really the extensibility. Now, now that we've learned, we can go to like super duper big enterprise accounts. Um, through some of these relationships. Can we get the pipeline? We've got a few accounts in the pipeline. Can we get more accounts like this big enterprise to fall? Which again, will create some acceleration in that business. So yes, super pleased with it. You want to take the same store sales?

Yeah, so hey Dan, nice to meet you. I think same store sales was what is our expectation for the rest of the year you're looking for.

Just what you're seeing in the underlying trends right now more than anything else in the last quarter and then into this quarter coming up.

Yeah, so for the total same-source sales, relatively flat year over year, and that's what we've assumed for the rest of the year.

Yeah, hey, Darren, it's Ron. I'm just looking at the page. If you're on corporate payments, it's, let's see here, for the period, it's basically pretty steady as she goes over the last few quarters. No big change in same-store sales. So, again, all the increment, all the growth rate is really just on the ad side. Losses have actually improved to snitch. They're 100 basis points better than a year ago, even in that business. So, really, the map there is the sales just massively outpacing the losses and same-store sales steady. That's great to hear. All right. Very helpful, Ron. Thanks, guys. Thanks for the cheerleading again on the space.

We'll take our next question from Tinjin Hong with JP Morgan. Please go ahead.

Thanks so much, Peter. Welcome to the call. Just on the lodging side, I'm just curious on the visibility there and what could turn out differently than what you're forecasting, either on the upside or the downside. I'm sure you've got some plans, I assume, to re-energize growth as well.

Not us, did you? No, no plans. Yeah, on the downside, you know, a couple of things. One is, which is kind of weird to wish for maybe worse weather, but probably half of the softness in the second half versus what we thought back at the turn of the year is basically in what we call kind of the emergency or distressed segment, which shows up for us in like the FEMA contract. Right? When people run out to a location. Or in our airline business, when people get stranded and have to hurry into a hotel room. So that's about half of it, that that's run softer, and so we're just outlooking it softer. I mean, between us, who knows? But I didn't want to make up a number that's better. And then the other half is just the sales aren't good enough. I said it before. that the positive here, if there is any, is the business is stabilized. That divot we had a year plus ago, as I had hoped, has stabilized back to the same store sales. And now it's just what goes in the top versus what goes out the bottom. And so the second problem is we're just not selling enough and implementing enough new business. And so, again, we built the plan six months ago. We thought implementations of that thing would be hard. I mean, quantum is nothing, right? It's a hundred and something million business per quarter. You're talking about, you know, two or three million bucks or something in that kind of a range. So when we say it's off of what we thought, to the company, it's not a material amount, but it's just not, obviously, it's not working the way we want. The fix, again, is super clear. It's mostly sales. Now that we've stabilized the base, we've put a bunch of product fixes in to make the product more competitive in the segment that we have problems with. So it's really just harping on the same thing. It's just getting the sales engine to fill the top so that that thing turns positive. I put more people in and put a new sales leader in it in the spring. And so, like you, we're going to keep an eye on it and kick at it a bit harder here. But fortunately, 85% of the place is working, right? Getting the vehicle back. you know, the second hit back to 10, I think it was probably four, and Q3 or whatever, you know, Q2 last year, and keeping the corporate payments thing humming and expanded, I'm glad that the bigger section is working well.

Gotcha. And just my quick follow-up just on the divestitures, Ron, just on the If you achieve your target EV, I'm assuming that, you know, you've got – it sounds like you have some target EV in mind, a billion and a half. Just thinking about the earnings impact and, you know, how much flex you have and what you're thinking in achieving your goals there with the divestitures.

Yeah, that's a good question, Ginger. I mean, I think the headline I want to give is this is a different assignment than the last time around, right, with the gift business. Yeah. We're looking at exiting, you know, what we would call good businesses, right, that are growing revenues and have futures and stuff, good futures. And so it's really just a function of the multiple, right? We've laid out a target of kind of net proceeds. Obviously, we're not selling these assets if the multiples aren't, you know, in the teens, right, against EBITDA. So we penciled out a model where those things are, you know, kind of a push. They're not dilutive. So we get out of them. They're kind of a push. We get the capital back to contribute to the alpha deal. So I'd say it's obviously just a function of what prices we get the assets. If we don't get enough price, we'll hold them because they're good businesses.

