Corpay Inc (CPAY) 2015 Q2 法說會逐字稿

Hello and thank you for standing by. Welcome to the FleetCor Technologies Inc. second quarter earnings conference call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions.

(Operator Instructions)

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

Good afternoon everyone, and thank you for joining us today. By now, everyone should have access to our second quarter press release. It can be found at www.Fleetcor.com under the investor relations section. Throughout this conference call will be presenting non-GAAP financial information including adjusted revenues, adjusted net income and adjusted net income per diluted share. 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 GAAP information appears in today's press release and 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 described in our annual report on Form 10K. These documents are available on our website as previously discussed and at www.SEC.gov. With our standard disclosures out of the way, I would like to turn the call over to Ron Clarke, our Chairman and CEO.

Okay Eric, thanks, good afternoon everyone, and appreciate you joining the call today. Up front here I will plan to cover three subjects. First, I'll comment on Q2. Second, I'll provide a bit of an update on SVS and then third, I will talk about the second half and our raise in full year 2015 guidance.

Okay, so on to Q2. We reported Q2 revenue of $405 million, up 48% and cash EPS of $1.48, up 16%. 48% top line, 16% bottom line. The quarter finished a few cents better than our expectations, but that was primarily because we got a little help from higher fuel prices in the quarter. At least higher than our internal plan, but when you look at the macro environment versus the prior year, it is actually quite negative. We estimate that unfavorable FX and lower fuel prices negatively impacted our Q2 cash EPS by approximately $0.28 a share. I'm not a big fan of could've, would have, should have stuff, but our cash EPS would have been $1.76 versus the $1.48 we reported, up 39% on a constant like for like basis.

Let's look at the four drivers of our growth in Q2. First off, our high growth businesses continue to perform well. Our direct MasterCard business grew 30%, that is at a constant fuel price. Our CLC business was up 13% and our Mexico business was up 14% in local currency. Good performance across those three businesses.

Two, a new oil partner, Wynns, delivered some incremental revenue in the quarter. First off, our Chevron Asia and Caltex Australia new processing relationships began to generate some revenue. Our Husky and Ultramar relationship in Canada continue to build and add volume and revenue. Our Shell Europe outsourcing program was extended in the three additional countries in the quarter, bringing our total country count to five. Some good progress with new oil partners.

Third, a couple of our new acquisitions performed well in the quarter. Epyx, our maintenance business in the UK, was up over 30% and PAC Pride, our card lock business that we acquired last summer, was up 26%. Our new acquisitions doing well. And then the fourth driver of Q2 performance was obviously the addition of Comdata, which continues to make good progress against our 10% organic revenue growth target.

Overall, our Q2 fundamentals were quite good, consolidated organic revenue growth pre-Comdata at about 10% on a constant like-for-like environmental basis. So again, right around our internal target. We also continued to make new incremental sales investments in the quarter. Since the beginning of the year we have added 125 net new sales reps globally. That included some big increases in Brazil, Australia, the UK, and Comdata. We're continuing to invest in growth.

Let me transition over to SVS. As many of you know we've been exploring the sale of SVS since earlier this year. We're still in discussions with a view interested buyers, but a new alternative has recently surfaced that we decided to explore. So as a result we're going to run the process longer and keep SVS in our guidance for the balance of 2015. We will certainly keep you updated as we progress and as we finalize our decision.

Lastly, let me transition over to our views on the second half and our full year 2015 guidance. We are expecting continued acceleration in earnings in the second half. Our guidance is out looking cash EPS to be up 10% sequentially versus the first half. A number of things, a number of initiatives are expected to contribute to the second half performance.

First, further buildup of the Uber program, that thing is off to a terrific start. About 75% of the eligible drivers solicited have signed up for the card program and about 40% of actually activity or started using the card. Great start there. We're finally converting some of our UK customers onto our new Allstar One chip and pin card. As you may recall, that offers universal acceptance across the entire UK and discounts at about 20% of fueling sites. So a product really with the best of both worlds, convenient with discounts and was great fraud protection. We're excited about that.

