Pluxee N.V. (PLX) Earnings Call Transcript

Thank you, and welcome to Pluxee's third quarter fiscal 2026 revenue presentation. After the presentation, there will be an opportunity to ask questions by pressing star and one at any time. I advise you that this conference is being recorded. At this time, I would like to hand over the conference to Pauline Bireaud, Head of Investor Relations. Please go ahead, madame.

Good morning, everyone, and thank you for joining us today for Pluxee's Third Quarter Fiscal 2026 Revenue Call. I hope you are having a good start to the summer season. So I'm Pauline, and I'm pleased to be here with you today to share our first nine-month revenue performance. I'm pleased to be joined by Aurélien, our CEO, and Stéphane, our CFO. Before we begin, let me walk you through today's agenda, which you can see on the next slide. Aurélien will start the highlights and the key figures for the third quarter and the first nine months of fiscal 2026, including an overview of our commercial momentum, and Stéphane will then take you through our top-line performance in more detail. Finally, Aurélien will conclude with our outlook, including an update on the situation in Brazil before we open this up to Q&A. And with that, I will now hand over to Aurélien.

Thank you, Pauline, and good morning, everyone. I'm pleased to be with you today to present our performance over the first nine months of fiscal 2026. Let me start with the key takeaways. First, we continue to make progress towards our full-year business targets. This was supported by continuous momentum in new client acquisition and resilient net retention, confirming the relevance of Pluxee's value proposition in a more demanding environment. Second, business volume growth strengthened during the third quarter. Employee Benefit volumes continue to gain momentum while Other Products & Services benefited from the lower comparison base in public benefits. Third, revenues evolved as anticipated. Operating revenue growth remained positive over nine months, including the third quarter performance, reflecting, as anticipated, the initial effect of the PAT reform in Brazil, as well as some headwinds from the current macroenvironment. Finally, we confirm our financial objectives based on the performance delivered over the first nine months and the robustness of Pluxee's fundamentals. Let me now turn to the key revenue figures for the quarter and the first nine months. In the third quarter, total revenues reached EUR 312 million, down minus 3.3% organically year-on-year, and up plus 0.9% on a reported basis, supported mainly by positive currency effects. This performance was anticipated and mainly reflects the impact of the reform in Brazil on our take-up rate at the beginning of Q3. Looking at the first nine months, total revenues reached EUR 967 million, plus 2.7% organically and plus 2.3% on a reported basis. Overall, Pluxee's nine-month revenue performance remained positive, keeping us on track to deliver our full-year objectives. Let me now focus on our commercial performance. Over the first nine months of fiscal 2026, we continue to make progress across our key business indicators. First, new client development reached EUR 1.2 billion in annualized BVI. This puts us significantly ahead of our plan, given our full-year target of more than EUR 1.3 billion. Second, net retention remained resilient at 99% in BVI, excluding the temporary delay in the ordering of the large employee benefit program in Romania. It reflects robust client loyalty and active portfolio management while facing pressure from end-user portfolio trends in certain markets. Third, face value growth remained a major structural driver of net retention. Since fiscal 2024, increases in average face value have generated EUR 3.2 billion of cumulative additional BVI, meaning that we are already ahead of our cumulative three-year target of more than EUR 3 billion. Let's now take a closer look at new client wins. New client development reached EUR 1.2 billion in annualized BVI over the first nine months, close to 20% growth year-on-year. This performance was broad-based across all three regions with particularly robust momentum in Latin America, and especially in Brazil, despite the evolving regulatory environment. SMEs continue to play a key role in client acquisition. This segment represented more than 32% of new client development over the first nine months, when excluding the last CONSIP public contract in Italy. It is ahead of our 30% plus target and was supported by strong contributions across geographies, notably from Brazil and Southern Europe. In a nutshell, we are ahead of our plan and expect to exceed our annual development target of more than EUR 1.3 billion, supported by a dense and diversified pipeline. We now turn to net retention, the second key pillar of our commercial performance. Over the first nine months, net retention stood at 99% in BVI, excluding the temporary delay in the ordering of the large Employee Benefit program in Romania. This performance reflected. First, client loyalty maintained at a high level across client sizes and geographies, confirming the strength of Pluxee's value proposition in a more demanding environment. Second, face value also continues to grow across all regions. Over the first nine months, increases in average face value generated EUR 0.8 billion of additional BVI, bringing the cumulative contribution since fiscal 2024 to EUR 3.2 billion. This means that we are already ahead of our target. We also continue to see further upside, notably in Continental Europe, where recently announced legal cap increases are taking time to fully materialize. Third, cross-selling that continues to gain traction, driven by both employee mobility and gift benefits across Europe and Latin America. Lastly, the evolution of our end-user portfolio remains negative as some clients in several markets tend to freeze recruitment or reduce headcounts as a result of the current macroeconomic context. I will now hand over to Stéphane who will take you through our financial performance in more detail.

