Corpay Inc (CPAY) 2014 Q4 法說會逐字稿

Greetings and welcome to the FleetCor Technologies fourth quarter 2014 earnings conference call. 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.

Good afternoon everyone and thank you for joining us today. By now everyone should have access to our fourth 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, adjusted net income per diluted share, and adjusted 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 to the most directly comparable information appears in today's press release and on our website as previously described. Also, we are providing 2015 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 2015 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 on Form 8K filed with the Securities and Exchange Commission. Others are described in our annual report on Form 8K. These documents are available on our website as previously discussed 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 as always we appreciate you joining today. Up front here I am going to plan to cover three subjects. First, I will comment on the quarter, on Q4. Second, I will review some of our highlights from 2014 and then finally I will discuss our 2015 outlook.

Okay, so onto the quarter. You know, we reported Q4 results that were very strong and actually a beat against our internal forecast. We reported revenue of $377 million, up 47% in cash EPS of 139, up 29%. So 47% top line and 29% bottom line.

So a good way to think about the quarter is in three distinct pieces which we describe in a Q4 exhibit number four which accompanies our press release. So, in that component number one, the base or the core -- FleetCor business reported $145 million in cash EPS for the quarter. Component two, Comdata which we owned for about six weeks in the quarter contributed $70 million in revenue but actually minus $0.06 in cash EPS.

As you may recall we had expected Comdata to be about a cash EPS push but higher integration, bonus severance, and advisory fees caused a bit of a negative return here. And then lastly, component three were a set of unusual adjustments that were quite positive to GAAP earnings in the aggregate but had no impact; zero impact on our cash EPS. Eric will cover these unusual items in some detail on his section.

Let me go back and talk a bit about the base or core, you know, FleetCor business in the quarter, which is really the story of a pretty wild macro environment. So in the quarter, and particularly in December, we saw US fuel prices plunge, FX weaken even more but market spreads actually expand to really unprecedented levels. The net effect of these three factors though created only about a $3 million revenue positive contribution and call it $0.02 of positive cash EPS. So, the happy from broader market spreads was offset by a lower fuel price and weaker FX.

The other drivers of Q4 were, one, our MasterCard product. Again, up 24% in the quarter despite $0.30 lower fuel prices. We implemented a couple of our newest oil partners, Husky and Ultramar. Our CLC business was up 22%. Our UK business was up 16%. We got a contribution from Shell Germany which is our new full outsourcing arrangement with Shell. It's now fully operational; contributed a few million in the quarter. And then of course, Comdata added again about $70 million in the quarter.

So, in summary, the quarter was driven by spreads being better than weak FX and low fuel price. Our big business is doing well. Some of our new wins coming online and then the addition of Comdata.

Lastly, and you may find this a bit surprising, our Russia business was actually up 9% in local currency, you know, despite everything going on there.

Let me now transition over to full year 2014 in which we reported revenue of $1.2 billion, up 34% and cash EPS of $515 billion, up 27%. So 34% top line, 27% bottom line for the full year.

In terms of highlights for 2014, here's just a few. One, we entered Germany, the fifth largest economy in the world through our new outsourcing arrangement with Shell. Went live on time in September and on budget. Two, we onboarded some new partner wins in North America and progressed implementation of our new Caltex Australia and Chevron international relationships. Three, we headed a group of new executive talent, mostly in market leaders in Brazil, Germany, Canada, and the UK. We completed three acquisitions in 2014 including the Comdata deal. Our largest in history.

And then, finally, our stock FLT continued to perform quite well, up about 26% for 2014. So look, 27% profit growth, a number of new wins, we enter continental Europe, we added some new executive talent and we completed the Comdata deal. So, all in all a very good 2014.

All right, let me transition now over to our outlook for 2015. So today we are providing guidance of $1,625,000,000 in a revenue at the midpoint and $605 million in cash EPS at the midpoint. The $605 million cash EPS reflects about a 17% growth rate over 2014s $515 million.

The story of 2015 is really a macro environment story. In the $605 million cash EPS guidance today we are making the following environmental assumptions. One, that FX will continue to be weak all year and remain at the kind of the mid-January levels. Two, that US fuel prices will average $2.58 a gallon which is approximately 30% below our 2014 averages. And finally, that market spreads will be better than historic levels but worse than 2014 and produce about $20 million less in revenue for us.