We've installed some new rate initiatives in Comdata's trucking business which we will benefit from in the second half. Our plan is to roll out two additional countries in the Shell Europe outsourcing program which would bring our total country count to seven. And we will continue the roll of our PAC Pride extended network card, which allows our back ride customers to basically go beyond the PAC Pride sites and create more out-of-network transactions. A number of these initiatives will help performance in the second half.

Lastly, let me cover our thoughts on 2015 guidance. We're raising full year 2015 cash EPS at the midpoint to $6.22 today, so that's up from $6.10 in our last call. A way to think about the bridge, $6.10 last time and this quarter, Q2 printed $1.48, which is $0.02 to $0.03 better than we guided to. Our outlook is for $0.06 of incremental negative FX headwind for the second half, that is on top of what we had already planned. And then again our plan to retain SVS for Q3 and Q4 will add circa $0.15, so when you add that up, it gets to this new guidance of $6.22.

If we're fortunate enough to deliver the $6.22 guidance, that would result in a 21% cash EPS increase over last year's $5.15 reported cash EPS. Given all the difficulties in the macro environment, we couldn't be more delighted to outlook five consecutive years of 20% plus earnings growth since FleetCor went public. Not to bad. With that, let me turn the call back over to Eric. He'll provide some additional detail on the quarter and on our outlook. Eric? (technical difficulty)

Please continue to stand by. This is the operator.

For the second quarter of 2015 we reported revenue of $404.6 million, an increase of 48% from the second quarter of 2014. The revenue from our North American segment increased 104.9% to $284.6 million from $138.9 million in the second quarter of 2014. Included in the second quarter results were is the impact of Comdata which was acquired on November 14, 2014. Revenue from our international segment decreased 10.9% to $120 million from $134.6 million in the second quarter of 2014. For the second quarter of 2015, GAAP net income increased 11.4% and $98.7 million, or $1.05 per diluted share from $88.5 million or $1.03 per diluted share in the second quarter of 2014.

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 one of our press release. Adjusted revenues in the second quarter of 2015 increased 51% to $382.9 million compared to $253.2 million in the second quarter of 2014. Adjusted net income for the second quarter of 2015 increased to 28% to $138.9 million or $1.48 per diluted share compared to $108.9 million or $1.27 per diluted share in the second quarter of 2014.

Elements of the macroeconomic environment had a significant impact on our results in the second quarter. Specifically, market fuel spread margins, fuel prices, and foreign exchange rates. In the aggregate, we estimated that these macroeconomic items negatively impacted our business in the second quarter of 2015 versus the second quarter of 2014 by approximately $47 million in adjusted revenue, or approximately $0.28 in adjusted net income per diluted share. On a constant currency fuel price and market spread margin basis, we would have reported approximately $1.76 in adjusted net income per diluted share in the second quarter of 2015 compared to $1.27 in the second quarter of 2004 for a growth rate of approximately 39%.

Changes in foreign exchange rates were unfavorable in all geographies for the quarter and overall we believe negatively impacted adjusted revenues during the quarter by approximately $24 million. Fuel prices also decreased during the quarter versus prior year which were partially offset by favorable fuel spread margins. And although we cannot precisely calculate the impact of these changes, we believe they negatively impacted adjusted revenues by approximately $23 million. To better understand the organic growth for the quarter, we calculated revenues using constant currency, fuel price and market spread margins. Based on these criteria we would have reported in approximately 10% organic growth rate for the quarter excluding the Comdata business and approximately 8% on a consolidated basis.

For the second quarter of 2015, transaction volumes increased 382% to 435.1 million transactions compared to 90.2 million transactions in the second quarter of 2014. The increase in total transactions was primarily due to the acquisition of Comdata on November 14 and also organic growth in our businesses. Excluding the impact of Comdata, our transaction volumes were 94.6 million in the second quarter of 2015 compared to 90.2 million transactions last year. Or a growth rate of 5%.

