Corpay Inc (CPAY) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the FleetCor Technologies Incorporated second quarter 2013 earnings conference call.

During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). At this time, I would like to turn the conference call over to Eric Dey, Chief Financial Officer. Please go ahead, sir is.

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

It can also be found at www.FleetCor.com under the Investor Relations section.

Throughout this conference call, we will be presented 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 titled Non-GAAP information.

Quantitative reconciliations of historical Non-GAAP financial information for 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 remind everyone that part of our discussions 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 acquisition. They are not guarantees of future performance, and therefore, you should not put undue reliance on them.

These statements are subjected to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of those mentioned are mentioned in today's press release in form 8-K, filed with the Securities and Exchange Commission. Others are discussed in our annual report on Form 10-K.

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.

Thank you, Eric. Good afternoon, everyone. And as always, appreciate you joining today. Up front here I will plan to cover just a couple of things. First, comment on our Q2 results.

Along with our full-year outlook, and then second, discuss some of the recent developments in the Company. Okay. So on to Q2. We released our Q2 results just a bit earlier, and reported new all-time highs.

New all time highs. In both revenue and profit. We reported profit growth of 35% on a dollar and cash EPS, and revenue growth of 29% on 221 in revenue.

So 29% top-line growth, and 35% bottom-line growth. The results -- these results were really a beat against our internal plan. And at a high level, driven by three things.

First, strong U.S. performance, revenue growth up 11%, with MasterCard up 30%, CLC up over 20%. So again, continued strong US.

Second, we had strong U.K. performance in the quarter. Particularly our AllStar business, very very good quarter.

Certainly post the Q1 GSN system implementation that we just completed. Also happy that customer satisfaction levels there are now back in line with historic levels. Third driver would be the Russian, Brazilian, and down under deals.

So they are first time contributors here in Q2, and as a reminder, we did not own those last quarter, so obviously some incremental lift. So in summary, a strong U.S., a strong U.K., and three new deals drove the growth in the quarter. Our Q2 sales where we were onboard new clients were also at record levels in the quarter.

The U.S. up 45%. C.L.C. up 25%. Europe across the board 22%. So, again, new sales levels like this reaffirm to us the market's overall interest in our products.

We talked a lot about new asset performance in the Company. And our objectives to double profits in the fist year or two of owning an asset. We continue to try to grow businesses after that initial transition period. And today I want to comment on AllStar in the U.K., and effective [alley] in Mexico.

We have owned both of those assets since late 2011, and this quarter, both of those businesses grew revenue in excess of 25%. So revenue up 25%, both businesses, so obviously very good lapping -- past the one year anniversary. Let me now transition over to 2013 guidance.

So as a reminder, we started out the year at outlooking $3.65 in cash EPS at the midpoint. We raised that guidance $0.10 to $3.75 in our May call, and we are raising the guidance again today $0.10 to $3.85. That would pencil out to about $3.90.

In 2012, constant currency, you know our now suggests about a $0.05 headwind to our constant currency forecast, if exchange rates stay where they are now. The two primary drags on currency would be the pound, at around $1.54 today, verses $1.58, and the Brazilian real around $0.45 verses $0.49 last year.

So Eric will get into more detail on the guidance, when we get to his section. Let me now shift gears and talk a bit about some of the recent developments, interesting developments, for the Company. So first off, Husky Oil, we announced the signing of Husky Oil in Canada.

To a pull-out sourcing deal, they will transition out of running that program themselves. We are hopeful to have that thing up and running by the end of the year, and start to see benefits as we head into 2014. I think it is particularly important because it's our first large-scale effort in Canada. It will cause us to build operational capability, and we believe will create interest with additional accounts there.

So we're hopeful that this first step will do a lot to help us build up Canada. Second thing you may have seen is the Visa Europe announcement. So we signed a partnership agreement with Visa, first for our AllStar business in the UK, and then to work with them more broadly across Europe.