So, in aggregate when you take these three factors together they create approximately $160 million revenue headwind for us and approximately $1 of cash EPS headwind versus 2014. So quite significant. If we bridge back to the $635 million cash EPS guidance we provided on October 30, at that time we were expecting the 2000 environment to create approximately a $0.20 headwind to our 2015 plans. But in the months since October 30, fuel prices, FX, and even our market spread assumptions have dramatically worsened which has added about $0.80 of incremental cash EPS headwind to our 2015 plan.

But we decided to reduce guidance about $0.30 from $635 million in October to $605 million today and our plan is to power through the additional $0.50 headwind by doing a few things. One, accelerating Comdata's cost and price synergies. Two, implementing some price recovery initiatives. And three, fortunately relying on some better exit rates or better fundamentals in our base business.

Look, obviously we don't know how the environment will actually play out this year. But if it turns favorable either later this year or next, you know, we could get back some of this dollar in cash EPS headwind.

So, lastly let me comment just a little bit on Comdata. We are expecting Comdata to make a meaningful contribution this year in 2015 and our plan is to grow Comdata earnings about 20% over 2014 pro forma and that assumes that we will own SCF for only one quarter. Look, it is hard to plan a business like ours that faces this amount of environmental shock. But the good news is we would have guided to a much higher, much higher 2015 EPS estimate had the environment stayed constant. And second, our assumptions are calling for sustained low fuel prices and week FX, which could obviously go in a better direction over time.

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

Thank you, Ron. For the fourth quarter of 2014 we reported revenue of $376.7 million, an increase of 47% from the fourth quarter of 2013. Comdata which was acquired on November 14, 2014, contributed approximately 27 percentage points of the revenue growth or $70 million to the fourth quarter of 2014 results. The revenue from our North American segment increased 97% to $246.7 million from $125.4 million in the fourth quarter of 2013. Revenue from our international segment was approximately flat at $130 million in the fourth quarter of both 2014 and 2013 due primarily to unfavorable foreign exchange rates in the quarter.

For the fourth quarter of 2014 GAAP net income increased 61% to $109.5 million or $1.21 per diluted share, from $68.1 million or $0.80 per diluted share in the fourth quarter of 2013. Included in GAAP net income in the fourth quarter of 2014 was an estimated loss of approximately $19 million related to the Comdata acquisition, including all deal related expenses of approximately $26 million and approximately $29 million in gain from unusual items reflecting adjustments to purchase accounting entries for contingent consideration and tax indemnifications for the company's 2013 acquisitions of DB and VB in Brazil.

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 commissions. We use adjusted revenues as a basis to evaluate the company's revenues, net of the commissions that are paid to merchants who participate in certain card programs. 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 fourth quarter of 2014 increased 44% to $343.4 million compared to $237.7 million in the fourth quarter of 2013.

Comdata contributed approximately 29 percentage points of the adjusted revenue growth or $70 million to the fourth quarter of 2014 results. Adjusted net income for the fourth quarter of 2014 increased 37% to $125.8 million or $1.39 per diluted share compared to $92.1 million or $1.08 per diluted share in the fourth quarter of 2013. Included in adjusted net income per diluted share for the fourth quarter of 2014 was an estimated loss of approximately $0.06 per diluted share related to the Comdata acquisition including all deal related expenses.

For the fourth quarter of 2014 transaction volumes increased 321% to 379.1 million transactions compared to 90.1 million transactions in the fourth quarter of 2013. North American segment transactions grew 682% driven primarily by the acquisition of Comdata on November 14th in organic growth in our US businesses. Transaction volumes and our international segment grew 2% and were primarily impacted by organic growth in the business.

For discussion on revenue per transaction we are going to exclude the impact of the SVS business, which had approximately $270 million transactions in the quarter at a very low revenue per transaction. Revenue per transaction for the fourth quarter of 2014, excluding the SVS business, increased 17% to $3.31 from $2.84 in the fourth 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 fuel spread margins, fuel prices, foreign exchange rates, and the economy in general can have on our business. Fuel spread margins for the quarter were at record levels in the US which resulted in a favorable impact to revenues in the fourth quarter. And although we cannot precisely calculate the impact of these changes we believe it positively impacted our revenues in the North America segment by approximately $24 million in the quarter.

Changes in foreign exchange rates were unfavorable in all geographies for the quarter. And overall we believe negatively impacted revenue during the quarter by approximately $11 million. And finally, fuel prices decreased during the quarter and although we cannot precisely calculate the impact of these changes, we believe negatively impacted revenues by approximately $10 million. So in total, the macroeconomic environment was very mixed but overall had an approximately $3 million favorable impact to FleetCor's consolidated revenues.

