Good morning, everybody, and welcome to Barclays Emerging Payments and FinTech Forum. We got a really terrific lineup for you today, and thanks for braving the drizzle to get here. Pretty packed agenda today. Help yourself to food, and box lunches will be set out around noon. If you need help with anything, the office is down here on the right-hand side, straight down. And then, also just wanted to give a special thanks to our conference folks who are the best in the business, and also Alyson Gellman on my team who is truly, in this event, the brains, and I am just the muscle. So I appreciate that. With that, we are honored to have Corpay with us here today, CFO Tom Panther. Tom, thanks so much for being here.
Great to kick it off.
So, macro is always top of mind, it seems, maybe now more than, you know, sometimes. Give us a brief overview of what your thoughts are. What are you seeing out there? You guys have a nice overview of the economy here.
Yeah, yeah. I mean, I think big picture macro, big economy macro, what are we seeing from spending levels, volumes? I think it's okay. Obviously, in our markets, whether you're talking Brazil or U.S., U.K., Europe, people have had to withstand a little bit of inflation, higher rates, things of that nature. And so, as that has persisted, I think, you know, generally, companies are being mindful. But I wouldn't say highly restrictive. We're not overly sensitive to the big econometric macro environment. We play in a place where we think we handle spend that is predominantly in the non-discretionary category. So whether GDP's up 2% or down 1%, that's just vibration that we don't even pick up on. It just doesn't really impact us.
But I would say out there, we just see a cautious type environment where people are being very kind of thoughtful around, you know, their level of spending. Obviously, more recently, when we think about the macro, that impacts us a little bit more directly when it comes to rates, interest rates, and then foreign exchange rates, with the narrative of higher for longer, that particularly started to kind of gain consensus with some of the more recent economic data. Although, Ramsey, we're on stage when the CPI number prints in 26 minutes, so somebody can give me a thumbs up or a thumbs down on what the CPI print is here in at 8:30 A.M.
But anyway, foreign exchange and interest rates here in April with a hot CPI number 30 days ago, a strong jobs number, the Fed sounding a little more hawkish, that certainly has impacted us more directly from a macro perspective, when it comes to how we think about FX and a strong dollar, and how we think about interest rates. That has a more direct impact on us.
One thing I've always wanted to ask you guys was the dynamics around bookings conversions. You know, you've announced, I think, a pretty solid sales, you know, growth number in the quarter. How does that flow through, in general, to revenue? Then does the sales performance lately give you, you know, some confidence about the back half guidance?
Yeah. We, we very much see the direct correlation between what we generate from a sales perspective and then what translates into revenue. And it's important to point out that when we talk about sales, these are realized sales. This isn't somebody just putting something on a tick sheet that said, "Hey, I'm gonna dump this in Salesforce, and I just closed an account." These are accounts that are actually generating some level of revenue. They may not have fully ramped, but we've onboarded them. We've closed the account. That when we measure sales, we call it Starts Revenue. Now, we have to do some estimating on what that Starts Revenue is going to be over the forward 12 months, and that takes a little bit of you know, anticipating what that ramp looks like and things like that.
But this is revenue that has already begun, as opposed to we just closed the deal, and we're waiting to onboard it. So that's one thing. So that, one, that gives us that, that visibility. The ramp, the realization, kind of depends on which business you're talking about. I'd say on the Corpay payables business, that takes a little bit longer 'cause there's more integrations to do. When you're integrating somebody's full AP, you're getting their AP file. You're matching it up with our vendor portfolio. That takes a little bit more time. So call that kind of maybe 50/50, in terms of the level of sales that are realized in a given year. And some of that just has to do with the time. I mean, you close a sale in December, you're gonna get very little of it.
You close a deal in January, you're gonna get almost all of it. The other businesses are a bit faster in terms of their realization, whether you're talking about vehicle or cross-border or talking about lodging. Those, I would say, you're realizing those. I call it the 60% level in that given year. But we track that kind of over a 24-month cycle so that we get a sense of how much of that Starts Revenue that we estimated potentially falls out. And there is some that does fall out where it doesn't fully ramp to the level that was estimated and things like that. But generally, we've got a pretty good, pretty predictable line of sight in terms of how sales translates into realized revenue.
Mm-hmm. One question I sometimes get from investors is sort of what's the state of the union, the state of the market when it comes to the fleet the fuel fleet card segment.
Mm-hmm.
