Corpay Inc (CPAY) 2016 Q4 法說會逐字稿

Greetings, and welcome to the FleetCor Technologies Incorporated fourth-quarter 2016 earnings conference call. As a reminder, this conference is being recorded.

I would turn the conference over to our host, Mr. Eric Dey, Chief Financial Officer of FleetCor Technologies. Thank you, Mr. Dey. You may now 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, 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 on our website as previously described.

Also we are providing 2017 guidance on both the GAAP and a non-GAAP basis, with a reconciliation of the two.

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 2017 guidance, new products and fee initiatives, and expectations regarding business development and acquisitions.

They're 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, and in our annual report on form 10K and quarterly reports on form 10-Q filed with the security and exchange commission.

These documents are available on our website as previously discussed 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. Hi everyone, and thanks for joining the call today.

Up front here, I will plan to cover four subjects. First, I'll comment on Q4 results. Second, I will review our full-year 2016 results and our progress there. Third, I'll provide our initial 2017 guidance. And then last, I'll update you on our business development activity.

Okay, so onto the quarter. We reported a good quarter with Q4 revenue of $515 million up 20% and cash EPS of $1.90 up 12%. So 20% top, 12% bottom. Our organic revenue growth in the quarter was 8% in line with our expectations. And not surprisingly, the Q4 macro environment was unfavorable again.

During the quarter, fuel prices did finally rise higher than last year, but spreads compressed, FX was challenged. So on a combined basis, the overall macro negatively impacted our revenue in the quarter by about $19 million. And our cash EPS by about $0.15 compared to the prior period.

So on a constant macro or like-for-like basis Q4 revenue growth would have been 24% and cash EPS growth 21%. We had a great Q4 sales performance global sales were up 32% versus Q4 last year, and up 20% for full year 2016. So very, very healthy sales growth. Some of the drivers of Q4 performance included a full quarter above the STP and TravelCard acquisitions with STP revenue growth of 14%.

Uber's volume tripled. CLC rebounded up 15%. Shell Europe revenues were great, up 50%. Mexico up 15%, and our MasterCard revenue in the US continued strong up 16%. So lots of good performances helping the quarter.

So look, in summary, we are pleased with Q4 revenue and cash EPS both finished above the high end of our recent guide. And our new sales bookings recovered quite nicely from Q3.

Let me transition over now to full-year 2016 to the year we reported revenue of $1,831,000,000 (sic - see press release "$1831.5 million") up 8% and cash EPS of 692 up 10% (sic - see press release "$6.92"). 2016 was another quite painful macro environmental year for us, negatively impacting our revenues by over $100 million. And our cash EPS by about $0.67, so obviously, again making it difficult to perform. But beyond the numbers, we did continue to make good progress against our build by partner strategy. So on the build front full-year 2016 organic revenue growth about 8%, full-year sales growth 20%. So we continue to invest and build out our selling systems around the world to support a 10% long-term organic growth target.

On the partner front, we did sign Speedway in the spring to a new full outsourcing contract, and we completed the implementation of Shell Europe's program, which was across 11 European markets. Obviously, we're disappointed with Chevron that they've decided to move on after 10 years with us. But we will help them transition to their new supplier.

On the acquisition front, 2016, again quite busy. We acquired STP for $1.3 billion, FleetCor's second largest deal ever. We also completed three small tuck-in acquisitions totaling approximately $75 million.

And finally on the positioning front, we advanced a number of things that should accelerate our performance going forward. We added more management depth, two new execs on my team, a senior telesales, and a senior digital sales executive, a couple new general managers and more IT depth. We renewed, in 2016, some important contracts, including MasterCard, our healthcare partners, Eco and MD-ON, along with some of our largest accepting merchants.

We tested a number of new product ideas, a construction card which is quite successful, expanding Pac Pride acceptance called FleetWide, lending through Kabbage, and a set of simpler UIs, all designed to improve our user experience. We converted, recently, our US MasterCard portfolio to GFN, which is our global processing platform, that will aid in simplifying our technology footprint.

We did buyback about $180 million of FleetCor stock in 2016 at what we think were attractive prices, taken at about 1.3 million shares.

And finally, we progressed the STP transformation plan, getting a number of tests into market that we believe will speed profit growth there in 2017. So, all in all, a pretty good 2016.

Okay, let's transition to our 2017 outlook. So for the first time in three years, it appears that the environment may actually turn our way and help our financial performance in 2017. I know, it's hard to believe.

Our 2017 macro assumptions for fuel price, fuel spreads and FX in the aggregate should provide approximately $30 million of incremental revenue lift this year, which will contribute to a very positive set up. Unfortunately, we expect interest rates and the tax compare to be unfavorable this year, to the tune of about $0.24 of negative cash EPS headwind. So combined, putting the macro-environment with the unfavorable interest and tax expectation, that results in approximately a net $0.12 cash EPS headwind in 2017. But certainly not as significant as it's been in recent years.

