Corpay Inc (CPAY) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by.

Welcome to the FleetCor Technologies Incorporated fourth-quarter earnings conference call. During today's presentation all parties will be in a listen only mode. Following the presentation the conference will be open for questions.

(Operator instructions)

This conference is being recorded today Wednesday, February 5, 2014. I would now like to turn the conference over to Mr. Eric Dey, Chief Financial Officer. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining us today. By now everyone should have access to our fourth-quarter 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 titled 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 on our website, as previously described. Also, we are providing 2014 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 2014 guidance, new products and fee initiatives and potential business development and acquisitions. They are not guarantees of future performance, and, therefore, you should not put undue reliance on them.

These results 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 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.

Okay, Eric, thanks. Good afternoon and let me add my welcome to everyone. Upfront here I will plan to cover four subjects, first comment on Q4; second, discuss some of our highlights from 2013; third, comment on the 2014 outlook; and then lastly I will discuss a bit our go forward strategy.

Okay, so first off Q4. Results for the fourth quarter were very, very good. We reported revenue of $256 million up 26% and cash EPS of $1.08, up 32%, so 26% top line and 32% bottom line.

There are a few puts and takes baked into those numbers. So on the plus side, again we had the same businesses continuing to perform well. Our US business was up 18% for the quarter, and our UK fuel card business up 28% for the quarter.

Second, we did get a lot of help from our recent acquisitions, particularly VB in Brazil and Epyx in the UK, our two biggest acquisitions. On the not so good side, the Q4 environment was not particularly helpful. US fuel prices and US fuel spreads were both unfavorable to the prior period.

And we had a Q4 tax rate that was 2.5% higher than our full year 2013 average. So obviously depressed cash EPS in the quarter. But, look, overall, we are happy with our results. We are happy with this growth rate and pleased with the exit rate we got heading into 2014.

So let me transition over to 2013 full-year in which we reported revenue of $8.95, up 27% and cash EPS of $4.05, up 35%; so 27% top line, 35% bottom line for the full year. And since our IPO in December of 2010, so our first three years as a public company, we have grown cash EPS 31%, 38% and this year 35%, so a pretty good three years.

In terms of highlights for 2013, let me mention just a few things. First, very good organic growth for the full year, approximately 11%. We also pleased that we exited the fourth quarter with about $1 billion of run rate revenue for the first time.

Second, 2013 was a fantastic business development year, the biggest in the Company's history. We close to seven acquisitions, including a couple of big ones, and we signed six distinct partnership deals all over the globe. Third, we got deeper and better positioned in Brazil, an important market for us with these couple of additional acquisitions, and we entered Canada for the first time on the back of a couple of private-label wins, so deeper in one market and entry in a new market.

Fourth, we got position in the telematics space which is an interesting cross sell area for us, so we're going to evaluate whether this could be an important new leg for FleetCor. And then, finally, 2013 was a great capital markets year for FleetCor. Our FleetCor stock doubled in 2013, so I am pretty pleased with that. So, look, all in all, a really terrific 2013.

So let me now transition over to our outlook for 2014. We are providing guidance today of $1.8 billion in revenue at the midpoint and for $4.95 in cash EPS at the midpoint. The $4.95 cash EPS reflects about a 22% growth rate over last year's $4.05.

And on the revenue front, the $1.8 billion target, 50% of that is planned to be from international operations. So we expect to cross the 50% boundary for the first time.

And we expect over a quarter of our total revenue in 2014 to be from beyond fuel cards. So areas like food cards, hotel cards, transportation cards, toll cards, telematics products, et cetera. So as you can see we are getting some decent geographic and product diversification.

In terms of the environment we are expecting in 2014, I guess we would say that we expect it will not be very helpful. Specifically, we are assuming an effective tax rate that will be up 1% versus 2013.

And that creates a about a $0.05 EPS headwind which backs our midpoint guidance down from $5 a share back to $4.95. Eric will speak a bit about more that about that in his section.

Interest rates and overall interest expense will be up in 2014, so unfavorable. We are also entering this quarter now with US fuel prices are below the prior year. So again, overall, we are not expecting a lot of macro help in this guidance.

