Corpay Inc (CPAY) 2012 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the FLEETCOR Technologies Incorporated fourth-quarter conference call.

At this time I would like to turn the conference over to Eric Dey, Chief Financial Officer. Please go ahead.

Good afternoon, everyone, and thank you for joining us today. By now everyone should have access to our fourth-quarter and full-year 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, adjusted net income and EBITDA. This information is not calculated in accordance with GAAP and may be calculated differently than other companies similarly piloted non-GAAP information. Quantitative reconciliation of historical non-GAAP financial information to the most directly comparable GAAP information appears in today's press release and in our website as previously described. Also, we are providing 2013 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 2013 guidance, new product and fee initiatives and potential business development and acquisitions. They are not guarantees of future performance and, therefore, you should not put any undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.

Some of those risks are mentioned in today's press release and form 8K filed with the Securities and Exchange Commission. Others are discussed in our annual report on form 10K. These documents are available on our website as previously described and 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. As always, I appreciate you joining the call today.

In my opening remarks I am going to comment a bit about our Q4 results, discuss some of our highlights from 2012, and then I will close with speaking a bit about our outlook for 2013. So first off let me turn to the results for the quarter.

The Q4 results we just reported were very, very good and up significantly versus Q4 last year. We reported Q4 revenue of $202 million up 45% and cash EPS of $0.82 up 46%. So, basically mid- 40s top and bottom for the quarter. EBITDA reached $108 million for the quarter, and, at a high-level, this Q4 performance was really driven by two things.

So first, a full quarter of our three newest acquisitions, AllStar in the UK, NKT in Russia and CTF in Brazil.

And, second, every other major line of business in the Company, except for our check business grew revenue 14% or more in the quarter. That is 14% or more in Q4. Obviously our core businesses are very, very healthy in their own right.

So, let me comment on the reasons that these lines of business grew at this rate. Starting off in the US, our US direct business grew double-digit because the master card product volume grew 27% in the quarter. So that product continues to perform.

Our US partner business grew on the continued strength of the universal co-branded offerings still doing great. And we got some additional lift in our CLC hotel card business from added emergency room nights in Q4 related to hurricane Sandy.

In Europe, our legacy UK businesses, those we have owned prior to AllStar, both turned around in Q4 and both group double digits, mostly as a result of stronger volume.

Finally, our Mexico revenue grew over 25%. It was driven by higher merchant pricing and a continued mix shift to the higher margin fuel card business versus the food card business. Basically, the Q4 was a combination of the three new acquisitions, full quarter of those, and then really terrific 14% plus growth, revenue growth, in the rest of our businesses.

Let me now transition over to our full-year 2012 results. For full year 2012, we reported revenue over $700 million, which was up to 36% and cash EPS of $2.99 which is up 38%. So the major highlights for 2012 included first, 14% revenue growth in our US businesses for the full year -- all organic. So again, very healthy here in the US.

We completed two new acquisitions, one in Brazil and one in Russia. We went live with Shell in Asia, the first market, helping prove our GSM system credibility. We turned around two of our existing UK businesses, so they are pointing in the right direction.

We reorganized and strengthened our business development capability to chase even more deals in more places and, alongside that, upsized our credit facility to create about $1 billion in liquidity to fund new deals. We turned 20 million shares into public float our PE investors reduce their shareholdings. Finally, FLT led the processing category of stocks returning 76% for 2012. So, all in all a really, really terrific year for FLEETCOR.

But now it is time to shift over and talk a little about 2013 and our overall outlook. At the midpoint, today we are providing 2013 guidance $800 million in revenue, with almost 50% of that now outside of the US and $3.65 in cash EPS. So that $3.65 reflects about a 22% profit growth target.

So let me speak a bit about the bridge that takes us from $2.99 cash EPS 2012 to $3.65 in cash EPS 2013. First, about half of this anticipated earnings increase is already in our run rate or exit rate. So our Q3 and Q4 cash EPS was in the low 80%s. So, that alone gets us approximately halfway to our $3.65 target.

