Corpay Inc (CPAY) 2014 Q2 法說會逐字稿

Greetings. Welcome to the FleetCor Technologies second-quarter 2014 earnings conference call.

At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Eric Dey, Chief Financial Officer for FleetCor Technologies. Thank you Mr. Dey. You may begin.

Thank you, operator. Good afternoon, everyone, thank you for joining us today.

By now, everyone should have access to our second quarter press release. It can 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 expectations regarding 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 8K 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.

Hey Eric, thanks. Good afternoon, everyone, and thanks for joining the call today.

Up front here, I'll plan to cover just two subjects. First, I'll comment on the quarter and our updated full-year outlook. And secondly I'll provide a bit of an update on some of our major initiatives and our acquisition pipeline.

Okay, so onto the quarter. Earlier today, we reported Q2 revenue of $274 million up 24% and cash EPS of $1.27 up 28%. So 24% top line, 28% bottom line. And this was a bit of a beat against our internal plan.

The drivers in the quarter were basically two things. One, our biggest businesses continued to perform well. Our US direct business up 9%, our CLC business up 27%, our UK fuel car business up 19%. So big businesses doing well.

Second driver in the quarter was new revenue from our 2013 acquisitions. And, again, here the biggest contributors would be VB, Brazil, which is our transportation card business, Epyx in the UK, and NexTraq, our telematics business here in the US.

So our story is quite similar to Q1, strong organic growth from some of our biggest businesses and contributions of new revenue from our 2013 deals.

Russia reported results lower than our internal plan, but still 4% ahead of last year in local currency. Russia sales, that is new business that they on-board, was up 21% versus the prior period. So I would say that business is hanging in there.

The macro environment was generally neutral to slightly negative in the quarter, so it did not help our Q2 results. FX overall was generally neutral, the pound quite favorable and the other important currencies to us unfavorable.

The US fuel spreads were soft in the quarter, versus the prior year. And we estimate that created probably a $3 million dollar headwind, which is why our US direct business was a shade under 10%. But, look, all in all a very solid quarter.

Okay. Let me transition over to full year guidance. So at the outset of the year, we provided full-year 2014 cash EPS guidance of $4.95 at the midpoint. In May we raised guidance $0.07 to $5.02 at the midpoint and today we're raising guidance again $0.05 to $5.07 at the midpoint.

You should think about Q3 and Q4 contributing roughly the same amount in cash EPS. So although our sequential quarterly growth is up, Q4 seasonality offsets it just a bit. So we're expecting our second half to be up considerably against the first half.

The couple drivers there are, one, the growth that I described in some of our big businesses along with ramping of some of our new contract wins. And, second, more progress on our synergy initiatives in our 2013 deals.

Okay. Let me transition over now to the status of some of our major initiatives and talk about our M&A pipeline. So first up, Shell Germany. We announced in our May earnings call that we had signed a full outsourcing deal to acquire Shell's SME accounts in Germany, along with a broader framework agreement to acquire portfolios in up to 12 additional Eurpoean markets.

So our progress is quite encouraging here. We're planning to convert the Shell German portfolio in September. And launch our web marketing and issue initial telesales efforts at the same time. So we should be officially up and running in Germany and boarding new business this quarter. So quite exciting to get into the world's number five biggest market. And once we've proven our performance in Germany we'll work with Shell to finalize the timing to roll to additional markets. Could be another market or two before year-end.

Let me move on to new contract wins. You may recall that we announced a number of new North America partner signing's recently. Those included Huskey Oil, Quarles, Ultramar, and Quick Trip. And I want to let you know we're making very good progress in bringing those new relationships online.

This month, July, we began card conversions for three of these, Huskey, Quarles and Ultramar and I now expect these portfolios to be fully ramped by year-end. Quick Trip, which we signed just in June, is scheduled for conversion in October. So all around good progress in getting these relationships online. Our expectation is that these four new relationships will contribute in the neighborhood of 5% to 10% in incremental revenue to our North America partner business next year.

Next up is Masternaut, which is one of Europe's leading telematics companies. So our focus, we announced in June our minority investment in Masternaut along side Summit Partners. So our focus here is really to evaluate how FleetCor, the mother ship, how our partner, customer, and sales force relationships might accelerate Masternaut's growth profile.