Got it. Understood. Thank you.

We'll take our next question from Nate Svensson with Deutsche Bank. Please go ahead.

Hey, guys. I know last quarter we were talking a lot about tariffs. So I guess I'm just wondering if there was any impact to 2Q numbers from tariffs, any sort of pull forward, strengthen the FX hedging business we talked about last quarter, anything on volume impacts. And then I guess the related question in the prepared remarks, you called out record cross-border sales. And so I guess I'm just wondering, like, Given how dynamic the environment is, is this actually helping to go to market motion and your value prop as your end companies that you're serving deal with an environment that's changing on a daily basis?

Yeah. Hey, Nate, it's Ron. It's a super good question. I mean, I think the summary is it's a mixed bag. I think the tariff – situation, uncertainty, whatever you want to call it, is landing differently on different companies, both geographically, like it's landing, you know, affected us more here in North America because of the early, you know, Canada, Mexico posture. So I'd say those geographies are still a bit softer for us than anticipated, whereas the UK and European and Asian side is stronger. And then second, I think it's just the individual companies. Some companies are super committed. They have to be international. They're figuring out ways to deal with it. They're looking at risk management, ways to deal with the thing. And then other companies are like, oh my God, it's freezing me. Maybe I should find different suppliers or target customers at different places. So there's not, I don't think there's one, you know, across the board answer to it because it is uncertain. I mean, to your point, certainly just the volatility, if you will, of currencies is generally a help. We say it probably is a plus 10% in a period of time versus completely flat, you know, non-volatile periods. So I'd say we've gotten a little bit of help but not a ton, and we're kind of outlooking, you know, steady as she goes. Some clients will like and come to the table. Others will wait. So, again, overall kind of a mixed bag.

That's helpful. Thanks, Ron. For the follow-up, the Zappay and Gringo growth really stood out. I think you classified it as growing like crazy, Ron. And leaving aside currency fluctuations, the Brazil business has been a really strong performer. So maybe you could talk more about some of the strength you're seeing there and kind of what's embedded in the vehicle payments acceleration outside of the U.S. vehicle payments that we talked about earlier. And then maybe you could extend that topic to something we've touched on in the past. It's the the broader consumer vehicle payment effort, so any update on how things are progressing in the U.K., update on plans in the U.S., et cetera.

That's a loader. Let me start where I could remember the first one of, hey, Zappay and Gringo are growing like crazy. So, yes, I mean, I think the headline on that for everybody is the core business there, which we started with, you know, is a toll business. relies obviously on vehicles in Brazil running over toll roads, which call it is maybe 20 million of the 60 million vehicles registered there. Whereas this vehicle car debt thing, which is, hey, paying for tickets and doing annual registrations is all 60 million. So you start with, you know, kind of three times the TAM in this business. And then second, it's just super early days, like this digital idea of how to see you've got a ticket and pay for a ticket or register, you know, digitally on a phone is like a super brand new thing. versus the old-fashioned way of going bank and stuff. And so the market share in this space is super early days. We estimate, you know, it's still under 5%. So when you put those two things together, it is just a runaway hit of a service that people there want, both businesses and consumers want. And so we are selling like an absolute pile of it, and it's for sure helping the growth rate in Brazil. So initially, our biggest focus was on Prossa, which was also not bad. I think I called out $4 million. of those companies' services were sold back by our core business. But the great thing here is this is just an extended vehicle payment category that is just super attractive on its own. We've got a good position. It's early days. It's growing like a weed, getting more profitable. So, you know, we're delighted. I want to report back that it's another, you know, super good acquisition for us. On the broader question of the consumer thing, I'd say still unknown. I'd say obviously the Brazil experience, including the thing I just spoke to, is reaffirming that extending what one service is into many is a world leader in Brazil. Not so much so far in the U.K. I wouldn't go maybe all the way to struggling, but I'd say it's a lot of hard work. to get that thing stood up and get the first set of customers and stuff across. So we're continuing. I kind of put the group on the clock. Hey, take the rest of the year. See if you can get this thing humming. If you can't, I'm going to redeploy the capital. If you can't, hey, we'll stay with you. So I'd say we're still a work in progress on the U.K. side.