Second, we are implementing a number of new product initiatives that will create incremental growth. For example, in the US we have launched a new co-branded heavy truck card that will help us better target our mixed fleets. We have launched a new diesel card for one of our major oil partners that provides an extended diesel network that will give us incremental volume. And we have launched a universal fuel card in Mexico with selected discounts back at our proprietary network, so a really attractive offer there.

Third, our new assets. We expect to generate additional profit dollars from our four newest businesses. So some of those initiatives we're introducing a new extended network convenience fee in our UK business. We are transitioning to a per tran pricing model from a traditional license pricing model in Russia.

In Brazil, we expect to get paid for administering millions of dollars of special local merchant discounts for our clients, which we really historically manage for free. And in Mexico, we are getting paid more from our fuel merchants as those discount levels are now getting in line with general purpose credit cards in that market. So really all of these initiatives should contribute to higher revenue per tran in our new assets in 2013.

And then lastly, in terms of the bridge, we believe we've got some meaningful upside in our global business development pipeline. We've got a number of partnership proposals that are finally maturing and in which we expect 2013 decisions. We have also got a very developed acquisition pipeline which we expect will convert into some real business this year. So, the combination of run rate, new products, improved performance in our new assets, and global BD should drive our results in 2013.

So, in closing, I would say again we are very pleased with our finish to 2012. We are optimistic about our prospects for 2013, and I think you know that we will give it our all to try to deliver this guidance this year.

So with that, let me turn the call back over to Eric to provide some additional details on our Q4 results and on our 2013 guidance. Eric?

Thanks, Ron. For the fourth quarter of 2012, we reported revenue of $202.6 million, an increase of 45% from the fourth quarter of 2011. Revenue from our North American segment increased 19% to $108.6 million in the fourth quarter of 2012 from $91.3 million in the fourth quarter of 2011. And revenue from our international segment increased 93% to $94 million in the fourth quarter of 2012 from our $48.8 million in the fourth quarter of 2011. For the fourth quarter of 2012, GAAP net income increased 59% to $60.1 million or $0.70 per diluted share from $37.8 million or $0.45 diluted share in the fourth quarter of 2011.

The other financial metrics 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 revenues, less merchant commissions. We use adjusted revenues as a basis to evaluate the Company's revenues 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 revenues can fluctuate when market spreads vary. For this reason, we believe the adjusted revenue financial metric is a more effective way to evaluate the Company's performance. Adjusted net income is GAAP net income adjusted to the 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 in the purchase of receivables, a loss on early extinguishment of debt and adjusted for the income effect tax of such items.

The reconciliations of adjusted revenues and adjusted net income to our GAAP numbers are provided in Exhibit 1 of our press release. Adjusted revenues in the fourth quarter of 2012 increased 47% to $185 million compared to $125.5 million in the fourth quarter of 2011. Adjusted net income for the fourth quarter of 2012 increased 49% to $70.7 million or $0.82 per diluted share, compared to $47.3 million or $0.56 per diluted share in the fourth quarter of 2011.

For the fourth quarter of 2012 transaction volume increased 23% to 78 million transactions compared to 64 million transactions in the fourth quarter of 2011. North American segment transactions were all from organic growth, while transaction volumes in our international segment were positively impacted by an acquisition closed in the fourth quarter of 2011 and two acquisitions closed in June and July of 2012.

To remind everyone, in December of 2011 we acquired AllStar business solutions, a leading UK fuel card company. In mid June of 2012, we completed the acquisition of NKT in Russia, and in July of 2012, we expanded into the Brazilian market with our acquisition of CTF technologies. Adjusted revenue per transaction for the fourth quarter of 2012 increased 20% to $2.36 from $1.97 in the fourth quarter of 2011.

Adjusted revenue per transaction can vary based on geography, the relevant merchant and customer relationship, the payment product utilized and the types of products or services purchased. A mix of which will be influenced by our acquisitions, organic growth in the business and fluctuations in macro economic environment. When we talk about the macro economic environment, we are referring to the impact of market spread margins, fuel prices, foreign exchange rates, and the economy in general can have on our business. During the fourth quarter the decrease in the wholesale cost of fuel resulted in higher fuel spread margins, which we believe positively impacted our revenues by approximately $1 million to $2 million.