So the program is the combined our GFN processing platform with Visa's, Europe EMP, Intelligent Chip Technology. And together, this will create some advantage fuel card solution. We believe that some of the major oils will be quite interested

in these chip solutions, as they are used to their consumer book a business already using chip and pin. So we will certainly keep you posted on progress and timing as we get underway with Visa. And then third, the Shell U.S. announcement.

We have extended our relationship with Shellto now helping them here in the U.S. Our plan is to provide a new commercial card to Shell, and Shell plans to describe their program and their plans in more detail in September.

Our progress is good, with Shell in Asia putting in our GSN system. We actually put two more markets live last month, so that is progressing. So on balance there, it is just great to extend the work that we do for Shell, and we are pleased with that.

So Husky, Visa Europe, and Shell all underway. In addition to those three developments, we continue to work a number of late-inning deal and partner initiatives. Again, many in the late innings. We have ample liquidity to chase these deals.

Approximately $900 million in liquidity. Our leverage ratio is 1.3 for the quarter. So really well under our leverage covenants.

So in closing, you know, we are pleased with the quarter. With profit growth, up 35%. New assets performance great. Our all star and effective alley businesses grew over 25%.

We had continued rapid new sales growth, double digit virtually everywhere. We signed these three new important relationships, and we still have a slate of late-inning new deal prospects. With plenty of capacity to fund them.

So I would say our view is we are in a good place in the Company. With that, let me turn the call back over to Eric. Eric. He will provide some additional detail on the quarter and on our 2013 guidance.

Thank you, Ron. For the second quarter of 2013, we reported revenue of $220.9 million. An increase of 29% from the second quarter of 2012.

Revenue from our North American segment increased 11.4%, to $119.5 million from $107.3 million in the second quarter of 2013. Revenue from our international segment increased 57.1%. To $101.4 million, from $64.5 million, in the second quarter of 2012. For the second quarter of 2013, GAAP net income increased 34% to $73.1 million, or $0.87 per diluted share from $54.4 million or $0.63 per diluted share in the second quarter of 2012.

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 commission.

We use adjusted revenues as a basis to evaluate the Company's revenues, and that of the commissions that are payed to merchants who participate in certain card programs. The reconciliations of adjusted revenues and adjusted net income to our GAAP numbers are provided in exhibit one of our press release.

Adjust revenues in the second quarter of 2013, increased 31%, to $201.3 million compared to $154.2 million in the second quarter of 2012. Adjusted net income for the second quarter of 2013 increased 33%, to $84 million, or $1 per diluted share, compared to $63 million or $0.73 per diluted share in the second quarter of 2012. For the second quarter of 2013, transaction volume increased 6%, to 79 million transactions compared to 74.2 million transactions in the second quarter of 2012. North American segment transactions grew 4.6%, driven primarily in organic growth in our US businesses and the small telematic business we acquired in April.

Transactions via international segment grew 8.4%, and were positively impacted by acquisitions closed in 2012 and 2013. Adjusted revenue for transactions for the second quarter of 2013 increased 22.6%, to $2.55,from $2.08 in the second quarter of 2012.

Adjusted revenue for 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 acquisition, organic growth in the business, and fluctuations in the macro economic environment.

When we talk about the macro environment, we are referring to the market spread margins, fuel prices, foreign exchange rates and the economy in general can have on our business.

During the second quarter, the increase in the wholesale cost of fuel resulted in slightly lower fuel spread margin, and although we cannot precisely calculate the impact that increase we believe it negatively impacted our revenues by approximately $1 million to $2 million, the majority of which was in the U.S. and the U.K. Changes in foreign exchange rates were mixed and overall had an unfavorable impact in our business during the quarter.

And finally, changes in fuel prices were down slightly in most markets and we believe at a slightly negative impact on revenue. In total we believe the slight decrease in fuel prices and change in foreign exchange rates negatively impacted the second quarter revenue by another $1 million to $2 million. Adjusted revenue per transaction for the second quarter was up in both North America and the international segments.

Revenue per transaction was up 6.2% in North America, due primarily to the positive mix impact of signing up customers, which used higher revenue per transaction product than the average. Organic revenue growth in most other lines of business partially offset by unfavorable fuel spread margins and lower fuel price.