North America segment transactions grew 812%, driven primarily by the acquisition of Comdata and also organic growth in our US businesses. Transaction volumes in our international segment fell slightly and were down approximately 3.9% to 45.7 million transactions. Transaction volumes in the international segment were impacted primarily by market softness in Russia and Brazil. For a discussion on revenue per transaction, we will exclude the impact of the SVS business, which had approximately 296 million transactions in the quarter at a very low revenue per transaction. Revenue per transaction for the second quarter of 2015, excluding the SVS business, decreased 11.5% to $2.68 from $3.03 in the second quarter of 2014. 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 was influenced by our acquisitions, organic growth in the business, and fluctuations in the macroeconomic environment as previously discussed.

Revenue per transaction decreased 16.6% in North America, due primarily to lower fuel prices during the quarter versus the prior year quarter, partially offset by slightly higher spread margins during the quarter. In the international segment, revenue per transaction decreased 7.2%, due primarily to the unfavorable impact of foreign exchange rates across all of our geographies. This unfavorable impact was partially offset by organic revenue growth in several lines of business.

Now, let's shift over and discuss some of the other drivers of second quarter performance. For our North American segment, most of our lines of business perform well. On a constant currency fuel spread and fuel price basis we reported approximately an 11% organic growth rate in the quarter excluding the impact of the com data acquisition. Some of the positive drivers in the North America revenue during the quarter were similar to the last several quarters. Including the exceptional performance that were MasterCard which had revenue growth of approximately percent of the second quarter of 2014 measured in constant fuel price. The increase in revenue was driven primarily by increases in both transactions and revenue per transaction on a constant fuel price basis.

The CLC group provider of our lodging card programs had another solid quarter with 13% revenue growth over the second quarter of 2014. This revenue growth was driven primarily by increases in our check in direct product which targets smaller accounts. As I mentioned earlier, the macroeconomic environment was mixed, slightly favorable fuel spread margins in the quarter versus the second quarter of 2014 positively impacted adjusted revenues for the quarter but was more than offset by the impact of lower fuel prices during the quarter. In total we believe lower fuel prices negatively impacted adjusted revenues by approximately $23 million.

Finally the second quarter also benefited from our acquisition of com data which closed in November of 2014. Our com data business excluding SVS performed well in the quarter and had an organic growth rate of approximately 7% on a constant fuel price basis versus prior year. However as we discussed on last quarter's call, lower RFID sales in our trucking business in higher opt out rates in the healthcare segment impacted the organic growth rate in the quarter and is included in our balance of the year forecast.

Organic growth in the international segment was approximately 9% for the quarter measured in constant currency. However as I mentioned earlier unfavorable foreign exchange rates in all geographies negatively impacted adjusted revenues by approximately $24 million in the quarter versus last year.

Most of our international business is posted good organic growth rates on a constant currency basis. Some of the highlights for the quarter include the continued successful conversion of the Shell small business portfolio. We're now in a total five European markets, Germany, Austria, Netherlands, France, and Belgium with more to come in the second half of the year. Epyx, our maintenance business in the UK, was up over 30% in the quarter in constant currency. Our Mexico business performed well and posted double-digit gains. And although Russia volumes remain soft, total revenue was still up about 4% on a constant currency basis compared to the prior year quarter.

Now, moving down the income statement. Total operating expenses for the second quarter were $235.5 million compared to $139 million in the second quarter of 2014, an increase of 69.4%. As a percentage of total revenues, operating expenses increased to 58.2% of revenue compared to 50.8% in the second quarter of 2014. Included in operating expenses are merchant commissions, processing expenses, bad debt, selling and general administrative expense, depreciation and amortization expense, and other operating net.

Including the second quarter of 2015 operating expense were additional operating expenses and significant additional amortization expense related to the acquisition of Comdata. In addition, non-cash stock compensation included in general and administrative expense was $13.5 million in the second quarter of 2015 compared to only $7.7 million in the second quarter last year. Credit losses were $4.9 million for the quarter, or approximately 4 basis points compared to $6.7 million, or 14 basis points in the second quarter of 2014.

