Corpay Inc (CPAY) 2012 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. thank you for standing by. Welcome to FleetCor Technologies, Inc.'s second quarter conference call. (Operator Instructions). At this time, I would like to turn the conference over to Eric Dey, CFO.

Good afternoon, everyone, and thank you for joining us today. By now, everyone should have access to our second quarter 2012 press release.

It can also be found at www.fleetcor.com under the investor relations section. Throughout this conference call, we will be presenting non-GAAP financial information, including adjusted revenues and adjusted net income.

This information is not calculated in accordance with GAAP and may be calculated differently than other companies' similarly titled non-GAAP information.

Quantitative reconciliations of historical non-GAAP financial information to the most directly comparable GAAP information appears in today's press release and on our website as described previously.

Also, we're reviewing 2012 guidance on a non-GAAP basis. Finally, before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. This includes forward-looking statements about our 2012 guidance.

They are not guarantees of future performance and; therefore, you should not put any undue reliance on them. These statements are suggest to numerous request risks and uncertainties that could cause actual results to differ materially from what we expect.

Some of those risks are mentioned in today's 8-K filed with the Securities and Exchange Commission. Others are discussed in our form 10-K which is available at www.SEC .gov. With that out of the way, I would like to turn the call over to Ron Clarke, our Chairman and CEO.

Okay. Eric, thanks. Hello everyone and thanks as always for joining our call today. I'll plan to cover three subjects here in my opening remarks. First, I'll provide a little color on our Q2 results. Second, I'll update you on our global business development efforts.

And finally, I'll comment on our full-year guidance and the implied growth rates. So first off to Q2. The Q2 results we reported were terrific, reported-breaking, in fact. The Company set new all-time highs in both revenue and profit. We reported Q2 revenue of $172 million, up 28% and cash EPS of $0.73, also up 28%.

The macro environment was a mixed bag in terms of its impact on our Q2 performance. Fuel prices were generally neutral across all of or markets, but market spreads were incredibly helpful this quarter, contributing approximately $4 million of incremental revenue and approximately $0.03 of cash EPS above normalized levels.

And FX rates were really the opposite, were not good, in fact, quite unfavorable, and depressed our revenue approximately $4 million versus constant currency. So really a mixed bag.

In terms of our line of business performance, our Northern America results were very, very good. Revenue grew 15%, all organic, and the continued growth of our universal cards drove most of that performance. In fact, in total, our set of universal card transaction growth exceeded 30% quarter-over-quarter. So this new product line continues to perform well. Europe came in basically on our internal plan. Our Czech and UK businesses pretty much stayed in neutral.

Our Russia business continued its rapid growth, and we got a big contribution from a new full quarter of AllStar, so obviously that helped.

So in summary, our Q2 results exceeded our expectations and did so almost across the board. Let me step back now from the quarter and talk just a bit about our overall global business development activity.

First off, we recently re-organized internally and tasked two of our most senior execs with new full-time exclusive focus on BD and a transition out of their everyday operating assignments. So we believe this move and this focus will further step up our partner and deal pressure.

Let me comment just a bit now on Shell and our status there. We're roughly a year and a half into this new relationship, and we expect our global GFN system to go live in October.

We hope to convert a few of their Russian markets this year, and then continue a rapid rollout across Europe next year. And although a bit slower than planned, all systems are go at this stage.

Now on to Effective Allay, our recent fuel and food card acquisition in Mexico. Our early progress there is encouraging. We're moving the business portfolio to fuel and to cards, which is away from vouchers. We're rationalizing both pricing and costs, which are leading to increasing profit margins; and we're even testing some new web and telesales channels for boost overall sales there.

And we're actually using Spanish-speaking teams in our Atlanta office to drive the pilot, so stay tuned on that. So net-net, we're very pleased with this Mexico deal and tracking ahead of plan.

Finally, let me catch up on our AllStar business in the UK. So now that we've cleared the OFT review, we're actively managing all aspects of that business.

We're in the process of converting AllStar to our global GFN processing platform and expect to be complete by year-end. We're also beginning to integrate our other UK businesses into AllStar and believe that will lead to higher margins.