Thanks, Ron. I get paid by the question, so I appreciate you obliging the multi-parter.

You got it.

Our next question comes from Sanjay Sakharney with KBW. Please go ahead.

Thanks. I guess I have a question for Peter and Ron, maybe you too. You know, as we – the growth is really strong in the setup for the second half for vehicle and corporate payments. Obviously, in corporate payments with the enterprise relationship coming on in July, it looks good. But, you know, the fourth quarter is a pretty difficult comparison in terms of the growth rate. I mean – Could you just talk about the cadence of the growth? Do we need to worry just about the fourth quarter growth rates? Just trying to think through all of that. Thanks.

Yeah, so Sanjay, nice to meet you. So, you know, our belief when we kind of look at the growth rates quarter over quarter on a print basis, right, delivered 13% this quarter. That's what we're projecting for Q3 and then just a tick up in Q4. So, again, pretty consistent on a print basis on growth rates. expect to improve to 10% organic growth and then corporate payments to continue in that high-teens arena.

Okay. So you expect the grow-over to be just fine into the fourth quarter? We do. Okay. Got it. And just maybe, Ron, a follow-up just on same-store sales. Obviously, it's ticked down a little bit. Just curious, like, is there anything that you're seeing from an economic standpoint that concerns you in terms – and what can drive a reacceleration there and how much of that – I know you said you've kind of figured for flat same-store sales for the rest of the year, but just trying to think through what the puts and takes there are.

It's a good question, Sanjay. We did study it, and, you know, when you go from plus one, I don't think it's exactly zero. It's like plus 0.3 or something. Like, it is just such fine. I have the report set up in front of me across all the different categories, and there's literally barely anything moving. It's almost literally mass. So, I wouldn't say, hey, take a lot away from that, you know, hey, that it went from plus one. So... Yeah, there's no super-duper trend in the thing, and I'm looking, again, across all the categories, and they're mostly kind of tracking to where they've been over the prior four or five quarters. But this whole housing economy, we're not seeing anything, again, significant on that front. I know we all keep looking, but I'd say whether it's in the fleet business or in the corporate payments, the spend business, or even in the Brazil business, there's nothing we see yet that's material that's given us concern around kind of the health of the clients.

Thank you.

Thank you. We'll take our next question from Ramsey Ellisall with Barclays. Please go ahead.

Hi. Thank you for taking my question and welcome to you, Peter. I wanted to ask about retention. It was another nice result in the quarter. And I'm not implying that necessarily this was the driver of that result, but given the structurally higher retention rates in corporate payments versus some of your other historical businesses, should we expect retention, overall company retention rates to climb up over time, just given the mixed shift to corporate payments? And then I guess the next logical step is, will that have an impact on driving some revenue acceleration as you don't have to turn, you know, replace so many clients that sort of churn through? Sort of longer term philosophical questions, but just curious your perspective.

Yeah, Ranji, that's quite, it's Ron, that's quite observant by you. So the best you know, retention in a while is really two things. The first thing that you called out, which is corporate payments mix being higher, and it's got a kind of best-in-class retention rate. But the second one is the vehicle. Like, I'm looking at that better, and particularly the U.S. vehicle. And I think, you know, it's an old song now, but it's super related to that pivot a couple years ago of You know, larger clients. And so life is about really the mix of small, medium to large clients in every business. Retention rates are dramatically higher with larger enterprise accounts than in smaller micro. So those are the two mixed things that are happening. So yes, on your second question of structurally, given those two things, if the vehicle business keeps acquiring a higher mix of bigger clients and corporate payments keeps growing, should it go up? Yes. But I'd moderate you. I would say that's not the magic. You know, let's use 7% not to hurt our head. You know, hey, as you think about the mix over the next years, could you maybe get a point? Could you get... Seven to go to six remember half the losses are us cutting clients off, right? People who don't pay credit issues Mergers bank, you know stuff going on that really they're not going somewhere else you're quitting us so the number is really small and although I You know constantly beat our guys up. Hey, give me a point. Give me a point of retention and If I'm trying to get 10% or 12% growth rate to gain in sales, I just don't want you guys to miss that. Obviously, we have to hold this and try to improve it, but the key to this company's long-term growth is really at the top of the funnel, more than inching this thing up a point.