Thank you, Aurélien, and good morning everyone. It's a pleasure to be with you today to present our financial performance, focusing on our top line for this Q3 '26. I will start on slide 10 with, as usual, Business Volume Issued, or BVI, as they remain an important leading indicator of our underlying commercial momentum. Total Business Volume Issued reached EUR 6.6 billion in Q3 '26, reflecting a plus 9.4% organic growth. This was supported by, first, the positive momentum in Employee Benefits BVI, which grew organically by plus 8.0% to EUR 5.2 billion. Employee Benefits accounted for close to 80% of total Business Volume Issued and marked a clear improvement compared to H1, with all regions contributing to growth over the quarter. This confirms the strengthening of our underlying commercial momentum during the quarter. Second, Other Products & Services BVI returned to positive growth delivering plus 15.0% organic growth in Q3 '26. This improvement was primarily driven by Continental Europe, as the Q3 '25 comparison base in Public Benefits was lower. Overall, Q3 confirms a stronger volume trajectory compared to H1. Echoing Aurélien's presentation on our key growth levers, let's now look at how the growth in Employee Benefits BVI was fueled as of the end of Q3 on page 11. Over the first nine months of fiscal '26, Employee Benefits BVI grew by 6.6% organically. This was driven by first new client acquisition which contributed approximately EUR 1.1 billion of additional business volumes over the period. This highlights the effectiveness of our commercial strategy and the strength of demand for our solutions across markets and client sizes. Second, a slightly negative net retention contribution of EUR minus 0.2 billion as active face value management and cross-selling did not fully offset pressure on our end-user portfolios in several markets. Third, a EUR 0.2 billion contribution on positive currency and scope effects. Let's now see how total revenues trended over the period on slide number 12. Total revenues over the first nine months of fiscal '26 reached EUR 967 million, up plus 2.7% organically, plus 2.3% on a reported basis. This includes a plus 0.8% scope effect, partly offsetting a minus 1.2% currency impact. Focusing now on Q3, total revenues reached EUR 312 million, down minus 3.3% organically. Reported revenue growth remained positive at plus 0.9%, supported by a favorable plus 3.7% currency impact and a plus 0.5% scope effect. Looking at the breakdown by nature, operating revenue, which represented 89% of total revenues, reached EUR 270 million in the third quarter, down minus 4.1% organically. While underlying trends remained solid, this performance mainly reflected the anticipated initial effect of the implementation of the PAT reform in Brazil on the Group take-up rate, as well as the challenging macroeconomic environment in Continental Europe. Over the first nine months, operating revenue continued to deliver a solid plus 2.5% organic growth, reaching EUR 843 million. At the same time, float revenue reached EUR 42 million in Q3 '26, that's plus 2.8% organically and plus 7.4% on a reported basis, including a plus 4.6% currency impact. This continued growth was supported by a positive volume effect in countries where interest rates remained elevated and by higher investments year-on-year. Over the first nine months, float revenue generated a solid plus 4.5% organic growth, reaching EUR 124 million. I will now turn to the underlying trends behind operating revenue by line of service on page 13. Operating revenue reflected a differentiated trend between Employee Benefits and Other Products & Services. Focusing first on Q3, Employee Benefits were up plus 2.6% organically, reaching EUR 239 million as anticipated. While business volume remained well-oriented, revenue conversion was impacted by a circa -50 basis point decline in the Group take-up rate. It was mainly driven by the implementation of the 3.6% regulatory cap on the merchant discount rate in Brazil. In Continental Europe, performance was also affected by the indirect effect on clients of the more uncertain macroeconomic and geopolitical environment. Second, Other Products & Services continue to face headwinds, declining by minus 14.3% organically over the quarter to EUR 31 million. This was primarily driven by the ongoing transformation initiative underway in both the U.K. and the U.S., as well as by the continuous effect of the anticipated scale-downs of certain public benefit contracts in Europe. Looking now at the first nine months, Employee Benefits remains the Group's main growth engine, delivering a plus 5.4% organic growth, despite the implementation of the regulatory evolution in Brazil since Q3. Let's now turn to the geographic mix of such operating revenue on slide 14. Operating revenue performance continued to reflect contrasted regional dynamics in Q3 and over the first nine months of fiscal 2026. Starting with Continental Europe, operating revenue reached EUR 368 million over nine months, down minus 1.5% organically, and almost stable on a reported basis. In Q3, operating revenue, we are down minus 3.2% organically. While Southern Europe, as well as countries such as Belgium, remain well-oriented, this was offset by persistent macroeconomic headwinds and lingering public benefits-based effects in other countries, which are both expected to continue into the fourth quarter. Moving to Latin America, operating revenue reached EUR 336 million over nine months, up plus 6.1% organically and plus 8.3% on a reported basis, benefiting from a positive currency impact of plus 1.5%. In Q3, operating revenue declined by minus 5.6% organically as anticipated, mainly driven by the initial impact of the PAT reform in Brazil on the take-up rate. This regional trend is expected to become more pronounced in Q4 with the further rollout of the reform in Brazil. Lastly, operating revenue in the Rest of the world reached EUR 140 million over nine months, that's plus 5.0% organically and minus 2.6% on a reported basis. In Q3, operating revenue declined by minus 2.9% organically but increased by plus 3.4% on a reported basis, supported by a favorable plus 5.6% currency impact. Performance was primarily driven by continued strength in core Employee Benefits, particularly in Türkiye, then offset by transformation-related headwinds in the U.K. and the U.S.. From Q4, we expect the region to return to growth. Overall, the Group maintained a resilient growth trajectory over the first nine months, despite the third quarter marked by specific and time-bound regional headwinds. After operating revenue, I will now conclude this top-line performance review on how float revenue also contributed to growth on page 15. The total revenue reached EUR 124 million over the first nine months, up plus 4.5% organically and plus 0.7% on a reported basis, including EUR 42 million in Q3, up plus 2.8% organically and plus 7.4% reported. His performance continued to reflect the continuous expansion of the float bases in countries where interest rates remained elevated. It also benefited from a higher investment yield, up circa plus 30 basis points to 6.2% over 9 months. This was driven by slightly higher interest rates year-on-year and by Pluxee's disciplined investment approach. Overall, Float Revenue has remained a consistent contributor to the Group top-line performance over the first 9 months. This now concludes my comments on the financial performance, and I will now hand back to Aurélien to walk you through the outcome. Bye-bye.