So 6 months in, we're bullish on our prospects to increase AllStar profits, certainly over the mid-term. In terms of pipeline, our deal pipeline remains full.

We're actively engaged in a couple new partner RFPs, and we're also in a number of new acquisition conversations. We've got ample liquidity, roughly $400 million to pursue new deals, and the ability to flex up our credit line if we're in need of more capital. We're also quite comfortable with our current leverage ratio of approximately 1.2 times.

Let me now transition over to our financial guidance for the balance of the year. So, first off, our assumptions, FX -- we're assuming FX will stay basically at its current levels.

Same with fuel price, we're assuming fuel prices will remain roughly at today's levels. Market spreads, we expect to return to their kind of historic or normalized levels. Then finally, we expect the macro economic growth to be essentially neutral or zero.

So this set of assumptions leads to the following midpoint. Revenue of $670 million implying a 29% full year growth rate and cash EPS at $2.76 implying a 27% full year growth rate. So if we achieve this full-year guidance, we will have delivered on average 25% earnings growth for our first two years as a public company. So not too bad.

So in closing, we're feeling very good. Our Q2 results were excellent. Our rest-of-year outlook is encouraging. Our global strategy is gaining traction. We're getting positions in attractive markets, markets we believe will grow cash; and our overall BD capability is maturing. And we're doing things like re-organizing to place even more emphasis on that.

So with that, let me turn the call back over to Eric to cover our financial results in more detail. Eric?

Thanks, Ron. For the second quarter of 2012, we reported revenue of $171.8 million, an increase of 28% from the second quarter of 2011.

Revenue from our North American segment increased 15.5% to $107.3 million in the second quarter of 2012 from $92.9 millionin the second quarter of 2011, and revenue from our international segment increased 56.1% to $64.5 million inthe second quarter of 2012 from $41.3 millionin the second quarter of 2011.

For the second quarter, GAAP net income increased 48%, to $54.4 million from $36.7 million in the second quarter of 2012. For $0.63 diluted share compared to $0.44 per diluted share in the second quarter of 2011. The other financial metric that we routinely use to measure our business are adjusted revenues and adjusted net income, which we sometimes also refer to as cash net income.

Adjusted revenues equal our GAAP revenue less merchant commission. We use adjusted revenues as a basis to evaluate the Company's revenue, net of the commissions that are paid to merchants who participate in certain card programs.

Commissions paid to merchants can vary when market spreads fluctuate. In much the same way, some of our revenue can vary when market spreads fluctuate. For this reason, we believe the adjusted revenue financial metric is a more effective way to evaluate the Company's performance.

The reconciliation of adjusted revenues and adjusted net income to our GAAP numbers are provided in exhibit 1 of our press release. Adjusted net income is GAAP net income adjusted to eliminate non-cash, stock-based compensation expense related to share-based compensation awards. Amortization of deferred financing costs and intangible assets, amortization of the premium recognized on the purchase of receivables, a loss on early-extinguished mean of debt, and adjusted for the income tax effect of such.

Adjusted revenues in the second quarter of 2012 increased 29% to $154.3 million compared to $119.3 millionin the second quarter of 2011. Adjusted net income for the second quarter of 2012 increased 32% to $63 million or $0.73 per diluted share compared to $47.8 million or $0.57 per diluted share in the second quarter of 2011.

For the second quarter of 2012, transaction volume increased 49.3% to 74.2 million transactions compared to 49.7 million transactions in the second quarter of 2011. Our transaction volumes in our international segment were positively impacted by two acquisitions closed in the second half of 2011.

To remind everyone, in September of 2011, we acquired Effective Allay, a Mexican prepaid fuel and food card company; and in December of 2011, we acquired AllStar business solutions, a leading UK fuel card company.

We also completed another acquisition in Russia in mid June, which had a minimal impact on transaction volumes in the second quarter, but will impact transaction volumes positively in the second half of the year.

And to remind everyone, we recently expanded into the Brazilian market with our acquisition of CTF Technologies. Transaction volume in the second half of the year will also be positively impacted by this acquisition. Adjusted revenue per transaction for the second quarter of 2012 decreased 13.3% to $2.08 from $2.40 in the second quarter of 2011.

