WEX Inc (WEX) 2005 Q4 法說會逐字稿

Good day, everyone. Welcome to the Wright Express Corporation's fourth-quarter and year-end 2005 conference call. Today's call is being recorded. There will be an opportunity for questions and comments after the prepared remarks. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Steve Elder, Vice President of Investor Relations. Please go ahead, sir.

Good afternoon and thank you for joining us. With me today is our CEO, Mike Dubyak, and our CFO, Melissa Goodwin. We released our fourth-quarter financial results only a short while ago, so I will begin with a brief summary of the results and key metrics.

The press release is now posted in the Investor Relations section of our Website at WrightExpress.com. Following the summary, Mike will review the Company's operations for the fourth quarter. Then, Melissa will discuss the financials, and we will open the call for your questions.

Before we begin, I would like to remind you that we will be discussing some non-GAAP metrics, such as adjusted net income, non-GAAP net income and free cash flow during our call. Please see the exhibits included in today's press release for an explanation and reconciliation of non-GAAP measures to the most directly-comparable GAAP measure. A copy of the press release has also been submitted as an exhibit to an 8-K we filed with the SEC.

I'd also like to remind you that certain information contained in this call constitutes forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various important factors, including those discussed in today's press release and those factors in the prospectus filed by the Company on February 16, 2005 and our subsequent filings with the SEC. While the Company may choose to update forward-looking statements in the future, we specifically disclaim any obligation to do so even if our estimates change. You should not rely on these forward-looking statements as representing our views after today.

With that, let's move on to the summary of our results and key metrics. Total revenue increased 28% to $64.4 million from 50.4 million for the fourth quarter of 2004. Net income to common shareholders on a GAAP basis was $28.3 million or $0.69 per diluted share compared with net income of $14.3 million or $0.35 per diluted share for Q4 last year. The Company's adjusted net income for the fourth quarter of 2005 was $13 million or $0.32 per diluted share. This non-GAAP figure excludes an unrealized mark-to-market gain of $20.9 million on our derivative contracts before taxes.

Non-GAAP net income for Q4 of 2004, which was adjusted to make the two periods comparable, was 10.9 million. Our 13 million of adjusted net income for Q4 of 2005 would have represented a 19% increase over non-GAAP net income for 2004.

For the year ending December 31, 2005, net income to common shareholders on a GAAP basis was $18.7 million or $0.46 per diluted share. This compares with net income of 51.2 million or $1.25 per diluted share for 2004. The Company's adjusted net income for the full year 2005 was 48.9 million. Non-GAAP net income for the full year of 2004 was 40.8 million for an increase of 20% year over year.

Next, I will turn to the key metrics we look at in evaluating the Company's performance. Average number of vehicles serviced increased 10% from the fourth quarter last year to approximately 4.2 million. Total fuel transactions processed increased 10% from Q4 a year ago to 58 million. Average expenditure per payment processing transaction for Q4 increased to $50.64. This represents an increase of 29% from the same period last year. Average retail fuel price for Q4 increased 28% to $2.53 per gallon compared with $1.98 for the same period last year. Total MasterCard purchase volume grew to $228.6 million, an increase of 30% from Q4 last year. Finally, we paid $7 million in principle on our financing debt balance this quarter. This brings the total net paid year to date to $47.5 million.

I will now turn the call over to our CEO, Mike Dubyak.

Hello, everyone, and thanks for joining us this afternoon. The fourth quarter was a strong conclusion to what turned out to be a great year for Wright Express. We came in within our guidance range for revenue and EPS, and we continued to see solid customer growth in all of our markets -- large, mid-sized and small fleets as well as MasterCard. Our key operational metrics -- growth in average number of vehicles serviced and number of transactions processed -- both beat their 3-year CAGRs.

As Steve said, our total revenues in Q4 were up 28% year over year. Higher fuel prices were a contributor, but volume growth contributed as well.

Payment processing transactions were up 16% from Q4 last year. As we expected, this is a little under the 19% growth we reported for Q3; some of which reflected the Gulf Coast hurricanes and the concerns about fuel supply that followed. About 2% of the growth was due to a major strategic relationship changing from a transaction-processing arrangement to a payment-processing arrangement. Once again, our front-end sales and marketing engine proved to be more than capable of driving solid growth in Q4, and our custom acquisition and retention metrics were very favorable. Our voluntary attrition rate across all fleet sizes was less than 3%.