Our industry, rather. You know, what inning are we in? Where are the opportunities remain in that industry? Could you give us kind of a.
Sure.
Brief, state of the union?
Yeah. I kind of bifurcate it between freight, where a company's business is hauling things. Think of over-the-road trucking, generally kind of long-haul kinds of things, which for us, when you think about probably total vehicle payments, is only about 25%-30% of the revenue. The rest of it is what I put in the other category, which is more the local stuff. I'd say the freight piece has felt the impact from some of the issues with the supply chain disruption. You had a lot of small players flood the market when freight rates were really high. Now you're seeing them kind of get washed out. And so I think the freight market would be viewed as a little bit softer in terms of just the amount of trucking activity that's going on out there.
I think the, it'll probably be a healthy process of letting the smaller guys who will kind of ship, you know, haul anything at any rate just to kind of stay afloat. That'll eventually kind of wash itself out. And I think the larger guys, you know, will be prevailing. The where the bulk of our business sits, though, is more on the middle market, S and B, local, fuel-related services. Not where we're hauling goods and services, but where you have a van or a associated with a company that's delivering things or servicing things, and they, you know, essentially have to drive from point to point. And that's where we provide fuel and other vehicle-related services for them. Those are more resilient because they're not obviously susceptible to the freight environment.
They're just susceptible to the ebbs and flows of their business, and so I think there, we've seen, you know, an environment that's pretty, you know, similar to what we see out there from just the overall broader economy, where, as I said earlier, businesses are doing okay. I mean, maybe they did five deliveries two years ago. Maybe they're only doing four deliveries today or, you know, that type of thing. But overall, I think those businesses are doing okay.
Mm-hmm.
Still demanding the need in terms of the demand for the product, which is a little bit in your question, Ramsey, is we still see it as an advantaged product where we can provide them both control, reporting, and a value proposition on discount, where we still think the products that we have, whether it's the standalone fuel card or, in some circumstances, a broader multipurpose business card, is still an advantaged product relative to what they would have—no offense—but relative to or a normal banking business card. We think it has advantages associated with it that the typical card that somebody would have, you know, just doesn't provide them.
and last year, there was, given the maybe post-pandemic freight prices and attracted more entrants on sort of that microfleet side.
Mm-hmm.
When that sort of normalized, as it were, you know, you guys, you know, got, you know, exited a little bit from the microfleets.
Yeah.
How is that process going, getting, you know, anniversarying that sort of multi-cycle?
Yeah. And just to be, the micro here was more on that, you know, service side of the industry, not so much the small fleet over-the-road type thing. So where we pulled back is more on the local of what we think of as kind of the local fleets, the fleets that are moving from point A to point B. They go back home at night. They're not hauling goods and services. They're providing goods and services in a van or a company vehicle. So yeah. So, you know, we did kind of pivot, probably over-pivot in hindsight. I mean, obviously, you never, you know, hit the bullseye exactly. But we probably did over-pivot a little bit. Coming out of the pandemic, what was it gonna be like? Where how was outbound and field services gonna work?
Everything just seemed to be web, web, web, digital, digital, digital. And so I think we got into that a little bit and probably pivoted, over-pivoted a little bit to our reliance on digital. And what that did was provided probably the opportunity for these micros to come in, our credit models to be a bit more tolerant than maybe they should have been. And so we recognized that, hold on a second, you know, we're actually seeing a meaningful uptick in fraud, a meaningful uptick in bad debt. And you know, we're losing money on these customers. They're using us. They're running up a tab on their fuel card. And then they're sticking us with the bill. And so we shut that down in, call it, the second half of 2022.
Then over the course of 2023, we're pivoting and tuning in terms of, what do those credit models look like? How much do we do through outbound and field? And I'd say we've learned a lot over the last 15 months, in terms of our go-to-market. And we're actually seeing some good progress with respect to, you know, our pivot away from the micro, moving upmarket a little bit. When I say upmarket, we're still dealing with a lot of S and Bs, you know. Our target is, you know, a company that has five vehicles or more. So it doesn't have to be a large company.
But we obviously move all the way upmarket to enterprise, but we specifically got away from companies that were just onesies, twosies, vehicle type of, you know, they, a laundromat that has, you know, one van type of thing. Admittedly, I'd say it's taken us a little bit longer to kind of right-size all of that. But I think we've got that tuned. We've added some resources from a field perspective. We're selling the flagship Corpay One card now that gives us a value prop that we think is best in market in terms of what it can do from a fuel, from a business card, and from a virtual card capability. And so all of that, I think, gives us some good reason to be optimistic that we can get that sales engine back to where we want it to be.