Adjusted revenue per transaction can vary based on geography, the relevant merchant relationship, the payment product utilized, and the types of products or services purchased,a mix of which will be influenced by our acquisition, organic growth in the business and fluctuation in environmental factors, such as foreign exchange rate, fuel prices, and fuel price spread.

Adjusted revenue per transaction for the quarter was positively impacted by our organic growth in certain of our payment programs. While the environment had minimal impact as it was mostly neutral.

While the AllStar business in the UK, our business in Mexico, and our recent acquisition in Russia represent good profit margin businesses, they do have lower revenue per transaction product, and when combined with our other businesses' revenues results in a lower revenue per transaction than would have resulted without the acquisition.

Now, let's shift over and discuss some of the drivers of our second quarter performance. First in our North American segment, all of our lines of businesses performed well, resulting in a 15.5% organic growth rate in the quarter versus prior year.

Of particular note, the decrease in the wholesale cost of fuel resulted in higher fuel spread margins which added approximately $4 million in incremental revenue, and our MasterCard product again continued to perform well during the quarter. Revenue generated from this product increased 48% year-over-year.

These items help drive approximately 25% increase in our combined North American direct fuel card business during the quarter. The L C Group, a provider of lodging management programs continued to perform well and had another solid quarter with 16% revenue growth over the second quarter of last year.

This increase was primarily driven by an increase in same-store sales and higher sales volume, particularly in our higher-margin products.

In our international business, our results were positively impacted by the two acquisitions closed in the second half of 2011. Effective Allay, the Mexican prepaid fuel and food card company and AllStar, a leading fuel card company in the UK, in addition, our independent fuel card provider based in Russia, PPR, continued with its impressive growth trend with revenues up double digit over last year.

This increase was primarily driven by an increase in same-store sales and strong new customer sales, resulting in higher transaction volume. Also, Effective Allay is off to a strong start, with revenues up double digit in local currency. However, the results in our international business were negatively impacted by the sluggish economy in Europe and unfavorable foreign exchange rates during the quarter.

The macro economic environment was generally neutral during the second quarter. When we talk about the macro economic environment, we are referring to the impact of market spread margins, fuel prices, foreign exchange rate, and the economy in general can have on our business. During the second quarter, the decrease in the wholesale cost of fuel resulted in higher fuel spread margins which added approximately $4 million in incremental revenue or about $0.03 per diluted share. However, the higher fuel spread margins were mostly offset by unfavorable foreign exchange rate. Fuel prices had a generally neutral effect as they were materially different than prior year.

Now, moving down the income statement. Total operating expenses for the second quarter were $90.4 million compared to $74.3 millionin the second quarter of 2011, an increase of 22%. Included in operating expenses are merchant commissions, processing expenses, bad debt, selling and general administrative expenses, and depreciation and amortization expense.

The increase in operating expenses was primarily due to additional expenses related to the Effective Allay acquisition and the AllStar acquisitions completed in the second half of 2011.

Also included in operating expenses in the second quarter of 2012 were one-time, deal-related expenses related to the Russian acquisition closed in June of 2012 and the CTF acquisition closed in early July of 2012. However, as a percentage of total revenues, operating expenses decreased from 55.4% in the second quarter of 2011 to 52.6% in the second quarter of 2012. Credit losses were 15 basis points for the quarter compared to 25 basis points in the second quarter of 2011.

The improvement in credit losses was primarily due to the impact of acquisitions closed in 2011, which have product with lower bad debt as a percentage of billed revenue,improvement in the economy, and a shift in our marketing and sales strategy towards largely fleet prospects. Depreciation and amortization increased 35.2% to $11.6 million in the second quarter of 2012 from $8.6 millionin the second quarter of 2011. The increase was primarily due to the impact of amortization of intangible assets related to our acquisition of Effective Allay in Mexico in the third quarter of 2011, and the AllStar acquisition in the UK in the fourth quarter of 2011. Interest expense decreased 18.3% in the second quarter to $2.8 million from $3.5 million in the second quarter of 2011.

The decrease in interest expense is primarily due to a lower overall borrowing rate as a result of our new term loan and revolving credit facility, which we refinanced in June of 2011.