Going into the new year, our pipeline of new business looks great. Everything we're seeing indicates another year of strong demand for fleet card solutions. In addition, the business continues to generate healthy levels of cash flow. And we paid down another $7 million of debt in Q4. As far as our results in Q4 are concerned, I will start with the fundamentals.

Wright Express is unique in its space because of our fleet card solutions that cut across the whole market and target fleets of all sizes and all vehicle types. Added to that, we have a powerful and growing MasterCard offering. Looking at the fleet card business first, the number of commercial and government fleet vehicles on U.S. roads today totals about 41 million. If you take these 41 million vehicles, we estimate that approximately one-third are currently purchasing their fuel on a fleet card offering like ours. Of the two-thirds of the market not using a fleet card, more than half are still purchasing with cash.

We have the most success winning business when we find fleets that are still using cash for their fuel purchases. Because in most cases, they are not aware of a fleet card product. Fleets like these are usually looking for alternatives to giving employees cash, but they are not comfortable giving them a major credit card that can be used anywhere for any type of purchase.

The biggest variable costs for a fleet operator is fuel. So, the ability to tightly control fuel purchasing is critical. When fuel prices are rising, controlling fuel cost is top of mind and prospects are more receptive to fleet card solutions. However, based on our experience with customers over many years, we've seen that the savings from fleet cards remain compelling, even when fuel prices are tracking down. This is why despite the rise and fall of fuel prices over time, we've seen consistent growth in the number of vehicles we service.

So, the value proposition is there. And given the number of fleet vehicles on the road, we have an excellent organic growth potential in our business. But, there is no single silver bullet for unlocking this potential. Lots of things have to be done well at the front end in our own sales and marketing programs or approaches to leverage our core competitive strengths -- sales and marketing, portfolio management, and product differentiation -- to add incrementally to our growth capabilities. That is to improve our performance in acquiring and retaining customers and in creating products that add value by satisfying new and existing customer needs. I will walk you through each of our key markets -- large and medium fleets, small fleets, and MasterCard -- to see how our activities at the front end contributed to our Q4 results.

Looking at large and medium fleets first, Q4 was another quarter for growth in these markets. We have a strong direct sales force and a range of solid program relationships, including the six largest vehicle leasing companies in the country. Fleet cards have significantly penetrated this space, so the success factors are pretty simple. Do a great job serving and satisfying the customers, while taking some share from your competitors, and you can produce solid growth.

In the fourth quarter this year, the number of vehicles we serviced in large and medium fleets was up 14% from Q4 last year. Even though we continue to be successful in the competitive large fleet market, growth doesn't always come easily. For example, one of our customers, UPS, recently notified us that they will not be renewing their contract. While we don't like to lose any customer of any size, UPS contributed less than 1% of revenue and net income in 2005. So, this will not have a material effect on our results.

We've got such a large, diverse, and balanced customer portfolio that no single fleet generates a significant portion of our revenue, even a large account like UPS. Our goal is to ensure that our growth is profitable and that our relationships are beneficial for both parties.

In terms of transaction volume, our major growth opportunities are in the small fleet market. Unlike large and medium fleets, small fleets are underpenetrated; there's lower awareness of fleet card solutions. Small fleets range from sophisticated and sizable professional service firms to local landscaping companies that give drivers petty cash to pay for their fuel.

We are a leader in the small fleet market because we have developed front-end sales and marketing capabilities that are effective in targeting this type of customer. Unlike large fleets, small fleets are dispersed and difficult to find. We have strong competencies in the data modeling and direct marketing techniques required to identify and connect with owners of small fleets and thus generate quality sales leads that our inside sales force can efficiently close.

By effectively using all these front-end tools, we produced strong volume growth in the small fleet market in Q4. Similar to last quarter, small fleet business through our co-branded private-label partners was about flat overall. In the direct market channel that we control however, our growth rate was 19%. Cutting across all fleets sizes, private carrier fleets with heavy trucks represent a niche that we're now focused on. We've expanded our sales force to capitalize on heavy truck opportunities. As a result, the number of heavy trucks we serve was up 21% from the fourth quarter last year.