Revenue per transaction, excluding SVS, for the fourth quarter was up in the North America segment and down slightly in international segment. Revenue per transaction increased 29% in North America due primarily to higher fuel spread margins during the quarter; a 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 the Comdata acquisition, excluding SVS, completed in the fourth quarter. These positive factors were partially offset by the impact of lower fuel prices in the quarter.

In international segment revenue per transaction decreased 2% due primarily to unfavorable foreign exchange rates in all of our geographies. This unfavorable impact was partially offset by organic revenue growth in several lines of business, particularly in the UK.

Now let's shift over and discuss some of the other drivers of our fourth-quarter performance. For our North American segment most of our lines of business performed well resulting in approximately 41% organic growth rate in the quarter, excluding the impact of the Comdata acquisition. Some of the positive drivers in North America revenue during the quarter were similar to the last several quarters including: the exceptional performance of our MasterCard product, which had revenue growth of approximately 24% over the fourth quarter of 2013, which included the approximate $0.30 drop in fuel prices versus prior year, driven primarily by increases in volume.

The CLC group provider of our lodging card programs hit another solid quarter with 22% revenue growth over the fourth quarter of 2013. This revenue growth was driven primarily by increases in our check-in direct product which targets smaller accounts. As I mentioned earlier, record fuel spread margins in the quarter positively impacted our revenue for the quarter by approximately $24 million, partially offset by the impact of lower fuel prices during the quarter of approximately $10 million.

And finally, the fourth quarter also benefited from our acquisition of Comdata which closed in November 2014 and contributed approximately $70 million in revenue for the quarter. Results in our international business were impacted by strong organic growth in our UK business which posted double-digit revenue growth over last year in local currency and the rollout of Shell Germany which went live in August. As of now, the economy in Russia remains soft and foreign exchange rates continue to be unfavorable. However, in spite of these headwinds our business in Russia continues to be up from the prior year in local currency.

Organic growth in the international segment was approximately 8% for the fourth quarter in constant currency. However, as I mentioned earlier unfavorable foreign exchange rates in all geographies negatively impacted revenues by approximately $11 million in the quarter.

Now moving down the income statement, total operating expenses for the fourth quarter were $204.1 million compared to $149.5 million in the fourth quarter of 2013. An increase of 37%. As a percentage of total revenues operating expenses decreased to 54.2% of revenue compared to 58.5% in the fourth quarter of 2013. Included in operating expenses are: merchant commissions, processing expenses, bad debt, selling and general administrative expense, depreciation and amortization expense, and other operating net. Included in the fourth quarter operating expense were normal operating expenses related to Comdata for the period of time that we owned the business in 2014. In addition, Comdata recorded deal related expenses of approximately $26 million including legal fees, accounting, tax, and various advisers and severance, et cetera.

Also included in operating expenses for the quarter was approximately a $29 million gain in usual items, reflecting adjustments to purchase accounting entries for contingent consideration and tax indemnification for the company's 2013 acquisitions of DB and VB in Brazil. So quite a few moving parts for the quarter.

Credit losses were $6.3 million for the quarter or 13 basis points compared to $4.8 million or 10 basis points in the fourth quarter of 2013. The slight increase in bad debt was primarily due to the inclusion of Comdata operations for part of the quarter in 2014.

Depreciation and amortization increased 56% to $37.8 million in the fourth quarter of 2014 from $24.2 million in the fourth quarter of 2013. The increase was primarily due to amortization of intangible assets related to the Comdata acquisition. Interest expense increased 140% to $13.2 million in the fourth quarter of 2014 from $5.5 million in the fourth quarter of 2013. The increase in interest expense was due primarily to additional borrowing to finance the Comdata acquisition.

Also, the company booked $15.8 million for loss on extinguishment of debt related to the new financing for the Comdata acquisition. Our effective tax rate for the fourth quarter of 2014 was 21.9% compared to 31.9% for the fourth quarter of 2013. The decrease in the effective tax rate was due primarily to a $9.5 million reversal of a deferred tax liability establishing conjunction with the DB acquisition in Brazil and as a result of the completion of some entity consolidation. Also, the fourth quarter of 2013 includes an unfavorable income tax adjustment related changes in the tax law in Mexico which required the company to record $1.5 million of additional income tax expense in the fourth quarter of 2013.

Now turning to the balance sheet. We ended the quarter with approximately $612 million in total cash, approximately $135 million of which is restricted and are primarily customer deposits. On October 24th we signed documents to enter into a new $3.355 billion credit facility consisting of a term A loan of $2,020,000,000, a revolving credit facility of $1,035,000,000 and a term B loan of $300 million. These new bank facilities used to refinance our existing term A loan and revolving credit facility and help finance the Comdata acquisition.