The 10 basis decrease in bad debt was due primarily to the inclusion of Comdata in the quarter which had bad debt as a percentage of its billed revenue significantly below the FleetCor average and lower bad debt in our Russia business compared to last year. Depreciation and amortization increased 100% to $48.8 million in the second quarter of 2015 from $24.4 million in the second quarter of 2014. The increase is primarily due to amortization of intangible assets related to the Comdata acquisition.

Interest expense increased 241% to $18.1 million in the second quarter of 2015 from $5.3 million in the second quarter 2014. The increase in interest expense was due primarily to additional borrowings to finance the Comdata acquisition. Our effective tax rate for the second quarter of 2015 was 32.1% compared to 30.8% for the second quarter of 2014. The increase in the effective tax rate was due primarily to the inclusion of the Comdata business which operates primarily in the US with the higher overall tax rate versus the average FleetCor rate.

Now, turning to the balance sheet. We ended the quarter was approximately $514 million in total cash. Approximately $129 million is restricted and are primarily customer deposits. As of June 30, 2015, we had approximately 1.970 billion outstanding on our term A loan, $249 million outstanding at our term B loan and $381 million drawn on our revolver. Leaving $654 million of undrawn availability. We also had approximately $764 million borrowed against our securitization facility.

As of June 30, 2015, our leverage ratio was 2.69 times EBITDA, down from 2.86 times in the first quarter which is well below our covenant level of 4.25 -- 2.5 times EBITDA. We intend to continue 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're not a capital intensive business and we spent only $8.1 million on CapEx in the second quarter of 2015.

Now on to our outlook for the remainder of 2015. We're raising our guidance to reflect our second quarter beat in adjusted net income per diluted share and in the inclusion of the SVS business for the remainder of the year. However, we also continue to be cautious about the macroeconomic environment for the remainder of the year, including foreign exchange rates. If they stay where they are today, we will have an incremental $0.05 to $0.06 headwind in adjusted net income per diluted share the rest of the year. As a result for FY15 are updating our financial guidance as follows. Total revenues between $1.69 billion and $1.73 billion, up from the previous guidance range of between $1.600 billion and $1.650 billion. Adjusted net income between $580 million and $590 million, up from the previous guidance range of between $565 million and $585 million. Adjusted net income per diluted share between $6.17 and $6.27, up from the previous guidance range of between $6 and $6.20.

The Company's fiscal year guidance assumptions for 2015 are as follows. Weighted average fuel price of $2.80 for the balance of the year in the US compared to $3.62 per gallon average in the US in the second half of 2014, down approximately 23%. Market spreads lower in the third and fourth quarters of 2015 compared to the third and fourth quarters of 2014. And as a reminder, spend levels in the fourth quarters of 2014 were at record levels. Foreign exchange rates equal to the seven-day average ending July 13 resulting in a negative impact to adjusted revenue of approximately $12 million and approximately $0.05 or $0.06 in adjusted net income per diluted share compared to previous guidance. We are exploring other alternatives for the SVS business and we believe it will take to the end of the year before we reach a final conclusion. As a result, we are including the SVS business in our guidance for the remainder of the year.

We're assuming fully diluted shares outstanding of 94.3 million shares and as always, no impact related to acquisitions or material new partnership agreements not already disclosed. Our adjusted net income per diluted share guidance at the midpoint of the range represents an approximately 20% growth rate over the $5.15 in adjusted net income per diluted share reported in 2014. Although we do not anticipate providing quarterly guidance on an ongoing basis, we believe it is prudent to do so given the impact of the several items just discussed that impact the rest of the year. For the third quarter, we are expecting adjusted net income per diluted share to be between $1.58 and $1.64 in adjusted net income per diluted share. With that said, operator, we will open it up for questions.

Thank you sir, we will now begin the question and answer session.

(Operator Instructions)

David Togut, Evercore ISI.

Could you quantify the growth in Comdata earnings that you expect for 2015 as a whole?

David we really haven't disclosed that information anywhere. I think we have provided some relative range in the past. I think what we have said is want to exit 2015 in that 20% trajectory. Our objective is to invest more money in sales and marketing and take that business from what was a historical 6% organic grower and get it into that 10% range, so we are in the process of investing more money in sales and marketing and we tend to build that sales engine throughout the year and we hope to exit in a much better place as we get into 2016.