In the international segment, adjusted revenue per transaction increased 44.9%. Which was due primarily to organic revenue growth in many of our lines of business, and acquisitions closed in 2012 and 2013. Many of which had products at a higher overall revenue per transaction verses our line average.

Now let's shift over, and discuss some other drivers of our second quarter performance. First, in our North American segment, most of our lines of business performed well, resulting in an approximate 11.4% revenue growth rate in the quarter, verses prior year.

Some of the positive drivers of North American revenue during the quarter were similar to last quarter, and included the continued exceptional performance of our direct market MasterCard product which had revenue growth of approximately 32% year-over-year for the quarter.

The CLC Group, provider of lodging management programs, continued to perform well, and had another solid quarter with 22% revenue growth over the second quarter of last year. This revenue growth was driven primarily by increases in room nights and our check in direct product.

Results in our international business were positively impacted by strong organic growth in our AllStar business in the U.K., and our independent fuel card provider based in Russia, PPR.

Which both posted very strong double digit revenue growth over last year, measured in local currency. Also, the Mexican prepaid fuel and food business continues to perform well, with revenues also up double digits in local currency. Results for our international business were also positively impacted by acquisitions closed in 2012.

As a reminder, PTF Brazil, and NKB in Russia. And the acquisitions that we closed in 2013. GE's capital fuel card business in Australia CardLink in New Zealand, in March and April respectively, of this year.

The macro economic environment was not helpful to our business, as market spreads in the U.K. were down slightly, fuel prices were down slightly in most international markets and foreign exchange rates were unfavorable in two of our largest markets. The U.K. and Brazil.

The British pound has the largest impact, which was traded at GBP 1.54, verses GBP 1.58 to the U.S. dollar in the second quarter of 2012.

And is Brazilian real traded an averaging of 0.49 which was slightly below our expectation for the quarter. Although we cannot precisely calculate the impact of changes in fuel spread and fuel price, we believe the macro economic environment, in total, negatively impacted our revenues by approximately $2 million to $3 in the second quarter of 2013, verses the second quarter of 2012.

Now moving down the income statement. Total operating expenses for the second quarter were $111.8 million, compared to $90.4 million in the second quarter of 2012.

An increase of 23.7%. Included in operating expenses, our merchant commissions, processing expenses, bad debt, selling in general and administrative expenses and appreciation and amortization expense. The increase in operating expenses was primarily due to the additional expenses related to acquisition, closed in June and July of 2012, and March and April of 2013.

Also included in operating expenses was approximately $2 million of one-time deal-related expense. As a percentage of total revenues, operating expenses decreased to 50.6% of revenue, compared to 52.6% in the second quarter of 2012. Credit losses were $4.7 million for the quarter, or ten basis points, compared to $6 million or 15 basis points in the second quarter of 2012.

The improvement in credit losses was primarily due to the continued improved performance, in many business lines. And the impact of acquisitions closed in 2012 and 2013. Which have products with historically lower bad debt as a percentage of revenue. Depreciation and amortization increased 36.9%, to $15.9 million in the second quarter of 2013.

From $11.6 million in the second quarter of 2012. The increase was primarily due to the impact of amortization of intangible assets related to two acquisitions closed in 2012 and through acquisitions in 2013.

Our effective tax rate decreased 30.6%. Compared to 30.9% for the second quarter of 2012. The decrease in the second quarter of 2013 tax rate is primarily due to a shift in the mix of earnings to foreign jurisdiction, with lower tax rates.

Now turning to the balance sheet. We ended the quarter with approximately $341.4 million in total cash. $48.5 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 approximately $402 million borrowed against the facility. We also had $511 million outstanding in our term loan, and $97 million drawn in our revolver. We have over $900 million in liquidity to continue our global business development efforts and for general working capital purposes today.

As of June 30th, our leverage ratio was 1.3 times EBITDA, well below our covenant level of 3.25 times EBITDA. We intend to use our free cash flow to temporarily pay down the balance in our revolving credit facility and securitization facility and maintain liquidity for acquisition and other corporate purposes.