Q4 was also a very strong quarter for our MasterCard business with purchase volume growing 30% in the fourth quarter last year. Our strategy is to find leverage points, where we can apply our front-end sales engine to penetrate new opportunities. And MasterCard is just this type of opportunity. MasterCard has taken us beyond fleets into a far larger space that requires different products, market segmentation and front-end strategy and has been performing very well for us.

In a market that is dominated by major banks offering general corporate purchasing and travel and entertainment expense cards, we found a niche comprised mainly of small and midsized businesses, where our value proposition is very competitive and a sizable portion of the market is underserved. We've leveraged our technology and customer service capabilities to create what we believe is a differentiated offering. And, our MasterCard field sales force is doing a great job educating customers about how our MasterCard product can help them better manage their expenses.

Outside of our core markets, I would describe our growth strategy as thoughtfully innovative. We're being aggressive yet diligent in applying our core competencies to capture business opportunities in verticals beyond fuel purchasing. While still in their infancy, these programs have been generating encouraging results.

In addition, it's our practice as a matter of course to be looking at the marketplace for potential alliances or acquisitions that can accelerate our growth and/or enhance our strategic position. Strategically, we expect to focus on deals in contiguous markets that complement our core competencies; that is opportunities that are fleet, payment processing or information solutions-related and have the potential to drive growth.

At the same time, we see solid potential for continued long-term organic growth in our core fleet card solutions business. We are leveraging our proprietary network as well as our position as the market leader to realize this potential.

As I said, our business pipeline remains very strong. I'm also feeling good about the progress we're making operationally and financially, including the recent extension of our fuel price-related derivative instruments. We're beginning 2006 with strong and positive momentum, and we're looking forward to building on this momentum through the year.

With that, I will turn the call over to Melissa.

Hello and good afternoon, everyone. This was another solid quarter for Wright Express. Our results were driven by revenue and volume growth, and we are also seeing a number of other positive impacts in terms of productivity as our business model scales. This has resulted in strong free cash flow this quarter, which has enabled us to continue reducing our leverage. I would like to note that we've made a change in the classification of our cash flow statement in today's news release. We've moved two items from operating activities to financing activities, mainly deposit and borrowed federal funds. There's no change to the numbers, just in classification. In addition, there are no changes to how we look at cash flow internally, only the presentation of the information in the cash flow statement. Although these two line items, deposit and borrowed federal funds, are now classified as financing activities for the purposes of the financial statements, please keep in mind that we use these funds specifically as a source of cash for funding the timing differences between collecting our accounts receivable and paying our accounts payable.

Free cash flow totaled $48.2 million for the full year 2005, and net cash used by operating activities was $40.9 million for the same period. We paid down $7 million of our financing debt during the quarter, bringing the total paid down this year to 47.5 million. As we've consistently stated, this total closely tracks the adjusted net income figure for the year.

Exhibit 3 in today's news release reconciles free cash flow for 2005 to the applicable GAAP measure operating cash flow. I will start with the details on total revenues for Q4, which increased 28% to $64.4 million from 50.4 million for the same quarter last year. Although the pricing environment continues to be challenging, all our other revenue drivers were positive and we saw continued acceleration in business volume in the fourth quarter. Payment processing revenue grew 33% year over year to $46.5 million. This is the kind of growth we like to see, driven in large part by a 16% increase in the number of fuel transactions to 43.2 million from 37.1 million a year ago.

With another quarter of growth in the average expenditure for fuel transactions, which increased 29% to $50.64 from $39.21 from Q4 of 2004. The higher average expenditure was primarily driven by the 28% increase in the retail's price of fuel.

The average number of gallons per transaction increased a little over 1% from last year. We believe this is due to the success we're having in penetrating the heavy truck market where there are typically more gallons per transaction due to vehicle size. In Q3, we talked about the hurricanes and fleets purchasing more often but smaller amounts of fuel when they did purchase. This quarter, we saw a return to historical fueling patterns.