Big goal on that group. We expect that group to grow sales, you know, north of 30% this year. And they're off to a good start.
How should investors view the kind of elasticity of your Credit Box? Is it a lever? Is it some you know, what is the magnitude of the timing and the.
Yeah. We can be pretty nimble. We can be pretty nimble, particularly when we're dealing with middle markets, S and B, the local fleets. I would say probably 80+% is an auto decision, model-driven. So we pretty much auto decision, as I said, 80% of the applicants that come in, and we get thousands of applicants a month. And so, the model is geared where we ingest the information and make a decision within, you know, literally the time the person is on the web. Now, things that look like a close call or things that are bigger and more complicated, we hand that off to a team of individuals that can underwrite that in a more, you know, kind of thorough or extensive way.
But in terms of that model, we can tune that model in terms of where, within the twin tiles, we decide that the approval process is an automatic yes or an automatic no or a maybe. And where in that maybe do we maybe adjust, ask for more information, adjust credit terms, things like that. And so just to give you an example, just over the last, I'd say, six months, we've tuned that model a couple of times just as a test and learn, swap in, swap out kind of process that we do in order to continue to gain more data. And we're also updating that model with some level of regularity where we'll, you know, bring new data in and create new learnings, associated with kind of the model's predictive power.
Mm-hmm. One recent development is the move to maybe build out a consumer offering.
Mm-hmm.
In this vehicle payments segment. Maybe give us an update on where you are there and.
Yeah.
What the general outlines of that are starting to look like.
Well, the first is, as you know, and anybody who follows us, you know, Brazil was the kind of a prototype of what that consumer model looks like. Brazil is, call it, a $550 million business.
Mm-hmm.
And called 450 of that. 400 is B2C, where somebody has a tag and a toll tag. And we use that toll tag through an app and through the tag itself and now a credit card to interact in a variety of ways. So we had that as our kind of approach to how we wanted to leverage that idea more broadly. And so when we did the there, the anchor product was the tag. And then we built an ecosystem of payment use cases around it. In thinking about, okay, well, how do we take this idea where we've got these networks, and let's kind of focus on the UK for now, where we have a network obviously of fuel, where we have over 90% of coverage. And we have EV where we now have over 80% rapid charging coverage.
We have 10,000 garages that do service and repair. We have relationships with the insurers that can provide a variety of insurance products on a vehicle. How do we take these proprietary networks that are hard to create and bounce them up against a consumer? Before, in the UK, it was all bouncing them up against a B2B solution. Let's intersect our proprietary networks with, you know, our drivers that are out there, our 1 million drivers that are out there.
And so the idea was, well, we think just like it worked in Brazil, it can also work in the UK and in the US where there will be a demand for more efficiency, ease of use, discount, where the app has just become with a phone, and apps have just become a way in which we interact with the, the things that we buy and consume. And so to give us a, a leap into that world, we found the PayByPhone acquisition to be pretty attractive where we were able to get now to add to that EV and that fuel and that service and repair network, etc., we also got a parking network. And we got 6,000 customers.
And so, that's where we ventured off and said, "Let's, you know, try to greenfield this a little bit in the UK." Where I'd say we are is on the tech build-out, the integration. So the PayByPhone app will be kind of the platform in the UK. And we're building those integrations. First, the fuel integration where they'll be able to see where they can get fuel and at what price. We may eventually introduce discount to that. But this was more of just a value proposition of, "I'm a PayByPhone user. I can now go to a button within the PayByPhone app and kind of just see where I can get petrol in the UK." But next, we'll build in the integration to our EV charging where we will get economics, our garages where we'll get economics.
We've already added what we call content insurance where they can park for a period of time. And if they want to secure the goods in their cars that the car got broken into while they were parked at a rugby game, they would be able to, for a couple of pounds, have content insurance. And so we're seeing good progress there. I would say it starts materializing into where we actually have measurable usage kinds of rates more in the fourth quarter type time frame, is where I would say it won't be material in terms of a financial impact. But I think that's when we would start to say, "All right. The integrations have been built.
The marketing across the app so that the eyeballs are seeing it is starting to gain some traction." We would start to see a bit more transactional activity.