Changes in foreign exchange rate had a minimal impact on our business during the quarter. And, finally, fuel prices were up slightly in the US and Europe and we believe added approximately $1 million to revenue. Adjusted revenue per transaction for the quarter was positively impacted by organic growth in most of our payment programs.

In addition, the impact of acquisitions closed in the fourth quarter of 2011 and in 2012, had a slightly favorable impact on adjusted revenue per transaction. And some of these businesses have higher per transaction revenue product versus our line average.

Now let's shift over and discuss some of the drivers of our fourth-quarter performance. First, in our North American segment all of our lines of businesses performed well, resulting in an 18% organic growth rate in the quarter versus prior year at the adjusted revenues line. Included in the North American segment revenue, was a slightly favorable impact from the macroeconomic environment.

Fuel price spreads were favorable. During the quarter, the wholesale cost of fuel fell at a faster rate than the retail cost of fuel which increased fuel price spread margin and which we believe positively impacted our revenue by approximately $1 million. Fuel prices were up slightly versus last year in the US, but at very little impact in the quarter.

Some of the other positive drivers of North American revenue during the quarter included the continued exceptional performance of our direct market Mastercard product, which had revenue growth of 48% year-over-year. The CLC Group, provider of Lodging Management programs, continued to perform well and had another solid quarter with 20% revenue growth over the fourth quarter of last year. Included in the fourth quarter CLC revenue numbers was additional revenue from incremental hotel rooms booked related to hurricane Sandy.

Results for our international business were positively impacted by the AllStar acquisition, which closed during the fourth quarter of 2011, and the two acquisitions closed in 2012, CTF in Brazil and NKT in Russia. In addition, our independent fuel card provider based in Russia, PPR, continued to grow with revenues up double-digit over last year in local currency. Our UK businesses, excluding AllStar, turned around in Q4 with both of our businesses reporting double-digit growth rates due to stronger volumes.

Also, the Mexican prepaid fuel and food card portion of our business continues to perform well with revenues up double digits in local currency. Finally, the macroeconomic environment was generally favorable during the fourth quarter, and, although we cannot precisely calculate the impact, we believe it positively impacted our revenues by approximately $1 million to $2 million.

Now moving down the income statement, total operating expenses for the fourth quarter were $109.5 million compared to $85.9 million in the fourth order of 2011, an increase of 27%. 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 acquisitions closed prior to the fourth quarter of 2012.

Included in operating expenses for the quarter, was $5 million of non-cash stock compensation expense versus $5.9 million in the fourth quarter 2011. As a percentage of total revenues, operating expenses decreased to 54% compared to 61% in the fourth quarter of 2011. Credit losses were 13 basis points for the quarter compared to 20 basis points in the fourth quarter of 2011. The improvement in credit losses was primarily due to improvement in the economy and the impact of acquisitions closed in 2011 and 2012, which had products with lower bad debt as a percentage of billed revenue.

Depreciation and amortization increased 52% to $15.1 million in the fourth quarter of 2012 from $9.9 million in the fourth quarter of 2011. The increase was primarily due to the impact of amortization of intangible assets related to our acquisition of AllStar in the fourth quarter of 2011, the acquisition in Russia in June 2012 and the acquisition in Brazil in July of 2012.

Our effective tax rates increased to 32.6% of pretax income compared to 25.6% for the fourth quarter of 2011. The increase in our effective tax rate was primarily impacted by two items.

First, an increase in taxes of $1.9 million, due to the impact of the controlled foreign corporation look-through exclusion expiring for FLEETCOR on December 1, 2012. The exclusion was retroactively extended in January, 2013. However, on December 31, 2012, the retroactive extension had not been passed. So we have to book taxes as of December 31, 2012 based on the law in effect on December 31, 2012 before the extension was passed.

Since the extension was passed in 2013, we will reverse these additional taxes in the first quarter of 2013 which will result in an lower overall tax rate in the first quarter. The impact of this item on our per share amounts was $0.02. If we had not booked the additional $1.9 million of taxes, our are adjusted net income per share in the fourth quarter would have been $0.84 per share versus the reported $0.82 per share.