And frankly, that assessment is just now getting under way. But the Masternaut transaction does give us a new position in Europe on top of the position we got here in the US via our NexTraq deal. So good news we've now got both Europe and US positions to determine if telematic can be a big new global leg for us.

And finally, let me move to our M&A pipeline. So I would characterize our current M&A pipeline as quite active. As often is the case, we're involved with a number of interesting targets, some of which are now in the late innings. And I'd reiterate that we remain quite confident that we could invest a $1.5 billion in deals over the next three years.

So in closing we're pleased with our Q2 results and probably more importantly our progress to better position the Company for continued growth. We continue to execute on our objective of delivering over 20% earnings growth. So again Q2 grew 28% and our updated $5.07 guidance would result in 25% earnings growth for the full year.

Look, our big businesses are still growing well. We're gaining traction from some new client wins and getting those ramped. We broadened our telematics positions to better assess that space and we're giving chase to M&A targets. Which, of course, we'll announce when appropriate.

So with that let me turn the call back over to Eric to provide a bit more color on the quarter.

Thank you, Ron.

For the second quarter of 2014 we reported revenue of $273.5 million, an increase of 24% from the second quarter of 2013. Revenue from our North American segment increased 16% to $138.9 million from $119.5 million in the second quarter of 2013. Revenue from our international segment increased 32.8% to $134.6 million from $101.4 million in the second quarter of 2013. For the second quarter of 2014, GAAP net income increased 21% to $88.5 million or $1.03 per diluted share, from $73.1 million or $0.87 per diluted share in the second quarter of 2013.

The other financial metrics that we routinely use 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 to participate in certain card programs.

A reconciliation of adjusted revenues and adjusted net income to GAAP numbers are provided in exhibit 1 of our press release. Adjusted revenues in the second quarter of 2014 increased 26% to $253.2 million compared to $201.3 million in the second quarter of 2013. Adjusted net income for the second quarter of 2014 increased 30% to $108.9 million, or $1.27 per diluted share, compared to $84 million, or $1 per diluted share in the second quarter of 2013.

For the second quarter of 2014, transaction volumes increased 14% to 90.2 million transactions compared to 79 million transactions in the second quarter of 2013. North America segment transactions grew 4%, driven primarily by organic growth in our US businesses and the telematics transaction we completed in October of 2013.

Transaction volumes in our international segment grew 26% and were positively impacted by acquisitions closed in 2013. Adjusted revenue per transaction for the second quarter of 2014 increased 10% to $2.81 from $2.55 in the second quarter of 2013.

Revenue per transaction can vary based on the geography, the relevant merchant and customer relationship, the payment product utilized, and the types of products or services purchased. The revenue mix is 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.

Revenue per transaction for the second quarter was up in both North America and the international segment. Revenue per transaction was up 12% in North America, due primarily to the positive mix impact of signing up customers who use higher revenue per transaction products than the average, organic growth in many of our higher margin products and acquisitions completed in 2013 that have higher revenue per transaction products than the average. These positive factors were partially offset by lower fuel spread margins in the quarter.

In the international segment revenue per transaction increased 6%, due primarily to organic revenue growth in several lines of business, particularly in the UK and acquisitions closed in 2013. Some of which have products with a higher overall revenue per transaction versus our line average.

In addition, foreign exchange rates in the quarter were mixed and overall had minimal impact on international revenue per transaction. As previously stated, lower fuel spread margins in the US resulted in an unfavorable impact to revenues in the second quarter. And although we cannot calculate precisely the impact of these changes, we believe it negatively impacted our revenues in the North America segment by approximately $3 million for the quarter.

Changes in foreign exchange rates were mixed and overall we believe were neutral during the quarter. Foreign exchange rates were unfavorable in most geographies except the UK and New Zealand.

Now let's shift over and discuss some of the other drivers of our second quarter performance. For our North American segment most of our lines of business perform well. Resulting in a 16% 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 several quarters, including the exceptional performance of our MasterCard product, which had revenue growth of approximately 34% over the second quarter of 2013, driven primarily by increases in volume.

The CLC Group provider of our lodging and card programs had another solid quarter, with 27% revenue growth over the second quarter of 2013. This revenue growth was driven primarily by increases in our check-in direct product, which targets smaller accounts. The second quarter also benefited from our acquisition of NexTraq, a telematics business acquired in October of 2013.