So this leads to our, today, to our 2017 guidance at the midpoint of reported revenue of [$2.2 billion], up 20%, and a cash EPS target of a [820], up 19%. We also expect to return this year to 10% organic revenue growth.

That reacceleration will be driven by a number of things. So first, our corporate payments business. It had a record 2016 sales year, so that revenue will get boarded -- more of that will get boarded every quarter, increasing the growth rate there. Speedway, as I mentioned, conversions underway now. New revenue will began in Q2. That will step up throughout the year.

STP, we will layer in new pricing throughout 2017 and step up investment in sales there. We are expecting 20% STP revenue growth. Our overall 2017 global sales plan calls for more investment that should drive sales production up 15% versus 2016. That will add over $300 million of brand-new business.

And finally, we have an expectation that a number of our high-growth businesses: MasterCard, CLC, Mexico, will continue double-digit growth in 2017. So we are excited to be growing profits again. EBITDA outlook to be up over $200 million, and PBT up over $150 million this year.

Okay. Let's shift to the latest on the business development front. So Qui!, earlier today we announced minority investment in Qui!, which is a leading Italian food card company. This is, for sure, a plant-the-flag investment. It allows us to wade into Italy, get more familiar with the market, further evaluate the food card space, and then later decide whether to invest more or commit more to the Italian market. This transaction is consistent with our plan to enter and participate in the world's top 20 markets.

Beyond Qui!, we do continue to pursue a couple of new partner-outsourcing opportunities and have a pipeline of new acquisition opportunities. With our leverage ratio now back under 3 times, we can obviously be aggressive this year in chasing new deals.

Okay. In closing, we continue to believe there's still lots of opportunity in front of us. And we believe we can double FleetCor again. So if you think about our core fuel card business, there's still great potential in the US in the micro market. Think sub five vehicles. Continental Europe is penetrated, but exclusively with private-label cards and Brazil, Mexico, and Russia are big and still Greenfield.

So we built selling systems that can add business in every one of these geographies. Now that we've got more of our fuel cards running on the MasterCard/Visa network, we are exploring opening up our cards selectively to nonfuel spend. Things like tolls, construction supplies, et cetera. So we're pretty confident that we can grow our global fuel card business itself by 10% long term.

Second corporate payments. We've now got three or four corporate payment products, virtual card, hotel cards, toll products, prepaid cards that account for roughly 35% to 40% of our consolidated revenues. And each of these product lines are growing, and many are still early in their development. We like these adjacent corporate payment products because they share the same business model as fuel cards, which we obviously understand.

And then last business development upside, we continue, albeit slow, to believe in the long-term potential of these major oil companies outsourcing their programs. And we like the expanded acquisition opportunities as we enter some of these new product lines. Our Comdata and STP experience, namely that we can improve performance there, even with rather big assets, we think bodes well for the future. And the Company's cash flow profile enables this acquisition strategy so that we don't compromise our financial flexibility. So look, we feel very good about FleetCor's prospects to keep on trucking.

So with that, let me turn the call back over to Eric. He will expand more on Q4 and on our 2017 guidance. Eric?

Thank you, Ron.

For the fourth quarter of 2016, we reported revenue of $515 million, up 20% compared to $430.6 million in the fourth-quarter of 2015. The revenue from our North American segment increased 4.8% to $328.6 million from $313.6 million in the fourth-quarter of 2015. Revenue from our international segment increased 59.3% to $186.4 million, from $117 million in the fourth-quarter of 2015.

For the fourth-quarter of 2016, GAAP net income increased 81%, to $95.4 million, or $1 per diluted share. From $52.8 million or $0.56 per diluted share in the fourth-quarter of 2015. Included in GAAP net income in the fourth-quarter of 2016 and 2015, were non-cash impairment charges related to our minority investment of $36 million and $40 million respectively. Also included in GAAP net income in the fourth-quarter of 2016 and 2015 were non-cash, stock-based compensation expenses of $14 million and $46 million respectively.

Adjusted revenues in the fourth-quarter of 2016 were $489.4 million, up 21% compared to $403.1 million in the fourth-quarter of 2015. Adjusted net income for the fourth-quarter of 2016 increased 13% to $180.5 million or $1.90 per diluted share, compared to $160.2 million or $1.70 per diluted share in the fourth-quarter of 2015.