So let me talk a little bit about the bridge -- profit bridge that takes us from cash EPS of $4.05 in 2013 to $4.95 cash EPS at the midpoint for 2014. So that $0.90 delta, the makeup is: one, about a third from the run rate or the exit rate coming out of 2013. That should get us about a third of the way to the target.

Two, we are expecting continued strong organic growth from a number of our lines of business. We are planning our US direct business to be up 13%, our CLC business to have another double-digit year, our UK business up another 20%, our Russia business up another 20%. So we are expecting a number of very strong growth rates in some of our largest businesses.

Third, we are obviously expecting some upside in our new assets, the seven we just acquired. So we are planning more profit performance out of the Brazil deal, the Epyx deal, the Australia New Zealand deal, even our Nextraq Telematics business.

And lastly, although not in our guidance, we do have additional earnings upside in the form of our business development pipeline, which as you know is always active for us. So in summary for 2014, expecting profits to grow again over 20%, source of that is our current run rate, continued organic growth, particularly in our largest businesses, more profits from the seven assets that we just bought, and potentially some upside of the guidance as we progress through the year, vis-à-vis our business development efforts.

Let me close out by talking just a bit about our go forward strategy. Fundamentally, we are sticking to our game plan of build, buy and partner. So, we will keep building the assets we own mostly through more sales investment. We will look to keep buying highly related businesses where we can shape the right thesis to approve profits and obviously we are going to continue to chase partners that have portfolios or partners that can bring new products to the Company.

So, although our overall game plan is unchanged, I do want you to hear a new emphasis on two things in particular. One, we are going to be laser focused on entering new markets, more of these top 20 markets. We're obviously pleased with Canada, one of those this year.

But we are going to keep trying to get into markets that we're not in today. And two, we are going to continue to expand our product line.

So again about a quarter our business is beyond full fuel cards, and we are going to keep on expanding in work force payments. Again, ones that are highly related where we understand the business. And we are going to continue to look at things like telematics that are obvious cross sell opportunities, so more big markets and more highly related products will be part of our strategy.

And lastly, we feel FleetCor is really well-positioned going into 2014. We have got good organic growth, again about 11% last year. We're finding our way into new markets, expect more of that.

We have had some success beyond fuel cards, about 25% of our business now. Of course that gives us more addressable market. Great BD last year, seven new assets -- more profit potential there. And again we have got ongoing sourcing and work for new deals that we're working on 2014. So the messages, lots of ways to keep the growth going.

So anyways, with that let me turn the call back over to Eric so he can provide more information on the quarter, the year and the outlook. Eric?

Thank you, Ron. For the fourth quarter of 2013, we reported revenue of $255.5 million, an increase of 26% from the fourth quarter of 2012. Revenue from our North American segment increased 15.5% to $125.4 million from $108.6 million in the fourth quarter of 2012. Revenue from our international segment increased 38.4% to $130.1 million from $94 million in the fourth quarter of 2012.

For the fourth quarter of 2013, GAAP net income increased 13% to $68.1 million or $0.80 per diluted share from $60.1 million or $0.70 per diluted share in the fourth quarter of 2012. Included in GAAP net income for the fourth quarter of 2013, was $10.6 million in expense related to new stock awards granted and vested during the quarter and an unfavorable tax adjustment due to a tax law change in Mexico which adversely impacted the quarter results by approximately $0.02 per diluted share.

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 or cash EPS. Adjusted revenues equal our GAAP revenues less merchant commission.

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. 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 2013 increased 28% to $237.7 million, compared to $185 million in the fourth quarter of 2012. Adjusted net income for the fourth quarter of 2013 increased 30% to $92.1 million or $1.08 per diluted share, compared to $70.7 million or $0.82 per diluted share in the fourth quarter of 2012.

For the fourth quarter of 2013, transaction volumes increased 14.9% to 90 million transactions compared to 78 million transactions in the fourth quarter of 2012. North American segment transactions grew 6.6%, driven primarily by organic growth in our US businesses and the telematics transactions we completed in April and October of 2013.