Thank you, Stéphane. Before turning to our full-year objectives, I will start with an update on Brazil and how we are navigating the ongoing market transition. Since the revised framework was announced, we have consistently executed our action plan in Brazil, tangible progress across our three work streams in line with the regulatory milestones. Starting with operational readiness, our open-loop arrangement is now in place alongside the rollout of our best-in-class offering. This provides the operational conditions required to adapt to the new market framework and it serves our clients effectively. Going forward, we will continue to build and innovate to strengthen our leadership position in that market. In parallel, our adaptation plan is being progressively deployed across all dimensions of the business, with a clear focus on efficiency gains. This includes commercial, operational, and cost levers, which we'll continue to work on as a reform is being implemented and market conditions evolve. Then on engagement with public authorities, discussions remain active and focused on technical implementation, feasibility, scope, and time frame. Lastly, on the legal front, we continue to pursue the appropriate legal proceedings including our appeal on the merits of the case, both independently and in coordination with the industry association ABBT. Overall, we are executing our roadmap in line with plan, supported by fully mobilized teams in Brazil and at Group level. This supports our confidence in confirming all our financial objectives. The performance delivered over the first nine months together with our strong execution has been considered for the year-end. First, total revenues are expected to remain stable on an organic basis. While Q3 reflected the anticipated first effect of the PAT reform in Brazil, our top-line performance over the first nine months remains positive, supported by solid underlying business trends. This gives us confidence as we enter Q4. Again, we continue to expect a slight organic expansion in Recurring EBITDA margin. This illustrates the resilience of our business model, our disciplined cost management, and our ability to adapt our operating model in a more demanding environment. And so, we continue to target around 80% recurring cash conversion on average over fiscal 2024 to fiscal 2026, backed by the strengths of our cash-generative profile and disciplined Before opening the floor to questions, let me briefly wrap up this presentation. Over the third quarter, top-line evolution reflected, as anticipated, the first effects of the regulatory changes in Brazil and some macro headwinds, while remaining consistent with our planned full-year objectives. At the same time, commercial KPIs stayed well-oriented overall, and business volume growth regained momentum, confirming the underlying strength of our business and providing a solid foundation for future revenue growth. Overall, our performance over the first nine months reinforces our confidence in the resilience of Pluxee's business model and in our ability to navigate a more demanding environment while delivering on our fiscal 2026 commitments. Going forward, our priorities are unchanged. Maintain robust commercial execution, manage the transition in Brazil with discipline, and leverage the Group's fundamentals and execution capabilities to continue creating long-term value for all our stakeholders. Thank you for your attention. We will be happy to take your questions.