Second, the much lower rate in the fourth quarter of 2011 was due to the positive impact of retroactive adjustments related to tax planning successfully implemented in foreign jurisdictions where we do business. And a reduction in the statutory rate in foreign jurisdictions where we do business.

Now turning to the balance sheet. We ended the quarter with approximately $337 million of total cash, $53.77 million 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 approximately $298 million borrowed against the facility and had the ability to draw an additional $14 million based on eligible receivables budgeted against the facility. We also had $525 million outstanding on our term loan and $100 million drawn on our revolver.

We have nearly $1 billion in liquidity to continue our global business development efforts and for general working capital purposes today. As of December 31, our leverage ratio was 1.57 times EBITDA compared to 1.34 times at the end of the third quarter. The increase in the covenant level was primarily due to the additional borrowing to help fund the share buyback in the fourth quarter. Our leverage ratio remains well above our covenant level of 3.25 times EBITDA. The Company intends to use its free cash flow to temporarily pay down the balance on a 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 $5.5 million on CapEx during the fourth quarter of 2012, and $19.1 million for the full year of 2012.

Now on to our outlook for 2013. For 2013 we are providing our guidance for revenue to be between $790 million and $810 million, adjusted net income to be between $300 million and $310 million and adjusted net income per diluted share to be between $3.61 and $3.69. As a result, our guidance at the adjusted net income per share midpoint of the range of $3.65 represents a 22% growth rate over 2012.

Some of the assumptions that we have made in preparing this guidance include the following, fuel prices equal to the 2012 average, market spreads equal to the 2012 average, foreign exchange rate equal to the 2012 average. We are also assuming a slight increase in our effective tax rates from 30.4% in 2012 to 30.6% in 2013. We're also assuming fully diluted shares outstanding of 84.5 million shares, a 1.2 million share decrease from 2012 due primarily to the Company's share buyback in December of 2012 and, as always, no impact related to future acquisitions or material new partnership agreements.

For those of you that are looking for guidance for the first quarter, I want to remind everyone that our business has some seasonality and that typically the first and fourth quarters are lower than the second and third quarters in both revenue and profit. And this year in particular the seasonality is magnified in the first quarter due to Christmas being celebrated in January in Russia and two factors in Brazil, where most businesses are on summer break and also Carnival celebration is in January as well. As a reminder, we did not own NKT in Russia and CTF in Brazil in the first quarter of 2012.

With that said, we are expecting our first quarter adjusted net income per diluted share to be between $0.82 and $0.86. This guidance includes lower income tax expense due to the reversal of the $1.9 million in incremental tax expense booked in the fourth quarter of 2012, as I explained earlier. As a result, our first quarter tax rate is expected to be lower than the remaining quarters of 2013. We have no plans to provide quarterly guidance going forward but rather to update our annual guidance each quarter.

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

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Tien-Tsin Huang, JPMorgan.

It's great results, and it's a very strong outlook here. Just digging in on the outlook, in the 13% revenue growth. Can you break that down for us in terms of organic versus inorganic.

This is Eric. The organic growth rates are effectively in line with the guidance that we previously have given, so we kind of guide people to around the 10% number each year. We believe those organic rates are in line with that.

Okay. So no change there. And then just similarly just thinking about for modeling purposes, I know it is really tough to be precise here. But just thinking about transaction growth and revenue per tran for the year, any call outs for us to consider as we layer that into the model?

Yes, we haven't provided any guidance on that Tien-Tsin, but it should be consistent with the growth rates we have experienced in the last couple years.

Okay. Okay. Fair enough.

Tien-Tsin, it's Ron. I would say because we have got a number of new assets kind of rolling into 2013 that we are expecting kind of higher revenue per tran in those particular assets.

Okay. So skew it a little more towards -- okay, we will do that. And then just last one, and then I will let others ask.

Ron, you mentioned acquisition pipeline partner deals pretty high. Just curious about the acquisition pipeline. How has that changed since the last time we spoke publicly? And I'm curious about the size and the quality of the things you are going after. Is it similar to what you actually closed in 2002, or should we look for something different?

I guess two comments. I'd say on both the deal side and the partner side the differences I think there both are a little more mature or more developed. I think we have progressed farther in terms of getting to the ends of those.

