Corpay, Inc. (CPAY) Q3 2025 Earnings Call Transcript

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Overview

The earnings call summary presents a positive outlook with increased revenue and EPS guidance, new partnerships, and strong growth projections in various segments. Despite some uncertainties in Corporate Payments and stablecoin interest, the overall sentiment is optimistic. The company's strategic initiatives, including M&A activities and capital return plans, further support a positive sentiment. Considering these factors, the stock price is likely to experience a positive movement in the short term.

Key Financial Performance

Revenue Q3 revenue was $1.172 billion, representing a 14% year-over-year growth. This growth was driven by 11% organic revenue growth, with higher volume and spend contributing to the increase.

Cash EPS Q3 adjusted EPS was $5.70 per share, growing 14% year-over-year due to strong top-line performance and solid expense management. Adjusted EPS grew 17% year-over-year on a constant macro basis.

Organic Revenue Growth Overall organic revenue growth was 11% in Q3. This was driven by higher volume and spend, with the Vehicle Payments segment growing 10% and the Corporate Payments segment growing 17%.

Vehicle Payments Organic Growth The Vehicle Payments segment grew 10% organically in Q3, with the U.S. Vehicle Payments segment improving to 5% organic growth. This was driven by improved sales production, higher approval rates, and strong retention.

Corporate Payments Organic Growth Corporate Payments segment grew 17% organically in Q3, despite a 100 basis points drag from float revenue compression due to lower interest rates. Growth was driven by a 57% increase in spend volumes on a reported basis and 38% organically.

Lodging Business Performance Lodging organic revenue was down 5% in Q3, impacted by a 400 basis point drag from lower emergency revenue year-over-year in the FEMA business. However, the business has stabilized, with attrition improving from -8% last year to -5% this quarter.

Adjusted EBITDA Margin Adjusted EBITDA margin was 57.7% in Q3, essentially flat compared to the prior year.

Operating Expenses Operating expenses were $649 million in Q3, a 16% increase year-over-year, primarily driven by acquisitions, divestitures, FX impacts, and a true-up of a 2024 disposition. Excluding these impacts, operating expenses increased 8%.

Bad Debt Expense Bad debt expense declined 1% year-over-year to $28 million, representing 4 basis points of spend.

Liquidity and Leverage Liquidity was $3.5 billion at the end of Q3, with a leverage ratio of 2.4x. The company closed upsized debt facilities, increasing the revolving credit facility by $1 billion and adding a $900 million 7-year Term Loan B.

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Operating Highlights

Corporate Payments Segment: Generated 17% organic growth in Q3, driven by a 57% increase in spend volumes. The segment is expected to generate over $2 billion in revenue next year, representing 40% of the company. It includes solutions like Corpay One Spend Management, mid-market AP automation, cross-border risk management, and global bank accounts.

Vehicle Payments Segment: Achieved 10% organic growth in Q3, with U.S. Vehicle Payments improving to 5% growth. The segment is expected to maintain 10% organic growth in Q4.

Stablecoin Integration: Progressing on stablecoin initiatives, including enabling payouts in stablecoin wallets, adding digital wallets for clients, and serving large crypto clients. This is aimed at leveraging existing assets for new payment systems.

Market Expansion in Corporate Payments: The company is focusing on expanding its Corporate Payments segment globally, with solutions like cross-border risk management and global bank accounts. The cross-border business is expected to generate $1.2 billion in revenue next year, making it the largest non-bank player in this space.

M&A Activities: Closed acquisitions of Avid (mid-market AP automation) and Alpha (European cross-border business). These are expected to contribute significantly to revenue and profitability in 2026. The company is also exploring divestitures worth up to $1.5 billion and new acquisitions in Corporate Payments.

Revenue and EPS Growth: Q3 revenue grew 14% year-over-year to $1.172 billion, with 11% organic growth. Adjusted EPS grew 14% to $5.70. Full-year 2025 revenue is expected to exceed $4.5 billion, with $21.24 in adjusted EPS.

Operational Efficiencies: Implemented AI productivity and vendor rationalization initiatives, expected to drive margin expansion in 2026. Bad debt expense remains well-controlled at $28 million.

Strategic Focus on Corporate Payments: Aiming to grow the Corporate Payments segment to $10 billion in revenue, leveraging strong positions in spend management, AP automation, cross-border risk management, and global bank accounts.

Stablecoin Strategy: Developing a stablecoin payment system to enable 24/7 payouts, integrate digital wallets, and serve crypto clients, leveraging existing compliance and fiat infrastructure.

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Risk or Challenges

Lodging Business Weakness: The lodging business remained weak in Q3, impacted by lower emergency or one-time revenues. Although the business is stabilizing, it has not yet shown meaningful recovery, and sales need to improve.