Okay. Shifting gears to corporate payments, can you give us an idea, even directionally, of the mix of that business at this point in terms of what is the virtual card business? What is the FX business?
Sure. Yeah. So if you think about total corporate payments, call it a little over a billion-dollar business. FX is two-thirds. So call that 600-700 million dollar business. And payables is the residual. Call that a $400 million business. So $400 million and $700 million, $1.1 billion kind of dollar, you know, business, in terms of how we think about it for 2024. And so that gives you the two-thirds, one-third. Within corporate payments, payables, the virtual card business is, call it, 65%-70% of that business is what we call full AP. So that's virtual card. That's AP software. That's where we're also paying all forms of somebody's AP for them, check, ACH, and virtual card. The walk-around multi-use business card is, call it, 20% of that payables business.
Then the channel business is the residual piece of the overall payables business. So now, from a growth trajectory, they're on completely different kind of growth platforms. AP is growing at a much faster rate. Channel is something that we've kind of de-emphasized a little bit. We're still selling it. We're still, you know, we think it's some wins in that business. But in terms of where we're investing the sales and marketing, it's on that direct business, in particular around full AP. We still find that the multi-use business card has some real value proposition associated with it. It's a good entry product for a customer where we can get in, low barriers of entry. It's easy for adoption. It's easy for me to take out, you know, your business card and replace it with our business card.
And then that gets us inside an organization and develops a relationship. And then we can maybe take them on that product journey up to virtual card, up to full AP, that type of thing.
Okay. Corporate payments growth or organic corporate payments growth in the quarter accelerated.
Yep.
versus last quarter. What's going right? Is it.
Yeah. The business is performing well. Obviously, and then from quarter to quarter, you get these little kind of ebbs and flows and a tough comp or something unique going on. What we talked about in the fourth quarter is that channel business, which is 5% of the company and not even that, is the business that was deselling. And so that starts to kind of flatten out. We think by this quarter, the Q2, that thing is kind of flattened out. So it'd still be diluted to the overall growth rate, but not as much. It wouldn't be deselling as much. But we continue to see, you know, particularly good growth on both the direct business. I think we referenced on our call that the direct business grew, I don't know, 27% or something like that.
That the FX business continues to grow quite well. We fully integrated the GRG acquisition from a year ago. And so that's progressing well. So we continue to see good uptake there in terms of both sales, retention, and the base seems to be, you know, performing, you know, okay. Again, back to the first question around the macro. I mean, I think spend volumes do affect that business. We were able to weather low vol in Q1 in terms of dollar volatility, FX volatility. But overall, even though the macro environment you wouldn't say is gangbusters, the base held in pretty well.
In that relatively insignificant part of the business that's getting smaller in terms of the partner channel.
Yep. Yep.
Is there any more concentration in there that investors need to discuss?
Not really. I mean, you know, we've referenced as probably 10 or 15 primary customers. What's important there is that we have a good line of sight into what those long-term contracts look like, what the minimums are. I would just say 2023 was a bit of a transition year where you just had customers going through a variety of ranges of transition. They had acquired a company. So they in-housed some services. I can't you know, fault them for that. They spent capital. They wanted, you know, to use it. Some of them, you know, maybe decided to you know, put us in competition against somebody else. And so, you know, there it was kind of, "Let's split some volume between a Corpay and a competitor." But I think we've worked through those transition periods.
I don't think we see that deteriorating will lap the decline that we had in the second half. And as I said, we've seen some pretty attractive new business come in as well. So I think we'll continue to look at it as well, not the primary growth engine for corporate payments. It's still something that, you know, we think we've got a pretty good product. And we'll continue to attract new customers.
Lodging, that's, there's been some moving parts there, you know. Give us an update on what you're seeing right now.
Yeah. So I mean, it's we even had comment. I first got here a year ago. I remember, I think, on my first earnings call referencing a little bit of softness in the lodging business, particularly that direct SMB business. At that time, it was really kind of viewed as just macro. Less of these businesses were sending field workers out into the environment. They were just being more cautious and controlling expenses, maybe using local contractors.
We did, as part of just our continuous desire to be responsive to customers and some product enhancements, we did update some IT that did create some latency in the system. I think the combination—you know, somebody said, "Oh, well, was it Macro, or was it the, you know, the IT thing?" I think it's actually both. I think a good analogy is, you know, you used to go to a restaurant every Friday. Well, maybe your disposable income was down a little bit, and you had kind of a crummy meal.