As Mike said, our MasterCard product also did well this quarter, contributing $2.4 million to payment-processing revenue, up 12% from 2.1 million for Q4 of last year. The increase in revenue was driven by the 30% increase in the spend volume across our MasterCard products. Also, we experienced a decrease in our overall net payment-processing rates for the quarter. However, we expect these rates to return to historical levels in 2006. Our transaction-processing revenue was essential flat from Q4 of last year.

As Mike mentioned earlier, we had one significant strategic relationship, flipped from a transaction-processing arrangement to a payment-processing arrangement. Account-servicing revenue increased 4%, which reflects the increase in vehicles serviced offset by a decrease in the average rate per vehicle.

Finance fees in Q4 were $5.4 million, up significantly from last year. This relates primarily to the higher average pass-through balances, resulting from the increase in payment-processing transactions and fuel prices.

Turning to operating expenses on a GAAP basis, total operating expenses were $33.2 million compared to 26.7 million in Q4 last year. The two periods are not directly comparable as we have detailed in Exhibit 2 in today's press release. Apart from these costs, the year-over-year increase in operating expenses primarily reflects a $1.2 million increase in depreciation and a $4.2 million increase in operating interest expense net of interest income due to higher interest rates and debt levels.

The average debt level grew due to the increases in average fuel price as well as the number of vehicles we service. The scalability of our business model continues to improve our expense profile. We processed 89,000 transactions per FE this quarter compared with 87,000 in Q4 last year; that's a productivity improvement of 3%. For the year, we had a productivity increase of more than 5%. Thinking about operating expenses for 2006, one thing to keep in mind is an increase in service fees related to additional SOX-compliance activity.

On credit loss for the past 2 quarters, we've been predicting a return from very favorable current conditions to something approaching more traditional levels. However, Q4 was another outstanding quarter in terms of our credit experience. Our provision for credit losses in Q4 of '05 was $1.6 million compared with 1.9 million in Q4 last year. This includes releasing a $1.2 million reserve from Q3 associated with hurricanes. Credit losses as a percentage of total payment-processing expenditures in the fleet-related business continued to decline this quarter from 13 basis points in Q4 last year to 8 basis points. However, without the reversal of the hurricane reserve, credit loss would have been 13 basis points. Based on what we know at this point, we expect next year's credit loss to continue rising to a level that's closer to what we've seen historically. Our accounts receivable continued to be collected within 30 days on average.

Turning to depreciation and amortization, the total was $2.7 million for the fourth quarter of 2005, an increase of 79% from 1.5 million in Q4 last year. As we continue to invest in upgrading our technology platform, we expect to see further increases in depreciation.

Our effective tax rate on a GAAP basis was 32.1% in Q4 versus 39.8% for the fourth quarter of 2004. Our GAAP tax rate is affected by the unrealized loss on our derivative instruments. We expect it to fluctuate from year to year. Our full-year tax rate was 37.9% on adjusted net income, and we expect those rate to be fairly consistent going forward.

Now, let's look at the details on adjusted net income. For the fourth quarter, adjusted net income was $13 million or $0.32 per diluted share. Our non-GAAP net income for Q4 of last year totaled $10.9 million. The Company's adjusted net income for the fourth quarter of 2005 of $13 million would have represented a 19% increase over non-GAAP net income in Q4 of 2004.

Year over year, adjusted net income for Q4 '05 reflected volume increases across the business, offset by higher interest rates in both operating and financing debt. This contributed an additional $1.8 million to expenses before taxes, and we had $1.2 million of additional depreciation expense. Pulling all this together, the adjusted net income margin for the fourth quarter of 2005 was 20% compared with 22% for Q4 a year ago on a non-GAAP basis. For the full year 2005, as Steve said, adjusted net income was $48.9 million, a 20% increase from net income for 2004, adjusted on a non-GAAP basis to make the two periods comparable.

Turning now to the balance sheet, total assets were $1.4 billion at December 31, 2005 that consisted mainly of $652 million in accounts receivable net of reserve for credit losses and 513 million in deferred income taxes, arising primarily from our tax receivable agreement with our former parent company; total liabilities of $1.3 billion, consisting primarily of 254 million in accounts payable, 377 million in operating debt, 221 million in financing debt and 424 million payable to our former parent company under the tax receivable agreement.

