I think we'll get started with our next session. I'm Bryan Keane. I cover FinTech here at Citi, and we're excited to have Peter Walker as the CFO of Corpay. Peter, thanks for being here.
Great to be here.
Wanted to talk, and we were talking a little bit before we even started, obviously strong momentum for you guys across the business, and you guys raised guidance again. What gives you confidence you guys at Corpay can keep delivering through the end of this year?
Yeah, a couple things. I mean, the fundamentals in the business are really strong. I mean, Q3 was another great quarter for us. It was our sixth quarter of double-digit organic growth, and it was our fifth quarter of beat and raise. We delivered 11% organic growth, and then our primary focus area being corporate payments delivered 18% organic growth. If you take our corporate payments segment, our vehicle payment segment, and put them together, that's about 80% of our revenue, it's 13% organic growth. The business just continues to perform as we've designed it to, which is super exciting given the turbulent times that we're in for some other folks.
I think the other thing is we're obviously sitting in early November, so I've already seen October results, and I've got about a month and a half of the year left to go, so I have high visibility into what the performance will be for the full quarter.
Yeah, it seems like sales and organic growth being an important piece of your business. Can you just walk us through why you guys have put up durable results? We've seen some volatility in FinTech, but you guys are growing strong double digits.
Yeah, so we recently had an investor perception study done, and those are always helpful to have, hear from the investors and get an outside view on what we're doing. I think one thing that we recognized out of that study is that we're giving investors a lot of data, but maybe we're not putting it together in the most helpful framework. I think when you think about our organic growth, what's really important is the building blocks, which we do provide, but let me put them together maybe in a way that people haven't heard it before. Our retention rate is, call it, 92%-93%, so really strong retention across the business.
If, let's say, I do $100 million of revenue in 2026, when I wake up on January 1st, I know I've got $92 million of revenue showing up in 2027, right? So over 90% of the revenue there, plus. Same for sales, plus or minus 1%, so really not meaningful. Price, call it 3%, right? So I'm at 92 plus three, now I'm at 95. We have a large sales organization. It's been one of our long-term unique advantages of the business. What we sell in the current year translates into the following year. We specifically gave the example on the earnings call of we predict we're going to sell half a billion of revenue in corporate payments in 2026.
When you think about that half a billion of revenue, about 50% of that revenue we will earn within 2026, and about 40% of that revenue we will earn within 2027. There is about a 10% delta there because we will have early life attrition and some other things. If you take that base of that revenue over my base corporate payments revenue for 2027, it is about 7-8 points. Now you have 95, call it, plus eight, you are in at 103, and I need to get to 110 to deliver organic growth of 10% as an overall organization.
A lot of my revenue for the next year is already set up in the current year, and really what turns on that 103 to 110 is my sales effort that I make within the current year, which again, has really been one of our secret sauces in terms of growing the business, multiple years of 20% plus sales revenue. One thing we are going to work on with investors is just an easier, simpler kind of bridge of this is how you should think about the durability and the recurring level of our revenue.
Yeah. No, that is helpful. You mentioned that the corporate payments grew 18% organically in the third quarter across spend management, cross-border, FX, and AP. Can you talk a little bit about where the strongest demands are in the market fit?
Yeah, so I think we think of the business really in two pieces today, one with the spend management business, the other our cross-border business. Both of those businesses are performing extremely well. Within the cross-border business, we completed the Alpha acquisition last year, and that has gone quite well. Then when we look across the segments that we sell into within cross-border, corporates being our primary client, followed by private capital markets and FIs, we are performing well across all of those segments. If we move over to the spend management side, which is our AP automation product and our commercial card product, also having a lot of success there. If you think in general, who are we selling against? Who are our competitors?
Our corporate payments business is really set up to sell into the middle market, so call it businesses with revenue of $300 million-$500 million that are typically underserved by banks. That's really our opportunity, is to go in and service those clients better and create value for them that they're not getting by their current providers.
How important is the cross-sell, or is it the unified solution for you guys?
Yeah, I'd say in cross-border, it's extremely important. If I look at the three products that we sell in cross-border, primary products is international payments, risk management services, and Global Bank Account. There's high cross-sell across those three, so most clients take at least two or three of those products, so that's working really well. When we go over to the spend management side, there's quite a bit of cross-sell, but I actually think that's our opportunity between our AP automation business and our commercial card business, how do we continue to cross-sell? The other thing that we've introduced earlier this year is the thought of moving left. When we say moving left, it's moving into the procurement space.