At year-end we had approximately $2,020,000,000 outstanding on our term A loan, $250 million outstanding on our term B loan and $648 drawn on our revolver, leaving $387 million of undrawn availability. Also on November 14th we entered into a new three-year $1.2 billion AR securitization facility in conjunction with the Comdata acquisition.

At December 31st we had approximately $675 million borrowed against the facility. As of December 31, 2014 our leverage ratio was 3.05 times EBITDA. The 3.05 times EBITDA is well below our covenant level of 4.25 times 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 $8.1 million on CapEx during the fourth quarter of 2014, including approximately $2 million at Comdata.

Now onto our outlook for 2015. For 2015 we have a number of macro-economic headwinds affecting our business. Primarily foreign exchange rates and fuel prices.

We are estimating that foreign exchange rates will negatively impact revenue by approximately $65 million compared to the 2014 average and the absolute price of fuel is expected to be a headwind of revenue of approximately $75 million versus 2014 average. In addition we believe market spreads will be better than historic levels but contribute approximately $20 million less revenue than 2014 spreads.

In aggregate these three environmental factors create approximately $160 million revenue headwind at approximately $1 cash EPS headwind versus the 2014 averages. That being said, we expect total revenues to be between $1.6 billion and $1,650,000,000, adjusted net income to be between $560 million and $580 million and adjusted net income per diluted share to be between $5.95 and $6.15 or $6.05 at the midpoint.

Our adjusted net income per diluted share guidance at the midpoint of the range represents a 17% growth rate over the $5.15 per diluted share reported in 2014 despite the macro-economic headwinds mentioned above. Also, in Ron's remarks he provided a bridge from our preliminary guidance of $6.35 in adjusted net income per diluted share, that we provide on our third quarter conference call on October 30th, versus our current guidance. At that time we were expecting the 2015 macro environment to create approximately $0.20 headwind to our 2015 guidance but since that time fuel prices, foreign exchange rates, and market spread assumptions have continued to worsen adding an incremental $0.80 headwind to our 2015 plan. However, despite this we have reduced our guidance by only $0.30 from $6.35 to $6.05 at the midpoint and expect to offset the additional $0.50 by accelerating Comdata's costs in price synergies, implementing some price recovery initiatives, and relying on better 2014 exit rates for better fundamentals in the business.

As Ron said earlier, we don't know how the environment will actually play out in 2015 but if it improves either later this year or next some of the $1 headwind may come back is a tailwind. Some of the assumptions that we have made in preparing this guidance include the following. Weighted fuel prices equal to $2.58 per gallon average for 2015 compared to $3.56 per gallon average in 2014. Market spreads slightly better than average levels in the first quarter of 2015, neutral in the second quarter and worse in the third and particularly fourth quarters. Foreign exchange rates equal to the seven-day average ended January 13, 2015. We are including the SVS business in the first-quarter guidance is we expect to own the business for the entire quarter. We expect continued weakness in the company's Russian business and full-year tax rate of 32.1%. Fully diluted shares outstanding of 94.3 million shares and no impact related to acquisitions or material new partnership agreements not already disclosed.

For those of you that are looking for guidance for the first-quarter, I want to remind everyone that our first 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 carnival celebration in the first quarter as well.

Also as we previously disclosed we are exploring the possible sale of the SVS business that we acquired with Comdata. In any event, we expect to own the business in the first quarter and are including the SVS business in the first-quarter guidance. With that said, we are expecting our first quarter adjusted net income per diluted share to be between $1.38 and $1.42. Our first-quarter guidance at the midpoint represents a 25% increase versus prior year.

For the second quarter we are expecting adjusted net income per diluted share to be similar to the first quarter and the second quarter excludes any impact related to SVS. Additionally, our volumes build throughout the year and our new asset initiatives gain momentum throughout the year resulting in a much higher earnings per share in the third and fourth quarters. We also 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.

(Operator Instructions)

David Togut, Evercore ISI.

Thank you. Good afternoon, Ron and Eric. Can you hear me?

We can. We can. Can you hear us?

Thank you for providing helpful detail on macro factors. You said that your plan would have been $7 in cash EPS excluding the three macro factors you called out which would have been about a 36% gain in cash EPS for 2015. Can you talk about the underlying assumption behind the $7 just so we can understand where the business would have been on a constant currency basis, and holding fuel price and fuel spread impact flat year-over-year?