Finally, we are not a capital intensive business as we spent approximately $5.3 million on CAPEX during the second quarter of 2013. Now, on to our outlook for 2013. Given our strong second quarter results and outlook for the remainder of the year, we are updating our guidance for the remainder of 2013.

We now expect revenue to be between $825 million, and $835 million,up from our previous guidance range of $810 million to $820 million. We expect adjusted net income to be between $322 million and $327 millionup from our previous guidance range of $310 million to $320 million.

And adjusted net income for diluted share to be between $3.82, and $3.87, up from our previous guidance range of $3.70 to $3.80. As a result, our guidance at the adjusted net income per share midpoint of the range of $3.85, represents a 29% growth rate over 2012.

Our guidance assumptions for the remainder of 2013 are as follows. Fuel prices and FX rates at July levels. Market spread equal to the historical average. Fully diluted shares outstanding of approximately 84.7 million shares.

And a full-year tax rate of approximately 30%. Down from our previous guidance of 30.6%. The decrease is due primarily to the mixed impact of our international operations, which have tax rates lower than the Company average. And as always, no impact related to acquisitions or material new partnership agreement that we have not already disclosed.

As I mentioned above, our guidance assumes that foreign exchange rates will continue to be a headwind in the second half of 2013. Unfortunately, the July run rate in foreign exchange rates is much lower than the first half of the year average.

Primarily due to the U.S. dollar strengthening against the U.K. pound, and the Brazilian real. As a result, our second half of the year guidance has been negatively impacted by approximately $0.05. And with that said, operator, we will open it up for questions.

Thank you, sir. (Operator Instructions). Our first question is from the line of Daivd Togut, from Evercore partners. Please go ahead. Pardon me Mr. Tokut. Your line is now open, sir. (Operator Instructions).

Good afternoon, Ron and Eric.

Hi, David, how are you?

I'm doing well, thanks. Congrats on the strong results.

Appreciate it.

Ron, could you drill down a little bit into the drivers of the 45% new sales growth of the U.S.? Were there particular products that contributed a large amount of that and also if you can give us a sense of the drivers of the 22% gain in European new sales as well.

Yes, David, it is really investment. We are just spending more, and the new channels we invest in, like telesales, in web, and in fact I think for the U.S. what we call the nondeal channels, sales were actually up 100%. Period to period. So it is really less about product and more about A, total spend and B, channel mix. What we are doing in terms of channels. And it would be the same thing if the follow on was Europe, for example, the Russia sales I think, were up 50% in the period, same thing we now have web working and some partner programs working there. So it's -- I'd say it is more marketing and sales driven than it is product driven.

I see, thank you, that helps. Can you maybe elaborate a little bit on Direct MasterCard, I think that was up 47% year-over-year in Q1, up 32% year-over-year in Q2. Anything to read into that, or was it just a difficult comparison?

Yeah, again, it is the same thing. Those growth rates are just a function of the ratio or relationship between the base of that business which continues to grow. And what we sell in new business, which also continues to grow. So for us to maintain, let's say, a 40% growth rate point to point, we would have to continue, David, to spend more. Incrementally in sales to maintain that level. So it's really for us just an investment call. But the product has enormous potential, geographically, and really the limitation is just what we are willing to spend.

I see. Quick final question from me. On the -- I guess on the Sitco departure in the quarter, can you give us some insight as to why Sitco went elsewhere? Is that material at all to revenue earnings?

Not so much I guess would be the headline. It is -- I think as Eric relayed before, it is immaterial to our overall numbers, and we just don't comment generally on individual contracts. What I'd say is we still are generally happy in terms of winning more than we lose. So, you know, when you are in a game you are going to lose sometimes. So -- in this case we did.

Understood, thank you very much.

Thanks.

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

Hi, it is Roman in for Julio. First question on international. If we can drill down into the revenue per transaction strength there, even if we can ballpark what the revenue per transaction would have been without the new acquisitions that started to contribute this quarter. Just so we can see the increment to contribution, also the new kind of run rate for the rest of the business.

Yeah, hey, Roman, this is Eric.

Hey, Eric.

