Corpay, Inc. (CPAY) Q4 2025 Earnings Call Transcript

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Overview

The earnings call reveals strong financial performance, with revenue and EPS guidance above expectations, strategic acquisitions, and promising growth in Corporate Payments and stablecoin initiatives. Despite some vague responses, the overall sentiment is positive, driven by high growth in Brazil, successful divestitures, and a strong partnership with Mastercard. The company's strategic initiatives and optimistic outlook for 2026 further support a positive stock price movement.

Key Financial Performance

Q4 Revenue $1.248 billion, up 21% year-over-year. Driven by strong Corporate Payments performance and 11% organic revenue growth.

Q4 Cash EPS $6.04, up 13% year-over-year (20% at a constant tax rate). Driven by strong top-line performance and solid expense management.

Q4 Cash EBITDA Surpassed $700 million. Contributed to record cash EPS.

Q4 New Sales/Bookings Up 29% year-over-year. Indicating robust sales performance.

Q4 Revenue Retention Stable at 92%. Reflects consistent client retention.

Full Year 2025 Revenue $4.528 billion, up 14% year-over-year. Includes 10% organic revenue growth.

Full Year 2025 Cash EPS $21.38, up 12% year-over-year (17% at a constant tax rate). Reflects strong financial performance.

Corporate Payments Q4 Organic Growth 16% organic growth despite a 200 basis points drag from float revenue compression. Driven by 44% increase in spend volumes.

Vehicle Payments Q4 Organic Growth 10% organic growth. Strong performance across U.S., Europe, and Brazil.

Lodging Revenue Q4 Decreased 7% year-over-year. Adjusted for FEMA emergency revenue, it was roughly flat.

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Operating Highlights

Alpha acquisition: Acquired Alpha, the second largest acquisition in the company's history, providing access to an international bank account product and the asset management market segment.

Avid investment: Invested in Avid to deepen position in the middle market AP automation and payment space.

AI implementation: Piloting conversational AI in client UIs, using AI agents to reduce live agent expenses, and employing AI for merchant matching to drive new payable sales.

Mastercard partnership: Mastercard invested $300 million in the cross-border business at a $13 billion valuation to unlock and serve the FI channel.

Brazil expansion: Acquired a second vehicle debts company in Brazil to accelerate non-toll revenue growth.

Revenue growth: Reported Q4 revenue of $1.248 billion, up 21%, and full-year revenue of $4.5 billion, up 14%.

Cash EPS: Achieved Q4 cash EPS of $6.04, up 13%, and full-year cash EPS of $21.38, up 12%.

Organic revenue growth: Achieved 10% organic revenue growth for the full year, marking 4 of the last 5 years with 10% or higher growth.

New sales growth: New sales or bookings increased by 29% year-over-year.

Portfolio simplification: Announced divestiture of one vehicle payment business and working on two additional divestitures to focus on Corporate Payments.

Cross-border capabilities: Focused on multicurrency and international bank account capabilities, stablecoin capabilities, and synergies from the Alpha acquisition.

U.S. sales strategy: Hired a new CMO, developed new brand ads, expanded Zoom sales teams, and rethought sales strategies for U.S. vehicle payment solutions.

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Risk or Challenges

Regulatory and Compliance Risks: The company has remediated a material weakness related to user access, which indicates prior vulnerabilities in compliance and internal controls. This could pose risks if similar issues arise in the future.

Macroeconomic and Market Risks: The company is relying on favorable macroeconomic conditions, including FX rates and lower SOFR rates, to achieve its 2026 guidance. Any adverse changes in these conditions could negatively impact financial performance.

Acquisition and Integration Risks: The company has made significant acquisitions, including Alpha and AvidXchange, which are expected to contribute to revenue and EPS growth. However, failure to successfully integrate these acquisitions or achieve expected synergies could impact financial outcomes.

Revenue Concentration Risks: The company’s Corporate Payments and Vehicle Payments segments are key revenue drivers. Any underperformance in these segments could significantly affect overall financial results.

Interest Rate Risks: The company faces float revenue compression due to lower interest rates, which is expected to continue into 2026, particularly impacting the Corporate Payments segment.

Divestiture Risks: The planned divestiture of PayByPhone and other non-core assets could lead to operational disruptions or financial impacts if not executed as planned.

Operational Efficiency Risks: The company is implementing expense rationalization initiatives to achieve savings. Failure to realize these savings could impact profitability.

Technological and Innovation Risks: The company is investing in AI and other technologies to improve operations and sales. Delays or failures in these implementations could hinder operational efficiency and growth.

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Guidance & Outlook

2026 Revenue Guidance: The company projects full-year 2026 revenue at $5.265 billion, representing a 16% year-over-year increase. This includes an expected 10% organic revenue growth.

2026 Adjusted EPS Guidance: The company expects adjusted EPS to reach $26 at the midpoint, reflecting a 22% year-over-year growth.

Drivers of 2026 Guidance: Key drivers include strong fundamentals, accretive acquisitions (Alpha and Avid), and favorable macroeconomic conditions such as FX rates, lower SOFR rates, and a constant tax rate.

Acquisition Contributions: The Alpha acquisition is expected to contribute $300 million in incremental revenue, and Alpha paired with Avid is projected to add approximately $1 of cash EPS to the 2026 outlook.