Transaction volumes in our international segment grew 23.5% and were positively impacted by acquisitions closed in 2013. Revenue per transaction for the fourth quarter of 2013 increased 9.7% to $2.84 from $2.58 in the fourth quarter of 2012.

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. The mix of which will be influenced by our acquisitions, organic growth in the business and fluctuations in the macroeconomic environment. When we talk about the macroeconomic environment, we are referring to the impact that market spread margins, fuel prices, foreign exchange rates and the economy in general can have on our business.

During the fourth quarter, lower fuel spread margins and lower fuel prices primarily in the US resulted in an unfavorable impact to revenues both in the North American and international segments. And although we cannot calculate precisely the impact of these changes, we believe it negatively impacted our revenues by approximately $3 million to $4 million for the quarter. Changes in foreign exchange rates were mixed in the geographies most impacted and overall we believe negatively impacted our revenues by approximately $2 million during the quarter.

Revenue per transaction for the fourth quarter was up in both North America and the international segment. Revenue per transaction was up 8.4% in North America, due primarily to the positive mix impact of signing up customers who use higher revenue per transaction product than the average, organic revenue growth in many other lines of business, acquisitions completed in 2013, which have higher revenue per transaction products than the average, partially offset by the impact of lower fuel prices and fuel spread margins during the quarter.

In the international segment, revenue per transaction increased 12.1% which was due primarily to organic revenue growth in many of our lines of business, particularly in the UK, acquisitions closed in 2013, some of which have product at a higher overall revenue per transaction versus our line average partially offset by unfavorable foreign exchange rates in the quarter and lower fuel prices in some markets.

Now let's shift over and discuss some of the other drivers of our fourth-quarter performance. First in our North American segment, most of our lines of business performed well, resulting in an approximate 15% revenue growth rate in the quarter versus prior year.

Some of the positive drivers in North America revenue during the quarter were similar to last quarter, including the continued exceptional performance of our MasterCard product which had revenue growth of approximately 30% year-over-year for the quarter, driven primarily by increases in volume.

The CLC group provider of our lodging card programs had another solid quarter with 20% revenue growth over the fourth quarter of 2012. This revenue growth was driven primarily by increases in our check in direct product which targets smaller accounts. Results in our international business were again positively impacted by strong organic growth in our All-Star business in the UK which posted very strong double-digit revenue growth over last year measured in local currency. Results for international business were also positively impacted by acquisitions closed in 2013 which included acquisitions closed in Australia, New Zealand, Brazil, UK and Russia.

And finally the macro economic environment in our international segment was unfavorable during the fourth quarter. And, although we cannot precisely calculate the impact, we believe it negatively impacted our revenues by approximate $2 million to $3 million.

Now moving down the income statement. Total operating expenses for the fourth quarter were $149.5 million compared to $109.4 million in the fourth quarter of 2012, an increase of 36.6%. As a percentage of total revenues, operating expenses increased to 58.5% of revenue compared to 54% in the fourth quarter of 2012.

Included in operating expenses are merchant commission, processing expenses, bad debt, selling and general administrative expenses, and depreciation and amortization. The increase in operating expenses was primarily due to the additional expenses related to the acquisitions closed throughout 2013 and a $10.6 million non-cash expense related to new stock awards granted and vested in the fourth quarter.

The decrease in operating expense as a percentage of revenue was due primarily to adding acquisitions with lower overall operating margin than the Company average and the additional $10.6 million in stock compensation. Credit losses were $4.8 million for the quarter or 10 basis points compared to $5.1 million or 13 basis points in the fourth 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 2013 which have products with historically lower bad debt as a percentage of billed revenue.

Depreciation and amortization increased 60% to $24.2 million in the fourth quarter of 2013 from $15.1 million in the fourth quarter of 2012. The increase was primarily due to amortization of intangible assets related to acquisitions closed in 2013.

Total interest expense increased 62% to $5.5 million in the fourth quarter of 2013 from $3.4 million in the fourth quarter of 2012. The increase was primarily due to additional borrowing for acquisitions closed in 2013 and a slight increase in the interest rate on our term loan due to an increase in our leverage ratio in the fourth quarter.