If you exclude the impact of the accusations, the international revenue per tran would have been $2.30versus $1.91 prior year.

Okay.

So up kind of $0.40 point to point.

So there's that piece of it growing and then the positive mix shift of the new acquisitions. And what of the new acquisitions -- what types of products are you offering there that have such a higher yield relative to the average international?

We have many different kind of products. If again, if you go pack and look at what was -- what was not in our business last year, we have CTF, which we acquired in July of last year, it is a different kind of product. It is an RF based technology, so the transactions are much larger. So the revenue per transaction for that product is also much larger. And you look at our Russia business, which we added in June of last year. That has a different kind of model as well, Roman. It is more software sales. Or it was a year ago, historically. So those transactions are a little lumpier, but they can be higher revenue per transaction product. And our New Zealand and Australia business are more card-type products, so the revenue per trend there is more in line with our line average.

Okay, that's helpful. And on the Visa Europe partnership, can you maybe give us an example of the type of maybe products or -- is this going to look a lot like the Universal car product U.S.? Or is it completely different?

Yeah, Roman, it is Ron. So a couple of things. The first thing, which we're a few years into developing, would be our AllStar guard. So it looks like the AllStar Card we have today, but instead of being mag stripe, it would be a chip card. So in terms of the cosmetics, card design, it would look similar, but when you get to the point of sale, obviously it would operate like a chip card. And by moving some intelligence, down to the point of sale, you get advantages that you can't get basically in a mag card. So that would be the first implementation which we're expecting kind of early Q1 next year. And then second, the second question is yes, we've got some plans with Visa to create cards that would work in "other markets" on the continent. But we aren't going to describe in some detail what they are, but they would be similar, I would say, so what you see here.

Okay, thank you.

Thank you, our next question is from the line of Darren Peller with Barclays Capital. Please go ahead.

Hey guys, how are you? This is actually Adam here for Darren. Just a question on the international growth, do you guys have an organic growth number for the quarter?

You know, we do. The -- if you exclude the impact of the acquisitions, our international business grew organically in the 16% range give or take.

Okay. And so -- I am just trying to figure out, in terms of what types of synergies we should kind of still be expecting from some of these recent acquisitions. Obviously, AllStar and effective all A continue to grow very well. You mentioned 25% during the quarter. I mean is there anyway do ballpark where we are at with -- I guess, the four acquisitions acquired? In 2011 and in 2012 from a synergy standpoint? And how much you think is less to get out of these?

Yeah, I would say the way to think about in first, one to two years it is pretty steep. Because we tend to transform the model and the structure of those businesses. And then kind of beyond two years or call it a year and a half, where we are with AllStar, and Effective Alley, it is phase II, which is our growth program. Where we introduce new products, and new channels. So, you know, the stated goal we have is kind of doubling profits in every business within the first two years. And then obviously growing those businesses above line average, so call it ten to 15% top line, post the fist two years. Would probably be a target.

Great that's very helpful. And then the last one for me, just in terms of North America growth, I know the environment was in there for $1 million or $2 million. I think last quarter you mentioned that we should be kind of expecting a 15% type of growth rate over the balance of the year. Does that still kind of hold here, or are you looking for growth more in line of what we are seeing this quarter.

Really, what we are referring to is a full year average. The first quarter grew at such a high rate, we weren't expecting that for the balance of the year. We weren't saying it was going to be 15%, a quarter as much as it was going to average 15% for the whole year, somewhere around there. So clearly, going to be lower the rest of the year.

Very helpful, thank you, guys.

Thank you, our next question is from the line of Phil Stiller with City, please go ahead.

Hi guys. I just wanted to follow up on the Visa Europe deal. Can you talk about the potential impact to economics from a move towards Visa? And then, as you think about moving it to beyond AllStar, should we think about it primarily as a tool to get new oil partnerships, or something you may go direct to customers with?

Phil, it is Ron. Good question. I'd say in the U.K. it would be a plus economically. We thinkthat the value, basically, to the accounts is high, once we introduce that. Plus there's expense benefits like in fraud and so on. I would say it would be a net plus, in the U.K. And then on the second question, it would be both. We have oil partners interested in it, and we obviously have direct aspirations for that product as well.