Got it. Got it. Thank you. A quick follow-up on GIFT. I know it's non-core, but... Q3, I know there's this reissuance in terms of this tamper-proof packaging, and I'm just curious in terms of your visibility to what arrived in Q2 versus what may come in Q3. What ending are we in there? Should we expect kind of a deluge to come, or are you already sort of past the halfway point with that whole cycle?

Yeah, although the thing is, you know, bumpy because literally they ship, you know, Dick's Sporting Goods or Macy's or somebody, hey, wants cards and they got some big campaign or something, so ship them to me or, hey, don't or whatever. So despite the thing being bumpy, it's performing quite well. And our forecast for the full year is the thing to be probably somewhere in like the mid-teens. in terms of growth over the prior year. And it's not only this improved kind of card tamper-proof packaging thing. It's pretty new sales. They're on a tear of signing a bunch and implementing a bunch of kind of new gift card clients and stuff. So it's pretty fundamental. So I'm going to go on a limb here, Ramsey and Sadie. It's probably like the best. Period of gift performance since I bought the thing, whatever it is, like eight or nine years ago. So it is this, you know, tamper-proof packaging, but the core underlying part of the business is just way healthier than it was before. And, yes, we expect the second half growth over the prior year in that segment to be quite good.

Got it. And by the way, I think you bought the business 11 years ago, so time flies, Ron.

You're having fun time flies.

Thanks a lot.

You got it. We'll take our next question from John Davis with Raymond James. Please go ahead.

Hey, good afternoon, guys. Ron, I just want to circle back to lodging. You're not known for owning businesses that don't really grow. So as we think about that segment, you know, the flattish plus or minus growth, How much of that's macro? What do you think you can do to reaccelerate growth? And if you can't get it back to something that's more reasonable from a growth perspective, does it make sense to own it? And would you potentially offload it to redeploy capital to corporate payments or a faster-growing segment of the business?

Yes, John, I think the yes is the answer to your question. The mandate in our company is to be a growth company. And kind of the non-negotiable part of that is 10%. I've said that for years here is the floor 10, 13, 19. I got a 10% organic, a little operating leverage, and then use cash or buying earnings to get the yield. And so it has to perform. Again, this is not a business that's always been crummy. Like if you looked over the longer history since we've been in that, going back even two, three, four years ago, the thing was growing, you know, 15, 20% year after year. So we have the position and the market to be a good business. We did some bumbling. We took a huge divot that we're digging out of. So what you said is right. It either gets fixed and it gets growing or it goes. And so the question is just how long. And, you know, it is disappointing that kind of half of its myth this year is kind of this emergency weather macro stuff, which obviously the group running it and me have no control over. But it's not an excuse. We have to do better in that thing. I think we will. But if we don't, we will not be in it long term.

Okay, great. And then just switching to the balance sheet here. So, you know, Ron, you laid out kind of a mid to high twos pro forma kind of leverage, you know, at year end, closing alpha with some of the divestitures. Given kind of the integration of GPS and alpha, should we expect more buybacks given, you know, kind of you do have some balance sheet flexibility, but you are also integrating a couple acquisitions At the same time, just curious about kind of the appetite for M&A from here, your call over the next 12 months versus buybacks and how we should think about it.