In addition, we also experienced a lower overall borrowing rate related to the financing of our accounts receivable, including a lower interest rate in our AR securitization facility.

Our effective tax rate decreased to 30.9% of pre-tax income compared to 31.8% for the second quarter of 2011. The decrease in our effective tax rate was primarily due to the mix of earnings in our international businesses, which have lower tax rates than our US businesses.

Now turning to the balance sheet. We ended the quarter with $305.7 million of total cash, $50.1 million of which is restricted and are primarily customer deposits.

The Company also has a $500 million accounts receivable securitization facility. At the end of the quarter, we had $325 million borrowed against the facility and had the ability to draw an additional $19 million based on eligible receivables pledged against the facility.

On February the 6th, we amended and extended our facility termination date until February of 2013. The renewal included a reduction in the facility's interest rate from CP plus 90 basis points to CP plus 75 basis points, and also included a reduction in our unused line fee.

And the current purchase limit remains at $500 million. We also have $285 million outstanding on our term loan and $113 million drawn on our $600 million revolver.

As of June 30th, our leverage ratio was 1.2 times EBITDA, a slight increase from 1.36 times at the end of the first quarter. The decrease was primarily due to paying down the balance on our revolving credit facility in the second quarter.

At June 30th, our leverage ratio remains well below our convenant level of 3.25 times EBITDA. The Company intends to use its free cash flow to temporarily pay down the balance on the revolving credit facility and securitization facility and maintain liquidity for acquisitions and other corporate purposes. Finally, we are not a capital-intensive business, as we spent approximately $4.9 million on CapEx during the second quarter of 2012.

Now, on to our outlook for 2012. Given our very favorable results in the first half of the year, as well as our recently announced acquisition of a Russian fuel card company and CTF Technologies in Brazil, we are upgrading our guidance for the remainder of 2012.

We now expect revenue to be between $665 million and $675 million, up from our previous guidance range of $615 million to $625 million; adjusted net income to be between $235 million and $240 million, up from our previous guidance range of $217 million to $222 million.

And adjusted net income per diluted share to be between $2.74 and $2.78, up from our previous guidance range of $2.55 to $2.60. Our second half of 2012 adjusted net income per diluted share includes approximately $0.06 to $0.07 from our recently completed acquisitions, including deal and restructuring costs.

The other assumptions that we have made in preparing this guidance includes fuel prices flat to current levels for the second half of 2012, market spreads to return to their historic normal levels, a 0.4% decrease in our effective tax rate from 30.1% in 2011 to 29.7% in 2012, foreign exchange rates to remain at current levels, an increase in fully diluted shares outstanding to 86.2 million shares out standing from 85.9 million shares for the full year of 2012. And finally, no impact related to any future acquisitions or material new partnership agreement.

And with that said, operator, we'll open it up for questions.

Thank you, sir. (Operator Instructions). Our first question comes from the line of Glenn Fodor of Morgan Stanley. Please go ahead.

Hi, thanks for taking my question. Congratulations on another good quarter. Just on the re-organization. You guys never seem to have a problem with acquisitions or integrations in the past, operations in general. Is there something more to the re-organization within business development that you care to expand on in?

Glenn, it's Ron. Not really. It's just about pressure. We're trying to cover a lot of geography. The world is a big place, and we've got some people that are particularly skilled at BD and relationship building; and so we decided to kind of offload their day-to-day and get them and their teams just exclusively on it. So it was really just a way to assure that we keep the pressure up on a bigger playing field.

Okay. So more open opportunistic than anything else?

Yes, we've got a lot going on, I think the flip side, we're active so there's a lot to do.

Okay, then the investments for the Shell build out. I forgot if these are being capitalized or not, but if they're not, can you quantify the impact in margins we're seeing maybe in the basis point terms and how we should expect the margins to expand as you put that behind you and the business starts to ramp?

Yes, it's Ron again. I think a simple way, Glenn, to think about this is, we're in development and implementation mode for -- call it a year and a half with Shell.

And so the revenue that we're receiving is in some ways related to that "work" that we're doing, and by it's very nature that kind of work is not particularly profitable. Right? If you look at the traditional kind of tech company margin.