David it is Ron. I would probably guide you to mid teens. We had planned 10 and 20 and although we don't have that number handy, we backed off a tad on the corporate payments thing, so that would be our estimate: mid to high teens.

On the corporate payments could you give a little more granularity in terms of what you are seeing with the opt outs on the healthcare side in virtual, and then also a little more on the RFID rollout, which you called out in Q1, as well?

I think the good news is it stabilized, so the surprise we got that we mentioned in the last call in the first quarter is not much new. So I'd say the healthcare pieces basically stabilized. I would say that we have got a 50% chance of getting that account back that I called out. So I'd say that is the update.

You called out 125 salespeople added year to date. Can you give us a sense of what businesses you added them in any perspective you have on the OTR business at Comdata, particularly given the 3% decline Wex's in same-store sales and OTR would be helpful.

I think I mentioned in the opening David, but we went into the emerging markets, at least emerging for us what should be Brazil, Mexico, and Australia, and we put some fair number in the Comdata, and both businesses in Comdata. So those four areas got the majority of the 125. Was the follow up on OTR; was that the second part of the question?

That is right given, what we've heard from Wex on their call.

That revenue was up on a pro forma basis. It is funny, yesterday I was reviewing something and we're looking at that exiting in Q4 well above 10%. So in the forecast that we have given, I have got good news to report that that forecast that we have has that line business over Q3 and Q4 are growing double digits, was the goal we had, so I would say we're on track to get that done this year.

You've mentioned Uber 75% adoption rate. Can you to dimension for us what Uber might mean from a revenue and earnings perspective once you have a full year of that contract under your belt?

Not so much because of the confidentiality with them, but I would say that the client, Uber and us were delighted. To go out to 100 people with an offer, and get 75 to take it and get 40 to actually use it in the first 60 to 90 days, I think, speaks to the promotion that they have done and the interest in the thing. So it is way, way ahead David of what we thought it would be over the last two or three months, and we are standing by for their call to try to take it to additional places. So it is off to a great start.

That is great to hear, just a quick final question. Would you stand with some of these big oil companies in Europe with respect to outsourcing, particularly as oil prices continue to decline?

I would say not much new to report. It sounds like we could just tape-recorded the prior session that I think at least two or three of them are still waiting to see how we do with Shell and how Wex does with Exxon. But I think as mentioned in the last call, we are in conversations with a couple of big ones that are evaluating going the same way, and my guess is they will make some decision later this year or next as they get a chance to see more. I think again we still view it as a really big opportunity with a million-dollar question being when, when will they pull the trigger?

Phil Stiller, Citi.

You introduced new products in Europe over the last couple of quarters in the UK and Germany. Maybe you could talk about how those products are being received thus far.

Philip it is Ron. I would say still early days on the universal card in Germany, which we think is a big opportunity. I would say we're still in the kitchen testing trying to get the product right, get level 3 and that capability into the version 1.0, and second we are trying to get the sales team and the message buffed up so that we can get some traction.

The good news is the stuff is working. We've obviously got a pile of clients running on the product and we've got people selling it, so I would say that so far, so good.

On the UK, I think the reception has been terrific and we expect to convert a very sizable part of our base in the second half over this new All-Star one product. They really like it, they have been waiting quite a while because it was quite complicated changing the platform to Visa from proprietary and chip and pin and adding a discount network to it and getting all of that to work on one card on a system we put in a year and a half ago was a 10 in terms of difficulty.

But we have got it all working, and all rolling now. And the thing we like is, it is not only good for customers, they get more benefits, but it is good for us because we get improved economics. That will roll as I said in the second half.

Can you provide an update on Shell? You are in five countries you have got a few more rolling out. How would you grade your progress thus far, and how does that play into what David asked about in terms of further discussions with other companies?