Results in our international business were impacted by strong organic growth in our UK business, which posted double-digit revenue growth over last year. Results for our international businesses were also positively impacted by acquisitions in Brazil and the UK in 2013.

I am sure a number of you are wondering how our business in Russia has been performing. As of now, the performance of our business in Russia has not changed much since the first quarter, and does not appear to be adversely affected by the sanctions or by changes in regulations by the Russian or US governments.

However, we are affected indirectly as the Russian economy is softening and we are experiencing a slowdown in volumes. Our business in Russia is up slightly from prior year in the quarter, excluding the negative impact of the foreign exchange rate. Our international business has also been impacted by unfavorable foreign exchange rates and the softening economy in Brazil.

FleetCor is a very diversified Company geographically, by product and business model. We anticipate the unfavorable economic conditions in Russia will continue for the balance of the year, and that foreign exchange rate in Russia will continue at current levels and be unfavorable for the balance of the year as well. However, we expect these negative impacts will mostly be offset by performance of our other businesses for the remainder of 2014.

Moving down the income statement, total operating expenses for the second quarter were $139 million compared to $111.8 million in the second quarter of 2013. An increase of 24%.

As a percentage of total revenues, operating expenses increased to 50.8% of revenue compared to 50.6% in the second quarter of 2013. Included in operating expenses are merchant commissions, processing expenses, bad debt, selling and general and administrative expenses, and depreciation and amortization expense.

Included in operating expense for the second quarter of 2014, was $7.7 million of non-cash stock compensation expense versus $3.9 million in the first quarter of 2013. Also included in the second quarter, operating expense was approximately $1.8 million of deal related expenses versus approximately the same amount in 2013.

Credit losses were $6.7 million for the quarter, or 14 basis points. Compared to $4.7 million or 10 basis points in the second quarter of 2013. The increase in bad debt was primarily due to additional bad debt booked in our Russia business due to the slowdown in the economy. We expect bad debt to improve in the second half of the year.

Depreciation and amortization increased 54% to $24.4 million in the second quarter of 2014 from $15.9 million in the second quarter of 2013. The increase was primarily due to amortization of intangible assets on acquisitions closed in 2013.

We also have a new line item on our P&L related to our equity method investment, which represents the loss reported on our minority investment in Masternaut for the period of time that we invested in the business for the second quarter. Our loss driven primarily by additional amortization booked in purchase accounting related to this investment.

The Masternaut investment had a slightly positive impact on adjusted net income tort quarter. Our effective tax rate 30.8% compared to 30.6% for the second quarter of 2013. The slight increase in tax rate was due primarily to the mix of earnings from businesses that have higher tax rates.

Turning to the balance sheet, we ended the quarter with approximately $343.8 million in total cash, approximately $46.2 million of which is restricted and are primarily customer deposits. The Company also has a $500 million account receivable securitization facility, which was amended on February 3, 2014, to a new maturity date of February 2, 2015.

At June 30, we had approximately $424 million borrowed against the facility. We also had $483 million outstanding on our term loan and $555 million drawn on our revolver leaving $295 million of undrawn availability.

As of June 30, 2014, our leverage ratio was 1.86 times EBITDA up slightly from the 1.84 times in the first quarter due primarily to the Masternaut investment in the second quarter. The 1.86 times EBITDA is well below our covenant level of 3.25 EBITDA. We intend to use our 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 and we spent only $6 million on CapEx during the second quarter of 2014.

Now on to our outlook for 2014. We are increasing our guidance as follows: we expect total revenues to be between $1.82 billion and $1.97 billion, up from our previous guidance range of $1.75 billion and $1.95 billion; adjusted net income to be between $432 million and $438 million, up from our previous guidance range of $422 million and $432 million. Adjusted net income per diluted share to be between $5.04 and $5.10, up from our previous guidance range of $4.90 and $5.07.

Our adjusted net income per diluted share guidance at the midpoint of the range, represents a 25% growth rate over the $4.05 per diluted share reported in 2013. Also to remind everyone, our 2013 results included approximately $5.7 million, or $0.07 per diluted share from two favorable non-recurring income tax items.

In the first quarter of 2013 was a reversal of $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.

In the third quarter of 2013 legislation was passed in the UK that reduced the statutory income tax rate, which resulted in a $3.8 million reduction in tax expense booked in the third quarter. Without this favorability, our 2014 revised guidance represents a 27% growth rate over 2013.