Thank you. This is the conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. In the interest of time, we ask that you please limit yourself to two questions per caller. The first question is from Estelle Weingrode, JPMorgan. Thank you.

Hi, good morning and thanks for taking my questions. I have a first question on Brazil. I mean, in LatAm, operating organic growth was a lot better than what we were initially anticipating. And can you elaborate a bit more on this? I mean, is it likely largely a timing/phasing effect? And, or if so, should we expect Q4 to be the first quarter reflecting the full impact from the shift to open loop? And actually, my second question will also be on Brazil. Could you also explain how the shift to open loop is shaping up in Brazil at the moment? More technically speaking, I mean, speaking, are you seeing any surprise? What are the biggest challenges so far? And are you also working on a hybrid model whereby you can also be the acquirer in the transaction? Thank you.

Thank you, Estelle. I'm going to answer maybe your two questions in a in one answer, but it's coming back on the implementation of the PAT reform. As I said, it's progressing broadly in line with the timeline that we anticipated. So the first level including the MDR cap and the 15-day merchant reimbursement, came into effect on the March 1st, so at the beginning of Q3. And since then, we have successfully opened our arrangement and launched what we believe is a best-in-class offer. And while, as I was mentioning, still focusing on the commercial execution, operational adoption and all the mitigation initiatives. And so based on what we observe so far, the Q3 performance has been broadly in line with our initial assumptions. But it's fair to say that looking ahead, Q4 will provide us greater insights into the tangible effect of the opening of our arrangement. And what we expect is a negative impact to intensify in Q4, with the further rollout of the reform. So this is what we should anticipate for Q4 indeed. Again, technically speaking, in the implementation of our plan and arrangement, we are in line with our plan. We've not been facing any unexpected changes on this aspect. And we will still see some of course on H1, the first semester of our fiscal year 2027.

The next question is from Pravin Gondhale, Barclays.

Hi, thanks for taking my questions. I also have a question on regulations. Could you please provide an update on where do we stand on meal vouchers framework review in France, the timing of it, and if there has been any change in text recently versus what we have seen in the past. And then related to that, any other sort of new regulatory developments in your markets, including an update on Chilean inquiry would be helpful here. And then the second question is on float revenues, which was stronger than expected in Q3. Does this drive any change to your expectations for full-year float revenues in FY '26 and also next year? Thank you.

Thank you. Good morning. So I'm going to start and Stéphane, you take the question and I'll provide you. So quite recently in June, a member of parliament submitted a bill. And the proposal, the intent proposal remains broadly consistent with all the previous reform initiatives. We still have the key for modernizing the meal benefit system while simplifying the framework. So this bill more specifically proposed measures that include the pooling digitization of the new vouchers, the permanent extension of their use to all food products, and a cap on the client discount, and the facilitation of the donation of meal vouchers to NGO. So this is it. So no surprise, I mean, this is what somehow was stated by Serge Papin, the minister in charge, a couple of months ago. And now, timing-wise, we expect this to be discussed by Parliament after the summer, and of course it will depend on the legislative agenda. Regarding Chile, there is a case that is related to a claim filed by the Chilean antitrust authority before the Chilean Antitrust Court concerning the employee benefit market in Chile. So the allegations relate to a historical period before 2021. Of course, Pluxee has been fully cooperating with the authority during the investigation and we will continue to engage constructively and transparently throughout the judicial process. It's fair to say that this case remains at an early stage. So proceedings in front of this antitrust court are typically quite long. They may take several years for final outcome. But more importantly, we've been taking this matter very seriously right from the beginning. We have engaged with all our stakeholders, starting with our clients, our partners and all other stakeholders to provide transparency on the situation and to share as well our ethics, compliance, and government framework that is in place. And so far, we have a good continuation of our business in Chile.