That is a funny one, because I grade all of our execution progress and staff meetings, and that one as you said in the meeting is an A. The couple of guys running that is our European guy and our CIO, because it is pretty technical and they not only have gotten to the conversion schedule of five to date and two more, seven this year, but we have gotten to the revenue plan in terms of the timing. So I would say of all of the new things we do, that has been about as good as anything we have done and I would say that we communicated, or I did that, that project would deliver I believe $20 million to $30 million of new incremental annualized revenue, and I say we're highly confident it will exit this year into 2016 inside of that range. A to capital A- on that project.

Last question and I will turn it over. Just M&A pipeline; after the balance sheet has improved, given the cash flow you produced since Comdata, any update on the pipeline?

We could say that we have got a number of deals that are active. A couple of those are getting to be pretty late innings. As you said I think our comfort level, I don't remember or recall Eric's number, 27 was the ratio, but we are projecting that thing to be under 25 as we exit the year. And we have got capacity back for management absorbing the thing. So I would say it feels good to be doing something now.

And second I want to call out earlier that the newest things we have done, the Epyx and PAC Pride, we have not lost our touch. They are up 26% and 30%, so when we buy stuff we seem to do something with it.

James Schneider, Goldman Sachs.

Following up on the theme of the earlier questions, with respect to Shell and the proof points that you think other oil companies in Europe look to, what are some of the key metrics? Is it just productivity per account, is it growth in accounts, or what are the metrics or dimensions that you think that the other oil companies are looking to in that proof? And can give us any internal metrics you might be using two grade that beyond letter grades.

James it is Ron again. That is a good question.

I'd say the two primary metrics would be around reliability and satisfaction, so the first one is, I moved a big part of my portfolio over to you, Mr. Outsourcer. How are you doing with it? Are they happy? Do the cards work? Are the calls being answered? Are the bills accurate? All the mechanics of running a program reliably and in a satisfactory way. And then two, I'd say, volume and sales: they hired us to try to build these files. So are we selling, reproducing new business? Because a lot of the other pieces of their decision were already in the contract: the economics and some of the other things. So they already know those as part of the contract. So I would say those would be the two primary gates for other people to want to study.

Just as a follow up, specifically on Comdata I know that growing the small fleet business within Comdata in OTR was always a big priority for you. Can you talk about where you are in terms of those initiatives? What you've done to grow that business, and where do you think you might be as we go into 2016 in terms of driving some absolute amount of revenue from that?

Again I think I said that last time I'll say it again, I think the best surprise, the happiest surprise for us in the Comdata deal is the what we call the North America trucking business that not only its progress, as I outlooked, it will be double digit Q3, Q4 off of pro forma. But I think as I have said before the set of ideas that we have now to grow that thing are longer. We weren't quite as smart in diligence, so I will give one example beyond the salespeople.

We studied our CLC business a quarter or so ago and saw a large concentration of trucking companies in there, so went to the Comdata trucking clients and found a massive demand if we could put the hotel purchasing capability onto the Comdata fuel purchasing card, make that into one card. So that would be an example of something that is, we think, super interesting to that client base that was not in our plans that we expect to have out in the second half. There's two or three of those kinds of things that are big new ideas that leverage this leading position Comdata has that we like a lot.

Darrin Peller, Barclays.

Look I know it might be a little bit of a repeat, but if you could help explain some of the drivers under the 8% organic growth. I know you went through some of the revenue per transaction items, but some of it was without Comdata or SVS. Just building the building blocks up to that 8%, given all the moving parts again, and the revenue growth rates. I think that would be helpful really what is driving that and the bigger picture question after.

Darren this is Eric. I think we tried to answer those on the call, and I think they are similar to the last quarter, last several quarters and that is in the United States as an example we have been very successful growing our MasterCard business and we continue to grow that very successfully, and it was up it is a 30% in the quarter. Similarly CLC continues to do very well that was up 13%. Even the Comdata business if you look at it first, call it excluding the SVS business was up about 6% or 7% organically and probably about 6% or 5% or 6% organically with the SVS business, because that was relatively flat in the quarter.