It's pretty interesting to see what's happening in procurement, because now that we have AI, the ability to ingest contracts and ingest data and provide value through a procurement offering is super helpful. That's another area where we're going to add on to the spend management offering of AP automation and commercial cards, and we think it's going to be a more compelling sale into our customers. Obviously looking to offer that through one platform, and the goal would be that there'd be quite a bit of cross-sell there.
Got it. On the call, I think you called out for Corpay payments, 7-8 points of growth next year. It implies about a $500 million in annualized booking value. Just hoping you could walk us through the bookings and revenue conversion math, if this is the normal level of forward visibility.
Yeah, I kind of covered that already when we talked through the organic growth algorithm, I talked about the 7-8 points that were coming off of that. Just a reminder again on the numbers there, it would be $500 million of revenue in 2026. About half of that would be realized in 2026. About 40% of it would be realized in 2027. That 40% translates to $200 million over, call it, a base business of $2.5 billion, which is about a 7%-8% tailwind going into the following year.
Got it. That is the normal level of typical visibility for you guys?
It is.
Yeah. Got it.
We just had never. Again, it's a great disclosure. I kind of point back to a lot of the investor work we've been doing this year in the investor perception study. A place that we're trying to shift to over time is what better disclosure do we give to investors to just help them further underwrite the corporate payments business as it becomes a larger and larger part of the overall business.
Yeah. That's kind of a lot of questions we get from investors is about that visibility.
Yes.
Can you discuss a little bit about, you talked about this as well, but just the competitive dynamics inside that corporate payments and what stops tier 1 banks from more aggressively getting into the mid-market TAM?
Yeah, so probably two different dynamics between cross-border and spend management. I'll start with cross-border. If you look at the cross-border market, it is a massive TAM that's available. The tier 1 banks do an excellent job serving enterprise clients. We have no desire to get into that space. When they're serving enterprise clients, like me, for example, they're showing up with lending offerings, they're showing up with cross-border offerings. They've got the best-in-class offerings. When you drop down to the middle market companies, call it $300 million to $500 million in revenue, they are typically being served either in the U.S. by tier 2 through tier 4 banks, or internationally by local banks within the currency, within the country.
What happens when you drop down into that level of banking relationship is those banks are great at relationships, they're great at lending, but they're not great at cross-border. In order to do a cross-border transaction, they need to call a correspondent bank in a country across the world, and it may take months to get it pulled together, if you think about a Global Bank Account. That's where we really step in and we're able to provide, I would say, a much larger and more comprehensive suite of modern products to those customers. Our partnership with Mastercard was the idea of, hey, when you look at these tier 2 through four banks, they actually want to be able to keep that middle market customer. They don't want to lose them to the tier 1 banks.
So why don't we offer them our products that they can either sell as Corpay products or they can white label and they can really expand their product offering, because we really do see that market as underserved. I think the other interesting component about that market is, when you're running a $300 million-$500 million business, you don't have a ton of resources. You don't necessarily have a treasurer. So, these businesses are looking to Corpay to be really a trusted advisor in terms of, okay, what international payment should I do? How should I set them up? Oh, I should do a hedging contract. Okay, teach me how to do that. So, that's where we're able to really capture a couple points around the edges for those value-added services that we're giving back to the CFO that they couldn't typically afford to keep themselves.
Then when you move over to the spend management space, I'd say just in general, especially in the U.S., I mean, it's ridiculous that people still use checks to pay AP, which you guys would be stunned at how much of that is actually happening. So I'd say on the AP automation side of the business, it's just ripe for disruption. The companies typically have kind of a mixed bag of things. Oh, I'm using the banks to do some ACH, or I'm printing some of my own checks. So our opportunity is to come in and say, "Hey, we can organize all of this for you and automate it for you." Then on the commercial card side, we're going against the bank's commercial card programs, and our program is just significantly more advantaged than what the bank is able to offer.
Again, that's the tier 2 through tier 4 banks as opposed to the tier 1 banks.
What about some of the new entrants in the space that don't have to worry about profitability at-
Yeah
like a public company?
