Corpay, Inc. — 2023 Q4

Pete, good question. I'd say, looser. So the model that we've used has gotten a bit better over the last 12 months. And I think I called out credit losses coming in literally about half of the prior year. So I'd say we're going to kind of open this ticket carefully.

Yes. Another good question. Glad to be back at kind of the basic, buying companies. So the primary focus, Pete, is on Corporate Payments. So we've got a pipeline of a couple of interesting things in that space. And then the one other area that we're kind of on is this consumer capability, this idea again of getting a big block of consumers that we could market all of our networks to. So I would say those would be the two short-term things to look for.

Yes. I mean, in a nutshell, Ramsey, I call it, the story of the quarter was same-store sales. So I called out it was minus 3%, and if you went back to our prior transcripts, Q4 '22 would have been plus 2%. So in that 12-month period, basically went from plus 2% to minus 3%. So obviously, that's 5 points of organic growth. So that's the whole story. Retention was good, sales were good, expense controls, credit below the line. Everything effectively in Q4 through my lenses was kind of in line sans that one call out.

Look, it's a super complicated question, right, which is why we spent 11 months on it, so [indiscernible] too quick with an answer here. But look, the main thing against just a straight SpinCo, I think we said, was uncertainty of the trading range of RemainCo wasn't so much. We got a great Corporate Payments business. It was really what's the multiple on RemainCo.

So I mean the headline of why I call this out is, over the last 2 or 3 years, we've done a fair amount of what I term capability acquisitions. And really behind the scenes, those have been some tech capability acquisitions, right? The Corpay One, we bought an AP platform, a software platform called Accrualify. It's a front end. We bought a European workforce business with a brand-new platform.

Yes, that's another super good question. It sounds like most things, some things stay the same and some things are different. So the most important thing for us, as you know, is sales, which is why I call out the growth rate. And I think I called out for the full year last year 20%. That's our target again for 2024, obviously, off of a bigger base.

Say the last part, Darrin, guiding to what in '24?

Yes. So let me take that last part and then back my way back to the beginning of your question. So yes, if you looked inside our quarterly roll, that thing would go from kind of low mid-single digit up to 10%. So the internal plan we have is exactly what you said to the vehicle organic growth rate to accelerate.

And Darrin, one thing I'd add before Ron gets to your other question about longer-term vehicle. Keep in mind the first half of last year had the elevated late fees from the SMB micro clients that we still have on the platform. So we all start lapping that until you get into late Q2, so that creates a little bit of a grow-over challenge when you look at it on an annual basis.

And it's one of the reasons, Darrin, someone sent me some text of, hey, the revenue looks a little light. And we've effectively taken $20 million, $30 million of late fee revenue out and $20 million to $30 million of credit losses out. It's been basically kind of a one-for-one swap, which people out there may not like, but I like. I like the ratability of having lower credit losses. And so to Tom's point, that portfolio shift kind of moved both revenue and expense.

Let me take that one. Another good question. So if you think about what we call a channel business, it's some third-party U.S. customers where we provide virtual card processing. And the basic trend, which started 2 years ago, is those partners effectively moving from an exclusive relationship with us to nonexclusive.

Nate, it's Ron. I'd say not much change. So I think we said it before that acceptance or nonacceptance of a virtual card turns really more on the profile of merchants. Merchants that have obviously higher margins, for example, are more accepting, or merchants more in need of cash flow because they're paid sooner. So I'd say there's really nothing super new. Kind of the opt-out rate, if you will, has been pretty steady. And again, who takes the card is really a function of kind of who the merchant is. So nothing new.

And, Nate, we've actually seen card penetration levels tick up a little bit. So at the end of the day, it kind of comes down to the amount of spend that's on a card, and that's moved up as you look at it over a quarterly trend.

Yes. That's another good question. I mean, simplistically, Nate, we used to do knock, knock on a midsized company, hi, CFO, and hey, we've got some great expense management products here. And mostly, the pitch was kind of menu-based or a la carte. Hey, it looks like you got some drivers, we've got fuel cards. Looks like you need a better control business card, given some of the expenses that are coming in, or one that's got automated expense reimbursement.

Sure, Sanjay. It's Tom. So thinking big picture macro, let's start there, and then we can talk a little bit in terms of a more detailed macro as it relates to -- specific to our company. But big picture macro, we're expecting an economic outlook to stay relatively consistent, completely in line with the broad economic guide.