Overall the US businesses grew, again, excluding Comdata for a second, grew organically and the 11% range. But, again, this is primarily by the same couple of businesses that they have in the past. Internationally the organic growth was around 9%, and again driven by specifically couple of things that we called out, Shell Europe is doing well we're into five different countries. We closed on this Epyx delay while ago.

We're seeing a lot of success in doing some of the things we do around those new businesses and that new business was up around 30%. Again helping to drive some of that time Mexico business was up double digit as an example. Even Russia, as bad as that economy is doing, you even look at that on a constant currency basis, that business was even up still, around 4%. And a lot of things, were chugging along and doing okay but I think the things that have always performed well continue to perform well.

I think you know you hear about transaction growth rates like international being down 4% and you wonder if little bit it seems like it is really a compilation of all these other drivers.

The transaction growth were down internationally, because there were a couple of economies that are soft. You look at Russia as an example and we have got a product in Russia that has a lot of transactions but lower revenue per tran, so our transaction volumes are actually down and out particular businesses, but they are actually up in the business that we are investing more sales and marketing dollars in, and it is a much higher revenue per tran business. So it is a trade-off, bad calories for good calories there.

Similarly, in Brazil although you know what is going on there is economy is very soft. Transaction volumes have been impacted there as well, but we have also been doing a lot of the things we do to help improve those businesses, and we're seeing improvement in revenue per tran in the businesses that we have, although transaction volumes have been down.

Darren it is Ron. Let me just to give you maybe just a different, maybe simpler, cut, hey we got these 20 businesses and we tell you where growing 10% in a constant environment, pre-Comdata. Another way to think about it is, from a portfolio perspective, a third of our businesses are growing super, the 15%, 20% plus so we call them out, MasterCard, CLC, Virtual card, Comdata, Epyx, the new deal, Mexico, oil partners that we didn't have before. So we tend to call out things to try to help you guys see a third or more of this Company is growing big and they are calling it out. Obviously there's another third that is growing low to mid single digits, Telematics, Brazil, the economy whatever.

I think is a return run that we did not call out his we had some stuff that was going the wrong way: Czech, Russia, some other portfolios that now basically have gotten back to neutral. So it is a lot easier to grow a business when you don't have two or three businesses basically going the other way. But the way we think about it in the company is it the portfolio of businesses and the goal is to get all of them, we called out the Comdata thing, up to this minimum 10%. And we have got some set of high flyers that we call out, some that are not quite there yet, another set of a lot longer way to go, and that is the work that we are on.

One follow up for you Ron, with regard to the added additional pillars that might help the story out in acquisition terms, or even organic, but I think acquisition, terms you mentioned your late stage on some. Obviously, you also have some different things shifting around with SPS now. I'm just curious what are the types of things you're looking at right now in terms of both whether it is industry or its size?

Again I think the primary thing there that we want to communicate as always is we're looking at stuff we know. So the main thing I think for any investors that read this or hear this is, we're not going way far afield and trying to buy stuff that we don't understand. Or more importantly that we cannot make better. So, I say everything that is working in the later stages that we're looking at is something that we know and can make work.

With that I would say we will always chasing, obviously, geography trying to get positioned in places that are big or attractive and then second, obviously is to get positions with products that are in this high-performance category right kind of category. I'd say that we are fortunate enough in our pipeline to have a few deals that fit that screen, so the question is can we get them out the other side now. I would say we're in a good place and I think as I said earlier, is the leverage ratio and the capacity are in a much better place now for us to pull the trigger.

So that $750 million capital outlay per your average, I think you discussed that may be at the last public comment, around potential deals. Is that still about right, the way to think about it?

Yes I think it will be bumpy, and we could come and announce something bigger than that, or some series of smaller things. I think, again, the structural model thing that we're trying to do is design a company that can grow 10% and 15% organically, and that we can add more than 5% on the bottom. So our math says if we simply invest the free cash flow, which is circa, what Eric said, around $600 million, $700 million, $800 million, this year over three years, Darrin, that makes the math work and we can keep delivering the 20% plus. That is the basis for the target.

Smitti Srethapramote, Morgan Stanley.