We love the likes of Ramp and Brex, that they're in the space and that people are adopting their products, because what it says is there's a huge TAM out there. Those are relatively small businesses, so are we, if you think about the TAM. The CFOs, the office of the CFO, is saying, "We need something better. We want somebody to solve our workflows. We want somebody to make it easier for us to manage spend and save money." So I'd say overall, we're super supportive of them in the space. The fact that they don't have to be held to any profit metric makes me jealous, right, because they can spend as much money as they want to on marketing and sales, right, to drive their business. I operate at, call it, elite margins, 55% EBITDA margins.
I have to be disciplined, right, about how I spend my money versus those competitors. But in general, I would say it is a validation that this is a space for disruption and that customers are willing to pay for it.
Thinking about the mid-market, you guys gave some good details about AvidXchange. How do we think about your guys' ownership structure and
Yep
do you plan on When would timing be maybe to potentially purchase the rest of the stake in Avid?
Yeah, so this was a super interesting ownership structure for us. We went into this as a partnership with TPG, and just to make the math simple, they own two-thirds, we own one-third. There are really two reasons why we went into this as a partnership. One of it was we wouldn't have bought Avid outright because they would have been dilutive to our organic growth and they would have been dilutive to our EPS. The business, while it's got a strong fundamental core, was just not performing well. That was kind of issue number one. Issue number two is we've been working on Alpha, and we were going to buy that in whole. From a capital management perspective, I would rather spend $500 or $600 on Avid than three times that and take it all on. So, great partnership with TPG.
I'd say really our first set of work with Avid happened, call it, this time last year, where we were setting the budget for 2026. It was really the opportunity to take a look at what are the priorities of the company and to take them down from a significant number of priorities to three or four major priorities so we could really turn the business around. It was an opportunity to look at the expense side of the business and decide where we were overspending and where we could reallocate spend. One of the biggest focus areas was spending more on sales if we were going to grow the business. We kind of fast-forward to the comments we made on the earnings call just last week, and what we were sharing is, hey, number one, on the top line, we're encouraged by what we're seeing.
We obviously made these investments in sales in, call it, February. It takes time to ramp, it takes time to be productive, but what we're looking at is hopefully an exit growth rate of double-digit organic for Avid this year, which is super helpful because it goes back to the issue of, I couldn't buy it outright because it would have been dilutive to my 18% organic growth rate. The second piece is we've shared they've doubled EBITDA year over year. So they've been able to get super productive. I'd say that the product and technology team in Avid is really strong, really AI-forward, and so that's where we've also been able to get a lot of the EBITDA performance out of the business.
Is there a timeline that you would buy the remaining stake?
Interesting question. It's kind of summer of 2028 is when the call option is for us, but that doesn't mean we have to wait till then. It also doesn't mean that we've got to buy Avid outright. We may make a decision of, oh, let's take our ownership to 51% and become the controlling entity and consolidate Avid. Maybe I keep a little capital on the side because there's some other M&A deals that I want to do, or I want to mix it with buyback. I'd say the partnership with TPG has been kind of world-class in terms of us bringing the expertise in the space and them bringing the discipline of PE firm of what they bring. Great relationship, so I'd say it's really kind of optional at this point, really depending on our capital allocation priorities.
But what we've said is, as we sit here today, we're super encouraged about it. It doesn't mean that we're a complete yes, right? We've got to see a few more proof points before I'd say, "Yes, I'm ready to execute on the deal.
Yeah, the Alpha Group acquisition, which you talked about, is doing well. Can you talk about synergies? Is there more incremental synergies next year for revenues and margins?
There were two things. We're really excited about buying the Alpha Group. I'd say there's really two books of business within that business. One was the corporate business, which is predominantly what our cross-border business today, so serving corporate clients. And then the really, I'd say, even more exciting piece was the private capital markets business, where they're mainly working with investment managers and PE firms, and this is where they developed their unique product called the Global Bank Account, where they can literally open up a bank account in five days for a PE firm or an investment manager who wants to execute a deal in a foreign country. On the corporate side, we're almost complete with the full integration of that onto our CamTrade, which is our overall platform of choice we use across the globe.
All of our cross-border acquisitions, we've completely integrated into that platform to get the scale and advantages we need. The cost related to that will be a tailwind into next year, because I can't take out the cost until I literally shut down the full system, which will kind of happen end of this year. We've not quantified that yet. We'll share that when we come back to the next earnings call and guidance, but I'd say that is some tailwind heading into next year. Then when we go over to the private capital markets business and the Global Bank Account, we were already offering a multi-currency account to our corporate clients before we bought Alpha.