That's a super good follow-up. So kind of the BAU model for us is kind of getting into the low twos. I think we printed 2.5 here coming out of Q2, call it 2.2, 2.1, 2.2, exiting the year on a BAU basis. which gives us, to your point, a lot of room, our revolver. I think the size is now a billion seven and change. That'll literally be completely undrawn. So it's really a function of how what you said, these different deals, right, come together. Like, hey, when does Alpha close? When does the NASCAR thing close? When does Avid close? We do have a pipeline. I know we've done a lot of deals, but once kind of prices reset, you know, we've been back at it. So the answer is our first priority is always to buy attractive products. growing businesses that strengthen or scale our business if we can make good returns on it. So that's always the first call on capital. But at the stock price that I'm looking at, we're obviously buyers of our stock. And so if our stock were to stay around this level and we've got liquidity, we'll be buying stock back too. So I think if you look over the last four or five years, we could send the chart out. It's been a pretty balanced you know, set of spending between, you know, buying businesses and buying earnings, if you will, and buying the stock back. And we've had a rotation back to M&A over the last, whatever, 12 to 18 months. So it's a function of liquidity, the pipeline of attractive stuff versus the stock price. And so we're always, you know, trying to manage between those sets of factors. Okay, appreciate the call. Thanks, guys. You got it?

We'll take our next question from Mihir Bhatia with Bank of America. Please go ahead.

Hi, good afternoon. Thank you for taking my questions and welcome, Peter. So I wanted to take a step back maybe and ask a question about stablecoins. Just from a big picture perspective, you know, lots of announcements in recent weeks around stablecoins, including from y'all. And I was wondering if you could talk a little bit more about everything you're doing there and particularly interested in the opportunities and risks you see to your existing business. And also if you like, you know, where are things, where, what parts of stable coins are exciting for you and what parts are where you're looking at it and saying, Hey, maybe we need to rejigger the business a little bit to accommodate stable coins. Maybe even talk about the transaction economics with stable coins versus without. Thank you.

That was a long but interesting question, and I guess an important question. So the first thing I'd say is it ain't just stablecoins. To me, it's kind of a bit of a new payment ecosystem, whether it's crypto or stablecoins and blockchain and digital wallets. It's just a different... you know, currency and pipe, right, to move money. And so I kind of think about the things related, right? You've got fiat currency going, you know, over SWIFT to a traditional bank account, or you've got U.S. stablecoin going on a blockchain to a digital wallet. And so the way we think about it is we are and will incorporate that incremental or new or modern rail. And we will use it. We are using it. So there will be use cases with our clients. To me, the biggest one will be outside of kind of banking hours. I think the biggest edge that the new payment train has here is the 24-7. It could move money after the banks are closed every day. And then selectively, we'll probably use it in some geography, some kind of exotic geography. So the first thing I say is we just view it as another tool, another way to move money for our clients that has certain application. In certain situations, it's better than kind of the traditional rails. But the second one is the opportunity side is it's creating a new set of players right that meant the stable coins and a variety of different blockchain providers and stuff and so they need help getting their new kind of ecosystem to talk to the traditional one and so given the fact that we have a big position in the traditional and we're all in the new one we can play a bit of a role helping you know money move across between you know caravan A and B So something that comes down in stable coins needs to go over to fiat or vice versa. So that's where we think there's real upside is someone has to play that role. We have the compliance. to be able to do it, lots of banks, you know, are uncomfortable, you know, with a stable coin, you know, bridge across, given who's in it. And so that's our view, that this thing is something we're going to use. We'll figure out what the best use cases are. There's an upside for this new set of digital asset providers. And so we're generally pretty excited about it because we think ultimately it'll be better for clients.

Can you just touch on transaction economics?

Yeah, the economics, I think people don't get it super good. So if you're in B2B cross-border, which we're in, you know, 90% plus of The value creation and our revenue comes from the actual conversion of the currency, buying and selling dollars into sterling. It's the actual liquidity. It's the exchange, the conversion. you know a handful call it three to five percent is in the is in the moving is in the rails and stuff and so whether you use swift which is the most expensive way to move you know global funds or use the proprietary network we have which is you know a quarter of the cost or you use blockchain which is free it has a de minimis impact really on the on the overall kind of revenue equation for So we don't see the impact being economic here. We see it being speed. We see it being 24-7. We see the programmability part of it. There are other aspects of this that we think are more interesting than a few cents cheaper to actually run the rail. Got it. Thank you so much. Yeah, you're welcome.