As I said earlier, our profitability this quarter enables us to pay down $7 million on our financing debt, leaving a balance of approximately 221 million. The balance on our line of credit was $53 million with an additional 8 million in letters of credit used to secure our derivative instruments. We continue to pay LIBOR plus 150 basis points on the outstanding amounts of both the term loan and the line of credit and 30 basis points on the unused portion of the line of credit.

I will comment briefly on our fuel price-related derivative instruments. We are continuing to purchase these instruments to manage the Company's fuel price-related earnings exposure going forward. Ultimately, we expect to continue locking in about 90% of our adjusted net income exposure every quarter on a rolling basis.

As we reported last month, we have locked in 90% of our fuel price exposure through the third quarter of 2007, 60% through Q4 '07 and 30% through Q1 of 2008. We are confident that our risk management strategy will continue to support the visibility and predictability of our cash flow in future earnings. The non-cash mark-to-market adjustment associated with these derivative instruments will continue. As a result, the Company's quarterly GAAP net income may be prone to significant fluctuations and may not reflect core operating results for that particular quarter.

During the fourth quarter of 2005, we have recognized a realized loss of $6.6 million before taxes on our derivative instruments in an unrealized gain of 20.9 million. There was a gain of approximately $0.03 per share between the additional revenue we recognized due to higher fuel prices compared to the realized loss on our derivative instruments. This gain results from the mismatch between changes in wholesale and retail fuel prices during this quarter.

Although our hedging strategy is designed to minimize these mismatches, it doesn't totally eliminate them. The difference between wholesale and retail prices has returned to historical averages, so we will no longer be providing specific guidance on this metric.

I will conclude the Company's prepared remarks with our updated guidance. Let me remind you that our forecast for the first-quarter and full-year 2006 are valid only as of today and are made on a non-GAAP basis that excludes the impact of non-cash mark-to-market adjustments on the Company's fuel price-related derivative instrument. The fuel price assumptions are based on the applicable NYMEX future prices. Our estimates are as follows. For the first quarter of 2006, we expect to report revenues in the range of 62 to $67 million. This is based on an average retail fuel price of $2.52 per gallon. For the full year 2006, we expect to report revenues ranging from 275 to $285 million based on an average retail fuel price of $2.57 per gallon.

As for earnings for Q1 of 2006, we expect to report net income before unrealized gain or loss on derivative instruments in the range of 11 to $12 million or earnings per diluted share of $0.27 to $0.30. For the full year 2006, we expect to report net income before unrealized gain or loss on derivative instruments in the range of 52 to $55 million or earnings per diluted share of $1.27 to $1.33 on approximately 41 million shares outstanding.

With that, we'll be happy to take your questions. Operator, you can proceed with Q&A now.

(Operator Instructions). Tien-Tsin Huang, JPMorgan.

A question about payment-processing transaction volume I guess. Can you quantify again the impacts of Katrina? I understand there was a little bit of a swapping from transaction to payment as well. Maybe you can just help us reconcile that a little bit.

Sure. I think what we said in our last call was that we had projected an impact of 1 to 3%, the upside in the third quarter because of the hurricanes.

Right so, 1 to 3%, does that spillover into the fourth quarter -- was consistent?

No. We actually saw a return to (multiple speakers) more historical levels in the fourth quarter. So no, we saw the impact in the third quarter but not in the fourth.

Then transaction-processing volume excluding the swap, what was the growth there, excluding that transition?

If you were to reduce the -- we had a pick-up in payment-processing revenue of 2% on the transaction growth because of that flip.

So what does the math equate to on the transaction-processing side if you normalize or exclude the change from that one client?

Tien-Tsin, hold on just a minute; we're doing the calculation.

Maybe if I could sneak in another one?

Yes, go ahead.

I guess if you could just give us a little bit more on what drove the loss of UPS as a client. Are they going to another proprietary fleet card or a co-branded card?

They are going to a fleet card. I think the way I would categorize it, they had a profile change. They had two acquisitions recently that puts them more into the truck stop end of the market with their ground business. And because of that, they decided they wanted one supplier to really satisfy all of their needs. We do not have some of the strength in the truck stop end that the competitor that won does. So I think that was the reason.