Some of the assumptions that we have made in preparing this guidance include the following: continued weakness in our Russia business and unfavorable foreign exchange rates in Russia and Brazil, at current levels over the balance of the year; a start-up investment related to the Shell build-out of approximately $2 million; fuel prices and market spreads equal to the year-to-date average. We are also assuming fully diluted shares outstanding of approximately 86 million shares and a slight increase in our effective tax rate from 30.5% to 30.7%, for the full year of 2014, and, as always, no impact related to future acquisitions or material new partnership agreements.

For those of you that are looking for some guidance on the second half of the year, revenue and adjusted net income, I want to remind you that our business has some seasonality in the fourth quarter, and as a result, we expect that our revenue and adjusted net income in the third and the fourth quarters will be approximately the same.

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

(Operator instructions)

Phil Stiller, Citi.

I guess I want a finer point on the guidance. It looks like you raised revenue by -- about $5 million but the EPS went up more?

I know Ron, you mentioned that you're progressing on the synergies from the acquisitions that were done last year. Is that what's driving the better profit outlook in the back half of the year?

Hey, Phil, this is Eric. Yes, first of all I mean the revenue is a pretty wide range. Just so you know.

But from a momentum perspective I mean certainly as we get into the second half of the year, the existing businesses that have performed well are going to continue to perform at a very high level. So we should see a lot of organic growth coming from the same businesses in the second half that we had in the first half.

We're also going to start layering in the new partner agreement. You'll see Huskey come on and as some of the other partner wins that Ron mentioned, we'll see some revenue coming into the fourth quarter. And then finally some of the synergies, for some of the acquisitions that we closed last year, should also kick in, in the second half of the year, as well.

So all of that's driving both revenue and profit.

Hey, Phil, Ron. So the short answer is yes, we'll have higher margin on some of the synergy revenue.

Okay. And I guess last couple quarters you've been talking about some new products that were in the pipeline, I think, the EMV card in the UK business and some of the products you're introducing in Brazil. Can you guys provide an update on those?

Yes, still not there, Phil. I'd say we're probably a quarter later on the UK chip and pin because of some POS issues. And we're about ready to launch the new fuel card in Brazil, I'd say probably next month. So again a little bit of an IT delay in both, but I'd say virtually ready to go now in Brazil.

Okay. Great. And then I guess last question for me. I mean it sounds like you reiterated the M&A target over the next three years, obviously there's been speculation in the market recently. I guess can you talk about your capacity for potentially spending more than that over the next several years?

Yes, I mean, honestly Eric laid out the leverage ratios, Phil, so depending on what we pay for, for what we buy, I think I've been consistent that we want to kind of run a Company that's [circled] three times. Is kind of where we are from the management perspective. So I think depending upon what we would buy that would give us a significant capacity.

Would you go above three times for a large acquisition or no?

Yes, we would. But, again, I'd say it wouldn't be equilibrium. We might at a close of a deal, but I'd say we kind of want to operate the Company on a ongoing basis at three or below.

Yes, Phil, let me just remind you our business generates a lot of cash. Although we could go above the three, we would pretty quickly delever because of the cash flow profile of the business.

Makes sense. Thanks, guys.

Yes.

Jim Schneider with Goldman-Sachs.

Thanks for taking my question. Just one more follow-up on the M&A pipeline if I could. Could you maybe just talk about the profile deals you're looking at just in general terms whether you find the over the road segment more attractive than you historically might have been? Or do you think more international deals might compliment your existing deals in Europe might be more interesting?

Jim, it is Ron. I'd say as always, we have a mix of things that we're looking at in terms of geography. And in terms of the over the road I'd say that, the decision of Pilot to exit the car business probably makes that area look more attractive than it has historically. So you now have a separation of kind of the biggest merchant in the US kind of exiting the car business, which we would like.

That makes sense and helpful. Thank you. I guess as a follow-up, can you maybe just talk, you gave an update a little bit on the Shell preparations. Can you talk about whether that is going on plan or maybe even a little bit ahead of plan? And any kind of update on revenue expectations you might expect to realize when that's fully ramped?

Again I'd say, we're laughing a little bit as you ask that, because as you know most IT projects run on the back side of plan. I'd say this one is kind of what you said, a bit ahead. In fact we had a review this week they're really in final testing for that so kind of with Shell, everything is green basically to convert that book of bill in September. So I'd say, that looks good.

