Corpay, Inc. (CPAY) Earnings Call Transcript & Summary

Hello, everyone, and welcome to today's Corpay's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] And it's now my pleasure to turn the meeting over to Jim Eglseder. Please go ahead.

Good afternoon, and thank you for joining us today for our earnings call to discuss the second quarter 2026 results. With me today are Ron Clarke, our Chairman and CEO; and Peter Walker, our CFO. Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of Corpay.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed on this call along with the reconciliation of those measures to the most applicable GAAP measures. Our remarks today will include forward-looking statements about expected operating and financial results, strategic initiatives, acquisitions and divestitures, among other matters. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. Some of those risks are mentioned in today's press release and on Form 8-K and can also be found in our annual report on Form 10-K. These documents are all available on our website and at sec.gov. So now I'll turn the call over to Ron Clarke, our Chairman and CEO. Ron?

Okay, Jim, thanks. Hello, everyone, and thanks for joining today's call. Upfront here, I'll plan to cover 3 subjects: first, provide my take on Q2 results; second, share our updated guidance for 2026; and then lastly, I'll speak to our future and where we're headed. Okay. Let me begin with our Q2 results, which were very, very good. We reported revenue of $1.34 billion. That's up 21%, coming in $45 million above our expectations. Q2 macro, super favorable to us. It contributed about $30 million more than our expectations, meaning about $15 million of the beat was just underlying performance. We reported cash EPS of $7 on the button. That's up 36%, setting an all-time company earnings record. So feels good. Our 2 biggest corporate payments deals, the Alpha acquisition and the Avid investment, contributed $0.39 of cash EPS accretion in the quarter, spot on our target. Q2 fundamentals, very solid. Overall organic revenue growth, 10%. That was led by our Corporate Payments segment at 16% and our Vehicle Payments segment at 8%. So taken together, our 2 biggest segments delivered 12% organic growth. Operating trends also very good in the quarter. Retention remaining steady at 93%. Year-over-year sales or new bookings, terrific, growing 30% and same-store sales in the plus column, plus 1%. So look, these trends are super helpful and bode well for continued performance here in the second half. So all in all, really an outstanding quarter, an outstanding first half, really against both our expectations and maybe more importantly, against the prior year. All right. Let me make the turn to our 2026 outlook. We're raising full year revenue guidance to $5.310 billion at the midpoint. The bridge as follows: first, we will flow through our Q2 $45 million revenue beat; second, we'll increase full year revenue guidance another $15 million based on expected better macro and business fundamentals; we'll net out $40 million related to our expected Epyx divestiture, and there, we're assuming a September 1 close. We will continue to outlook 10% organic revenue growth in the second half with our Corporate Payments segment expected to maintain a mid-teens plus organic growth and our Lodging segment set to accelerate to mid-single digits. On the earnings side, we're raising full year 2026 cash EPS to $27.35 at the midpoint. That's up a ways from our $26 initial guide at the start of the year. The rest of year EPS bridge goes like this: we'll flow through our Q2 cash EPS beat of $0.45; we'll raise the rest of year cash EPS another $0.20; and we'll hold the Epyx divestiture EPS impact neutral as we plan to use the deal proceeds to repurchase CPAY shares. Look, this higher full year 2026 guidance implies good things: 17% full year revenue growth; 28% full year cash EPS growth; cash EPS for '26 up about $6 from 2025; cash EPS exit rate in Q4 exiting over $29; full year cash EBITDA approximately $3 billion; and $1.8 billion of full year free cash flow, which is approximately a 7% yield. The drivers really of this '26 performance are a combo of a few things: obviously, a very favorable macro environment for us, particularly the first half; the 2 big accretive corporate payments deals; and mostly just strong underlying fundamental operating performance. So look, taken together, we've got a lot of confidence in the outlook. Okay. So last up today, I do want to share our thoughts on the future, the road ahead for the company. We did post an updated investor presentation today to our website. It lays out our direction along with our growth algorithm. And I do want to say we've really never felt clearer about the way forward or even more excited about the prospects of the company. So we're really in a great spot. So let's start out with the portfolio. We have said repeatedly that our plan is to create a simpler company with fewer bigger businesses. You should expect to see us divest more subscale businesses like today's Epyx announcements and really double down in 3 primary areas. So first, spend management, which is our card and AP businesses. We'll do more there. We'll head towards the procurement space more. We'll expand wider geographically. We will make that a bigger business. In vehicle, we'll stay invested in our largest and most advantaged fleet businesses. And we'll also embed fleet into our spend management platform so that our spend management platform can serve the unique needs of fleet-intensive companies and their drivers. There's actually a slide, I think it's the last slide in our supplement that lays out our progress there where we're selling our spend platform to both fleet-intensive businesses and traditional businesses. So take a look. Last area to double down will be cross-border. Obviously, plan to do more there. We're in the process of adding new real-time private blockchain rails also investing to build out our global banking and deposit offering. Both of these things, we think, game changers for middle market companies. So the portfolio repositioning gives us a $600 billion revenue TAM for a $5 billion company today. So look, it certainly gives us the potential to at least 10x this company to say, $50 billion over time. So the second direction for us is to go left, which means we plan to help our clients with their indirect expense decision-making before they approve payments. So we'll help support decisions like the selection of vendors, the pricing of vendors, the terms they have with vendors, the renewal decisions they need to make with vendors. And we'll deliver a set of things to be helpful there. We'll provide some benchmarking data. We'll provide spend insights. We'll even guide clients on how to negotiate renewals to a better outcome. So look, we really do aspire to bring more value and go left better helping our clients with the expense management assignment. So finally, let me turn to our midterm growth algorithm. It remains unchanged. As a reminder, we target 10% plus organic revenue growth, low-teens PBT growth, and over 20% cash EPS growth. The model works, first again, because there's a large opportunity for us to sell into, we do have proven retention and sales capabilities, and we generate a material amount of free cash flow yield. We do expect to have approximately $15 billion of available capital over the forecast period. That's via a combo of our annual free cash flow plus higher debt capacity as our earnings grow. So this capital is what creates EPS acceleration, as we'll either buy back half of CPAY or alternatively, we'll buy the earnings of other corporate payment companies based on the relative returns there. So look, in conclusion today, we are obviously delighted with the Q2 performance. We're confident in our raised second half guide, again, expecting mid-20s year-over-year cash EPS growth. And we're really excited about the future of the road ahead and what Corpay can become. So with that, let me turn the call back over to Peter to provide some additional details on the quarter. Peter?