Fourth quarter results reflect the impact of the macroeconomic environment, which continues to be unfavorable versus prior year. When we talk about the macroeconomic environment, we are referring to the impact that market fuel spread margins, fuel prices and foreign-exchange rates have on our business. Change in foreign-exchange rates from the fourth-quarter of 2015 were mixed, and overall, negatively impacted revenue during the quarter by approximately $10 million.

Fuel prices have finally started to stabilize and were mostly neutral versus the fourth-quarter of 2015. But spreads were unfavorable during the quarter. And although we cannot precisely calculate the impact of these changes, spreads negatively impacted revenues by approximately $9 million. In total, we believe the impact of these changes negatively impacted our fourth-quarter revenues by approximately $19 million and adjusted net income per diluted share by approximately $0.15.

On a macro-adjusted basis, revenue was up 24% and adjusted net income was up approximately 21%. On a constant macro basis, organic revenue growth was approximately 8% for the quarter.

Now let's shift over and discuss some other drivers of our fourth-quarter performance. For our North American segment, most of our lines of business perform well. Some of the positive drivers in North America revenue during the quarter were similar to the last several quarters, including our MasterCard product, which had revenue growth of approximately 16% over the fourth-quarter of 2015, assuming constant fuel prices and spreads. The CLC Group, provider of our lodging card programs, had another solid quarter with 15% revenue growth over the fourth-quarter of 2015.

This revenue growth was driven primarily by increases in our check-in direct product, which targets smaller accounts, partially offset by softness in some of our larger accounts that primarily do business in the oil and gas sector.

International segment revenue was up approximately 59% in the fourth-quarter of 2016 versus the fourth-quarter of 2015. This increase was driven primarily by the STP and TravelCard acquisitions. The Shell outsourcing business up 57% and Mexico up 15% on a constant macro basis.

On the downside, the economy in Brazil continued to struggle, negatively impacting our legacy businesses in those markets.

And finally, the same-store sales metric for the quarter has improved, and was down a little less than 1% in the quarter.

Now moving down the income statement. Total operating expenses for the fourth quarter were $299 million compared to $284.5 million in the fourth-quarter of 2015, an increase of 5.1%. As a percentage of total revenues, operating expenses decreased to 58.1% of revenue compared to 66.1% in the fourth-quarter of 2015.

Included in operating expenses are merchant commissions, processing expenses, bad debt, selling and general administrative expense, depreciation and amortization expense and other operating net. Also included in the fourth-quarter of 2016 operating expense were ongoing expenses related to the acquisitions closed in the third quarter.

Also, stock-based compensation expense in the fourth-quarter of 2016 was $13.9 million compared to $45.7 million in the fourth-quarter of 2015, providing the largest portion of the drop in operating expense as a percentage of revenues. Credit losses were $11.4 million for the fourth quarter, or 7 basis points, compared to $6.3 million or 4 basis points in the fourth-quarter of 2015.

The increase in bad debt was primarily due to bad debt inherent in the acquisition of STP, the addition of new Euro Shell locations, and normal quarterly fluctuations of certain businesses in the quarter.

Interest expense increased 33.1% to $22 million, compared to $16.5 million in the fourth-quarter of 2015. The increase in interest expense was due primarily to the impact of additional borrowings for the STP and TravelCard acquisitions in the quarter and increases in the LIBOR rate in 2016. We regularly evaluate our investments which are not carried at fair value, for other than temporary impairment in accordance with GAAP.

As part of the review, we determined that the performance improvement initiatives planned in a minority investment continue to be more challenging to implement than we originally projected.

As a result, we have recorded a $36.1 million non-cash impairment charge in the equity method investment line in the income statement in the fourth-quarter 2016. An impairment charge of approximately $40 million was booked in the fourth-quarter of 2015.

Our effective tax rate for the fourth-quarter of 2016 was 37.8% compared to 38.4% for the fourth-quarter of 2015. However, the non-cash impairment charge resulted in a reduction in basis under minority investment for book purposes, but not tax purposes. Although this temporary book- tax-basis difference resulted in the company increasing its deferred tax asset related to its minority equity investment. The company also increased its valuation allowance against the deferred tax asset.

Excluding this non-cash item, our tax rate in the fourth-quarter of 2016 and 2015 would have been 30.2% and 25.4% respectively.

Also included in the fourth-quarter of 2015 was an approximate $6 million favorable adjustment, primarily related to the reversal of prior-year uncertain tax positions due to the statute of limitations expiring. A reduction in Comdata's state tax rate, due to Comdata being included in the Company's state tax structure, in the impact of a reduction in the UK statutory tax rate in 2017 through 2020. Excluding the impacts of these unusual items, our income tax rate in the fourth-quarter of 2015 would have been approximately 30.6%.