I think what you'll see is as we transition out of that type of work and into transaction processing, although the revenues won't move in a material way, obviously, the margins will because we won't be doing that same kind of obviously development and conversion work.

Okay, great. Thanks a lot, appreciate it.

Our next question is from the line of Phil Stiller with Citi. Please go ahead.

Hi, guys. Congratulations on a good quarter. I wanted to ask about the revenue guidance, you guys raised it by $50 million. It seems like you beat by a little more than $10 million in the quarter. How much of the incremental increase that you guys did for the revenue guidance is attributable to acquisitions that you recently completed?

Hey, Phil. This is Eric. Obviously, we had a very good quarter and some of the reasons behind the beat for the quarter were just good organic performance in our existing businesses.

From a revenue guidance perspective, I would say in addition to the revenue beat in the first half of the year, I would say the remainder of that or a significant portion of the remainder of that was due to the acquisitions that we closed on the first half of the year.

Okay. And then, I guess, on the EPS, you also provided some color on what those acquisitions are contributing, but there's also fairly significant increase on top of that. Is that related to the first half beat or are you expecting better profitability in the second half from the existing business?

Phil, it's Ron. Both. If you're going to think about the guidance we gave before, which was what? $2.55 to $2.60.

$2.55 to $2.60.

So let's say, Phil, use the midpoint of the guidance we gave, kind of $2.58, you add the beat. It's what? $0.08?

$0.07, $0.08.

You add what the guidance we gave. $0.06 to $0.07, I think you come up into the low $2.70s, $2.72ish, and we're guiding, obviously, $2.76 is the midpoint. So I'd say it's those things plus another kind of $0.03 or $0.04 of better performance that we expect.

Okay, just last question from me. You guys have talked about some of the investments that you're making in some of these recent acquisitions, and you're also absorbing some deal costs and restructuring costs associated with those deals. Can you quantify what those investments are for the full year and what the benefits we should see from those as we get into next year and beyond?

Let me comment on the first part, then I'll give the deal part to Eric. I'd say the way to think about the first part is it's structural, it won't go away.

So, in other words, although we've done some fair number deals, and we're spending millions predominantly in IT, I'd say that our expectation is that we're kind of always going to be in that mode, Phil, and that we're going to build plans that reflect kind of that level of spend, the technology spend.

And the question will be just, what is it we're spending it on. The projects will simply change probably more than getting some happy in expense.

Okay. Great. Thanks.

And then -- hey, Phil, this is Eric, to answer the second part of your question. How much have we spent in deal-related costs? In the second quarter, I think we've got about $1 million dollars worth of deal related expenses in the quarter that are one-time in nature.

Okay. Great. Thank you.

Thanks, Phil.

Thank you. Our next question is from the line of Tien-Tsin Huang with JPMorgan.

Hey. Thanks so much. Good afternoon. I wanted to ask first just on the domestic revenue for trend. Other than spread, what drove that increase and is it sustainable? Because that was quite a bit higher than we had modeled.

Yeah, Tien-Tsin, it's mix again. It's back to low-single digit tran in total, but again, a bunch of lines of businesses that were double digit in volume growth and those again are the ones we're investing in that have the higher revenue per trend.

Again, if you peeled it back, what's happening is we're just increasing faster lines of business that have higher revenue per tran. And then B, it's continued card upgrading, as I mentioned in my comments, we continue to keep moving the mix to universal cards that basically have a higher revenue per tran.

And we've started now just in the second quarter, started to layer some of these add-ons that we've been speaking about. So it's basically business mix, it's card upgrades, and it's the start of our add-ons.

Okay, good, good. Now, is that $4 million in spread benefit, is that pretty much all US or does some of that come into the international side as well?

I'd say 80% or 85% here.

Okay. Good. That's good for us to know. Then on credit losses, I think you guys are trending, obviously, very favorably. What's the outlook there? It looks like it's performing way under the norm.

Hey, Tien-Tsin, this is Eric.

Hey, Eric.

I'd say it's kind of more of the same. Tien-Tsin, we're really not projecting it to go too far from where it is right now. A lot of the favorability that we experienced over the last couple of quarters was because we bought a couple businesses that have lower bad debtas a percentage of their build revenue, so that mix of those new businesses has helped that overall basis point decrease. So we would expect that number to be relatively consistent over the balance of the year.