Our effective tax rate increased to 31.9%, compared to 32.6% for the fourth quarter of 2012. However, both years have unusual items. The fourth quarter of 2013 includes an unfavorable income tax adjustment related to changes in the tax law in Mexico in December which required the Company to record approximately $1.5 million or $0.02 per diluted share in income tax expense retroactive to the beginning of the year.

In the fourth quarter of 2012 there was an increase in taxes of $1.9 million due to the controlled foreign corporation look-through exclusion expiring for FleetCor on December 1, 2012 and which was not extended until January 2013. If you exclude the impact of these one-time tax adjustments, our tax rate would have been 30.5% in the fourth quarter of both years.

Now turning to the balance sheet. We have ended the quarter with approximately $386 million in total cash, approximately $48 million of which is restricted and are primarily customer deposits. The Company also has a $500 million accounts receivable securitization facility.

At December 31, we had approximately $349 million borrowed against the facility. We also had $497 million outstanding on our term loan and $635 million drawn on our revolver leaving $250 million undrawn. As of December 31, our leverage ratio was 2.2 times EBITDA, well below our covenant level of 3.25 times EBITDA.

We intend to use our future free cash flow to temporarily pay down the balance on our 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 $5.4 million on CapEx during the fourth quarter of 2013 and approximately $21 million for the full-year.

Now on to our outlook for 2014. We expect total revenues to be between $1.07 billion and $1.09 billion, adjusted net income to be between $418 million and $428 million, and adjusted net income per diluted share to be between $4.90 and $5. As a result, our guidance at the adjusted net income per share midpoint of the range of $4.95 represents a 22% growth rate over the $4.05 per diluted share reported in 2013.

However, in 2013, our results include approximately $5.7 million or $0.07 per diluted share of nonrecurring income tax favorability. Without this favorability, our 2014 guidance represents a 24% growth rate over 2013.

Some of the assumptions that we have made in preparing this guidance include the following: fuel prices equal to 2013 average despite the fact we are starting the year with fuel prices below the 2013 average, market spreads equal to the 2013 average and foreign exchange rates equal to the current run rate. We are also assuming fully diluted shares outstanding of 85.6 million shares, a 1 million share increase from 2013, interest expense of $24.2 million, a 1% increase in our effective tax rate from 29.5% in 2013 to 30.6% in 2014.

And just to remind everyone, in 2013 we had two non-recurring income tax adjustments that resulted in a net favorable impact to our 2013 income tax expense of approximately $5.7 million. Without these adjustments, our 2013 tax rate would have been 30.9%. And just to remind everyone again, in the first quarter we reversed $1.9 million of tax booked in the fourth quarter of 2012 related to the controlled foreign corporation look-through exclusion expiring for FleetCor on December 1, 2012 and which was not extended until January 2013.

And in the third quarter legislation was passed in the UK that reduce the statutory income tax rate which resulted in a $3.8 million reduction in tax expense booked in the third quarter of 2013. And finally, 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 quarter is the lowest in terms of both revenue and profit. First-quarter seasonality is impacted by weather, holidays in the US, Christmas being celebrated in Russia in January and lower business levels in Brazil where most businesses are on summer break in the first quarter, and the Carnivale celebration is also in the first quarter. Additionally, our volumes build throughout the year, and our new asset initiatives gain momentum throughout the year resulting in much higher earnings per share in the third and fourth quarter.

With that said, we are expecting our first-quarter adjusted net income per diluted share to be between $1.03 and $1.07. Our first-quarter guidance at the midpoint represents a 19% increase versus prior year when adjusted for the nonrecurring favorable tax item in the first quarter of 2013 discussed earlier. 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, Mr. Dey.

(Operator instructions)

David Togut, Evercore.

Good evening, Ron and Eric. Could you break out the organic revenue growth rate for North America and international and also the organic revenue per transaction growth rate for each.

Yes, David, for the full year if you look at our full-year revenue growth rate of 27%, about half of that for the year is from organic growth. And kind of the other half is obviously the full-year effect of acquisitions that we acquired in the year. And the organic growth in the United States for the year ran around 11% and was slightly higher in the international business for the year.

Okay that's very helpful. Thank you. And then as a follow-up, the $10.6 million of stock comp expense you mentioned for Q4, did that all fall into the US SG&A?