We do believe that if they would have split the business, there was a chance that we might have kept the business we already had. But, I think the truck stop capabilities were the difference for them. They really kind of with their profile change became kind of a micro segment of our portfolio because we don't have a lot of customers like that that really have that much of a truck stop need in their overall fueling needs. But, that's what drove it.

It would have been approximately flat growth on transaction-processing transactions.

If I could sneak one more, it looks like debt repurchase activity was a little below trend again this quarter. Has your thinking on use of cash changed at all?

No. We think that -- and we said before that our adjusted net income we think is a good barometer over time of our free cash flow or our ability to repay our debt, and it will fluctuate from quarter to quarter. But, no, I don't think that's a measure of anything other than what you're going to see as periodic blips.

Paul Bartolai, Credit Suisse First Boston.

I think you mentioned that you are seeing a little bit of a tough pricing environment. Can you give us anymore caller there in specifically what you are seeing as far as the discount rate goes on the payment segment?

Well, on the overall marketplace, I think we've said all along it's very competitive, especially when you look at the large fleet marketplace and yet we grew 14%. We have a strong pipeline this year you know as we start the year. But I think it's no different than we've said all along that the competition for some of these large fleets is very aggressive.

Again, I'd like to just point out that is true and we're going to lose some; we are going to win some. I just want to make sure that on UPS, you also understood there was a difference in terms of their needs and their profile.

To give you another flavor, if you were to look year over year -- I should say quarter over quarter from '04 to '05, there's about an extra $8.8 million worth of revenue in the fourth quarter of 2005 associated with the price of gas; it's $0.55 more. So, if you were to normalize that out, you would actually get a 10% growth in revenue from 2004 to 2005, which is consistent with what we saw in the third quarter.

Then as you look at the deals you win, can you give us some sense of what percent of those are fleets that had been using cash versus fleets that had been using another fleet card or maybe using just a general VISA, MasterCard?

I don't have that statistic, Paul. I guess we could -- I don't know if we can get that.

Just generally speaking even.

Pardon me?

I mean even just generally speaking, is it the significant--?

One of the things we do know from the stats is if you look at three plus vehicle fleets, roughly 40% of them are still purchasing through some mechanism of cash. We believe that that's a changeable driver for us and our ability to convert those to our product.

Then a last question, just as you look at guidance for '06, can you give us any sense for maybe some of the key drivers, what you're expecting there in terms of transaction and pricing?

We actually don't intend to give out specific drivers' guidance. So, we are not giving you any indicator that we expect to see significant changes from what we've seen historically. I'd say that on the transaction growth.

Patrick Burton, Citigroup.

It's Robert Tung for Patrick Burton. Just getting back to Paul's question on the drivers, I know you specifically won't comment on drivers for '06. But, just looking -- you mentioned historically, the transaction volume level shouldn't change much from prior years. But, '05 was a bit of an anomaly right because of the fourth quarter on the transaction-processing side?

On the third quarter, yes.

Yes, so historically on the transaction-processing side, I mean I guess in '04 you're something around 7 or 8% (multiple speakers). Is it more like that, or is it more like in '03 where it was like in 2% or something?

But if you look at total transaction growth to 3-year CAGR if you add in 2005, about 9.5% as opposed to a little bit over 10% for the full year 2005. So, it's definitely up for the full year 2005. But it's been relatively consistent over time.

Did you give I apologize -- did you give some qualitative type of commentary on the discount fee on the payment-processing side in '06? Will it be down as everyone would expect or--?

At this point in time, what we've said before is we think that we have the impact of signing long-term contracts for the strategic relationships that factored into our comparability of '05 to '04. And since we did a big chunk of that, we don't expect to see that same impact year over year. We do think that we will continue to see some pricing pressure in the large fleet market, but you won't see as much of a change we don't believe next year.

Could you just remind us the kind of the different maybe targeting you guys do in the large fleet as opposed to Comdata in the heavy truck area? Could you give us a sense of the distinction again?

