Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Q2 revenue of $976 million, up 7% excluding Russia, and cash EPS of $4.55, up 14% excluding Russia.
- Improved overall retention, up nearly 92 points from last year.
- Strong sales and new bookings, up 21%, with corporate payments business sales up 28%.
- Organic revenue growth of 6%, driven by strong performance in corporate payments, Brazil business, and international fleet business.
- Reiterated full-year 2024 guidance with $4 billion in revenue and $19 cash EPS, indicating confidence in future performance.
Negative Points
- North America fleet business remains a drag on growth, despite some improvements.
- Lodging business in North America underperformed expectations due to lower flight cancellations and fewer homeowner insurance claims.
- Weaker FX and fuel prices expected to impact second-half performance.
- Continued challenges in the lodging business, with revenue declining 10% in Q2.
- Potential macroeconomic headwinds and unsettled environment could impact future performance.
Q & A Highlights
Q: It's great to hear about the confidence in reacceleration on both the lodging side and North American fleet. Can you provide more color on the lodging side and the tech readiness for new volume? Also, can you reiterate the confidence in the fleet segment?
A: The lodging business is stabilizing after a significant decline last year due to IT issues and macro factors. The base has now stabilized, and we expect it to remain flat sequentially. For the North American fleet, the focus has been on shifting to higher quality, more stable revenue streams, which has improved retention and same-store sales. The new products and channels are showing early signs of success, which gives us confidence in future growth.
Q: On the corporate payment side, the growth has continued to be strong. How do you feel about your positioning now, given the recent deals and asset placements?
A: We have assembled a broad product line targeting the middle market, including card products and AP automation. The focus has now shifted to selling these products effectively. The recent deals have strengthened our position, and we expect corporate payments to become a larger part of our overall portfolio, growing from 30% to 40% by the end of next year.
Q: Just a follow-up on the corporate payments side, the acceleration to 20%, what's fueling that? And can you comment on the take rates and trends in the direct business?
A: The acceleration is primarily driven by strong sales run rates from last year and early synergies from recent acquisitions. Our merchant portfolio is diverse and customized, which helps maintain healthy take rates and card penetration. The acquisition of Payment Ring will further enhance our network and scale.
Q: Wanted to dig into the commentary on North America fleet. What should we expect for the second half growth, and what's driving the weakness there?
A: We expect North America fleet to be flat in the second half, with a focus on higher quality revenue streams. The weakness is primarily due to the shift away from micro accounts, which impacted sales and revenue. However, new products and channels are showing positive early signs, and we expect better performance next year.
Q: Can you provide more details on the transaction momentum in the Brazil business? Is it more about footprint expansion or user engagement?
A: The Brazil business is performing exceptionally well, driven by both footprint expansion and increased user engagement. We have expanded our distribution channels and added new services like fueling and parking. The cross-sell of additional vehicle-related services to our large user base is also contributing to growth.
Q: Can you unpack the same-store sales improvement in the quarter? Where was it localized in terms of industry verticals and products?
A: The improvement in same-store sales was primarily seen in North America fleet and lodging. The stabilization of these businesses, along with better retention and same-store sales trends, contributed to the overall improvement. The focus on higher quality revenue streams and new products is driving this positive trend.
Q: On margin expansion, can you provide thoughts on the ability to continue expanding margins in the back half of the year?
A: We have significant operating leverage in the business. With sequential revenue growth expected in Q3 and Q4, we anticipate margin expansion of 200 to 250 basis points between Q2 and Q4. The incremental revenue will have a high margin flow-through, contributing to overall margin improvement.
Q: Can you provide more details on the retention improvement and its contribution to growth for the remainder of the year?
A: The improvement in retention is primarily due to a better mix of higher quality, more stable clients. As corporate payments grow, the overall retention rate improves. We expect this trend to continue, contributing positively to our growth in the coming quarters.
Q: Did you see any benefit from the CrowdStrike outage on the lodging business?
A: Yes, we did see some benefit from the CrowdStrike outage, particularly in our distressed lodging segment. However, it is not a significant driver of overall performance but certainly helpful in the short term.
Q: Can you provide more details on the sales growth in North America fleet and corporate payments?
A: North America fleet saw mid-single-digit growth, with proprietary fuel products growing 30%. Corporate payments saw strong sales growth of 21%, driven by new products and channels. The focus on higher quality revenue streams and new sales initiatives is driving this positive trend.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