It wasn't that, "Hey, I just had a crummy meal, so I'm going to quit that restaurant," or, "Hey, my disposable income is down, so I'm going to quit it." It was a little bit of a combo as opposed to an either/or that just caused the base to, kind of take a pause on it. They didn't quit us. Actually, attrition levels have been relatively stable, kind of in line with the company average, or slightly better. But it was just the base that just said, "I'm going to take a bit of a pause here. I mean, you're going to do this in-house or kind of do it over OTAs and things like that." We've now moved over to the final, you know, IT environment. All of those have been converted over in the Q1.
And so we've kicked off a win-back campaign to try to go back to those customers. The good news is, it's a manageable number. It's 200 that make up the lion's share of the volume. So it's not overly challenging task to go have conversations. They're already using us. So it's not like they don't pick up our phone, you know, pick up the phone when we call. And so, yes, I mean, it's not an attractive growth rate, you know, trajectory when we show those 5 quarters in our supplement in terms of how it's declined. But we're working hard to kind of work through the divot. We don't see the divot widening, meaning more people, you know, continuing to push aside. We see it more as the base firming.
We've actually seen good sales activity. So that gives us validation that the product is working, that people see the advantaged nature of the product. We just need to, to win that base back and, and show them that, you know, the latency that, that we've introduced, that there's some value proposition associated with the changes that, that says, "Okay. We'll come back to you.
Is there an international opportunity for lodging?
Well, we acquired Roomex, well, I think it was 2-3 years ago, probably 3 years ago. So we do have an international business. It's a little bit different than the one we have here. The real advantage to Roomex was more of the tech and the UI. So we have kind of two products that we call CLC Preferred, which is the primary product, which, you know, used to stand just as a plug, used to stand for corporate it still does, I guess, corporate lodging consultants. But we're going to change that to Corpay Lodging so we can continue to leverage the brand so that we'll have a variety of our products, with the Corpay name in it. So just as an aside. But then we have CLC Choice.
And that's where we're leveraging the legacy Roomex platform where it provides the employee a bit more optionality than our legacy CLC Preferred product. One of the things coming out of COVID that we've seen has been a variety of, I'd say, behavioral changes coming out of COVID. One of those is a little bit more empowerment of that employee. And if the legacy product was built more for employer and control and manage, CLC Choice is giving it a little more employee-friendly. I can pick my hotels. I can pick my rooms. And in an environment where an employer is accommodating of that, letting go of a little bit of control, the CLC Choice product is something that they'll migrate to.
It also expands our 40,000-hotel network to an even larger population of hotels, not proprietary, but still, it also gives them more choice in terms of if there was a particular hotel they wanted to stay at. We're also introducing things like loyalty points and things like that in order to remain competitive because that's also been something that employees have liked, "Hey, if I stay at this place, I'd like to be able to, you know, use the company's money but get personal points," which has kind of always been an interesting thing. But that's a topic for another, over lunch or something.
We only have about a minute left. So super quick thoughts on M&A. What does the environment look like, or?
Yeah. Well.
The bid/ask spread finally tightening a little bit?
Yeah. Well, one, just a quick trip down memory lane. We were excited by the Zapay our 70% interest in Zapay in Brazil, straight down our fairway of networks and customers. Same thing with Paymerang in terms of a definitive agreement. We hope that closes here in the Q2. I think you'll see more of the same. I think, you know, our balance sheet, our liquidity, our free cash flow generation remains strong. So we're going to be in the M&A market, and I do think, I would say, it is more attractive than, say, 18-24 months ago. I think valuations have come down, particularly companies that are privately owned that have been choking on higher interest rates. Higher for longer doesn't help in terms of their cash flow modeling projections and overall valuation. So discount rates, you know, are definitely higher.
Weighted average cost of capital's higher. I think all of those things, I think, bode well for M&A. But we'll continue to be disciplined, highly analytical. We like accretive deals. We like the Paymerang acquisition. They're already growing 20%. But we can tack on in synergies on top of that to juice that even more. That is, you know, straight down the bull's-eye of what we would look for on a go-forward basis.
Fantastic. We're out of time. Great conversation. Thanks so much, Tom.
Yep. All right, Ramsey. Thanks.
See you. Yeah. Appreciate it.
Thank you.