We'll take our next question from Trevor Williams with Jefferies. Please go ahead.

Hey, guys. Thanks for taking the question. I want to go back to corporate payments and the 18% growth. On the Q1 call, it sounded like April had been a very strong month. So if you could just talk us through what the sequencing and puts and takes looked like from there in May and June. I think, Peter, you called out some softness in North America, but any more detail there would be helpful. Thanks.

Yeah, so when we think about the 18%, organic revenue growth and corporate payments, I'd say it was, you know, really the same when we look at the payables business and the cross-border business. In the cross-border business, what I've shared is we've seen some weakness in North America, but that had been more than offset outside of North America. So, overall, we were really pleased with the results of the quarter. Okay.

Trevor, not a lot. A little better, I think, in April. Crossport, I think the payables, to Peter's point, was steady as she goes every month. I can't remember whether it was May or June. It was a smidge softer. I mean, Crossport had beat their plan by a bit. So they had, you know, a better April. I think it was a bit softer June, and the other one was steady as she goes. I've seen July, and we're kind of tracking. You know, we try to obviously give them the call. You're here today, whatever. It's August 6th. We've guided to Q3, so we've got July in the tank. And so we're tracking good here sitting, you know, one month forward too.

Okay, got it. And then just going back to the full-year revenue guide, if you could put a finer point on the moving pieces, just within the organic guide, it sounds like it's mostly lodging that's a part of the one-point cut, but the relative sizing of that against the better FX, just how we net to the $25 million full-year raise. Thanks.

Yeah, I think just use 1% to represent politically that he said, hey, the revenue is ballparking $2 billion. You know, $2 billion change in the second half. Hey, you know, a percent happy, you know, in macro, a percent sad in lodging. And then remember, if you get two points of revenue from macro, which is the print, you lose half of it back on the cost side, which is why you get no real earnings improvement. So to your point, really the only change from 90 days ago in the second half is macro up, lodging down a point which takes the organic, you know, call it, again, $20 billion on $2 billion a point. Everything else kind of tracking, and I mostly don't want you to miss it, tracking of what we said is up, right? So vehicle, you know, getting from whatever it was to then a nine print and then getting – to 10, and then particularly the U.S. getting to five. I don't want people to miss it. That is super important to this company for us to sit here today and say, hey, we're headed to get that number and keep corporate payments rocking, that getting the 85% of the company in a good spot and following orders, I want to be sure everyone's going to receive more and more than me. I wish the lodging was doing what it was supposed to, but the other two things are, and that's super important to us.

Yep. Okay. No, I appreciate all that. Thanks, Ron.

We'll take our next question from Ken Suchosky with Autonomous Research. Please go ahead.

Hey, Ron and Peter, thanks for taking the questions. Maybe I'll ask on U.S. vehicle. I mean, it's nice to see the momentum and moving in the right direction and getting some mid-single digits in the back half. I guess I'm curious to get your view on whether U.S. vehicle can be a sustainable sort of mid-single digit vehicle. grower. And then I guess when you think about the drivers behind that mid single digit growth, like how do you, how do you think about the building blocks, whether that's new customer growth, same store sales, volume growth or pricing?

Yeah. Hey Ken, it's Ron. So yeah, we're, we're pleased to, and yes, it has been a long journey. So the hope in that business would be kind of somewhere where it is, you know, mid single to maybe a smidge better, you know, Assuming we get there, that's what we're saying we're going to do. So running at that thing would be good. So the main thing is we've got the retention in a better place, and part of that's the mix. So continuing to acquire, you know, less micro clients and more kind of small and midsize, you know, is the key. I did mention we had a couple of elephants that came in. And then second, we're still at with some of our new products, trying to wrap some corporate payments, juice around this huge base. You know, the company started in this U.S. fleet space. We still have a giant client count and a lot of super high quality, you know, midsize accounts there. And so that's the second piece of the idea is get revenue from that. Take some of these products that are kind of all in one that have the fleet specificity in them, but basically give the client the ability to buy other things in a controlled way and pay for other things in a controlled way. And so keep selling the stuff, sell bigger accounts, keep the retention high, and then wrap and love this thing a bit with some corporate payments would be the ingredients.