Float Revenue Compression: The Corporate Payments segment faced a 1% drag from float revenue compression due to lower interest rates, which is expected to continue as a 3% headwind in Q4.

Regulatory and Tax Changes: The adjusted effective tax rate increased due to Pillar 2 regulations and changes in the mix of earnings, which could impact profitability.

Debt and Leverage: The company increased its debt facilities to fund acquisitions, resulting in a leverage ratio of 2.4x, with plans to delever to 2.8x by the end of 2025. This reliance on debt could pose financial risks if cash flow generation weakens.

Sales Challenges in Lodging: Despite stabilization, the lodging business requires significant sales improvement to recover fully.

Economic and Market Risks: Lower interest rates and FX rate fluctuations have impacted revenue and profitability, posing ongoing risks to financial performance.

M&A Integration Risks: The company is integrating multiple acquisitions, including Alpha and AvidXchange, and working on profitability plans. Failure to achieve expected synergies or manage integration effectively could impact financial outcomes.

Stablecoin and Crypto Risks: The company is entering the stablecoin and crypto space, which involves regulatory, technological, and market adoption risks.

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Guidance & Outlook

Q4 2025 Revenue and EPS Guidance: The company has revised its Q4 2025 revenue guidance to $1.235 billion and cash EPS to $5.90 at the midpoint. This includes contributions from the Alpha acquisition closed on October 31 and strong Q3 performance. Organic revenue growth for Q4 is expected to be approximately 10%, with the Vehicle segment maintaining 10% organic growth and the Corporate Payments segment expected to finish in the mid-teens, inclusive of a 3% float revenue headwind.

Full Year 2025 Revenue and EPS Guidance: The company expects full-year 2025 revenue to exceed $4.5 billion, representing a 14% increase, and cash EPS to surpass $21, higher than the initial profit guidance provided in February. This marks four out of the last five years with organic revenue growth of 10% or higher.

2026 Fiscal Year Outlook: The company anticipates favorable macroeconomic conditions, including better FX rates and lower interest rates, supporting organic revenue growth in the 9%-11% range. Incremental accretion of at least $0.75 is expected from the Alpha and Avid acquisitions, along with margin expansion driven by AI productivity and vendor rationalization initiatives. Strong earnings growth is projected for 2026.

Corporate Payments Segment Outlook: The Corporate Payments segment is projected to generate over $2 billion in revenue in 2026, representing about 40% of the company. The company aims to grow this segment significantly, targeting $10 billion in revenue in the long term. The segment includes four solutions: Corpay One Spend Management, mid-market AP automation and payment, cross-border risk management, and global bank accounts, each with substantial growth opportunities.

M&A and Divestitures: The company has closed the Avid mid-market AP automation investment and the Alpha European cross-border business acquisition. Both are expected to contribute significantly to 2026 earnings. The company is also pursuing two divestitures, aiming to raise up to $1.5 billion, with updates expected in 90 days. Additional corporate payment acquisitions are under consideration.

Stablecoin Initiatives: The company is advancing its stablecoin initiatives, focusing on enabling domestic and cross-border merchants to receive payouts in stablecoin wallets, adding digital wallets for existing clients, and serving large crypto clients. These initiatives leverage existing assets to participate in the stablecoin system.

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Shareholder Return Plan

Share Repurchase: We purchased approximately 600,000 shares in the quarter for $192 million, leaving us with approximately $1 billion authorized for share repurchases. We will continue to pursue near-term M&A opportunities and we'll also buy back shares when it makes sense while maintaining leverage within our target range.

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Key Q&A

Q:What is the expected organic growth rate for the Corporate Payments business in Q4?

A:The core Corporate Payments business is expected to grow at approximately 16%, with a 100 basis point drag from float, resulting in a 17% growth rate. Including Alpha's organic growth of 13% (31% ex-float), the consolidated growth rate is mid-teens with a 3% float headwind.

Q:What gives management confidence in achieving 10% organic growth next year?

A:Management is confident due to strong trends, new business additions, and stable loss rates. They expect high single-digit to 10% growth in the vehicle business, mid-teens growth in Corporate Payments (inclusive of float headwinds), and over 10% growth in the 'other' category. Lodging is expected to edge into positive territory.

Q:How is the Mastercard investment and Alpha synergies factored into next year's revenue growth outlook?

A:The Mastercard partnership is expected to add 1-2 points to the cross-border business, which is already growing in the mid-high teens. Alpha's synergies are expected to contribute about 0.5 points. Most of the growth outlook is based on the core business, with additional profit leverage expected from Alpha, macro trends, cost efficiencies, and AI initiatives.