Okay. You don't see anything there. Okay. Good. Last question, just on the MasterCard piece. With the litigation settlement there, with the 10 BIP reduction interchange, does that apply to FleetCor in terms of the interchange cut?

Yes. I don't think we have a clue, Tien-Tsin. I think we're kind of in a wait-and-see mode like you guys are. We've obviously seen it. We've obviously spoken to MasterCard and frankly, I don't think we really understand it yet.

Yeah. No, I wish I could stay I fully understood it as well. Alright. Appreciate it. Thanks so much.

Hey, but Tien-Tsin, just to add on to that, even if it did, it's not very material.

Go ahead.

We have kind of modeled what the impact of that might be, and it looks like a couple, $3 million over the period of time that that would go into effect. So some part of that in 2013 and some part of that in 2014, so it's not very material at all.

Okay. So, $2 million to $3 million net impact over the 8 months, assuming it goes through, as is worse case. Okay. Thank you.

Good to talk to you.

(Operator Instructions). Our next question is from the line of Darrin Peller with Barclays. Please go ahead.

Hey, guys. How are you? This is Adam Carron here for Darrin.

Hey, Adam.

Great quarter. I just had a quick question for you on the margin trajectory over the second half of the year. I mean, obviously, margins were very strong in the second quarter and a lot of that could be attributed to, I guess, the out-performance kind of seen in North America.

Just to help us get our heads around this, obviously with the two new acquisitions coming on in the second half as well as what seems to be somewhat of a sustainable trend here in North America and Mexico performing maybe a little bit better than your expectations,how should we think about the trajectory and the margins as we exit the year here?

Hey, Adam. You know, I would say that our margins, again, all things being equal, are going to continue to perform extremely well and should start increasing.

Our business in the United States should continue to grow organically at pretty attractive rates, and obviously we buy businesses that have been underperforming, and we basically increase and enhance the performance of those businesses.

So we would expect to see, certainly, the margins of those businesses start to improve over time which would impact the overall margin profile of the Company.

Right. And so, even as we bring on these two acquisitions here over the second half, we shouldn't necessarily expect much of a material adverse impact just given the way the rest of the business is performing?

I'd say it will be down a bit, Adam, in total. If you took the run rate businesses -- Eric's comment is we expected to be "better" still in the second half than in the first.

We said in the prior call, particularly the Brazil business has a much worse margin than the FleetCor line average, and all that revenue and profit will hit for the first time here in the second half, so that will be a wait.

I'm not sure we have that page in front of us, but the underlying business without that will continue its margin improvement for the reasons that I mentioned to Tien-Tsin about. Fundamentally mix and add-ons, which is generating more revenue per piece of work than we were before, which creates more margin.

Understood. Much appreciated.

Thank you. Our next question is from the line of Julio Quinteros with Goldman Sachs. Please go ahead.

Great. Hey, guys. Real quickly on the assumptions for revenue per transaction, I'm not sure if I missed this up front. When you think about revenue transaction going forward, both in North America and international, and overlay the two new acquisitions on the international side, how do we think about that in terms of your expectations for the revenue per tran?

Well, Julio, this is Eric. Revenue per tran in the United States should -- we would expect that to continue to increase over time because we expect obviously the business in the US to continue to perform well for the reasons Ron described earlier in the call.

At the international level, revenue per tran is going to continue to be impacted by the integration of the acquisitions. CTF, which we purchased on July 3 of this year obviously has a lower revenue-per-tran product, so that will impact revenue per tran internationally, as does AllStar.

But in addition to that, as we begin to roll out Shell, that is a significantly lower revenue per transaction product, so that will impact revenue per tran at the international level as well. We'll have to have some further conversations about how we're going to look at that going forward. We get into that.

But I'd say, Julio, to think again per our IPO pitch to you -- 5% to 10% point to point in terms of incremental revenue per tran over the baseline.

Again, we get it from mix and card enhancements and add-ons, and we'll get it particularly on the international front on virgin assets. We're buying assets that are, in our eyes, "underperforming" in terms of margin, which creates eve greater opportunities initially for revenue per tran increases.