Yes, David, it's Ron. In constant currency the plan is basically organic revenue growth was targeted at 10% for this year, for 2015. And then second, we have, as you can imagine, some initiatives both revenue and cost synergies both in the Comdata deal and some of our previous assets. So those would be the two core drivers, basically, of the growth.

And you called out 20% expected growth in Comdata earnings for this year. What would that have added up to, just on an accretion basis on a per share metric?

Yes, we are not going to provide the exact number but what I would say is that thing is penciling out to be a bit better than the numbers we quoted back in the fall. I think we gave you $0.50 to $0.60 if I recall and I would say it's coming in a little bit stronger, David, than that.

And remember the reason why is that Comdata has obviously zero FX impact because it is all here and then (b) there is kind of only one line of business that has any kind of significant fuel price impact. So it's not affected nearly as much as the core FleetCor business.

I see and then --

Thank God we bought that. It was a good thing to buy in this macro environment.

It certainly -- I certainly helped. If we look at international you had over 60% growth in earnings internationally. Was there any benefit from higher spreads from All-Star in the quarter?

Yes, there is almost no spread impact. There's only one business there, which we call TFTC that has any spread impact and it was de minimis, call it $1 million.

Got it. And then in this environment, Ron, with oil prices down so much are you seeing an increased propensity to outsource by the big oil companies?

I think there is more talk, David, obviously they are looking for all kinds of ways to reduce costs. We have actually got some calls, as you can imagine, in the last 30 days but I would say it's still early days.

Understood. And then just shifting gears to possible Visa Europe card which you have talked about in the past, any update there now that it seems that the European regulators will exclude commercial cards from regulation?

Yes, which is obviously a little bit of quote good environmental news. So the update there again is we have two different products. So in the UK we have a deal with Visa and that product, which we call our All-Star Premier Card is actually in market. I think we had 2000 or 3000 cards actually live working so we have that kind of in a controlled environment to make sure it works well.

And then second, is our more generic universal card which we have launched in Germany. That thing is in kind of its final field test now. And we expect to put clients literally live on that product next month in Germany.

And then do you have a specific plan to roll that out throughout Europe as you rollout the Shell business?

Yes, the plan, just to remind us to go into another five or six markets later this spring, kind of May/June and so if we have success with the universal card in Germany the idea would be to follow along and launch it in those other markets.

Just a quick final question from me. Do have growth assumptions for 2015 for Direct MasterCard and CLC?

Yes. And they are both, as you can imagine, high. Both high double digits again for 2015.

Got it. Thank you very much.

Phil Stiller, Citigroup.

Hi guys. Thank you for taking my question. Appreciate all the detail on the guidance. I guess one thing I was wondering about was the assumptions around SVS. Perhaps you could give us some detail in terms of revenue or earnings contribution for the time of ownership that you are assuming that if there is any assumptions in the guidance about use of proceeds if you do end up selling the business?

Hey, Phil, this is Eric. I would say first and foremost from a contribution perspective, I mean, it wasn't a lot. It's a smaller, obviously, piece of the business from a profit perspective so it was low single digit cents in cash net income for the quarter and what was the second part of your question again, Phil?

Any details on revenue and then if you're making assumptions about paying down debt with any proceeds you might get?

From a revenue perspective we didn't provide any specific detail on one product or one particular line of business. So we are really not going to comment on that specifically. And regarding sale, if we do sell the business, what we would do with the proceeds, we do not have any of that built into our guidance. So obviously if we took cash proceeds and paid down debt that would have an incremental benefit to our P&L.

Great. And something you guys might be able to provide a little more detail in terms of Comdata synergies, I know it's obviously a big target of yours, I'm just wondering if you could tell us what you are assuming in the guidance and then, Ron, I think maybe you said the Comdata earnings would grow 20% beyond 2015? So just want to make sure we are not pushing stuff into this year and the growth beyond this year is not 20%.

Yes, Phil, we have accelerated so we basically have gotten the cost synergies locked. It was a bunch of redundant things we chased so that is in the sort of $10 million to $15 million range but I think I told you this, we have elected in our plan to basically reinvest those dollars in to sales and marketing. Because we want to try to grow the businesses.

So from the cost synergies side we have got that money but we have kind of turned around and poured it back into growth. And I would say we have made good progress on the revenue synergies side. And again, we have accelerated a bit of that into this year because of these headwinds and that's quite a bit bigger than the cost synergies. So, it's I think pretty significant.