The majority of that was in the US, that's correct.

Okay. And then the growth rate that you gave for direct MasterCard 30%, that was a nice acceleration from what we saw in Q3, which I believe was high teens. But I think that you guided to 13% growth for direct MasterCard for this year. Do I have that correct?

Yes, David, it is Ron. That is the overall direct business which has another set of products in it other than the MasterCard products.

Got it. So was it possible to understand what direct MasterCard growth would be for 2014?

It is in that same kind of 30% range. I think I told you we took a bit of a breather on rate for a quarter, and we are back on our standard rate plan so kind of 30% for the full year.

Okay. Did you quantify the acquisition pipeline for 2014?

No, but active. We've got a handful of deals we are working and a handful of partners things, so busy. We took a little break in the fourth quarter, but we are busy again.

We have kind of raised the target internally to $500 million per year from $300 million. So, we're -- given the size of the Company now we're trying to step it up. We did almost $1 billion in 2013.

And is most of that $500 million outside of fuel cards?

No, there are still a number of interesting fuel cards both partner and deals that we're looking at, but we are in this whole workforce payment space as well, so look for a mix.

And, Dave, just to add to that, that $500 million is just a guideline. Again people ask us that question all the time, and obviously we are very opportunistic around acquisitions and partner deals. So we will close deals when they make sense, but we are targeting about $500 million a year. It could be more. It could be less, just like it was last year, it was significantly higher.

That makes sense. A final question for me. Timing for possible launch of direct universal card in Europe.

No comment yet, David, still not close in.

Okay got it. Thank you very much.

Phil Stiller, Citi.

Hello, guys. Thanks for taking my questions. The outlook for 2014 I think you said 22% revenue growth at the midpoint. Is there a way to think about how much of that is organic versus from the businesses acquired in 2013?

Yes. Hi, Phil. This is Eric. It's kind of similar to this year. I would say probably a little less than half is our target for organic growth.

And as you know historically we have kind of guided people to think of our business as kind of high single digit to kind of low double-digit organic growth kind of company. And that guidance we provided for next year is kind of in that range.

And then the remainder of that is obviously the full-year impact of acquisitions that we closed in 2013. And it includes no new deals for 2014 or new partner deals that we have not already disclosed.

Okay. With the acquisitions that were closed doing during 2013 it sounds like you're expecting some improvement in terms of the profitable performance of those companies which is normal for you guys. But can you give us some milestones to look out for which of the acquisitions might be the biggest contributors and when would we see some of the upside?

Yes, Phil. It's Ron. I would say probably half of the improvement would be in the second half of this year and then the balance basically roll into 2015. And the two biggest deals that we did was this VB deal in Brazil and this Epyx deal in the UK. They are the largest and will provide the most lift.

Are there specific initiatives that you guys are working towards with those acquisitions that we could keep track of?

Yes, as you know, every deal, before we sign and wire, we have a thesis, a profit curve. So they are based on specific plans that we have. And so, although what we did the majority of the deals in the second half of the year.

Correct.

So I would say that some of that is getting underway now, Phil, kind of in the first quarter. But again I would say it is back loaded based on when we closed those deals. But every single deal has its checklist of things we are trying to do.

Okay. Last question. The Chip and Pin rollout in the UK, is there an updated timeline on that?

Yes, great question. Finally close, so Q2 we should be live in the market in Q2 with that product.

Okay great. Thanks, guys.

And by the way it would be the first one in the UK we believe if we get out in the quarter.

Glenn Fodor, Autonomous Research.

Hello. Good evening and thanks for taking my questions. Eric, just really quick -- apologies if you mentioned it, but restructuring and deal expenses in the fourth quarter. If there were any, do you mind calling them out and quantifying?

Yes there was approximately $2 million in the fourth quarter, Glenn.

How does that compare to say the third quarter?

For the full year we spent about $5 million. So most of those deal costs were in the second half, so I would say most of those were in the third quarter. That's when we closed the other Brazilian deal, the larger deal.

There was some obviously associated with New Zealand and Australia deals kind of at the end of the first quarter and second quarter. But I would say the majority were in the second half of the year.