Q:What is the revenue contribution of Alpha in Q4 and its impact on next year's earnings?

A:Alpha is expected to add about $55 million in revenue in Q4. For next year, Alpha is projected to contribute $0.50 of the $0.75 earnings upside, with the remaining contribution likely from Avid.

Q:How will the growth in 2026 differ from 2025?

A:Growth in 2026 is expected to be similar to 2025, with some acceleration in the vehicle segment (10% growth expected), lodging stabilizing, and the 'other' category remaining positive. Corporate Payments growth will depend on where it lands within the mid-teens range, inclusive of float.

Q:What is the outlook for sales performance and capital allocation?

A:Sales performance is expected to increase by over 20% in 2025, with new channels like Zoom being developed. Management is optimistic about capital allocation, with plans to buy back stock if the price remains low and utilize incremental capital from the Mastercard partnership and other sources.

Q:What is the long-term opportunity in the stablecoin business?

A:The stablecoin opportunity includes providing infrastructure for new players like Circle and Ripple and enabling stablecoin wallets for U.S. merchants and institutional clients. Management is focused on building the infrastructure and gauging client interest, particularly for off-cycle transactions when the banking system is closed.

Q:What is the progress on divestitures?

A:The divestiture process is in early stages, with books out and initial bids expected in the coming weeks. The businesses being sold are growing at around 10% and are profitable, so they are expected to sell, but the final decision will depend on the price.

Q:What is driving U.S. fleet growth and its sustainability?

A:U.S. fleet growth is driven by structural changes, improved retention, positive same-store sales, and higher approval rates for new accounts. Management is confident in the sustainability of this growth due to a lower risk profile and initiatives to enhance merchant rates.

Q:What is the update on Avid's integration and growth potential?

A:Avid's integration is progressing well, with cost reductions already implemented. The focus is on improving revenue growth to mid-teens levels. If successful, management plans to buy the remaining stake and consolidate the business.

Q:What is the outlook for the gift card business?

A:The gift card business is expected to return to double-digit growth in 2026, driven by new fraud protection packaging, increased new account wins, and additional services like managing client websites and integrating cards into digital wallets.

Q:What is the monetization rate trend in Corporate Payments?

A:The monetization rate in Corporate Payments is stable, with potential for slight increases in 2026 due to new payment methods like ACH and debit cards. Large transactions with lower rates are not expected to impact the core business's pricing.

Q:What are the risks and potential upside for 2026 growth?

A:The main risk is in the Corporate Payments segment, where new initiatives like the Mastercard partnership are still in early stages. However, the business is fundamentally stronger, and there is potential upside if these initiatives perform well.

Q:What is the strategy for expanding accounts payable automation?

A:The strategy involves pitching CFOs and heads of AP with a compelling value proposition: digitizing and derisking AP processes while providing cost savings. The challenge lies in getting meetings and raising awareness about the service.

Q:What is the interest level in stablecoins among major markets?

A:Interest in stablecoins is currently low among major markets, with most activity driven by emerging markets and crypto players. Management is focused on building infrastructure and educating clients to gauge future interest.

Q:What is the expected growth rate for Corporate Payments in 2026?

A:The growth rate for Corporate Payments in 2026 is expected to be in the mid-teens range, with contributions from Alpha synergies, the Mastercard partnership, and core business performance.

Q:What are the expected synergies from the Alpha acquisition?

A:Alpha's synergies include both revenue and cost benefits, with over half being easy to achieve, such as better deposit rates and reduced public company costs. Management is confident in achieving significant accretion from these synergies.

Q:What is the capital return strategy for next year?

A:The $0.75 earnings accretion from acquisitions is fully self-funding, allowing all cash flow to be used for capital return, including stock buybacks.

Q:What is driving the acceleration in U.S. Vehicle growth?

A:The acceleration is driven by improved retention, positive same-store sales, higher approval rates for new accounts, and initiatives to enhance merchant rates. Management expects this growth to be durable into next year.

Q:What is the margin outlook for next year?

A:Margins are expected to improve incrementally due to AI initiatives, vendor rationalization, and cost efficiencies. Management will decide on the balance between profitability and reinvestment in sales and marketing.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the breakdown of the $0.75 earnings upside between Alpha and Avid, the exact growth rate for Corporate Payments in 2026, and the specific impact of stablecoins in major markets. Additionally, they did not provide precise figures for the potential synergies from Alpha or the exact margin improvement expected next year.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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CPAY Slides

Corpay Q1 2025 slides: 9% organic growth amid strategic partnerships

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Corpay Q2 2025 slides: 13% revenue growth, digital currency strategy unveiled

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Corpay Q3 2025 slides: 14% revenue growth, strategic acquisitions bolster outlook

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