We reported $1.90 in adjusted net income per diluted share, up 12% compared to $1.70 in the fourth-quarter of 2015. However, the unfavorable macro impacted our results by approximately $0.15 in adjusted net income per share in the quarter. Excluding the impact of the macro, our adjusted net income per share would've been approximately $2.05, or a growth rate of 21%.

Now turning to the balance sheet. We ended the quarter with approximately $644 million in total cash. Approximately $169 million is restricted and consists of primarily customer deposits. As of December 31, 2016, we had approximately $2.4 billion outstanding on our Term A Loan, $245 million outstanding on our Term B Loan, and $615 million drawn in our revolver, leaving approximately $420 million of undrawn availability.

We had approximately $591 million borrowed in our securitization facility at the end of the quarter. As of December 31, 2016, our leverage ratio was 2.93 times EBITDA, which is below our covenant level of 4 times EBITDA as calculated under our credit agreement. We intend to use our future excess cash flow to temporarily pay down the balance on our credit facility and securitization facility, and maintain liquidity for acquisitions and other corporate purposes.

To remind everyone, on February 4, 2016, our Board of Directors authorized a repurchase of up to $500 million of FleetCor's common stock during an 18 month period ending August 1, 2017.

During the fourth quarter, the Company repurchased approximately one million shares of stock for a total purchase price of approximately $152 million. In total, the Company has repurchased approximately 1,259,000 shares, with the total purchase price of approximately $188 million.

Finally, we are not a capital-intensive business, spending $17.1 million on CapEx during the fourth-quarter of 2016.

Now, onto our outlook for 2017. First, I want to update you on our latest thinking about the macroeconomic environment. For 2017, we are expecting the macro to have a favorable impact on our results. We're estimating the absolute price of fuel to be higher than the 2016 average and positively impact revenue in 2017. And fuel spreads return closer to historical levels.

Foreign-exchange rates, however, are mixed and will be slightly unfavorable, and negatively impact revenue by approximately $3 million, compared to the 2016 average. In aggregate, we believe the macroeconomic environment creates approximately a $30 million revenue tailwind and positively impact cash EPS by $0.12 per share.

However, just as the macro is beginning to turn around, we estimate that higher interest rates and an unfavorable tax comparison versus 2016, will negatively impact 2017 EPS by approximately $0.24. The total of these items creates a net unfavorable impact to adjusted net income per share of approximately $0.12 in 2017.

The good news is our organic revenue growth is projected to accelerate from 8% reported in 2016, to approximately 10% in 2017, excluding the impact of the positive macro; in line with our long-term objective. Helping to drive the approximate 10% organic growth rate in 2017, our fuel cards which are expected to grow organically in the 10% range, ahead of the approximate 9% organic growth rate in 2016. Our toll business is expected to be up 18%, corporate payments up 13%, and lodging up approximately 13%.

That being said, our financial guidance is as follows: total revenues to be between $2,170,000,000 and $2,230,000,000; GAAP net income between $550 million and $570 million; GAAP net income per diluted share between $5.78 and $5.98. Adjusted net income between $770 million and $790 million, and adjusted net income per diluted share between $8.10 and $8.30.

If you adjust our guidance for the net impact of the favorable macro, higher tax rates and higher interest rates, this guidance would have been approximately $8.32 in adjusted net income per share, and represent approximately a 20% growth rate in adjusted net income per share for the year at the midpoint of the range.

Some of the assumptions we have made in preparing this guidance include the following. Weighted fuel prices equals to $2.43 per gallon average in the US for those businesses sensitive to the movement in the retail price of fuel for 2017, compared to $2.15 per gallon average in the US in 2016, up approximately 13%. Market spreads returning closer to historical levels, up slightly from the 2016 average. Foreign-exchange rates equal to the seven-day average and to January 22, 2017. Interest expense of $100 million compared to $72 million in 2016. Fully diluted shares outstanding of 95 million shares. And full-year tax rate of approximately 29.5% compared to 28% in 2016, excluding the impact from the loss in equity method investment in 2016. 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 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, and lower business levels in Brazil due to summer break and the Carnival celebration that occurs in the first quarter.

With that said, we are expecting our first quarter 2017 adjusted net income per share to be between $1.82 and $1.88. Additionally, our volumes build throughout the year and our new asset initiatives gain momentum throughout the year, resulting in higher organic growth rates and earnings per share in the second through fourth quarters.

And finally, we are providing a new set of metrics, some of which are included in today's press release and on the company's website under the investor relations section. They include revenue by geography, revenue by product category, major drivers of revenue, and revenue per transaction by segment in product category.

Some of the highlights assumed in our 2017 guidance include 2017 US revenue, 65% of total revenue, Brazil at 18% of total revenue, and the UK at 10%. All other geographies at 7%.