Thanks, Ron, and good afternoon, everyone. We delivered another outstanding quarter with 21% revenue growth and 36% adjusted EPS growth year-over-year, marking our fourth consecutive quarter of outperforming expectations. Our first half performance was exceptional, and we're proud of what the team accomplished. While we've certainly benefited from favorable macro conditions, the foundation of our performance continues to be consistent double-digit organic growth. That consistency is the engine behind our compounding model, and we've now delivered double-digit organic revenue growth for 5 consecutive quarters and 10% organic growth in 5 of the last 6 years. Having been in the CFO seat for just over a year, I can tell you these outcomes don't simply happen. They are the result of constant focus, active management, and thousands of decisions made across the organization every day to drive returns. I wouldn't underestimate just how important our operating discipline is to our long-term performance. Now let's turn to segment performance and the underlying drivers of our organic revenue growth in the quarter. Corporate Payments delivered 16% organic growth for the quarter, including 180 basis point drag from float revenue compression driven by lower interest rates year-over-year. The organic revenue growth was in line with our expectations with strong performance in both cross-border and payables. Overall, Corporate Payments continued to be driven by strong underlying customer activity with organic spend increasing 43% to $95 billion. Cross-border continued to deliver strong sales and revenue performance in Q2. Alpha's integration continues to progress exceptionally well with over 80% of Alpha's corporate volume now migrated to our global tech platform. The payables business continued to perform well, driven by sales and volume growth in Q2. We're also pleased with the strong performance of Avid, our minority investment, which is reflected as an equity investment in our financials. Avid continues to execute well under new ownership with sales growing more than 30%, continued strength in volume and revenue, and EBITDA more than doubling year-over-year to a record level. Vehicle Payments organic growth was 8%, right in line with our high-single-digit expectations. Brazil and Europe remain quite strong. In the U.S., growth remains consistent with our strategy of reallocating sales investment toward the higher-return opportunities within Corporate Payments. Lodging was in line with our expectations, delivering sequential organic revenue growth improvement of 2% versus Q1 2026. We've now lapped the more episodic events last year that created tough comps, and we continue to expect organic growth to perform in the second half of the year. In summary, we delivered 10% organic growth in Q2, driven by sales growth of 30% and retention rates of 93%, all quite robust. Our Corporate Payments and Vehicle Payments segment totaled 84% of our Q2 revenue and delivered a combined organic growth rate of 12%, consistent with Q1. Taken together, these results reinforce our confidence in the durability of our growth model and support our decision to increase full year guidance. Now looking further down the income statement. Operating costs increased 9%, excluding the impact of FX, M&A, stock compensation, amortization and a settlement charge. The settlement charge of $100 million relates to the FTC matter and is subject to final Commission approval. The 9% increase was primarily due to sales investments and modestly higher credit losses. Adjusted EBITDA margin of 57.3% was up approximately 100 basis points over the prior year, primarily due to operating leverage and flow-through of macro benefit. Our adjusted effective tax rate for the quarter was 25.3%. The year-over-year decrease in the tax rate was driven by our improved mix of earnings. Turning to the balance sheet. We ended the quarter in a very strong financial position. Our leverage ratio finished at 2.55x, and we had approximately $1.6 billion of available capacity under our revolving credit facility. During the quarter, we repurchased $321 million worth of stock, retiring approximately 1 million shares. As of quarter end, we still had roughly $1.4 billion remaining under our current share repurchase authorization. We also completed the refinancing of our revolving credit facility and Term Loan A, increasing the size of our revolver by approximately $1 billion to $3.7 billion while paying down our Term Loan B by $1 billion. Over the past 9 months, we've successfully refinanced our entire debt stack, extending maturities, lowering borrowing costs, and further strengthening our balance sheet. More importantly, from a capital allocation perspective, we've increased our financial flexibility and are well positioned to continue executing our balanced strategy of both meaningful share repurchases and disciplined accretive M&A. Finally, I'd like to touch on our interest rate profile. Following the Alpha acquisition, our restricted cash balance increased significantly, primarily reflecting the growth of the global bank account business. Our cash now creates a meaningful natural hedge against our floating rate debt with approximately 85% of our exposure naturally offset during the second quarter. Including our interest rate swaps, we were effectively more than 120% hedged. Given the strength of that natural hedge, we don't expect to enter into additional interest rate swaps going forward. Now let me share some additional information on our updated 2026 full year and Q3 outlook. As Ron mentioned, we signed a definitive agreement to sell Epyx, a noncore vehicle payments asset. We expect the transaction to close this fall, likely between September and October. For planning purposes, we've assumed a September 1 closing. The transaction is expected to reduce 2026 revenue by approximately $40 million or roughly $10 million per month, but is not expected to have an impact on adjusted EPS because we intend to redeploy the proceeds into share repurchases. We're raising our 2026 revenue guidance to $5.31 billion at the midpoint, growing 17% year-over-year. Importantly, this guidance continues to assume approximately 10% organic revenue growth for the year. Our updated revenue outlook flows through our Q2 beat of $45 million, raises the rest of the year by $15 million, driven by a combination of macro favorability and business momentum, partially offset by $40 million from the sale of Epyx. We're raising our full year guidance for adjusted EPS to $27.35 per share at the midpoint, growing 28% year-over-year. This captures the $0.45 beat in Q2 and raises guidance by $0.20 from higher revenue and productivity improvements over the rest of the year. Our Q3 revenue guide is $1.355 billion at the midpoint, growing 16% year-over-year. We expect Q3 organic revenue growth in the range of 9% to 11%. We expect adjusted EPS of $7.15 at the midpoint, growing 26% year-over-year. Stepping back, our model is built to compound over time. We remain focused on consistently delivering double-digit organic growth, maintaining strong margins, and deploying capital where we believe it generates the highest long-term returns for shareholders. Additional details regarding our full year guidance raise and Q3 outlook can be found in our earnings release and earnings supplement. So operator, please open the line for questions.