And, in terms of the deal portfolio, I think it is like always, it is a mix. We have got stuff in a variety of places, and we've got some stuff that is pretty big and we've got some stuff that is not so big. So I would say across the set, it is a mix, Tien-Tsin.

Terrific. Well done. Thanks.

Julio Quinteros, Goldman Sachs.

Two quick ones. First the 14% number that you guys cited, was that all organic growth for the fourth quarter?

It was, Julio. It was all organic growth.

Got it. Great.

Secondly, looking at the conversion between the revenue per transaction on the international side and the North America side, that is a pretty dramatic shift in terms of how close they look now, only about a 30% -- sorry, $0.30 spread between those two. How sustainable is that as we think about the outlook for 2013 in terms of a run rate on a revenue per transaction side relative to the international business here?

Julio, every time we do acquisitions we effectively reset the bar. So included in the revenue per tran in international numbers are CTF and NKT, which are obviously acquisitions that we closed in the middle of the year. So the run rate we are experiencing, at the end of the year is kind of the new run rate.

That is the new levels. Okay.

Julio, it is Ron again. I would add just a couple of things. One, again, the international you will see better revenue per tran in 2013 in that segment for the reasons that I mentioned earlier that there's still bunch of new assets in that international group, and I try to get a little flavor of what we're doing to kind of move that up.

Understood.

You should see a better number next year -- this year.

Okay, great thank you.

The related one was just shells. I was just going to comment on shells. We start to pour those transactions into our transaction count. That obviously is something that would take the international number the other way. We will again call it out for you. But that would be the one thing that would take the revenue per tran in the opposite direction.

Oh, hey, Nathan. Can you patch in Roman?

Glenn Fodor, Autonomous Research

VeriFone has said they are investing in re-terminalizing station owners with new acceptance methods that are a little more sophisticated. Just wondering if you could opine for a little bit about what do you think about the implications for your Company as technology changes at the pump?

Are you talking Glenn, here in the states, or are you talking in Europe or where?

In the states.

Until I guess the thing gets to chip and pin like it is in Europe, I would say it's probably not much change for us. So really until the card format changes, where we would have to go through a card conversion, I would say it is not very important to us.

Okay. So the worries of increased investment costs to keep pace with technology not really an issue here? Correct?

Yes, again, for us, we obviously run cards no matter what is at the point-of-sale. So the only thing that will really affect our business would really be a technology change from magstripe to chip and pin that what cause us basically to have to cycle out those cards.

We are facing chip and pin at some point. So have you couched at all or can you -- what kind of costs you are going to have to incur because it is inevitable at some point.

Again, it is not much for us. Is really all in the cards because we have obviously that capability inside of our platforms, because our platforms obviously run in Europe as well. So I would say, low single digit millions kind of a number.

Okay. Great. Thank you. Appreciate it.

Hey, welcome to the new spot, by the way. We didn't recognize where you were.

Yes, I'm at [juon] again, thank you.

David Togut, Evercore Partners.

Question for you. Growth in North American revenue per transaction more than doubled to 13% year-over-year in the fourth quarter from 6% in the third. You mentioned the additional emergency rooms for CLC because of hurricane Sandy. But can you walk through some of the underlying drivers of that acceleration in revenue per trans in North America and to what extent you think that is sustainable 2013?

Yes, David, again, from guidance perspective, we kind of guide people to from an organic perspective that we're going to grow our revenue at around 10% organically. And, as Ron indicated earlier, going into 2013 they will probably be a little more skewed in the international side because of some the acquisitions that we completed. Certainly we are going to continue to grow the US business at a very healthy organic growth rate, but we really haven't provided guidance specifically for each of the two segments. So I would think of it as a whole, again FLEETCOR being around a 10% organic growth business and for a lot of factors that Ron called out on his section of the call.

Just another add, David, I think a couple other things helped in the US. One, we introduced some add on reporting features, kind of in the second half of the year that hit that got booked later in the year that gave us probably a couple points of lift. And B, we finished from a sales perspective really strong.