Yeah. No, that makes sense, Ron. And maybe just as my follow-up, I think Sanjay maybe asked about it, but just revisiting that 3Q versus 4Q growth rate. I mean, when we look at pretty much every segment has a harder comp on the year-over-year growth rate in 4Q. Even total company, I think, is like six points harder. So why doesn't that impact the year-over-year growth in 4Q? Ron, I know you look at the business sort of quarter-over-quarter, but just, you know, optically year-over-year, it looks like it's harder. And then I guess if you could just give us, like, what is the expectation for organic growth in 3Q versus 4Q, that'd be helpful. Thank you.

Yeah, so specifically on the 4Q guide, right, I mean, it's ticking up 14% versus 13%, but last year we did experience a higher, you know, 4Q than 3Q, right, so it's kind of consistent on trends, and dollar over dollar, it's not a significant dollar amount on the print side.

Yeah, I'm not sure if I read the question right. Are you saying, hey, How are we outlooking organic growth and the difference between Q3 and Q4?

Yeah, I think the organic growth in 3Q versus 4Q, Ron, but I think one question we're getting is just like the growth in 4Q at 24 was so much harder versus 3Q. So if you just look at that run rate, it sort of implies some acceleration, I feel like, in the fourth quarter.

Yeah, I'd say it's probably actually the other way around. I'd say that the organic guide and the print guide that we're giving you kind of is 10%, right, in the second half and 10% for the full year. If anything, I'd say the organic growth rate in Q3 will be better. So if you said, hey, the second half is 10%, you know, think 10.5% to 11% versus, you know, 9.5% and 10%. And the main reason is we had some stuff. We had some one-time happy stuff in Q4 last year around, you know, the corporate payments business and the payables business. related to a transaction. So I'd say it's nothing structurally per se. It's just the prior period. It's just the grow over. So I would have you guys think that it's kind of steady as she goes, that the vehicle business is in that, call it 10% range, and the other stuff is plus or minus half a point between Q3 and Q4.

Okay. Great. Thank you, Ron.

We'll take our next question from Dave Koenig with Beard. Please go ahead.

Yeah. Hey, guys. Thank you. Just one question. Free cash flow looked massive and Q2 looked like your best cash flow ever. And just a question, I guess, a lot of companies actually guide the cash flow and a lot have less cash flow than earnings. In your case, you've had better cash flow than earnings. Maybe just philosophically, would you ever guide to that? And then maybe why is your cash flow so strong and is it sustainable?

You want to take it? You want me to?

Is that Dave? Yeah. Dave, it's Ron Lundy. Let me try and let Peter start on some pages here. So there's two ways to look at cash flow. There's the accounting way, which maybe you're looking at, that brings the balance sheet in, which is, you know, obviously a function of, you know, AR and AP. And the way I look at free cash flow, which is really kind of what I call cash and income, which is really the operating income, cash. And so, you know, the full year, the way I look at it, we're trying to get to $1.5 billion for the full year of what I call, you know, cash net income. What you're probably seeing, I'll have in front of me the accounting one that Peter's turning the pages, would be some change really in the working capital in the period that goosed it up. So I wouldn't get Maybe you can get excited. I don't get super excited about that. I'm just trying to make sure that the real free cash flow generated by operations continues to run hot and grows, which, again, that thing is planned to be up 10%, 12% again in 2025, the way we look at it.

Yeah, and just confirming that the accounting methodology is presenting, you know, something favorable in the quarter that is accounting methodology driven and really the method that Ron points to is the correct one to measure us by, which is, you know, an 11% growth of cash EPS year over year.

Yeah, that's great. Thank you. Thank you. And at this time, I'd like to turn the call back over to our speakers for any final and closing remarks.

Thanks, Margo, and thanks, everybody, for sticking with us. That's it for us. If you need anything else, please let us know. Thanks, guys.

Appreciate it. Thank you, ladies and gentlemen. That does conclude today's conference. We appreciate your participation. Have a wonderful day.