[Operator Instructions] We'll take our first question from Ramsey El-Assal with Cantor Fitzgerald.

Another great quarter. As freight prices remain healthy and fleet operators seem to be in a much better place than they were God knows post-COVID, do you see an opportunity to open up the credit box a little bit more, maybe lean in harder to some slightly higher risk parts of the market to drive, on the vehicle side of the business, obviously, to drive incremental growth?

Ramsey, thanks for the question. So we do experience with fuel prices going up and the demand that there's naturally a higher risk to credit losses. So we've taken a provision for that within the quarter, a slight provision for it. But what I would say is we're not going to weaken our underwriting standards to gain business here.

Okay. Fair enough. And then on -- a follow-up for me. You announced the Epyx divestiture, and you also talked about the intention to create a simpler company. Should we think about that as more -- trimming more of these very small kind of embedded business lines? Or is there an appetite or demand out there for a larger simplification of something like a Lodging segment or larger chunks of the business?

Ramsey, it's Ron. It might be both. I'd say we're on the track for the first thing I said we've ID'd another 2, 3, 4 businesses that are kind of subscale or not as related like the Epyx thing. And as I said, on other things, we want better performance first, right? I want to have improved performance because then it gives us options. I think you should look for more of the Epyx-like things over the next 6 to 12 months and if performance improves maybe something additional.

And we'll take our next question from Tien-Tsin Huang from JPMorgan.

Even we can't hear you, Tien-Tsin.

Now is this better?

Yes, we can hear you now. Please go ahead.

Sorry to waste your time. As always, nice to talk to you guys. Just thinking maybe for you, Ron, just has the bar changed at all for M&A and buybacks given pipeline valuation? I know you're focused on these divestitures you announced one that you just said. Just has the bar changed?

Yes. I don't think so, Tien-Tsin. I think I said last time, if anything, we've seen some of the transactions and some of the deals on the acquisition side get back into a realistic range. So I think it's -- that we're actually in a pretty good spot.

Okay. Glad to hear it. And then just on the bookings front, that was really strong. Maybe just double-clicking on that. How broad-based was it? Where are you outperforming? Can you replenish the pipeline as we go into the second half?

Yes, it was pretty good. I'd say I'm looking at that report. It was pretty broad-based. We did kind of high teens year-over-year in the Vehicle and crazy circa close to 40% sales growth in the Corporate Payments segment. So we're obviously selling a lot of that. Now again, we poured incremental investment into it. So there's more spend behind that, reflecting the increase. But no, it's good. We target, I think, sales to grow 20% to kind of hit our growth algorithm. So this is a bit better than that. So I'd say our rest of the year is probably targeting about that 20% again.

And we'll take our next question from Sanjay Sakhrani with KBW.

Ron, like the Corporate Payments division obviously did really well with the organic revenue growth up 16%. As we look ahead, it seems like the comparisons get easier. I mean, can this growth rate sort of sustain itself, if not accelerate from here?

I think it's a good question, Sanjay. I think it's a function again of investment. We were guiding basically to 16% plus here in the second half, which is obviously attractive. And we've got a super line of sight in that business on both the retention and base, like I'm staring at it, it's better than our line average, right? Our line average is 93%. That business is closer to 96% or 97%. Retention in the base is positive. It's in the plus column. So whenever you have that setup, it's not complicated for math people that the whole growth rate is sales, right? It's just really the sales. As I said to Tien-Tsin's question, we sold 40% more in the quarter. So that's the toggle. And again, unlike the start-ups, we always are trying to balance making a $1 with growing. And so that's the balancing act. We put incremental money into it. We've taken a bit of money out of the vehicle thing. And so I'd say that's our plan for now. We're continuing to build spend in that, and we'll update if we decide to invest more as we look into next year. But we're obviously pleased with this growth rate.