So you should think that we're going to plan to increase off of these baselines once you sort these new pieces of portfolio in the 5% to 10% range.

Okay got it. And then just in terms of international exposure, macro headwind, thinking about any contingencies on the margin side.

What would you be looking for at this point relative to flat or neutral European exposure at this point within sort of Czech and UK? If it were to get than where it currently is right now, what potential leverage do you guys still have to think about in terms of protecting some of the margin structure there?

Yeah. I'm not sure, again, against big macro things, Julio, we've got all that many levers. I know we see that, look, we've been living, all of us, not just FleetCor, in a world of no growth here for years; and we're still growing earnings 25%, so I think we're kind of getting used to the world as it sits. And to your point, if suddenly Europe got softer by 2 or 3 points, it will have a tiny -- it's not going to take our business down because the growth engine of the Company obviously is not relying on GDP or same-store growth.

We're getting no help from the health of our clients. We're lucky if they're all flat. So the engine of this Company doesn't really rely on it. With that said, if we went back to 2008 -- stuff down, double digit, and the health of companies, and insolvencies go, that's a problem. That would be a problem for us, but it would have to go again pretty deep like it did three or four years to be more than a blip for us.

Good.

Our next question is from the line of Tim Willi from Wells Fargo. Please go ahead.

Thanks and good afternoon. I apologize if you have addressed this. I just hopped on. I was wondering if you could, first, talk about -- you know, we're a couple of quarters into AllStar.

I think part of that transaction was investing in product and, I think, the outbound sales efforts in adding some other marketing channels. Just wondering if you could comment to any progress or how you feel about those efforts and the payback as you continue to integrate that acquisition? Then I had one follow-up.

Yes, Tim, it's Ron. I'd say it's still early. If you recall, we had this OTF review the first 5 months where we kind of hands-off. So I'd say we're slower out of the block, but call it with 2 or 3 months in, I think we've got a good plan that's pretty clear in place to improve margins.

We're going to change out their system over the next 3 or 4 months, which is a big deal; and we've started just in the last couple of weeks the piloting of the other FleetCor sales approaches with that AllStar product.

So I'd say when we get to, kind of, next quarter, I'll have a better answer. But I'd say our view is still very positive on that asset at this point.

Okay. Then my follow-up was around the lodging business. I think I caught a comment about how that continues to do well. I guess I was curious about further expansion of the footprint of properties or customers that use the card.

Is there anything going on, on either of those channels that's worth noting out? Then anything we should think about what that product looks in the next year or two around the European marketplace or any plans there that should be considered?

Yes, I think that's a good question. Let me give you one stat you might find interesting. So in that hotel card business, we serve kind of two types of clients; the big, big account like a railroad that has a million room nights a year, and Ron's tree cutting company that has five rooms a month.

So we've been very focused on the second thing because that's what we do at FleetCor. That business, the "small hotel card business", our revenue in July, this month that we just had, was equal to the revenue of that line of business when we bought the company three years ago.

So obviously, we've gotten much better at building that. So when you say, where are we going to focus? There's a ton of these Ron tree cutting companies that are looking for the kind of proposition that we're offering, and it's a much higher revenue per trend and that's driving some of this double digit.

The second question that I thought was a good one is, yeah, we have got a fascinating product idea. So in that business, it looks like some of our proprietary businesses where they went out to a network and signed up Tim's hotel and then Eric's hotel and then Ron's hotel, and cobbled 20,000 different hotels together and got these deep discounts.

Well, the good news about that is customers like that because when they go there, they get huge amounts off. And what customers don't like about that is they're not sure which hotels are in the network.

So, much like our private-label oil brand products and fuel cards, we're going to create a private-label product in the hotel card business.

So that you, Tim's tree cutting, would have not only this deep-discount network, but you might also have 4 or 5 hotel brands that you're familiar with -- let's say like Wyndham Hotels, and you could stay in any of those 5 brands anywhere in the country for still a pretty good discount.

In the research that we've done, that seems to be a very, very appealing add-on to this group of customers.

Great. I appreciate the color. Thanks a lot.

Yep.

And that's all of the questions we have for today. We would like to thank you for your participation and you may now disconnect.