In 2017, fuel cards will represent approximately 56% of our businesses globally. Tolls, our second-largest product category at 15%, corporate payments 9%, gift 8%, and lodging 5%.

With that said, Operator, we will open it up for questions.

Thank you.

(Operator Instructions)

David Togut, Evercore.

Thank you, good afternoon. I appreciate the new segment disclosure.

Hey David.

Glad you like it.

Very helpful. Nice to see the acceleration in CLC revenue growth up to 15% from 8% in the third quarter. Can you talk a little bit more about the drivers behind that acceleration and what those drivers look like in 2017?

Yes, David it's Ron. It's mostly just, again, lapping that big account business that we talked about. They haven't recovered, but basically, we've lapped most of it. So the small account growth rate is shining through more. I think we have that business -- I think we say something about it in Eric's script that we're planning that thing 13% to 15%, David, for 2017.

Got it. And then just as a quick follow up, 14% revenue growth at STP, very strong in the fourth quarter. And glad to hear you're looking for 20% in 2017. How are you able to power through some of the macro weakness in Brazil?

I think it's what we said before. I mean, it's just a great company and a great brand and we are doing, as we told you, a bunch of things that the prior owners weren't focused on right, because they ran concessionaires.

And so sales, investment, pricing, new products, we have been working for six months on this transformation plan. We've got some of it already in market, so we think that's the additional lift.

Understood. Thank you very much.

Good to talk to you.

Thank you. Ashish Sabadra, Deutsche Bank.

Congrats on the solid quarter and the disclosures are very helpful. Thanks.

My question was about the global sales. Global sales was really strong in the fourth quarter, up 32%. I was just wondering if you could give some more color around what parts of the business we're doing well in on that front?

Yes, Ashish, it's Ron. I'd say again, as we said it before, that number is a little bit bumpy by quarter, so we disclosed, I think, a 7% number last quarter. So some of that is just kind of it rolling into this quarter. So if you think about the full-year number, 20%, I'd say that's a more useful metric for you guys to understand. But I think generally, I don't have the page in front of me, I think that performance was good, literally, virtually everywhere. I think the only kind of soft spot I can recall was Brazil. But other than that, I think every business was way up, particularly the Comdata businesses. They were way, way up from a year ago.

That's great to hear.

And then just a quick follow-up on the European oil meter opportunity, I was wondering if there was any update on that front?

Yes, I think I tried to say in the script, we've got two active deals that tell us they're going to make decisions this year. I mean, I hate to say we have been told that before, but we're working hard on two things, and hope to be able to say something about it this calendar year.

That's great. Thank you, and congrats once again.

Appreciate it.

Thank you. Ramsey El-Assal, Jefferies.

Congratulations, guys, on a terrific quarter.

Wanted to ask about the same-store sales metric. Showed some nice improvement. Can you give us a little more color on what drove that? Was it the energy vertical, which was sort of the big drag, kind of perking up? Was it other products or other geographies?

Yes, hey Ramsey, this is Eric.

I think really a lot of it is, we're basically lapping. A year ago, when we first started seeing the majority of the weakness, particularly in that energy sector, and some of our fuel card businesses and even at CLC, where we saw two or three of our largest accounts experience significant softness. So we're effectively just lapping that for the most part. So, we had basically under 1% same-store sales softness for the quarter.

Okay. And as a follow up to one of the questions that came before me. The STP growth rate of 14%, obviously, that's an acceleration versus the full-year number last year. I'm just trying to get a better sense of -- is that acceleration due to you guys now implementing your plan there? As opposed to any type of, just uptick in the business? I know you mentioned Brazil in general, and for the macro front was still quite soft. Is this to say that you're really already on the ground there? And these tests you're talking about are, you're starting to implement some revenue opportunities there?

Yes, Ramsey, it's Ron. I wouldn't give us that much credit. Like I said before, we bought it because it's a terrific business and it's got a great team. So, they did have some things in stride when we bought it that we've kind of pushed along. And I'd say our impact, so far, would be small, maybe 1 point or so of that. But the important thing is that we're in market with a variety of things. So it gives me confidence that we can push those things into the numbers this year. So I'd say no, not a lot in the number in Q4, but a lot of learning.

Fantastic. Thanks so much.

Jim Schneider, Goldman Sachs.

You're up. Should I let it go?

Hello?

I think we lost Jim, operator.

Oscar Turner, SunTrust.

Hey guys, congrats on the quarter.

Thanks, Oscar.

I was just wondering if you could provide an update on the rollout of the open-loop card in Europe?

Yes Oscar, it's Ron.