Okay, and then also in Europe, any comments on the E.C. proposal to cap the inner change there? Doesn't seem like there would be a direct impact on the business. But any tangential impacts that we could think about and if you could ballpark roughly what percentage of your business comes from merchant fees in in Europe, that would be helpful.

Hey Phil. This is Eric. First and foremost, we aren't really anticipating any impact related to that new legislation. Obviously, that legislation was geared more toward commercial on a consumer card. So again, we are not anticipating any impact whatsoever. In terms of your second part of your question, I just -- I don't have that information with me. Right now, so maybe we can follow up on that later.

Sounds good, and then lastly for me, on the Shell extense to the U.S., should we think about it along the lines of what you are doing for them internationally, where it's a processing relationship, or something that is broader than that.

It's a new card program. Phil, they are going to describe there some detail. In a launch this fall, so it is -- it is a different service than we provide to them as part of that GFN contract. For us, it is just again, I think we touted this repeatedly, we value those giant relationships, and to the extent that we can perform, in one place or in a lot of other places that Shell is in, our hope is that they will sign us up to work for them in additional places.

Okay, sounds good. Thank you, guys.

Thank you.

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

Great, thanks. Good growth year, especially given the draggings from FX and spread. I guess sticking with macro, I think I always ask this, let but me ask about same-store growth. It looked like transaction growth did pick up a little bit. Eric, you talked about organic growth getting a little better. Does it feel like, Eric or Ron, that you are getting a little bit of lift from same-store in some other regions? More so than last quarter, or not really?

Hey, Tien-Tsin. This is Eric. You know, as always it is a bit of a a mixed bag. I would say in the United States we are certainly seeing transactions I would say flat to up a little bit. So same store sales kind of picking up a little. And then when you look at it internationally, clearly it varies pretty dramatically in each of the markets, and most of Europe is still under a recession, so I would say transaction volumes there, or same-store sales, there are certainly flat to down. Generally speaking in most of the markets.

Understood. So flat to down. Okay. And just -- I know you have a lot of questions on Visa Europe. Did not having the chip card capability preclude you from pursuing certain deals? Just trying to understand if there's any I guess pent up demand associated with that beyond the technical benefits.

Yeah, I just think it is late Tien-Tsin. If you look at the [con] they have been a long time now, the normal consumer, walking around with a chip card, unlike us here. And fuel cards, because they run on pretty old systems, that are multicountry, and I guess their view of the importance of that against the consumer products have been late. Pretty late to the party. So I'd say the oils over there have been talking and thinking about how to get their commercial businesses over for Probably four to five years and we, through this AllStar deal, have actually been working on this for probably three to four years in terms of creating a spec that works and is tested and has been deployed at a bunch of big brands there. And now the work has been integrating that with GFN, so is we have a processing engine. So I would say we believe from conversations that there will be a fair amount of interest if we can help the oils get the chip faster.

Okay, makes sense. Makes sense. And then just on the deal pipeline, (inaudible) organic deals things of that nature, do they look more like the Husky kind of arrangement, or could they be smaller or larger? Just trying to get a sense of what is available potentially here in the second half of the year.

Yes, I would say on both fronts, if you are looking at our partner pipeline, it is a mix of A, GFN kind of processing type of opportunities. B, new card program like a chip card program. Would be as an opportunity. As well as a couple of fall out-sourcing opportunities. And I'd say the same thing on the acquisition-side. We have deals that are kind of small, medium, and large. That are being worked. So again, I'd emphasize that despite announcing a few things, we are kind of full up with work. And it is a range of stuff.

All right, good to hear. Thank you, guys.

Thank you, buddy.

Thank you, our next question comes from the line with of Smitti Srethapramote with Morgan Stanley, please go ahead.

Yes, hi there. You guys talked about eventually conserving new products outside of the traditional fuel and lodging segment. Such as payroll. Can you give us an update of how far along you are in this initiative?