What we spent the year on, it's taken us a little longer than we would have hoped, but we think it's going to end up in a much better solution for the clients, is creating one bank account product that not only services private capital markets, it can also service corporates, and it can also service FIs. We're on track to launch that, call it, beginning of January. Getting back to your synergy question, what's exciting about that is today, the Global Bank Account product of Alpha, we can only sell in the U.K. and in the continent because that's where they're licensed. Once we bring them online with this more fulsome product, we all of a sudden light up the United States and Asia for that Global Bank Account product.
As part of our diligence of Alpha, obviously, we called clients, and one of the things we asked clients is we said, "Hey, if we could offer you Global Bank Accounts in the U.S. and then across Asia, would you use Alpha for that?" The answer was resounding yes. That's another opportunity that we have for synergy going into next year that we didn't necessarily pick up this year. I don't want to get over my skis on what those numbers look like. We'll be back to investors in the next earnings call. We said, "Have kind of guidance for next year," but it's nice going into the following year with some wind in our back on these two things.
Yeah, just thinking about the vehicle payments business as a whole now, it's growing 8% organically. Is that the right kind of growth rate going forward for that business?
It is. I'd say high single digits is the right growth rate for that business. That is a global business, so we have a business in Brazil that performs, call it, mid to high teens. We have a business in, we call it Europe and rest of the world, vehicle payments business that performs kind of high single digits. The U.S. business is performing kind of single digits as it is today, and that's been a specific decision on our part to really take some investment out of that business and point it towards corporate payments. Back to kind of my conversation of I got to live within a certain margin, I've got to be really disciplined with capital allocation.
So the thought there is invest in the places where I get the highest return, the biggest growth, and moderate investments in other places like the U.S. business, which, by the way, is a very stable business. It's an incredible cash cow business. It's just not a growth business in the U.S. that it is for us in the other parts of the world.
Yeah, I wanted to ask about Brazil. Any change in Brazil for you due to the election and regulatory changes? Is there any tailwinds or headwinds to think about because of that?
Yeah, great question. We don't see Take a sip of water real quick. We don't see any impacts to the business really either positive or negative coming out of the election. I mean, we obviously were keeping close ties on it and make sure we understand if there are puts or takes either way. I'd say kind of steady as she goes in terms of a high-performing business. I'd say the one near-term headwind which we incorporated into our guidance for Q4 is if you look at the real the Monday after the election results came out, it looked like some of the stocks last week. It was here and it dropped all the way to here.
Yeah.
For our Q4 guide, as opposed to using the kind of forward-looking curve for the real, we used the spot rate between October 26th and October 28th and took some of the revenue impact out of the guide for Q4 because there's just a lot of uncertainty. Something small, but just to note for everybody that we don't know what the currency is going to do, so we didn't want to bake any upside into it for the Q4.
And then just finishing on Brazil, do you guys have the right products and distribution channels there to sustain that kind of mid to high teens?
Without a doubt. We have an extensive sales network within Brazil. Brazil will be north of a $1 billion business next year. We started within tag, which still continues to be a B2C tag, which still continues to be a strong business for us. And then off of that, we began to offer all the kind of wraparound products that consumers would be interested in. Things like micro-insurance have become super important in terms of, obviously in Brazil, people don't have insurance the way we do in the States, so they buy insurance when they take long trips, et cetera. The other business that's been really successful for us, which we talked about on the earnings call, was our vehicle debts business, which grew 30% year-over-year. The vehicle debts business is a great extension, I would say, of the tag business.
It's got a funny name, vehicle debts. What does that mean? What it means is that for every car in the country, they're obviously regulated by the government. The government is pretty strict, especially in cities like São Paulo, about what days of the week you can drive on, where you park your car. So people get lots of tickets. Sometimes they don't know about their tickets until they show up to do their registration process at the DMV, and so it can be a much bigger bill than they expected to in order to get their registration for the next year. So what we did over the last couple years is we bought the two leading providers of being able to digitize this whole process. So instead of you or I headed down to the DMV, we could log in to either the Zapay or the Gringo app.
We maintain both brands because they have different visibility in different regions, and we could see, is there a ticket on my car? What's my registration going to cost me? And I can do all of this online without having to go in the DMV. So it's another example of just an incredible offering that we provide in Brazil around mobility. As you know, in Brazil, owning a house is like owning a car. Or sorry, owning a car is like owning a house in America. So it's really important assets to individuals there.