And so I think our volume was a little stronger in the fourth quarter than we had planned, gave us another call it point or two. So I would say that we picked up three or four points for those reasons and probably again, to Eric's point, you guys should think about 10% going forward.

Okay, that helps. On the Mastercard direct product, 48% revenue growth in the quarter. What inning are you in terms of converting the private label books of business over to Mastercard, and how long is the runway for growth in that business?

Again, those are two separate things you said. So, again, our direct business -- when we refer to the direct business, that is an end fleet. So Ron's plumbing company where we go out directly to the end client, that is the business that Eric relayed is growing at 48%. The partner business where we have co-branded offerings with big oil partners, I would say that business is probably, oh, the seventh inning in terms of conversion.

I see. Okay.

But I would say in the direct business we are in the second or third inning, still.

Okay. Can you maybe give us a sense in terms of how big a driver the direct business was, versus the co-brand business in terms of driving revenue per transaction up in the quarter?

You know, they were both pretty significant drivers in our direct business, although we don't again specifically call out numbers for those various products. You know, the -- our direct card business was helped by spreads during the quarter. So we believe we had about $1 million in kind of unusual favorability or one time favorability because of higher than normal spreads.

So that was helpful during the quarter and, again, just increased sales in those two products. And those products have higher than line average revenue per tran. So both of those factors kind of drove the growth in the quarter.

But we did disclose, David, again, just so you know. Both of those businesses had to have grown 14% or more so that they obviously were both growing.

Correct. Under both volume and revenue per tran.

Okay. That helps. Quick final question for me, does your 2013 outlook include possible merchant litigation settlement being finalized between MasterCard, Visa, the issuers and the merchants and the 10 basis point interchange cut that they have offered up?

Yes, David, effectively that 10 basis point settlement for us is basically immaterial. And half of it would be spread over 2013 and half of it over 2014. So, effectively, we don't specifically budget for it. But again, it is just not a material number for us.

I see. Thank you very much.

(Operator Instructions)

Phil Stiller, Citigroup.

Hi, guys, congratulations on the good results. I guess my first question on the international side, you guys had roughly $9 million sequential increase in revenue. Just wondering if you could provide more color on that. How much was related to some seasonality related to the new acquisitions that you have? How much was related to some of the new product and pricing adjustments you guys talk about?

Hey Phil, this is Eric. Actually, it is a little bit of both.

Obviously, we cleared the OFT in AllStar in the middle of the year. We've obviously are starting operating some of the other businesses we acquired, CTF and NKT as an example. So, we are starting to operate those businesses, and, as you would expect, we are starting to improve the performances of those businesses. So, it is a little bit of both.

Our existing businesses are performing well, and we are starting to increase the revenue and the performance of those other businesses we acquired. So, it is both.

The other thing, Phil, is the two businesses that we called out -- the Brazil business and the Russia business. Strangely, the fourth quarter is actually the strongest quarter for those two businesses because their holidays basically fall in this quarter in Q1. So, unlike a lot of the other lines of business in the Company where the fourth quarter is softer, those two are ever year significantly, significantly better in Q4.

Okay, that helps. In terms of your plans to extract accretion from these deals that you have completed over the past 18 months, where would you guys say you are in terms of that progression. Are we at the full run rate of some of these products and pricing adjustments in the fourth quarter, or is more to come? I know you guys talked about some platform consolidation on the AllStar business in the past, where is that progressing?

Yes, I would say the headline is much, much more to come. So, like always we do the spade work on these things in terms of confirming our facts and testing reaction to these changes.

And in some cases like in Mexico, we have to go out to 500 merchants and kind of get them to market in terms of rates. So that process can take months. So I would say that we're -- we've got a little bit of that exiting 2012 but much, much more to come in 2013.

Okay. Just last question on the acquisition pipeline. Can you talk about competition you guys are seeing? I know there has been a few deals in the space you guys haven't been involved in over the past 6 to 12 months.

As a product of your success are you seeing more competition on those acquisitions or valuations becoming more expensive? How do you guys think about that?

I think, it's a great question. I think it falls, Phil, really into two buckets. I think where deals get shopped, the answer is yes. I think there is more people that like our space now, and more people that have money, so it causes us I think probably to pay more.