I would say that we have studied a set of what we call work force, or employer payment products. Right, where the employer is basically trying to control employee spending. And have identified a couple of those kind of products that we have a high interest in, and our interest is they are virtually the same model is what we are in. They are sold to employers, they tend to oftentimes run on proprietary net works. They have similar economic structures split between merchants and customers. So I would say directionally, people should expect us to head in that direction. To be in products beyond fuel cards and lodging cards.

That's going to be sort of a 2014 event? 2015 event?

Could maybe even be sooner. Stay tuned on that question.

And maybe just a quick follow up.

Can you give us an update on how the heavy truck card product is fairing?

Can you repeat that. Yeah, can you give us a update on how the heavy truck cart product is fairing.

Yeah, I'd say that is still early for us, and again, it is something that we are trying to do selectively. We have pretty good partner relationships there. And so I'd say we are treading relatively carefully in terms of channel conflict, and so so I would say that is still pretty early for us.

Thank you.

Thank you, our next question comes from the line of Tim Willi, from Wells Fargo. Please go ahead.

Thank you, and good afternoon, Eric and Ron. Two questions. One is going back to the CLC products. You talked about broadening out distribution, some innovation around product, and even the breadth of the network. Could you maybe give a update about how you feel where you are and in maximizing all of those opportunities the 20% growth, can that accelerate further as this stuff comes along? Or do you feel like this is sort of the run rate of that business?

You know, I'd say, the old line until you are out of ideas, right, so we are not. But I'd say that the -- the last couple of years of the big driver, Tim, has been that what we call the check in direct card, or small account card the thing is still on a tare and creating the majority of the growth. But we have done a couple of new things since. We have gone back and started to look at expanding the actual merchant network, so we are growing the network, probably 10% or 15% this year from where it was a year ago, so that adds more trends and more dollars for us. And two, we are about to launch a new what we call brand-wide or branded product. So instead of having a network that runs tree cutting, you can look and find fifty hotels in Atlanta, he basically can stay in any one of these four brands in Atlanta. And so there's some appeal basically of repackaging that product. Which is close to being launched. So I would say that the momentum is good in the basic product and channel stuff that we have. And we have additional ideas like always to try to keep layering on it.

Just to think about modeling, if that were to come to fruition, is that generally the highest revenue per transaction product you have? Along your transaction base products?

Yes, the check in direct product would be the highest in the Company.

Okay, so that's good to keep in mind. Second question I had is going back to MasterCard, and maybe thinking about the growth you had there, and the market, you guys have done a tremendous job with that product. Is there anything that [keeps these] other companies from saying, look at what FleetCor is doing, maybe we should think about doing a product like this, and throwing some marketing dollars behind it? Is it just focus? Is there something that you guys have that a Voyager, or a Lex, or a Bank, just really couldn't match and really can't get into this product like you have?

Well, you mentioned people like Voyager and Lex, they have had the two of them I don't know how old those companies are, but they are 20 years plus, they have had almost universal cards for 20 to 25 years and we have had one for 5. So obviously -- I don't know if they are going to do something new, but they have been at that game for quite a while. And I think what it shows is that like always, there's a lot more to a business than the product. There's a lot obviously around the marketing and sales and service model. And there's a ton in the I.T. that we have around how you get money and make money in these businesses. I wouldn't be so smug as to say some other big bank, or someone else couldn't get in, couldn't figure it out, but I would say it's not easy. We spent years figuring out. We have a lot of people in the space, and so look, there's a lot of room. We welcome other people, we are doing fine at it, and it's not as easy as it looks, I guess I would say.

Great, and then the last follow up, just relative to that. Sending money on marketing channels, et cetera, as big a driver as anything, as you guys measure the marketing spend, and the R.O.I.s are we at a point where the absolute dollars of marketing versus the volume and the accounts that you get that that relationship has become more favorable, or should become much more favorable in terms of leverage in those marketing expense?