In terms of projection, really no different. This is a single-digit millions market, this one market, but in totality again I'd say we're still comfortable with kind of the ramp being kind of $20 million to $30 million.

Great. Just one last clarification. I think you called out VB Servico and NexTraq as the biggest contributors in the quarter in terms of pipelines of deals you did last year. Can you maybe talk about as we head into the back half of the year whether you'll see any of the other deals start to contribute more meaningfully.

Yes, I think for Phil's question, Jim, that we'll have a lot more acceleration in Q3 and Q4 as those 2013 deals kind of lap the one-year mark. The one you didn't name was Epyx in the UK. What was that, Eric, an October 1, 2013 kind of a close?

Correct, it was in the fourth quarter.

I'd say in every one of those cases, we're expecting revenues to be up pretty significantly from a year ago.

Thank you so much.

Ramsey El-Assal, Jefferies.

Can you parse out the organic versus inorganic growth separately for the US, international markets? I've been hopping around on calls, so you might've spoken to this and I might have missed it.

Ramsey, this is Eric. First, let me tell you that, that first and foremost, I think we're still optimistic that our kind of 10% guidance for the full year is kind of still where we're tracking to on a full-year basis. We're a little lower than that. In the second quarter.

The US business performed, again, extremely well as we called out a couple of lines of business there. Our MasterCard business grew organically at around 34% in the quarter and our CLC business grew at 28% organically. So the US business did very well. It was around 10%.

Our international businesses performed a little bit lower than that for the quarter. And then in the back half of the year, again I would say that we plan organic growth to accelerate, somewhat. The businesses that have performed well in the first half of the year are going to continue to perform well in the second half of the year.

Some of the partner wins again that we called out are going to be layered on in the second half of the year particularly as we get into the fourth quarter and we exit into next year. And then finally, some of the acquisitions that we did last year in the second half of the year, we'll start to accelerate some of the organic growth in those businesses in the second half, as well.

So on a full-year basis, I -- we are still looking at around that 10% range.

Okay. That is helpful. On your telematics segment. You bought NexTraq and then more recently obviously you picked up Masternaut in the UK. I'm trying to understand the degree to which the telematics solutions you now have can kind of scale in different geographies. In other words, was Masternaut more about buying the customer base or distribution capabilities?

Or was it technology you were after? Will you have to buy a different provider in different geographies? Or is this something that's sort of more, once you test these assets you have, you can independently scale them elsewhere?

Ramsey, it is Ron. The answer is the second. We really bought it for the market position, the feet on the street, the customers, the people.

So it was an asset that was going to trade and so we took a position in it. So if we conclude that we like this space, we're set to go in the two big geographies. That was the basis.

Okay. One last one and not to beat a dead horse on these Comdata. This chatter about Comdata. But my sort of broader strategic question is, Comdata has a lot of business lines than just fleet services. I've always kind of considered you guys as being pretty focused on fleet or transport related solutions.

Has your thinking changed, just in general, on getting into unrelated business lines, like virtual cards or healthcare merchant processing Or should we think about your M&A activities being just as focused on fleet as before or are you kind of thinking about getting into other unrelated areas? Maybe that is independent of Comdata.

Couple comments. One is, a quarter of our estimated revenue for the full year is beyond fuel cards is, quote, not fuel cards. So I'd say we already have some diversity.

Two, we're not going to do anything unrelated. But payments for us, what we call workforce payments, we view is related, as long as the model, Ramsey, looks the same to us. So we will have more non-fuel card in our revenue mix as we go forward, for sure.

Right. But I was thinking about it's not just fuel card, but it seems like your products still kind of revolve around kind of transport solutions, whether it is lodging, whether it' the different payment products you have. Would you contemplate just getting into a completely separate business line that has nothing to do with servicing that transport sector, like healthcare, or something like that?

Again, we don't really look at it that way, right? We look at the end client being a business, is kind of cut one. And then the second one is that we look at the model that's basically used. Is it IT-centric, the revenue model, the recurring nature of the business.

So I'd say that we're not -- we don't really define the business around, hey, it has to have some, quote, transport piece. It basically has to be B2B payments and it's got to be a model that we get.

Got it. Thanks a lot.

David Togut with Evercore.

Good afternoon, Ron and Eric.

Hey, David.