And in terms of, yes, it's earning so the 20% that we quote is basically excluding SVS. So we take out the pro forma from 2014 without SVS, look at our plan for 2015 add things up in earnings, pretax about 20% and, yes, our three year model is to grow that thing 20% plus in 2015, 2016 and 2017 which again was a key for us to that trade that that asset could grow at the FleetCor line average target which again is 20%.

Good to hear. Last question and I will turn it over. You mentioned price realization. I was wondering, I guess is this something that is kind of a nice byproduct of the lower fuel price environment that perhaps allows you to push that further this year?

Yes, look, I think whenever an end client's total bill drops by 30% to someone spending $100,000 a month on fuel and the thing goes down to $70,000 to get a couple of bucks for what we do I think -- I think is easier but I wouldn't say it's super easy. Everybody is pinching pennies and so we have been very, very thoughtful as part of that thesis of where Comdata maybe has opportunities they didn't take advantage of and that's where we have done, we're trying to be very, very careful in protecting those the relationships and the volume but basically kind of taking money where we can. So again, a lot of that is really already in place sitting here February 1. So I would say our confidence is pretty high there.

Great. Thanks guys.

Ramsey El-Assal, Jefferies.

A bit of a follow-up question. You mentioned that one of the levers obviously that might be able to work to offset some of the macro headwinds is price. Can you be any more specific about sort of which parts of your business contain the larger pricing opportunities? Anything about specific segments or geographies or products or is it more of a uniform statement across the board or how should we think about that?

Yes, Ramsey, that's a good question. I would say that we obviously looked everywhere, right, when we saw these headwinds at the end of last year. I would say that probably some fair amount of it is planned here where the fuel price impact is greater but I would say of the total number that we're chasing 40% of it is international, maybe 60% is here. And obviously we have looked at all kinds of things.

We look at floors on merchant contracts when prices drop, we look at rebate levels, we give people -- we look at interest rate levels. So we look across every lever everywhere and decide which things impact kind of customers least and make sure we kind of spread the thing around and we are obviously testing our way into a bunch of those things to make sure there is not a big impact. But I' ld say again, it's ground that we have covered before and I think again we have got pretty good confidence in it.

Okay. Switching gears on SVS is there a probability we should assign to you guys hanging onto this asset on a more permanent basis or are you really still quite set on divesting it, just taking your time trying to find the right opportunity or how should we think about SVS long-term?

Yes, again, I would say, the honest answer is, we don't know. I would give you a bit of an update that I think there is more interest in the asset than maybe we had thought. So, I would say that it is probably more likely than not that we would sell that asset. But I would say it is still too early to call. Ask me in 60 days.

Okay. Last one from me is just about the M&A pipeline in 2015. I mean granted it is not on an organic basis but it could also theoretically contribute to closing some of the gap from numbers from the macro environment. What is the -- how would -- how should we gauge the kind of quality of your M&A pipeline here and your appetite to kind of do deals while you are digesting Comdata? Are you moving along unparalleled tracks or is it something we should kind of not expect as much of this year than prior a cycle?

No, no, our appetite is high. Again, we did a lot of that work as we signed last summer and we have gotten to the target that we had kind of the three times and obviously we are delevering from here. We have got, Eric, $400 or $500 million in liquidity in the current lines that we have today. Yes, that's correct.

And we have transitioned, Ramsey most of the Comdata integration work to our ops people if you will, not our deal team. So I would say that our plan and the objectives for me and that deal team is to put you know $1.5 billion to $2 billion to work over three years. And I would say that this is the game we are in.

We like assets and getting assets and doing things and so sitting here today in front of me we have got three or four conversations on the deal side and I'm looking at three or four conversations on the partner side now that we are in. I would say I characterize them as generally earlier innings. So I would not say any of these are kind of Q1 but I would say that our expectation is we're going to try to do something on both partners and deals in this year. We have got the liquidity, we have got the management and so if one of these things looks right then we will go for it.

Thanks for your answers. That is all for me.

Thanks.

Xinjie Wang, JPMorgan.

Great. Thank you so much. Thanks for the guidance. It is helpful. So just a follow-up to Ramsey's question. The strong dollar, Ron, does that entice you to be more aggressive in bidding on international assets?

Yes, we like that, Xinjie, yes. We for sure like that. (laughter) If you're spending money it's good.

Yes, that does open things up. But it sounds like the pipeline hasn't changed too, too much. Is that a fair statement?