I'd say there's, unfortunately, not too much to update. I think we spent most of last year testing. We've had a product in market, we have been reworking it, we've had a team or two selling it. We've got in the hundreds, not in the thousands, of clients using it. So I would say we actually had a big review a week or so ago. I'd say we're still retooling. We're learning a bunch of things about what we need to make the product be to get it to compete well against the private label cards there. So I'd say still working it.

The good news is if we get it figured out, and we've been working it for a while, it's going to be hard to get chased because it's pretty complicated. But, no, not a lot of progress yet.

Okay, thanks.

And then, I think you mentioned exploring opening your MasterCard and VisaFleet cards to non-fuel spend. Just looking for more color under that. Would this be in every geography? And then also, how long do you think that would take to implement?

That's a great question.

I'd say, strategically, this is one of the big ideas for the Company and a big upside for the core fuel card business because obviously, it's the big part of the business with hundreds of thousands of clients. So, as we've gone from proprietary fuel cards running and proprietary networks to MasterCard here in the US and Visa in the UK, we've now gotten through the technical and certification and regulatory gates. And have been in the market here, for I think about a year now. And so it's working.

We're finding that certain clients want some additional controlled spending. For example, like construction clients, we open it up and let them buy construction supplies, plus fuel. And so, what we're going to do is go back, not only to the client base, but as we're prospecting, and start to reposition the card a bit as just a control card that could buy fuel plus mobility things, like public transportation or tolls, or vertical things like construction supplies. And so, if we can get that right, the leverage and incremental spend in revenue against the same client base is good. And B, I think it gives us a pretty advantage value prop against others. There is not many others that have that, so we're on that point.

Okay. Thank you.

Tien-tsin Huang, JPMorgan.

Thanks. Good afternoon. Really like the new disclosures. Just wanted to ask how we should focus or analyze some of those lines. I know it's fresh for all of us. So, should we look at the product categories, and then the transaction growth versus revenue per trend? Just, any tips would be great. Thanks.

Yes, hey Tien-tsin, this is Eric. Ask, and you shall receive. (Laughter)

We love data, so got to figure out how to use it.

Well you've got a lot of it now. I think the reality is -- listen, I mean there's a lot of numbers bouncing around when you compare 2015 to 2016. Some of the business, obviously, has some kind of macro in it, so they're kind of -- some of them are hard to look at. Some of the businesses, like toll, as an example really didn't exist prior to 2016. So you've got to really look at it, really in 2017, because we only owned STP for effectively four months. So some of those categories are going to be new. And then some of them that we've owned for multiple years, like fuel card as an example, the trend is going to be more consistent with, kind of, where it is today.

So between 2015 and 2016, fuel card was impacted by the macro. But between 2016 and 2017, obviously, the macro was mostly kind of neutralized. So it will be both, right? I mean, when we grow our business organically, it is through some combination of new sales. We talked about that, so call it -- to pick a round number, about half of organic growth comes from our new sales for the year. And then, kind of the other half comes from some combination of new rate initiatives and new product initiatives. So it's going to come in both of the lines.

Okay.

Yes, Tien-tsin, let me just add, because I do want to make sure we get some return from this. So a couple of tips to use. One is, you don't miss the diversification point, right? So in 2014, 75% of the Company fuel cards, in 2017 55%, 56%. So, almost half the Company is not fuel cards.

Second tip is 10% organic growth planned for 2017. Don't miss the fuel cards, which are half the company, is planned at 10%. So people out there that think, oh, they have to diversify to grow the business 10%. Don't miss that. And then don't miss that the second group of products, call them corporate payment products are all growing more than 10%, which means the bucket of other is growing less than 10%, and we may do something with that bucket, as I said previously.

So we're trying to get the Company positioned as we deemphasize that quote, other category, the mix will, by its very nature, improve the growth rate going forward. So that would be my second tip, I think.

Okay, no, that's good. It's good to see the portfolio, obviously. So I guess that's my follow-up. Maybe just more of a clarification, maybe two clarifications if that's okay. The 20% sales in the strong fourth quarter, what's sort of a new sales outlook for 2017?

I think I heard a 15% figure in your prepared remarks? (multiple speakers) Okay, so that is that. And then the second one was just the macro flow-through -- the $30 million into $0.12 translation?

I guess, it doesn't seem to be as favorable as the drag was in previous quarter. Is there a difference in the sensitivity on the up versus down with the macro? Or am I just splitting hairs?

Yes, I think again, maybe we've confused. We've used the word macro, Tien-tsin, forever to be fuel price, fuel spreads and FX, those three things. So we're saying today, that we're assuming and going to church that 2017 is quite positive against those three things to the tune of $30 million in revenue lift. So call it 1 point to 2 of growth, right? Just from that?