I think the distinction for us is a lot of our business has been based on, if you will, gasoline-powered vehicles or local and regional heavy truck business. Where I think what I was trying to lay out, if you will, on UPS is a lot of theirs became more truck stop requirements and capabilities. So, if we are truly talking the truck stop capabilities and that piece of the market, we don't have the strength that some of the other competitors that play very heavily in that market have. So, that's where I was trying to make that distinction.

Finally, in terms of use of cash, how much do you expect kind of to use towards maybe debt paydown as a priority as opposed to buybacks or anything?

Sure. We're continuing to pay down our debt; our target remains the 1.5 to 2 times EBITDA. And so, we are going to continue to pay it down. Then beyond that, we are working with our Board in looking at alternative methods of deploying capital and evaluating what we think is best.

Congrats on the strong payment processing you had.

Abhi Gami, Banc of America.

Could you talk a little bit about your contract renewal expectations for '06. As you just commented, '05 was a heavier-than-normal year. Would '06 be half of what '05 looked like, back to historical levels? If you could just give magnitude, that would be helpful.

Every year, there are contracts up for renewal in the strategic relationships' side. Some of those will just roll over. In some, there will be some negotiations to extend. I would say it is lighter than last year, but there are still a number of them that we're going to be working through the year. And we feel very confident where we are with those and where we are in any negotiation that's ongoing right now.

Switching gears, can you talk a little bit about your product or feature pipeline for 2006? Are there any major things or anything you are working on right now you can talk about when you want to roll out and when you might roll that out?

I think we've talked about before we're doing some things on an alliance in the distributor market, which helps us go into the small fleet market more aggressively. So, that is something that we will be unveiling during the year, releases that will allow us to get more aggressive in that marketplace.

We talked about we've done some testing in some vertical spend markets that we feel very good about. We're seeing great results and will continue on that track and see if we can start to expand that in 2006.

Finally, could you offer anymore precision around the number of -- average number of vehicles? I think you said it was up 10% to 4.2 million vehicles, which I think it looks on the surface as flat with what you reported last quarter. But I think when you do the math, it looks like it might be marginally up. Is there any way that you can provide me with the sequential growth in number of vehicles served was?

For (technical difficulty) our Q4 average was 4.23. That's actually just a hair under 10% growth.

David Parker, Merrill Lynch.

You mentioned that you had a customer that switched from transaction to payment processing. Could you just provide a little bit more color around that, the reason? And is there any other opportunity for other customers to make that switch?

I think they really analyzed their cost of funds internally versus working with us and our ability to fund their receivable, so they can unload that receivable and use their cash in other parts of their business. There are some others that we have an opportunity with, and we are having some of those discussions to see if that's possible in '06.

Then, you've said your focus for '06 is the small fleet market. Are you looking also at potentially expanding your capabilities or your services in the truck stop, seeing as you lost UPS? Is that an opportunity for you, or is that not something that you are -- is that not a market that you are interested in?

Well, I would say a couple things there. One is, small fleet is clearly an area where we have a lot of focus either through our direct channel or even working through our indirect channels. But, we're looking at all market spaces. As we said, we grew 14% even in the large end. We grew very soundly in the medium size. Our heavy truck had 21% growth. So I think we're looking at all segments to continue to grow.

We've always said though that our primary heavy truck market is the private carrier market that's mostly local and regional, not truly people that just use truck stops for a lot of their needs. In this case, the customer we lost, I said their profile changed because they had a greater need from truck stop capabilities. That is not our strength. We are looking to expand our strength there. But, I don't know if we're going to build products in '06 that will have us directly in that market.

Then, final question, any opportunity to expand internationally in '06?

Yes, I think a lot of our focus right now is to do more in Canada, and there are some discussions going on to expand beyond if you will North America. So, we're looking at those. Some of those are opportunistic with our strategic alliances partners, where we think we can then hopefully work with them to move into some of those frontiers.

(Operator Instructions). At this time, there are no further questions in queue. I will now turn the conference back over to Mr. Mike Dubyak for any closing or additional remarks.

Thank you, James, and thanks, everyone, for listening. I think in summary, we're making excellent progress as we begin the new year. Our new business pipeline looks great. We are improving the performance of our business and most importantly delivering greater value to our customers. Thank you for listening this evening.