It is always, Xinjie, if you're looking at what we look at, right? There are things coming in and some that have frozen up because fuel prices collapsed so sellers decided to hold -- you know new things come in, so I would say that even though we say to you guys, hey, we're looking at some number of things, don't -- obviously don't assume it is the same three or four things today that we were looking at last summer when you would've asked. But we have got people out, like I said, we have got relationships you know, everywhere so we are active in contacting people and trying to get people in the conversations all of the time.

Okay. That' s good to know. I heard the Russia comment at 9%. But international growth it looked like was slowed to little bit to 2% if I see this right here. So was that a surprise relative to plans?

It is FX contingent. So, again if you looked at our Russia business in the quarter, frankly we, I was a bit shocked to see that business with everything going on up 9% local currency. I don't have it in front of me but I think the thing was still up something for the full year in local currency. But I think the currency is down there close to what 50%.

Yes.

Per year. Oh, yes, it has gone down significantly. So when you convert the thing it's obviously way down, Xinjie, for both the quarter and the year.

How about just overall transaction growth for international?

Yes, transaction growth, Xinjie, in the quarter internationally was a couple percent and obviously it was a lot higher than that in the full-year basis so around 18%. So, it's going to vary by geography as you would imagine so some parts of the world are a little stronger than others. You know, the UK is performing fairly well and then there is other parts of the world that have been a little softer like Brazil. I think we have called that out on a couple of other calls. The economy there it has softened which has certainly impacted volumes. The Czech Republic is a little bit soft as well. But again, that is just the way goes. Some businesses are doing very strong and some are impacted by economies and some other geographies.

Xinjie, I would just add which is a little bit funny, when we were kind of closing out our budget with our board at the end of the year and the world was moving, right, moving the wrong way, the thing that is kind of fascinating is we were able to take up our numbers a bit because the fundamentals, both volume and rate, Xinjie, the fuel price and the FX are actually better and we're exiting, as I said in my comments better than we thought. So if you can wave away all of the smoke here I would say things are actually healthier here at FleetCor than they have been.

Great. That' s good to hear. Just one more if you don't mind. Just the tax rate is guess is going up. You didn't call that out as a headwind but it looks like a $0.17 drag to our numbers. So tax rates going up to 32, is that a sustainable level? Thanks for taking my questions.

Yes, Xinjie, I mean, it really isn't changing a whole lot from 2014. We had kind of a $9.5 million tax favorability that we recognized in the quarter related to some purchase accounting true ups in Brazil. So it was a one-time non-cash favorability we had to book to tax expense. You know, excluding that taxes came in more in the 30% or 31% range and the difference between where we ended the year and next year is purely due to Comdata which is mostly in the United States. And as you know, it's at a much higher tax rate than we would expect internationally.

Helpful. Thanks for the update.

Darrin Peller, Barclays.

Thanks, guys. Just very quickly to follow up on all the discussion around deals. I think in the past you have been saying now $750 million potential capital use per year for acquisitions. Is that still on track, despite all of the noise in the environment, and then just one more operating question?

Yes, Darrin, it's Ron. The kind of the goal that we have in the Company is we think about spending our free cash flow. I don't have it in front of me, but I think the number is around $600 million this year and if you look at our model, that thing obviously has grown 20%. That is the right zip code.

Okay.

Kind of $600 million, $700 million, $800 million, call it $1.5 billion to $2 billion over three years. The appetite question was a good one earlier that, it's what we do, right? A big part of the game with the Company is finding assets that we know and working them. And so I would say we're still eager to do that.

Great. Thanks, Ron. Just to help deconstruct this extra $0.50 embedded in your guidance, basically given that you're really only moving it by $0.30, despite $0.80 headwinds. Again, you broke down pricing potential, exit run rate being stronger and then synergies from Comdata. I guess I'm just try to figure out, is this basically -- usually you guys still maintain and leave some conservatism from synergy potential from deals. Would this kind of use it all up in a way, is what I'm kind of getting at? Or is there still more opportunity in Comdata than maybe what you are even potentially including here that could come? And then maybe just help us deconstruct if there's -- how much of this is from pricing or just overall core strength in the business versus Comdata, would be really helpful.

I think that, Darrin, is a good question. I would say that we spend an awful lot of time studying the Comdata business, it had a whole set of ideas of how to improve profit performance. And I would say that the major difference is just pace.

When you look at the 3-year plan, we had kind staged we are going to do one, two, three, in 2015 and then we are going to do four, five, six. And I'd say because of these headwinds we elected to accelerate a few of the things that we had thought about initially sooner.

I would say that there is still a bunch of things that we haven't pulled the trigger on there because we are looking at over the 3-year plan. I would say that one is about pace.