Good morning, Pravin. Regarding your second question on float revenue, so this is true that float revenue remained for the first nine months and in Q3 again consistent and a constant contributor to growth, organic growth. When we compare to what we had in mind at the very beginning of the fiscal year, this is true that there have been less interest rates in the fiscal year cuts compared to what we had initially planned or and it was only based on the consensus of market and in countries like Brazil or Türkiye for example. In in Türkiye there were no cuts at all yet. In Brazil, the Selic interest rate remained all along the year with a slight cut recently. And then we have been able to roll out since the spin-off and still in this fiscal year '26, our disciplined investment approach, extending a little bit the maturity of our investment in order to support a strong yield. All this being put together, we have been able, compared again to what we had initially in mind to deliver a strong organic growth. Going forward, we don't guide on a quarterly basis, but what I can tell you is that what we will deliver in Q4 will be a little bit lower compared to what we deliver so far in terms of organic growth. But overall, this means that for the full year, for the full fiscal year '26, we are to a slight organic growth, a slight positive organic growth for the new, of course, but this doesn't move the needle for the overall organic growth. Keep in mind that float revenue represents a little bit more than 10% of the revenue. The big growth engine is the operating revenue, and of course we have this additional push on portfolio, but it does not change things for the overall stable top line guidance that we have for the top line as it were. This is far too early to provide you with some detail on this. As you know, the geopolitical environment has been very uncertain and very volatile in the last months. On one side, we are still working on the management of the maturity of our investment, which we provide with some basis for fiscal year '27, but then we'd have to take into account when the time comes, the current situation by the end of next October.

The next question is from Hannes Leitner, Jefferies.

Yes, thanks for letting me on. I got two questions. The first one is on Brazil, the regulatory headwinds. You mentioned it only just started. If we are now thinking about the absolute impact and then the trajectory over the next couple of quarters, you had been LatAm around low double-digit organic growth. And now you, so if you're calculating the headwind, it could be between EUR 10 and EUR 15 or EUR 10 and EUR 17 million headwind from the Brazilian regulation. I think originally you talked about high single-digit income for the year. So you mentioned everything going according to plan, so should we then expect in Q4 quite a big increase in these headwinds and maybe you can talk about what caused that dynamic. I guess the 4-corner model will not be such a big And then maybe just a second question on the European macro situation. Maybe you can talk a little bit about the moving parts. You called out also face value being a positive or starting to develop a positive tailwind. But given the macro concerns, maybe you can talk a little bit more about that. Maybe you can flesh that out a little bit. Where do you see that? Is it which country, which sector, or is it rather more competitive nature, which you obviously backfilled very well with the incremental wins in BVI? Thank you.

Thanks for your question. We'll start with the macro situation in Europe. So, indeed, I continue to hope that Europe continues to be soft in history. And this reflects a combination of macroeconomic factors and specific portfolio dynamics and still some public benefits phasing effect. From a pure macro standpoint, we continue to see a cautious environment in several markets. And this is, it was the case previously, it remains the case, with clients remaining prudent on hiring and in some cases on the increase of employee benefit process. And what we see as well is that the end-user portfolio trends remain a headwind. In a number of countries, France is an example, Germany, Romania. While also recent increases in face value caps are taking longer than what we'd initially anticipated. But again, the picture remains quite different across the region. Southern Europe continue to show good resilience and a solid commercial activity while other markets are facing More importantly, this challenging economic backdrop. Again, I mean, it's a country that they mention, France, and... some countries in the Central and Eastern Europe. Regarding Brazil, maybe Stefan you want to.

Good morning, Agnes. So regarding what is currently happening and as we started to explain in the presentation, this is true that the impact of the reform is going to be higher in Q4 compared to the what we have seen in Q3, but I'm not going to share with you some absolute number as you try to put them together, because there is still a lot of uncertainties remaining on this reform and the impact of this reform. Please keep in mind that this reform is defined as a merchant discounted cap. But then all business in Brazil, like in other countries, if we leave aside the float revenue, remains a bearer on two main workstreams, revenue workstream for merchant, but also compliance with some balance being constantly adjusted with the competition on the market. And of course, we are facing all these changes with all of the competitors still fighting strongly in order to get market shares and it's really difficult for us to assess precisely the impact. What I can tell you is that Q4 and in Q4 the impact will be somehow, you know, in terms of organic growth, twice the impact that we had in Q3 for Brazil and then in Q1 and Q2 of next year, same thing will have strong impact, stronger compared to what we have experienced in Q3, but we will come back to you later when we have more clarity with all the remaining uncertainties based on what I was explaining on how the market is operating, but also on what Aurélien recalled regarding legal uncertainties, the discussion we are still having with the government and the legal proceedings.

Maybe just to add on, what matters as well is that the fundamentals in Brazil remain. Our commercial momentum continues to be robust, supported by solid client acquisition and a healthy retention level. So this strong trend definitely reinforced our confidence in the long term regarding the effectiveness of the Brazilian market and our ability to create value even through this period.

The next question is from Andre Juillard at Deutsche Bank.

Good morning, congratulations for these solid results. Two questions if I may. First one about competition. Do you see any moving parts in Brazil following the new regulation, any small players being under difficult conditions and pushing for consolidation. Second question about your balance sheet, the fact that you still got a pretty solid net cash position and you have a better visibility or better idea on this use of cash between M&A, potential return to shareholders or any other decision. Thank you.