Your two biggest drivers of organic growth in North America, direct MasterCard and CLC showed pretty strong acceleration over the growth we saw in the first quarter. Can you talk about what drove that acceleration in Q2 and how should we think about growth in both of those products for the back half of this year.

David, it's Ron. So I'd say the good news in both cases is sales. So the 34% number in MasterCard and the 27% in CLC were virtually 90%-plus volume driven. And if you look at the reason, it was basically sales. We're just selling the you know what out of both of those product lines.

As we've said in CLC particularly the down market of the small business market. And so the sales in both of those, which were not recorded in the quarter, but billed as you know, are both above planned and going great. So I would say our outlook in the next couple of quarters is big. It's similar to what you're seeing.

Just as a quick follow-up, you've talked before about rolling out the 12 other markets in Europe with Shell after you complete Germany and then potentially introducing a food card and telematics products, has your thinking on those new products at all changed? And I guess what might be the time line for those?

No, I'd say it is unchanged. I'd say that, this is iceberg work, David. So much of the work is below the water line, right? To kind of get there, get some big accounts to trust, build the systems that we need. And so having this mega template, effectively going live in a month or so I can't stress again how big a deal that is for the Company, getting onto the continent there with a meaningful piece of business.

So we're going to digest that, and assuming that goes well we'll pick up the pace on other markets there on the continent. And then obviously post having those positions we'll start the layering of the other things. So I think we're getting closer to actually now realizing, a vision that we've had for quite a while.

Understood. Thank you very much.

Good to talk to you.

Darrin Peller, Barclays.

I just want to start off with the comments I think you made around exiting the year with respect to layering on revenue. The organic growth rate was I guess a tad below the 10% this quarter -- I think it was a little higher than that last quarter. And then second half again you see things rolling on.

First of all, the trend is underlying that. I think David just brought up, I mean you have MasterCard growth at 30% plus, CLC growth that's clearly higher than last quarter. If those trends continue and you're layering on, shouldn't the exit run rate be pretty indicative of a stronger organic growth rate next year?

Yes I would say, Darrin, that's probably not far off. I'd say internally our outlook is above 10% organic in both Q3 and Q4, and it's what you said, it's the businesses that have performed. It's this on-boarding of a series of new accounts that won't be a lot in the quarters, but will be as we exit.

And then again it is the lapping of the 13 deals that are way up. So I'd say our confidence over the next two quarters is high and to your point that'll feed into 2015. So I'd say we're pretty bullish on the forward organic look.

That is great. Specifically on the deals now. If you can give us a little more color, what are the specific ones we expect the most synergies from over the course -- though you haven't recognized yet over the course of let's call it next three to four quarters, if you don't mind?

Again, we don't do a deal where they're not significant but again you got to measure it against the size of the deal. So again the big deals would be that VB deal, the NexTraq deal and Epyx deal would be the three biggest from last year. So we're literally just --what were those all kind of third quarter.

All in the second half.

So, Darrin, we're just getting now to the place where our program is in and we're starting to get some of those dollars. So those are kind of fourth, fifth inning in terms of where they're going. And then even some of the smaller deals, like Australia, New Zealand, that we're just kind of lapping now, those will be up a lot, but they're smaller in terms of absolute dollars.

So again, I think the good news for those of you that care about our future M&A I'd say our 2013 vintage of deals that our execution has been good. And our outlook for that set of -- that set of deals is good. So I can't always say that our 2014 and 2015 vintage would be good, but our record would be good.

I guess just last question and then I'll turn it back to the queue. In the partnerships you guys have done, I mean obviously, Chevron was announced last quarter and Shell. We haven't heard -- there's been lot of acquisitions but I mean what other types -- are there any other real partnerships like that in the pipeline that we've seen and talked about in the past?

Yes, again, I think we've announced not only a couple of those larger ones you mentioned, the Shell, 12 markets, the Caltech's, the Chevron, some of the big names that we've named. Another kind of four or five of what we'd call kind of mid-sized or regional North American deals.

So I'd say that we're kind of full-up, Darrin, digesting, what is it, five, six, seven of these things that literally had almost no revenue so far that are going to be coming online. So I'd say in terms of other ones we're more early days.

We want to do a good job on these, particularly the Shell one and the Caltech's and Chevron's so that the other oil see us as a good performer. So I'd say the Company is pretty focussed on getting these things online.

That's great. All right. Guys, nice job. Thanks.