But the two things that are kind of also quasi -macro, interest in the tax compare are going the wrong way. So the benefit of the first three against the negative of the second two, ends up at about with a $0.12 negative.

$0.12 negative.

But here's what I'd say to everybody. We're sick of macro, probably like everyone else. So call it even. We're just happy to be looking at a year where it's tiny in terms of what the impact would be from the world to us.

Got it. Good stuff. Thank you.

Bob Napoli, of William Blair.

Thank you. Also, very much appreciate the additional disclosure. It's really, really helpful.

Now, on the corporate payments business, just looking at for the full year. You had transaction growth of 20%, revenue growth of 10%. What is the mix in there that's causing that? And what type of trend are you looking for as far as transactions versus revenue and corporate payments in 2017?

Yes, hey Bob, this is Eric. As we've called out for several quarters now, we've seen some softness in the healthcare vertical in virtual cards. And it really is, is healthcare kind of dragging it down from a rate perspective. There's been a couple of large accounts that kind of opted out that were relatively profitable.

We've also renegotiated a few contracts from a rate standpoint. So a little bit lower than where they are now. So that's been kind of impacting the rate versus the volume. Now I want to make sure you're kind of clear. I mean, we're selling that product in bushel barrels. So I mean, we're going to grow that business basically from a volume perspective going forward, and that's what is driving the favorability.

Okay. Thank you. And then just on your balance sheet, fixed you have -- I don't know if you have any fixed-rate debt. In an environment where rates are likely, more likely than not, to go up from here. Why not at this point, even today, where different rates go here for very attractive fixed-rate debt out there, why not fix a chunk of your debt?

Bob, we've looked at that historically, and we're still looking at it. We've had a lot of conversations about it internally. I think that we've obviously had some hedges in place in the past. We've never come out ahead in a hedge, and given our relatively low leverage today and the room that we have under our covenant, it really isn't a necessity for us. And we actually don't believe we can come out ahead on it.

If you look at it over the next, kind of, three years in the analysis, we've done -- we just don't believe it really is a situation we'd come out ahead.

Thank you very much. Appreciate it.

Darrin Peller, Barclays.

Hey, thanks guys. Again, thanks for the disclosure on the outlook.

And then, just want to touch on -- on the outlook it's, having covered you guys for a number of years now, if you go back a few years ago or even two years ago, you've had a precedent of being fairly thought -- conservative I think, in your outlook with regard to different assumptions that you left room for, whether it's accretion from deals or other variables. Macro headwinds made that a little challenging last year. Your growth seems to be really now, reaccelerating.

Is there elements of that in this outlook? Anywhere we can keep in mind, that's sort of conservative versus baseline? How should we really think about that?

Yes Darren, it's Ron. I would say -- I don't know of those adjectives work for us. We try to give numbers we can make. We always have -- and I'd say this year is no different and B, we only include what we own. We don't build in things we're working on in the pipeline, or buybacks we haven't done. So I would say to your point; one of the reasons we beat our opening guidance for most of the years is, generally, we actually do something during the year that's accretive, that's obviously not in our plan today, the first of February.

So that's how we say it. I wouldn't say to you guys, oh, this is a sand bagger, but we are trying to give you a number we can get.

Okay. I mean, do you think there are things that could potentially be done this year that are not the plan yet? In terms of whether it's M&A or other partnerships that could happen in 2017 specifically?

Yes, that's why I try to call out, A, we've got a couple on each side on the partner outsourcing side, and on the deals side, whether we will pull the trigger. Like always, we try to be smart and not get rushed by people. But there's certainly activity and opportunity to pull the trigger.

All right, that's great. And then just one follow-up on the -- just looking at the new disclosure, if we think about your guidance -- I mean, it was helpful to get your disclosure on all the growth channels. Specifically the fuel cards breakdown, you had about 1% growth in the overall revenues in 2016 and a lot of that was really just fuel prices, I think, right?

If we look at that growth rate and then also look at the corporate payments, I just wanted to get more color on that too. I mean, I think you mentioned, just given the bookings growth, that that could be pretty material again in 2017.

What's actually happening in that business with regard to incremental industry verticals being added? I know construction was an area you guys were always good in. Give us a little more color, just because it seems like a really strong opportunity long-term. Thanks, again.

Yes, it's Ron again, Darrin. I'd say on the fuel cards, I don't know if it was in Eric's comments, but that penciled out about 9% organic if you throw out the fuel price and the spreads for 2016. And we have that planned at 10% for 2017.

Corporate payments was kind of mid double-digits and we're outlooking again, mid, call it same, mid double-digits. I think the answer is -- which is a good one, is that there's not a lot of hurt in your head on corporate payments.