Okay and Ron at times you have been a little more direct in your comments on the deals and reading between the lines if their close are not. I did not release or the texture today, and you talked about paying down the revolver with near-term cash flow.

Can we read anything into this that there is not likely to be anything sort of notable in say the first quarter -- that you will eventually get there, but for the first quarter not likely? Or is that a little bit of a reach?

That's a reach. I would say as always we have things that are quote close-in and farther way and no different today.

Okay, great. And then just final last one. Good to hear the guideline on $5 million of acquisitions noting that it's a guideline. But any reason to expect you won't be able to get the same rate of ROI and accretion in future acquisitions that you have gotten on past ones? And also, what is the likelihood and potential to get even more accretion since you have a greater scale and you load these things onto it? A bigger network will probably rip more costs out. Thank you.

Yes, that's another I think good question. So the first part of that I would say is deal specific. So every deal we look at that we elect to do, we have got some thesis of how we can make a lot more money.

So I would say that the ones that we do, that is basically the only reason to go forward, Glenn. We believe we can get a much bigger number.

Got it, thank you.

Darrin Peller, Barclays.

This is actually Adam here on for Darren. Just a quick one on the revenue guidance. You kind of talked about your expectations for FX, is there any way to sensitize what the revenue guidance would have been if you used the fourth quarter average exchange rate or even a constant currency growth rate?

Adam, are you talking about for the full year budget for next year?

The full-year guidance, yes, revenue guidance.

Well, we really did not look at it that way. Obviously, we are in a number of different geographies around the world, so exchange rates are moving in different directions. Our two big currencies that have the most impact were obviously the pound which is been moving more favorably towards the end of the year versus the Brazilian real which has actually been moving more unfavorable kind of throughout the year. In terms of average, I don't have that calculation in front of me.

And then secondly, we talked a little bit about some of the synergies that you guys are going to look to recognize from some of these more recent deals in the back half of the year and into 2015. I just wanted to see where you guys are at from earlier deals, particularly, the All-Star acquisition and CTF in Brazil. What is the existing run rate is there for synergies and what should we be expecting in 2014?

It is Ron. I'd say we have made good progress. Both of those businesses have significantly higher profits than when we acquired them.

I would say, particularly in the All-Star case it would be significantly more profit planned again here in 2014 and probably we are getting a little later inning I would say in that CTF plan. But we're kind of going in different directions with the new products. So I would say that one we're kind of really chasing revenue growth more than profit growth this year.

Great. That's very helpful. Thanks a lot guys.

Tien-Tsin Huang, JPMorgan.

Great. Good afternoon, gentlemen. Just a few quick ones I hope if you don't mind. Just on the -- you get a lot of questions about emerging markets. You talked about FX already. Can you give us a sense of what is going on on the ground in places like Brazil, Russia, any surprises there? And roughly how big now is the emerging market, or maybe if you can just give Brazil as a percentage of revenue?

This is Eric. From an on the ground perspective I would say really we don't see a lot going on from an economic perspective. I think our volumes are kind of where we expected them to be. I don't think the GDP in both of those markets I think is still up.

So I think still kind of good from our perspective. From an FX perspective, unfortunately, the pound is going in one direction and you have the Brazilian real heading in the other direction. So those two currencies have effectively mostly offset each other. So not a lot of headwinds in FX if that stays the course.

Right understood. And then I guess I'll ask about the Europe market. Obviously with Wex talking about the [SO] deal -- just curious what the implications are of that. Any implications to the Shell UK portfolio and maybe just organic and inorganic growth competitively. Any thoughts there?

Can you ask the question again? What is the question exactly?

Yes, sorry Ron, just Wex was -- gave a lot of air time to the S0 deal. It seems pretty interesting on their side from a platforming standpoint. So my question is does it change the competitive landscape at all implication to say your Shell UK deal that you launched in the past? Just trying to get a sense if that changes the end market.

Yes I think A, a number of those things are still a ways away, and B, it is a very big space that has historically been all oil companies. And so again I think there's is plenty of runway over there if we have the right product set. So I would say to stay tuned for our plans there.