Thanks.

Smitti Srethapramote with Morgan Stanley.

Follow-up question on the check-in product. It's been a round a couple of years. Just wondering what's been the key driver to sort of ignite the adoption of this product over the past couple quarters?

Yes, I think it's really just sales execution. Again, this product we kid Smitti inside the Company, it's probably the single highest value product in the marketplace, where a small company that travels around regionally can go into these kind of economy and mid-scale hotels at 15%, 20% off the street price, and it's a pretty simple product. And so once you make that proposition to Ron's Tree Cutting Company that he can save 20% at the Holiday Inn, they like the product.

So the key has been sales and distribution and marketing and making sure people know that we've got the product. And so the guy that's running that has built a bigger, broader sales organization in the last year-plus. And we're actually funding an expansion of that here in the next couple of quarters. So I'd say it is really just scaling up of our sales behind really just a terrific product.

Got it. And then just wanted to get your thoughts on the prepaid fuel card market. One of your competitors announced a deal with Shell, a couple of weeks ago. Just wondering do you see that as another opportunity in that would be something that would be a new growth driver for you guys?

Yes, the market that seems to have some interest in that product is Asia. Obviously, we didn't chase it because we didn't think it was kind of a midterm opportunity. So we took some different priorities with our, quote, GFN product. So I'd say that our view of that is pretty low potential over the short term.

Okay. Thank you.

(Operator instructions)

Tien-tsin Huang, JPMorgan.

Good afternoon, gentlemen. Let me ask I think, Ron, I think you said there was a bit of beat versus internal expectations this quarter. I heard that your big business is doing well, but maybe if you can specify what was better than planned?

Yes, Tien-tsin, it was really I'd say almost across the board. I'd say the one place that was not better was our direct business, because of the spreads. I think I called out kind of the $3 million headwind to that thing, it nestled around 9%, instead of low double-digits.

But basically it was we did better frankly in Russia, it was up 4% in local currency. We thought that thing was going to go south. The telematics business was up, the UK business is doing terrific.

Our Mexico business sold twice as much than it had in the prior year. So I'd say that it was pretty healthy in a lot of places. And it was just we basically are just selling better in a lot of places.

How does the fuel spread situation look like quarter to date here almost into August? I know the fuel has been pretty volatile.

Yes, I'd say it's back on normal again. Because of you guys we keep track of this thing quarterly but we really look at it over annual cycles. I think I've mentioned we tracked it for 10 years and it's a pretty steady number that allows all these retailers to stay in business, right. There's some minimum return they need to run these locations.

So spreads have to respond at some point where they can make some money. And so, again, it bumps around based on a bunch of factors. But to Eric's point we're out looking to Tien-tsin kind of history on the go-forward, which who knows, but that's what we're out looking.

Got it. Understood. Just the $2 million tied to the Shell build-out on the investment. What's the trigger for that incremental spend there?

So we spent some of it. Some of it's what I'll call getting ready. So we spent incremental IT money in terms of customizing stuff. Doing data conversion work.

We've hired some additional management. I hired a new guy basically to run the German market, he's an ex-GE, who's great, unfortunately, expensive.

Now we're heading into operating time so we've got people, sales, web investment, service investment. Obviously if we do the conversions we plan, we'll have some revenue offset.

I'd say we're trying to get ahead basically of that thing particularly from a sales and marketing perspective. So we can show Shell that we know how to sell their product and make them interested and keep going with us.

I see. I see. Last question just on the -- I spent some time with [Eden Redden]. I guess lot of activity going on in Brazil and also it sounds like Mexico could have some favorable regulations potentially. So I'm curious M&A wise can we see you point back into those two areas?

Yes, we obviously are on the ground in both of those markets have good relationships, Tien-tsin, with everybody in the space. So if there's a deal that'll trade, we'll certainly be looking at it. The regulation you mentioned, which we thought was going to be a negative in Mexico, I don't know if we did call this out, but if you remember they basically -- the government passed a law to basically eliminate the tax deduction on the paper on the voucher side of food.

So obviously lots of clients are trying to move over to card. And so I'd say we got our better than line average share of that. And it's caused people to kind of look up. So as I mentioned we've sold twice as much in that business of new business than we had in the prior period.

So it looked like it was going to be a problem and I'd say it's actually turned out to be a positive.

Great. That's good to know. Thanks for the details.

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