Macro Environment Impact: The company anticipates favorable FX rates, lower SOFR rates, and a constant year-over-year tax rate to positively impact 2026 performance.

Divestitures Impact: The guidance does not include the impact of expected divestitures, such as PayByPhone, or any material capital allocation actions beyond debt reduction.

Segment-Specific Growth Expectations: Corporate Payments is expected to grow in the mid-teens, Vehicle Payments in the high single digits, and Lodging in the low single digits for 2026.

Q1 2026 Revenue and EPS Guidance: For Q1 2026, the company expects revenue of $1.21 billion (20% year-over-year growth) and adjusted EPS of $5.45 (21% year-over-year growth).

Expense Rationalization Initiatives: The company has implemented expense rationalization initiatives that are already yielding savings and are expected to contribute to 2026 performance.

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Shareholder Return Plan

Share Repurchase: We repurchased 1.7 million shares in the quarter for $500 million, and a total of 2.6 million shares for the year. This leaves us with approximately $1.5 billion authorized for share repurchases inclusive of the $1 billion of additional authorization approved by the Board at the December meeting. We will continue to pursue M&A opportunities and we'll continue to buy back shares at this valuation while maintaining leverage within our target range.

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Key Q&A

Q:What is the company's approach to payables monetization and its potential impact on revenue growth?

A:The company is transitioning from using virtual cards to eliminating paper checks and introducing methods like e-checks, debit at lower interchange, ACH+, and instant payments. Research suggests merchants prefer these options, and the company expects to see an impact by Q2 or Q3, creating long-term business growth.

Q:Can you provide a breakdown of domestic vehicle payment organic revenue growth versus Brazil?

A:The U.S. CP business achieved approximately 5% organic growth for the quarter, while Europe, the rest of the world, and Brazil maintained consistent results, contributing to an overall 10% organic growth rate for Vehicle Payments.

Q:What is the sustainability of the U.S. fleet acceleration and what is needed to push same-store sales higher?

A:The U.S. vehicle business has stabilized with positive same-store sales for the first time in six quarters. Approval rates and credit are good. The focus is on increasing sales to further improve growth rates. The company is also evaluating the level of investment in this business compared to others.

Q:What is the cadence of accretion contribution and interest expense assumptions?

A:The company has completed plans for recent acquisitions (Avid and Alpha) and expects cost synergies and IT system integration to unlock savings in the second half of the year. Interest expense is expected to decrease due to high cash flows and a favorable forward curve for SOFR.

Q:What is the visibility and potential upside for mid-teens growth in Corporate Payments?

A:The payables business has a longer implementation cycle, while cross-border sales have a shorter cycle. The company is confident in achieving mid-teens growth, with potential upside from monetization initiatives and cross-border sales.

Q:What lessons were learned from the PayByPhone acquisition?

A:The company learned that their thesis of leveraging PayByPhone's user base for incremental business did not work as expected. However, they successfully tripled profits and sold the business for 50% more than the purchase price, demonstrating their ability to generate returns even when the initial thesis is not fully realized.

Q:What are the priorities and timelines for Corporate Payments initiatives?

A:Short-term priorities include monetization of payables and Alpha consolidation, which are expected to contribute meaningfully by 2026. Longer-term initiatives, such as the Mastercard opportunity and international bank account expansion, are in the building phase.

Q:What is the expected liquidity from divestitures and its use?

A:The company expects to raise $1 billion to $1.3 billion from two vehicle business divestitures, with proceeds likely used to buy back CPAY shares.

Q:What is the outlook for the Lodging business and EBITDA margins?

A:Lodging is expected to achieve low single-digit growth for the year, with improvements in the second half driven by new sales implementations. EBITDA margins are expected to increase sequentially throughout the year, supported by synergies and business volume growth.

Q:What is the sustainability of high growth in Brazil?

A:The company is achieving high growth in Brazil by offering non-fuel services like parking, insurance, and vehicle debts, which are well-received by customers. This strategy also differentiates their core toll product, supporting continued growth.

Q:What is the demand for stablecoins and the company's approach?

A:There is currently little demand for stablecoins among the company's clients. However, the company is building stablecoin digital wallets and piloting blockchain-based fund transfers to be prepared for future demand.

Q:What is the impact of tariffs on the cross-border business?

A:Certainty around tariffs would benefit the cross-border business. While tariff changes primarily affect North America, which constitutes about one-third of the business, any clarity or rollback would be a positive development.

Q:What is the timing of sales conversion to revenue across the business?

A:The timing varies by business. On average, about one-third of bookings convert to revenue within the same year, with the remaining two-thirds ramping up in subsequent years.

Q:What is the progress and potential of the Mastercard partnership?

A:The partnership has exceeded expectations, with two deals closed and a strong pipeline of 50-70 opportunities, particularly in Europe. The collaboration leverages Mastercard's relationships and the company's products, significantly enhancing the cross-border business's long-term prospects.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the expected liquidity from divestitures and the exact timeline for achieving certain Corporate Payments initiatives. Additionally, responses regarding the potential impact of stablecoins and tariffs on the business were vague, with no concrete data or timelines provided.

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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 Q4 2025 slides: Revenue up 21%, exceeds guidance with strong organic growth

2026-02-04

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

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

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CPAY Report

FLEETCOR TECHNOLOGIES INC 10-K

10-K

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