It looks like your processing costs came down quite a bit sequentially. Can you talk about the factors that led to the decline in that line item?

Smitti, this is Eric. A lot of that had to do with the inclusion of the Comdata business. I do not have the specific items in front of me that were in there, but bad debt as an example of actually in processing, if you're looking at the specific line in the P&L and bad debt for Comdata runs substantially lower than it does for the FleetCor average. So if you call -- we averaged the four basis points this quarter and historically were probably in the 12, 13, 14 basis range. So things that are actually more favorable; but again the Comdata business as a whole and the makeup of that business is just a little bit different than the Legacy FleetCor business was. So that is all that is driving that. There is not anything unusual going on there.

A follow up on the growth rate within a particular division in CLC. I think you called out that CLC grew 13% last quarter, which seems to be a deceleration from the growth rates that we have heard about in the past. Can you talk about the potential for growth in that business over longer term? And is there potential to accelerate the growth rate in the coming quarters.

It is Ron again. I would say the explanation there is similar to last quarter. So there's nothing different other than that business has gotten bigger. Obviously quite a bit bigger, because it has been growing 20% plus. And I think I mentioned on the last call that as part of the 15 plan we put another 50% sales investment in that business to get better aligned with the base, the size of the business. And basically we were a little late doing that so that group of new sales producers hasn't started to produce enough yet to grow that base to 20%.

But I would say that stay tuned for their progress in the second half and then stay tuned for things like again taking that product in bringing it to a new market like Comdata's trucking market. We continue to love that business and are just finding the right ways to invest more in it.

Meghna Ladha of Susquehanna Financial, please go ahead.

Quick question Eric on guidance. What is the revenue contribution from SVS in the second half? And can you quantify the benefit from higher fuel price assumption?

To answer your first question, were not going to provide that specific of guidance regarding SVS. As you know we're trying to do some things with that business, so getting very specific with some of that information is not helpful to us in this process. We are not going to disclose that.

Regarding the -- what's the second part of your question I'm sorry? Oh, fuel price. Our assumption was that fuel prices are going to average $2.80 over the balance of the year. And our assumption is consistent with the way we always think about and then provide guidance historically. Meaning we don't try to speculate where fuel prices are going, so he effectively we put a stake in the ground and wherever that price is at the time we do our forecast we assume that price is going to stay where it is over the balance of the year.

That $2.80 prices up very slightly from the assumption that we had in Q1, so we're not looking for any sort of meaningful additional contribution related to higher fuel prices without change in assumption I would say.

It is Ron. Let me add to that again, I do not know if you guys tracked us, but we did get a little help in Q2, as I mentioned, from fuel price being up a bit. But it is backtracked again, so if you look at the first quarter, which the first month of Q3, it is receded again another $0.10 or $0.15 back, so it is back more where we expected it to be in the second quarter, which is why we have stayed put with the guidance.

The $0.12 guidance that you raised for the EPS, it reflects the Q to B, SVS, ex-FX, correct?

That is correct. That's the math.

How should we think about the margins in the second half now that you'll be retaining the SVS business through the year, through the rest of the year?

I would just assume that the margins we have in the second quarter continue through the balance of the year. They're not going to be dramatically off of that up or down.

A quick question; a clarification rather. One of the Wex, they saw weakness in domestic same store sales in the OTR space, I may have got this, either correct or wrong. Please correct me if I'm wrong. But do you still expect 10% organic growth in the OTR space, and you're not seeing any weakness in same store sales there?

Yes, the answer is in the Comdata trucking business we had neutral same-store volumes, which means the trucking companies were able to add enough additional drivers to compensate for some of the fuel efficiency. So that was basically a push. But the incremental growth is coming from more sales in the second half, more price and then again some of these new products. So it is not coming from same-store sales, but again we're not getting hurt from that.

Did you quantify the contribution from Comdata in this quarter?

From a revenue -- we did not, but from a revenue perspective it contributed approximately $139 million in revenue in the quarter.

This concludes the time allocated for questions on today's call. Thank you for participating and have a pleasant day.