We've got a good product, a lot of referenceable clients, a huge market. You mentioned construction. It's about one-quarter of our direct business there. And we have 3% of the market. So this is a game of just getting at it.

We put 60 people on the streets from 5, two years ago. And they're getting trained and getting the pipeline, and we doubled the sales last year from the year before. So I think the way to think about it is just chasing what we're doing, and then getting the staff on board is going to grow that business certainly over the next two to three years. So we're trying not to overcomplicate it, we're trying to just get at what's working.

Cool. All right guys, thanks very much.

Thanks.

Danyal Hussain, Morgan Stanley.

Hi, thanks for taking the question. I just want to clarify something on the organic growth.

So I think same-store improved pretty dramatically from the third quarter to the fourth quarter. That's the key ingredient, obviously, for the organic growth. But you didn't really see much of an uptick. Just wondering if you could bridge that for us.

Yes, hey Dan, this is Eric.

Again, we kind of compare that, [isn't] really a quarter to quarter comparison as much as it's a year-over-year comparison. So I would say, first of all so you guys understand, the organic growth really came in exactly where we thought it was going to be.

In the third quarter, I think it was down about 2.5%. On this quarter, it was down kind of under 1%. But again, you compare it to the prior year, really [isn't] as in a quarter to quarter kind of thing. And again, this year we were really lapping a lot of softness. That really started to materialize a year ago in kind of the energy sector, both on the rail side and on the fuel side. So we are kind of getting back to more of a normal same-store sales, kind of a growth area.

I think our business is going to -- as we've been talking about in the call, is going to reaccelerate next year from an organic growth perspective. We ended this year at around -- if you average all four quarters around 8% and we're going to accelerate to around 10% next year. And again, we're going to see double-digit growth rates in fuel cards, corporate payments, tolls, and lodging next year. So again, I think we're going to be in a pretty good place.

Okay. Thanks. And then, just to clarify the organic growth for next year. That's 10% for the full year. And if Speedway is kicking in, I think you said, in the beginning of the second quarter and it probably takes a couple quarters to ramp. Would that suggest maybe you're starting off the year closer to 8% and exiting a couple points higher than 10%? Thanks.

Yes, I don't know if I'd use the word eight, but for sure it will build as we layer in the things we talked about: Speedway, STP, pricing, the onboarding of the corporate payments thing, MasterCard raised its interchange start in April. There are three or four things that will become additive as we walk through the year. So our exit will certainly be higher than 10%, and our entry will be a bit lower than 10%.

Great. Thank you.

Sanjay Sakhrani, KBW.

Thanks. Most of my questions have been answered, and good quarter. Maybe just on Speedway. Could you just talk about how much of Speedway actually gets factored into this year? And is it -- more of it gets accounted for in the following?

Yes, Sanjay, I'm not exactly sure of the question but the short answer is, yes.

There's a card portfolio Speedway's built up over ex period of time. And we've done IT and are converting, right? Sending cards out, reissuing cards to bring people across. That's happening as we're on this call, and so, call it sometime in Q2, all of that business will be running on our systems. And then we will start to kind of treat that portfolio as you walk through Q3 and Q4.

So it costs money, I'd say to have that thing in the first quarter, and it starts to kind of create some money in the fourth quarter. So the exit rate of revenue into 2018 will be dramatically higher than the full-year number for 2017.

And do we have a sense of how to dimensionalize that?

I don't know. I think we told you guys that it's the fifth largest fuel retailer and that their card portfolio is commensurate to larger than their retail size. So in English, their card portfolio is probably in the top four. So it's a big piece of business. But because of confidentiality, we don't say much more.

Got it. And a final question.

Obviously, we've heard a lot about the political landscape and how it's reinvigorated business optimism. Are you seeing any of that flow-through into your end markets?

I would say that's too early to call. At this point, obviously, it's kind of just beginning. From our perspective, it would be -- come in the improved volume. So it's just too early for us to kind of see whether same-store sales are actually going to improve. Ask me in 12 months and maybe we'll have a different sentiment. And then we're all keeping our fingers crossed from a tax perspective that we're going to see lower tax rates going forward, but we'll have to wait and see what happens.

And how would that tax -- when we think about those tax implications, could you maybe just talk about how those flow through for you guys?

Well, again, if they lower the corporate tax rate, I mean, obviously that will have a direct impact on our bottom line. But until we see what the exact plan is and spend some time evaluating what the plan is, we won't know. But certainly, everybody believes that it's going to be lower than where it is today.

Yes, we'd also like to repatriate the cash too, if you guys want to call Washington. That would be another (inaudible).

Thank you very much.

Thank you.

Thank you. I would now like to turn the conference back over to management for any closing remarks.

That's a wrap, I think, yes?

Yes. Thanks guys, appreciate it.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.