And then on the rest of the question, I would say think about it as, call it one-third of the clawback is through fundamentals and exit rates and the other two-thirds is Comdata and price recovery. I think my comment earlier is we studied everywhere globally, tweaked prices and not do a lot to clients.

Again, I think we picked what we think is smart and balanced and, of course, we could always push harder. But we picked what we -- I could've pushed and kept guidance the same, but I think we try to -- we're trying to run a company to make profits grow 20% every year, not just this year. I think we took what we think makes some sense.

That's really helpful. Just one last question. Moving away from Comdata, it looked like international margins were strong. Just a quick comment on the synergies remaining internationally from some of those deals would be helpful. I will turn it back to the queue.

This is Eric. I want to remind everybody, if you go back and listen to my script, we had some one-time favorability that were booked into the quarter, and they were international. We had booked about $30 million of, I would say purchase accounting, reserved reversals into the quarter. Unfortunately, GAAP rules now require us to take those adjustments to the P&L versus to the balance sheet and leave it in purchase accounting. Again, we had about $30 million of one-time favorability in there.

Okay.

Darrin, let me just -- it's Ron. Let me just add to that. I think sitting inside of Eric's comments, remember, we have three or four assets that we would still call new, relatively new, that are getting treated. If you look at the UK, we bought a company called Epyx, what is it, just over a year ago, several months ago. We bought a couple companies down under in Australia and New Zealand, and we went live with that Shell Germany thing that the cost structure's been in the business, but not the revenue.

I would say that certainly in Q4, if you looked at those assets versus the prior Q4, they are all way up in profits. Way, way up in profits. We had a chance, basically, to put our phase I transformation stuff into those sets of businesses and get traction. Those things for sure boost the margin.

Again, I want you to be sure -- be clear here, that the margins are up, if you look at one of the schedules in the press release, 70%. The profit is up in internationally, but 30 points of that is the one-time favorability that I mentioned.

I got it. Thanks, guys. I appreciate it.

Jim Schneider, Goldman Sachs.

With respect to some of the benefits you eventually expect to roll on towards the end of this year, namely pricing and Comdata revenue synergies, can you maybe talk about, first on the pricing, when you expect to be able to realize some of the pricing and contract actions and whether you can realize those all at once, given the contracts you have existing that are already in place? And then on the Comdata revenue side, is that just small, over the road customers? And do we expect that is going to be the middle of this year where it is going to be out to the end of 2015 and into 2016 before you recognize the benefits there on the revenue side?

Jim, it's Ron. I would say that we are, again, pretty far along on those set of revenue synergies, and I would say think of them as big contracts that take time. We are looking everywhere, we went obviously both the merchant side and the customer side.

We looked at rebates, and so there is a whole series of places where there were more immediate, when I use the word accelerate, more immediate pricing action. And so I would say you should think about a lot of that, most of that being in our run rate certainly by the start of Q2.

Okay. That is both pricing and revenue from Comdata, right?

Correct. And the other comment I made earlier, which we built the bid into the plan, we basically took the cost savings, the redundancy savings and poured that back into sales and marketing and management investment. We are stepping up on adding people to make sales. Clearly, as you get to the back half of the year, we are assuming we're going to get some return on that incremental $10 million to $15 million.

That's helpful. Thanks. And then maybe as a follow-up, can you comment on the European oil company partnerships specifically and what opportunities you see there? Whether you see there is a chance that bids could come in the first half of the year, or is it more of a second half phenomenon?

The first comment I made I think is the Shell one, Shell, I think, was the first guy in Europe they gave us a chance on the systems side. They had project called [H3] and picked out global fuel card systems, call it three years ago. We've got that in X number of markets.

Maybe being first they decided, call it a year ago, to let us to a full outsourcing deal in 11 or 12 countries. I would say that second thing, even though the Shell guy in the room with me, is going to exceptionally well. We have done those conversions. We didn't miss a beat, we didn't bum out customers. We had all of the service people in place. We put sales people in place to sell.

I think the feedback, both from the customer, the partner perspective and ours, which I commented it generated a few million of brand new revenue in Q4., I think that thing is off to a good start, and I think that success is making its way into the conversations that we are having with some of the other guys there. I can't remember if it was still or someone earlier call said, hey, the lower fuel price motivates oil companies to look for other cost reduction ideas, and I think the answer is yes. I have said before, us having success and giving partners confidence that we can do good work, I think is the key to them picking us.

That's helpful.

This concludes our time for questions on today's call. Thank you for your participation. You may now disconnect your lines at this time.