Yeah, that's really an astute question. The answer is really a function, Tim, ofhow much incremental growth, how fast you try to grow a channel. So let's say that we were spending $10 million a year. In a channel, and I say hey, guys I will let you spend 10% more, and you go to $11 million. Well, their productivity will be better next year, because their group is aging. And the production out of the first 10 million-dollars will be much higher next year. Than this year. And they only have kind of $1 million in that example of newbies and stuff. So that would be a much more productive situation. Contrary, if we said hey, I'll let you increase it 50%, from $10 million to $15 million, then probably in total in aggregate the productivity would be worse next year. So it is a function, really, of how steep the investment is. Great, thank you.

Great. Thanks very much.

Thank you, (Operator Instructions). Our next question is from the line of Glenn Fedore of Thomas Research. Please go ahead.

Hey, guys. Thank you for fitting me in here, and nice quarter. My question is also on the MasterCard product. Can you give us a sense of how much of your MasterCard represents and where it can eventually go? The product here has been growing for a few quarters. Just trying to get a sense of how big a part of the business it is becoming.

You know, we don't disclose product detail product information like that. We have a lot of different products in the Company, and we just don't disclose specific financial information. With all that being said, I mean it is becoming a very meaningful contributor to our revenue and our bottom line. So it is becoming a pretty big thing.

And the customers that use this, are they completely new to FleetCor? Are they people switching between this and the standard FleetCor product?

What we would call the end business, the answer is yes. They would be new. And in the case of some of our partner relationships they would be some new and come converted. Some accounts that are on a proprietary oil card, might go to a branded universal oil card, because they like it better. So it's a mix on the partner side, and it's all new on the direct side.

Got it. And then one housekeeping question, I think you said fall the Shell contract starts being an economic contributor, so we should just think about that in the fourth quarter?

Yeah, we -- the contract has obviously been signed and their plan, the last I spoke to them, is make a launch announcement, I think as early as September. So I'd say stay tuned.

All right, thank you, nice quarter.

Thank you.

Thank you our next question is a follow up from the line of David Togut with Evercore Partners. Please go ahead.

Thank you. Yes, just a quick follow up. Are you planning to expand the direct MasterCard product internationally? And in particular to Europe, and does your agreement with Visa on chipcard technology in any way limit your ability to work with MasterCard, particularly in Europe on a direct MasterCard product.

Yeah, David it is Ron. So no -- it's not an exclusive agreement, we could still choose to do something with MasterCard in Europe. They are obviously good friends and supporters here in the States. With that said, I'd say we are way down the road, though, with visa Europe. Again, having started with them before we even owned AllStar years and then the couple years that we have been involved, we have been kind of working with them. And then just remade this broader kind of more ambitious agreement with them. Because we have been working together. So I'd say that, you know, although it is nonexclusive, our plan would be, because we have been working within them, to down the road for them for a while.

So in other words, to introduce a Visa Direct product, in Europe.

Yeah, again, I'm purposely being evasive there. And saying that the only thing we are kind of saying for sure today, is that we are going to convert this AllStar mag book of business on to this Visa chip, so it can obviously work outside of fueling stations for example. And has this chip capability. I would say other than that we have a bunch of products products in the kitchen. And we want to keep them there until we are closer to launch. We will certainly be back to you when it is relevant.

Just the final one then. Is there anything different about the European market that would prevent you from introducing growing a direct or universal card as you have in the U.S.?

Yes. There's obviously a lot of differences in Europe verses the U.S. Some good things that would make it better and some is bad that would make it worse. So for example, bad is it's a quilt. You have all those countries with all different currencies, tax laws, languages, so there's a lot more complexity right in launching a card across those markets. On the positive side, there are no universal products there. Unlike the United States, when we launched the MasterCard there were two or three companies, three, I think, that have had universal cards for five or ten years before us. In Europe the answer is zero. There's no card like that works in Europe. So is we like that. So I'd say if you look at our cheat sheet, there's some things that are better than make the opportunity better than here, and there's some things that make it more difficult than here.

That's very helpful, much appreciated.

Thank you, my friend.

Thank you, and at this time I'm showing no further questions. Ladies and gentlemen, this does conclude the FleetCor Technologies Incorporated second quarter 2013 earnings conference call. We'd like to thank you very much for your participation. And at this time you may now disconnect.