Sanjay, it's Ron. I got to jump in because I'm clearly the optimist here, playing off of Tom. But I'd say it's all -- it's sunshiny days, right, living through 2023 with a $200 million interest expense boat anchor and sitting here at the beginning of the year with half [ eFX ] and declining interest rates. It feels super great to get earnings print back to 15% or 18% that we can print instead of whatever we printed last year. So I would say that it's setting up at this moment to be super positive for us. Super happy with it.

Yes. I mean it's happening in different places. I think you -- we've called out before, it's probably 20% of the Brazil sales now in the company are taking add-on products there and selling them back to the core base. We're underway with that, as I said, with the parking app because we've got millions of consumers. We're back -- reselling something back into the base of Corporate Payments, back into the fuel card base.

Sheriq, give me your page number again. You said 27?

37. Okay, sorry. Yes, so a lot of that has to just do with the channel mix. So as Ron mentioned earlier, in terms of the way -- the amount of take rate we have on channel versus the direct business, as we saw the channel volume fluctuate in the quarter, that's what's causing the fluctuation in the take rate related to Corporate Payments.

Yes. I don't think it's kind of disproportionate one way or another. Just kind of round it out, just to summarize, for the year, we were at 53%. We were exiting around 54%, and we guided for the full year 2024 to be at 54%, and probably exiting a little bit higher than that, as you would expect. And so it's not really one -- one, there's not a lot of change there. You're talking about, give or take, 100, 150 basis points.

Yes. Cris, it's Ron. So look, I preface it with it's still early days, I guess. We've been running this analysis for, what, 8 quarters or something and have 300 or 400 accounts in it. So look, we know a fair amount. We have real customers that are paying real bills and paying us more. I'd say to you that conceptually the reason that I think we can get paid the same or more, just to me simplistically, is there's just more purchase.

Sure. Trevor, it's Tom. So the Lodging business, as we mentioned in our prepared remarks, it did experience softness. Where our biggest surprise was for the quarter was really more on the airline and the insurance piece. We actually saw the workforce piece come in about where we had anticipated, and a lot of the expected growth that we had forecast in the fourth quarter was from what we've seen historically, with the level of flight cancelations related to our distressed product, where you typically would see a seasonal uptick. There's lots of people in the air with holidays and things like that. And that just didn't come to fruition.

Yes, Trevor. Let me try to take that and then Tom can add to it. So I mean, conceptually, the main reason is the same-store sales. So if you think about math, right, of how to get to 10%, right, we lose business, right, 8%. We make sales and then we have the same-store sales. And so the bet that we have, which we're seeing in the trends, is if the same store that was plus 2 4 quarters ago and was minus 3 this past quarter will head back to flat.

Yes. It's just that channel thing that I said before. I mean, that literally was the point of our same-store sales reduction. We would have been 2% if that business was flat. So again, it's just a big partner that gives us lots of volume and no money goes, dates around and goes non-exclusive. And so, hey, we lose a little bit of revenue, and we lose a lot of volume.

It's kind of belts and suspenders. It was also some minimums as well. So that we also got some protection that while we're under contract, we also have some commitments from a minimum perspective, too.

Yes, I mean I'd say it's fairly normal. Obviously, it's going to fluctuate from a dollar perspective as the business grows. We think of it more in terms of basis points of spend or percentage of revenue because as the business grows, you'd expect the bad debt dollar amount to grow, but not necessarily that rate to necessarily grow.

And again, just add the point is it helps the flow-through into earnings, right, although it looks like revenue is light when you take those late fees out because you're taking out the credit loss expense, basically, you have a decent flow-through down to EPS. So that's one of the reasons that the profit flow-through remain pretty good.

It's Mike Infante on for James. Just one quick one for me. On the buyback, anything that we should be mindful of just in terms of cadence there? Do you think it will be fairly evenly distributed based on seasonal free cash flow generation? Or will it be weighted to any particular quarter?

Yes. Michael, it's Tom. I think we're going to be mindful in terms of market conditions, and we like where the stock price is. As I mentioned, we're flush with liquidity, both on the balance sheet and then when we upsized the revolver, we have another $600 million of liquidity. Obviously, we want to use some of that liquidity for M&A.