And then we still have obviously deals that we sole-source, where we've built relationships and have we think a good home for the targets. So in those cases I think we are paying I would call reasonable prices. And I would say sitting in our inventory today, we have both of those flavors.

Okay. Great. Thanks guys.

Tim Willi, Wells Fargo.

I had two questions. First, in North America, could you -- if you made a comment, I apologize. Could you talk about what you saw sort of at a same customer level, just sort of your sense around organic activity of your customers or new business formations. Anything along those lines that you saw in the quarter that is worth calling out?

Tim, it is Ron. I'd say no real news there. It's really still flat. We got really zero help in Q4 in what we call same store volume.

So, again, our growth comes from having, either A, more clients and more trans than we had before or B, having them on products that we enjoy more revenue. No lift basically from them growing.

Okay. And, as a follow-up to that, your comments around the direct MasterCard and I think you said the 48% growth. What percentage of new, direct sales are the MasterCard product. Is that pretty much the only product that is being, you know, implemented for new direct customers now?

Yes, I would say, without getting super specific it is probably around, ballpark half our US sales. So the answer is no, we still sell a fair amount of our proprietary products. They appeal to different segments of the market. So we still sell both.

I think the new news of why the US business is growing faster the last couple of years is that the new product appeals to a new segment that we could not historically sell. Like selling minivans versus sports cars, right? You bring different people into the market.

And then B, we have got a number of new channels working. I think I have mentioned our Telematics partnership contributed 10% of the US sales in 2012, and that channel did not exist two years ago. So, it is a combo of the product opening up a new market and us expanding and investing more in the channels just allows us to basically grow faster now.

Okay. And then my last question, and I will hop off.

UK you talked about volume picking up. Is that something you are doing on market share or specific to the work with AllStar as compared to something at a macro level? Because, I guess, the macro news at least I see in here wouldn't support any notable uptick in economic activity. So I'm curious what you attribute that rate of acceleration to?

That is another really good question. Again, the comments that we made deal with the legacy businesses that we had in the UK. So those grew 14% or more without AllStar, so leave AllStar out.

Short answer to why those businesses are healthier and have turned the corner is mostly about the market. So those two products are what we call spread based products. Their appeal to the market is attractive pricing, and our pricing is attractive when we have more spread to work with. So let's say it there was a dime of spread, we might be able to give customers a couple of cents off and still make some money, versus if spreads were $0.04, we can't really give customers anything off and make any money.

So that UK market just widened its spreads back to a more of a normalized level versus the prior year. So, our product not only sold better to new prospects, but we got greater utilization out of the customer base that we have because the offer of our products was more attractive to them last year. So we are hoping that the 2013 environment stays basically in the same place as it was last year.

Great. That is very helpful. I appreciate your comments.

[Kojo Unaki], Privet Capital.

I have two quick ones. The first one, as far as the Shell contract is concerned, can you guys please give us some sort of color to the size of that opportunity in terms of dollars? And how much Shell revenues you guys have modeled into that $800 million of revenue for this year?

And the second question, the universal card. Can you guys replicate the same model with Visa or do you have some sort of exclusivity with ComData that prevents you from doing anything else? Thank you.

This is Ron. Let me take the Shell question first. So again, I think the short answer is there is not much impact in revenue for our Company as we roll out Shell. So, again, the plan is to start to bring on more of their markets this year and then the balance of their markets next year. And what basically is changing is the nature of revenue that we are getting.

So, in the prior couple of years we got paid for developing and migrating and supporting and helping basically get them prepared and get the system in. And now we are going to get paid basically for them running our system. So it is more attractive revenue to FLEETCOR, but, frankly it is not much difference in absolute size.

And the comment about its absolute size is it is not material. Again, it is a single digit millions relationship both whether it was the prior development model or the existing one. The play there, as we've said, is we built a good relationship with that company, and our hope is to be helpful to them running their program globally where they could use us for other things beyond just being a processor for them. So that was always the basis on which we targeted them as a client.

Thank you. Ladies and gentleman that concludes our conference call for today.

This is the conclusion of the FLEETCOR Technologies fourth-quarter conference call. We thank you for all of your participation, and you may now disconnect.