Okay. Two more. Just workforce payments. When you talk about workforce payments, does that look like some of the stuff that [Eden] read does vouchers et cetera. Just trying to get a better definition of that.

Okay. When we use that word, Tien-Tsin, we are really talking about payments that go between the employer and the employee fundamentally reimbursing. So we're not really in corporate payments like a bank doing AP or doing what Wex does.

So our game is basically to call on people that deal with getting money to employees. And so that whole line of products kind of fits in there.

Whether it is tolls or food or obviously fuel or hotel. It is all basically money moving from the employer to the employee. So we like that space -- that administrative ease is really well liked.

Got it. Okay. Last one just to clarify some of the numbers, because you gave a lot of good data here. Acquired revenues in the fourth quarter, and if I heard correctly FY14 if we call it half of that is going to be inorganic versus organic, that would apply $100 million in acquired revenues for 2014 as of the base case. Am I doing that math correctly guys?

Yes, the ballpark is kind of a couple of hundred million in total which is low 20%s. So this kind of 9% to 10% is our organic view and kind of 10%, 11% is the DOP.

Than the fourth quarter run? I apologize?

The fourth quarter I would say because of some of those headwinds it would be I guess the year was about 50-50 kind of low teens organic for the full year and 27% in total. So I would say was about 55% for the full year and maybe little higher, Tien-Tsin, in the fourth quarter we had some of the headwinds that Eric pointed out in the quarter.

Got it.

And I think the acquisition piece would have been a little stronger than that in Q4, but again, we expect in our plan so that the re settle out is basically 50-50. Which is what we have been on I think consistently try to grow the base business around 10% and then see what we can get done on top of that.

Understood. Thanks for the update.

Good to talk to.

Smitti Srethapramote, Morgan Stanley and Company.

Thank you. Just wondering if you could give us a little bit more detail on the CST outsourcing deal that was announced today. I'm assuming the numbers from the DLs are included in your 2014 guidance. Just wondering when the revenues will start hitting the bottom line for this deal.

Yes, Smitti, it is Ron. So I would say our plan there is probably late second quarter in terms of that program. So we are taking over a portfolio and selling the product. And I characterize it is as kind of a single digit millions deal for us.

Okay so the single-digit millions run rate once it's of fully ramps up by Q3?

Correct.

Got it.

And again I think the interesting part and one of the reasons we included this is really the focus on new markets and Canada. We won the Husky thing. When did we announce that -- four or five months ago?

Correct.

So we have got two of these, and now we have a product, Smitti, that works there. And so we're going to sell it directly. And we have got these two accounts, Husky also planned to kind of go live in Q2.

So that will come the second half of 2014 FleetCor we will have some decent business in a market that we had effectively zero revenue in last year. So this I think is part of the call out on this is to make the point that we try to find ways to get into important markets. And I think that Canada is just inside the top 20 in terms of biggest. So we're pleased with that.

Got it. And then maybe just a follow-up question on telematics -- just wondering if you guys have received inbound inquiries from your current customers on a global basis since you completed the deal back in Q4 of last year.

Yes. That's another good question. We are early in that but I would say the early returns, we structured and integrated the sales groups. This NexTraq company we bought is actually here in Atlanta, and so we have got now a group of those telematics sales specialists calling into the FleetCor client base with the goal to prove out whether there is an interesting cross sell. And I would say that it is very early, but I would say very encouraging so far.

Great, thank you.

Tim Willi, Wells Fargo.

Thanks and good afternoon. Just a couple of questions here. A lot of other stuff has been covered. Eric, in terms of interest expense, is what we saw in the fourth quarter a pretty solid run rate for 2014 on a quarterly basis?

I kind of called out the interest expense in my guidance. Tim, we are expecting about $24 million of interest expense next year, and that will be spread pretty ratable throughout the year next year.

Okay. Thanks. Sorry, I must've missed that. I apologize. And then second, regarding operating leverage and margins, obviously a lot is going on here with new deals coming on at different margin profiles versus sort of the organic base business. Is there any way you could just give some color on margin trajectory of sort of the core base business relative to the drag and improvement of the acquired entities? Are we are still seeing appreciable margin improvement from some sort of those legacy businesses? Or are they little bit more stable, and the margin on a go forward basis is really driven by the assets that you have acquired?

