WEX Inc (WEX) 2010 Q3 法說會逐字稿

Good morning, my name is Susan and I will be your conference operator today. At this time, I would like to welcome everyone to the Wright Express third quarter 2010 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Steve Elder, you may begin your conference.

Good morning. With me today is our CEO, Mike Dubyak and our CFO, Melissa Smith. Financial results press release we issued earlier this morning is posted in the Investor Relations section of our website at wrightexpress.com. A copy of the release has also been included in an 8-K we submitted to the SEC. As a reminder, we will be discussing a non-GAAP metric, specifically adjusted net income during our call.

For this year's third quarter, adjusted net income excludes non-cash mark-to-market adjustments on our fuel price related derivative instruments, small impact related to our tax receivable agreement and the amortization of acquired intangible assets as well as the related tax impacts. Please see Exhibit 1 included in the press release for an explanation and reconciliation of adjusted net income to GAAP net income.

We will also be discussing the acquisition of the Australian fuel and prepaid business from Retail Decisions. All of the revenue and expense numbers we're discussing today include the two weeks of their activity, the performance metrics data such as the number of vehicles does not include their activity.

I would also like to remind you that we will discuss 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 factors, including those discussed in our press release, most recent Form 10-K and other SEC filings. While we may update forward-looking statements in the future, we disclaim any obligations to do so. You should not rely on these forward-looking statements after today.

With that, I'll turn the call over the call to Mike Dubyak.

Good morning, everyone and thanks for joining us. During my prepared remarks this morning, I will focus on a few key areas. First, I will briefly review our results for the quarter, including key performance metrics, trends and customer wins. Second, I will talk about some of the recent advancements we have made in our long-term strategy to expand our international presence. And finally, I will wrap up with our near-trend capital allocation priorities.

Overall, the third quarter was a solid quarter. The momentum we experienced in Q2 continued through the end of September and we are pleased to report results that exceeded both our top and bottom line guidance. In addition, the performance metrics we track continue to improve. Our diversified businesses are posting solid growth and we had some exciting developments on the international front.

Total revenue rose 17% to $100 million, primarily driven by elevated fuel prices, increased Master Card spend and fueling activity. We also reported adjusted net income of $28.1 million or $0.72 per diluted share, representing a 13% increase over the same period last year.

Importantly, we continue to see improving trends across our business. Fleet fueling volume in our installed base or same-store sales grew 3.7% over the prior year. Although this has moderated slightly from the second quarter, quarterly fluctuations in volumes are to be expected to a certain degree in this economic environment.

We also saw continued improvement across the majority of our SIC codes. Specifically, the construction sector posted its first quarter of year-over-year improvement in several years, while transportation, manufacturing and business services continue to trend upwards.

Regionally, we also saw similar trends to the second quarter in terms of fuelling activity as the Southwest continue to outperform all other regions. Payment processing transactions in the US were up 3.3% during the quarter, which marks the first time in over two years we have experienced consecutive quarters of year-over-year growth. In addition, transaction processing activity was up slightly over the previous year after five quarters of decline.

Lastly, we saw the number of vehicles serviced during the quarter continue to rise. Our total number of vehicles serviced grew 3.7% year-over-year to 4.8 million vehicles, which was driven in large part by BP coming online in New Zealand in September.

Our solid results, improving KPI trends and record-low attrition levels, both voluntary and involuntary, continue to underscore the strength of our value proposition to customers. To that end, we announced that we've signed a five-year agreement to provide private label fleet card services for ConocoPhillips. The program will include a competitive discount offer, funded by ConocoPhillips through a branded proprietary fleet card accepted only at Conoco, Phillips 66 and 76 locations, as well as a new co-branded universal card, which will be accepted at over 190,000 fuel and service locations throughout the United States.

Beyond our fleet card business, our diversified businesses continue to exceed our expectations. For the third quarter, our diversified businesses represented 26% of revenue versus 21% in the third quarter of last year. Including the recently acquired Australian businesses, we anticipate the diversified businesses will grow to approximately 30% of our total revenue next year.

MasterCard spend volume increased 50% year-over-year, driven in large part by our online travel customers. Our newest customer in the online travel vertical continues to ramp up nicely, and we're clearly encouraged by the results to date.

During the quarter, we continued to make headway in the insurance and warranty vertical, and are exploring other verticals that could offer additional long-term growth opportunities for this business.

Concurrent to our business expansion initiatives with MasterCard, we have made strides in advancing our long-term vision to provide both payment processing and card issuance services on a global scale. To that end, we closed the acquisition of Retail Decisions' Australian fuel and prepaid companies in mid-September.

The fuel business is Australia's largest multi-branded fuel card issuer with roughly 300,000 cards in circulation. And the prepaid business is a market-leading processor of prepaid cards in Australia and maintains approximately 60% market share.