So summing it all up and thinking about 2027, obviously you guys have had solid results here in 2026, and you laid out the 9%-11% kind of organic annual target. How do we think about that target, some of the upside and even potentially downside risk to that as we get into 2027?
Yeah, so the 9%-11% target we feel very confident in. I mean, we've delivered it five out of the last six years. We've delivered it the last six quarters in a row. So, call it that double-digit organic growth is something we're very focused on. You and I walked through the algorithm to get there at the beginning of this conversation, so I think that's how investors should think about it. So that's setting up pretty well for next year. Next, we talked about, every year we produce a significant amount of free cash flow. That'll be about $2 billion next year without any dispositions. So the opportunity to put that to work against accretive corporate payments M&A or against buybacks sits there for us.
Then you and I also talked about kind of the sales performance within cross-border in 2026 and the momentum that that has going into 2027, which is very complementary to the organic growth rate of 9%-11%.
I think you guys closed two divestitures this year, and I know Ron mentioned there's another maybe $1 billion-$2 billion you're taking to market. So how should we think about maybe additional divestitures and anything inside the vehicle payments business in particular?
Yeah, good question. This year, two divestitures. We completed PayByPhone, call it Q1, and we just completed the maintenance business. Both those were in our vehicle payments business. Proceeds were about $1.2 billion from those divestitures. We used all of those proceeds to buy back stock. That not only returns capital to shareholders, but it also neutralizes any EPS impact. As we kind of take the next turn, and our corporate focus here is larger-scaled advantage businesses, really driving to corporate payments, we are going to continue to look at what do we prune in the current portfolio, assuming that we can get a good return for the assets. I would say there is a couple businesses within vehicle payments, there is a couple businesses within lodging, and there is a couple businesses within other that could be potentials.
We are working through that at different levels, and I would say what investors should expect from us is, we will continue to make some divestitures at the right financial targets, return that capital to them, and then with the free cash flow we produce each year, which will be about $2 billion next year, that is another opportunity for us to then make investments in corporate payments M&A business and continue to grow that business or continue buybacks.
Yeah, that is what I was going to ask is, I think you guys bought back 5 million shares this year. Will you be more aggressive with the buybacks, or I know Ron was talking about M&A targets, especially maybe inside of spend management, large or small. How do you think about the allocation of those two things?
Yeah, this year it is interesting just to do a double click on that. If we think about what we bought back this year, about 65% of the buybacks were from proceeds of the dispositions, and about 35% of the buybacks are just kind of normal capital management buybacks, right? I would say that buybacks will be elevated in a year when we are doing these divestitures. As we go forward, I would say we are always going to look at the best return for investors, whether that is accretive M&A, a corporate payments, or whether that is buybacks, but I would say it is always going to be a balance. We provided a chart in our earnings materials from maybe two or three quarters ago where we look back over the last eight years, and it is almost 50/50.
I think it was $15 billion, 50% went into accretive M&A, and 50% went into buybacks.
I know you guys introduced that medium term, I think it was $50 plus of EPS over the summer as a target. How do you think about contribution from that, from operating leverage, versus this buybacks and M&A?
Yeah, so when we think about kind of the algorithm around the $50 of EPS, we start with assuming 10% organic growth. Then we assume cash profit before tax growth of 13%, so we're getting some leverage out of the business, and then that gets us to an EPS growth rate of, call it, 14%, 15% base, and then we have the ability to use our yield to take that to 20% plus. What I mean by yield is, we kick off so much free cash flow that I can either buy back shares with it or I can do accretive M&A. I can also, my leverage framework is not to go above 3x.
As I become a bigger, more profitable business, I can continue to borrow more money within the framework of my leverage ratio and also put that money to work in terms of buybacks or accretive business. That's really what gets us to call that 20% of EPS each year.
So if we sum this all up and think about, over the next three years, let's call it, if Corpay is successful in executing its strategy, what will be the most different thing, what will be the most different about the company, and what should investors leave here today thinking about the position of that company in that medium-term timeframe?
I'd say a larger more advantaged business that's easier to underwrite, that is most likely 100% corporate payments focused.
Yep. All right, great. We'll keep it there. Thanks so much, Peter.
Yeah, appreciate the time. Thanks, everyone.
Thanks, Peter.