Okay. And then second question is just on the divestitures. As we think about the divestitures that you will make that you've identified, do those accelerate the revenue growth rate? Or are they just sort of too small to have an impact? And then maybe you could also just comment on what you're seeing in the M&A market in terms of acquiring stuff.

Yes. I'd say the answer to the first part is it depends. We have businesses. So I guess we've announced to you guys 2 divestitures this year. And the answer is those would actually be slightly growth dilutive to us. The Parking business was a high flyer, right, grew at 20%, 25%. And this Epyx thing was a kind of a perennial 10%, 11% grower. Some of the other things we're looking at, Sanjay, might be lower growth. So I said, hey, we have 3 or 4 things in the block. My comment would be it'd be a mix. Some of the stuff might be a little bit slower growing. But it's really what you said. We're just trying to clean house with kind of smaller things. We need to add billions of revenue to the company. And so growing $100 million business to $110 million is not getting us there. So that's the emphasis. And I'd say the same thing on the acquisition side. Obviously, we did a couple of pretty large transactions last year. We've got our gun sights on some other pretty significant things. And so as I said to Tien-Tsin, we're super clear on what we want to acquire, what would be helpful. We targeted -- we're in discussions, obviously, with those companies and some of those transactions are meaningful. And because of the way we can run the things, they're actionable. We can actually do them. So I'd say, like always, stay tuned on the acquisition front.

And we'll take our next question from Mihir Bhatia with Bank of America.

Ron, I was wondering if you could give us an update on the Mastercard, the FI channel. I think previously, you've called out 3 wins. But where does the pipeline stand? And are you still expecting a couple of points of cross-border acceleration from that? Is that -- just trying to get an update on that Mastercard partnership and where things stand with the pipeline.

Yes. It's another good question. So I think we said it last time, if I had Mark, the guy that runs it or the Mastercard folks, at a high level, better than expected again. I think the thesis that we had that Mastercard knows bank folks and we know cross-border and that's a good combo that that's proving to be true. The numbers are good. We're now at 10 FIs that have been closed. On the last report I saw, we've got 100 active additional FIs in the pipeline. So I would say it's positive. The offer is resonating. Mastercard is being super helpful in introductions. With FIs, the selling cycle is definitely longer, XXXXXXXXXXXXXXX -- than it is with corporates. But I would say we're still bullish on it. And I said to the Mastercard people when we did the deal, please don't make this a press release. And I got to applaud their effort and the energy so far. So I'd say so far, so good.

Great. And then if I could ask about the global -- just the Global Banking. I think, Ron, you described it in your prepared remarks as a game changer. Just trying to think about the monetization time line there. I think Peter called out some of the benefits of the hedging. But just from a revenue standpoint for CPAY, what's likely the monetization time frame? And like what kind of expectations should we have over the next year or 2?

Yes. I think we should see a big step-up next year. We still, frankly, are building the product. Let me give the Baby 101 here. So what we do is we open local foreign bank accounts. So if there's a company in Atlanta, they're trying to do business in Europe, boom in less than a week or a few days, we can open a foreign bank account for them, which would take months, years potentially through a correspondent. The work that we're doing, Mihir, on the thing is effectively linking multiple local accounts. So let's say the client in Atlanta wants to open something in the U.K., on the continent, and Australia, and we go open 3 local foreign accounts in those jurisdictions so that they can run on the pipes there. What we're finishing up is tying those together and then balancing them back to that account's primary bank account. Let's say, it's back here in Atlanta. And so that kind of second part, I'm going to call that the enhanced, the better product than just the one-off sell of the local account, which is where Alpha kind of focused. So that is due to be out of the kitchen in Q4. And 2 things. One is, I think we'll sell a lot more of it because it's way more attractive, right, to go to an account and tell them, I can add these in different places, but then tie them all together for you. And then second, we're going to sell the you know what out back to the client base. I mean think of how many middle market clients we have in cross-border, in payables, even in fleet, here and internationally. And so that's the second part of the idea is to tell all the existing clients we have, whether they're in cross-border or not, hey, we can be way helpful in this way. So I'd say it's going good. Alpha is selling a lot of the kind of the single local thing, but the hopes are that this kind of premium offer will be a big deal next year.