It is a little of both. Obviously we have a lot of organic growth in the existing businesses. We called out in 2013 that we grew our business organically by 13%. About 4% or 5% of that came from transactions, and the remainder of that came from revenue per transaction. So that would create a lift of margins in the legacy businesses.

And then certainly from an acquisition perspective, we generally by businesses that have a lower margin profile than the Company's average. So typically we will spend the next year or two to improve the performance of those businesses which would obviously then improve margins as well over that period of time.

So just inferring from that, it would see them like is it a reach to think about there is probably margin expansion sitting here for the next 24 plus months if you don't do any other acquisitions from this point?

I don't know if 24 months is the right answer for the high or low, but I would say the answer to the question is yes. Clearly we're going to improve the performance of the businesses that we own, and we're going to continue to grow the existing businesses organically. And again given the fixed cost nature of our business approximately two-thirds of our costs are fixed, so the majority of the improvement in revenue goes to the bottom line.

And remember, Tim, it's Ron -- that we are constantly trying to sell higher revenue per tran products which you see in our numbers. And so obviously that contributes to higher margins. The products that have slowed our step up products that carry higher revenue per tran they generally carry a higher margin.

So it is a density and scale things, and it is a product mix thing. But you're right there's a lot of moving parts, right? It's not only the other businesses but it's things like stock comp and deal costs and severance costs. So a lot of things I think things make it difficult [seeing].

I appreciate that. Thank you very much for the color. Thanks.

(Operator instructions)

David Togut, Evercore.

Thanks. Just a quick modeling related question, Eric. What is the right quarterly run rate for SG&A for 2014? I am thinking about the stock comp number in Q4 and just wondering should we think about stock comp being more radical through the year, or does most of it hit in Q4?

No, it was kind of -- the $10.6 million in Q4 was more of a one-time hit as a catch-up entry so we booked an entire year's worth of stock comp in the fourth quarter for that one particular item. We spent about $27 million in stock comp in 2013.

From a modeling perspective, we are currently assuming that it is going to be flat next year, but our compensation committee meets towards the end of the first quarter. And usually we have new stock grants that are issued at that point in time.

So that stock comp number will probably increase after the comp committee meeting. So we can give you a better number kind of after that point in time.

It's Ron. If your question is kind of point-to-point, the answer is that it would step down significantly so our Q1 and Q2 operating expense is planned to be dramatically lower than what we reported in Q4, dramatically lower.

From a Stock comp perspective it is generally ratable throughout the year. There's not a higher number generated in Q4 that there is in any of the quarter. There just happened to be that 2013. But 2014 I'd just spread it throughout the year.

So I guess just the final piece of this should we expect SG&A to grow in line with revenue in 2014?

You know it is obviously going to be up less. We get economies of scale from our business. Our margins -- we are planning a 22% increase in revenue and there's a 22% also increase in kind of cash net income per share. And there is a number of reasons for that.

One is that we have got the full year effect of acquisitions that are kind of hitting into the year. So again the trajectory of those acquisitions is such where you see most of the improvement coming in in the third and fourth quarters and exiting into 2014 -- or 2015.

We also have a number of below the line items that are impacting our cash EPS next year. Interest expense is going to be up pretty significantly due to the financing of the deal so we are calling out $24 million of cash interest expense versus kind of $16 million this year. We also have a higher income tax rate next year. We are going up 1% which is worth about $0.05 per share. And then the share count is also going up about 1 million shares as well.

But I think, David, in terms of the model is think about it is the revenue is on a curve each quarter going up and I'd think about the operating expense as being much more flat. And that goes with the restructuring the expense side of these businesses and putting in these programs. So that's what contributes really to the earnings growth getting better each quarter is there really won't be growth in expenses -- any significant growth in expenses as we roll through the quarters here.

That's extremely helpful clarification. Thank you very much.

Good to talk to you.

There are no further questions at this time. Ladies and gentlemen, this concludes the FleetCor technologies Inc fourth-quarter earnings conference call. Thank you for your participation. You may now disconnect.