This acquisition provides us with an excellent opportunity to, one, extend our international footprint by providing global revenue diversification in an established, but growing market; two, create a new platform for growth outside of fuel cards with prepaid; three, diversify the business in a number of ways, including currency, seasonality and customer base; and four, advance our long-term international vision, complementing our efforts in both Europe and Asia-Pacific. The integration of the businesses has been going very well. The Wright Express Australia employees have been a great addition to the Company and we are excited to have them aboard.

To reiterate some of the things we said on our call announcing the transaction, the growth rate of these businesses is similar to our US business. Overall EBITDA margins are slightly higher than our historical margins. This transaction was accretive to our adjusted net income in the third quarter and we are expecting a significant contribution in the fourth quarter as well.

During the quarter, we also announced that we have signed an agreement with BP International to process its commercial fuel card transactions in Australia and New Zealand. In September, we began processing for BP in New Zealand, which largely drove the improvement in the transaction processing activity. We expect BP in Australia to go online during the first quarter of next year.

So as you can see, we are making progress on our international strategy as evidenced by the recent acquisition and our new relationship with BP. In addition, we continue to explore a strategy focused on expanding our international presence. These important steps in our international strategy combined with strength in MasterCard and positive results in Fleet provide us with multiple avenues for continued growth.

Before I turn the call over to Melissa, I just want to spend a few minutes talking about our capital allocation priorities. As we have said in the past, our highest priority in terms of excess cash flow remains on maintaining a healthy level of strategic investments to expand our business both organically and through alliances, mergers or acquisitions.

We have also focused on share repurchases. Early in the third quarter, we spent roughly $7.9 million buying back 261,000 shares of our stock. Since the inception of our current repurchase plan in 2007, we bought back approximately 3.6 million shares at a total cost of $101 million. We have approximately $49 million remaining under the current authorization.

That said, we view our optimal leverage range to be between 1.5 and 2 times EBITDA. With the completion of the acquisition, we are now at the high end of that range at 2 times. In the near term, we plan to pay down debt. While the uncertainty in the broader market remains, the positive indicators we are seeing across our business underscore our confidence that we should see continued top and bottom line growth as we move into 2011.

With that, let me turn the call over to Melissa to discuss our financials in more detail and provide additional clarity on our revised guidance. Melissa.

Thanks, Mike, and good morning, everyone. As Mike noted, we had another solid quarter with our results beating guidance and several key performance metrics showing further improvement. For Q3, payment processing transaction growth, higher fueling volume, increased MasterCard spend, and lower credit loss, all favorably impacted our results compared to last year. Improving trends within our business also reinforced our confidence that this performance will continue through the remainder of 2010 and into next year.

I'll now run through some of the key financial metrics that drove our results for the quarter, before moving to a discussion of our current capital structure. I'll then conclude with our revised expectations for the fourth quarter and full year.

Turning to the income statement, which you can reference in the release we issued this morning, we reported third quarter total revenue of $100.2 million, increasing 17% from $85.8 million for the third quarter of 2009, and above the top end of our guidance range of $91 million to $96 million. As Mike noted earlier, these revenue numbers include a small contribution for two weeks of activity from Wright Express, Australia.

Net income to common shareholders on a GAAP basis was $20.6 million or $0.53 per diluted share, compared with $23.4 million or $0.60 per diluted share in Q3, last year. Our non-GAAP adjusted net income for the third quarter of 2010 increased to $28.1 million or $0.72 per diluted share, exceeding the high end of our guidance range, which was $0.65 to $0.70 per diluted share. This represents an increase of 13% over the adjusted net income for the third quarter of last year, which was $24.9 million or $0.63 per diluted share.

With that as a background, I'll discuss our financial results in more detail. Our net payment processing rate for Q3, 2010 was 1.78%, which was up 1 basis point versus Q3, 2009 and up 3 basis points from 2Q. As a reminder, we implemented some new payment processing rates during Q1, increasing the average rate by 5 basis points. We'll continue to see the benefit of these higher rates in future quarters.

This was another strong quarter of growth for our MasterCard segment. Total purchase volume was up 50% from Q3 last year to $1.3 billion, again exceeding our forecast. Revenue in the MasterCard segment was up by 53% year-over-year to $16.7 million. MasterCard represented 17% of total revenue and 15% of total ANI in the third quarter of 2010, up from 13% and 12% respectively in the third quarter of last year.

The MasterCard net interchange rate for Q3 was 1.03%, down 7 basis points year-on-year, primarily due to higher foreign spend which is a lower interchange rate and higher rebates due to customer mix.

Moving onto operating expenses, our strategy remains the same, tightly controlling our underlying cost structure, while making targeted incremental investments in growth initiatives, including research, marketing and international business development.

On a GAAP basis, total operating expenses of $64 million for Q3 were higher than we expected, primarily due to transaction cost associated with the acquisition and higher compensation expense. Deal expenses and the related tax impacts incurred in the acquisition of Retail Decisions was approximately $6.8 million. This was offset by a foreign currency gain of $6.8 million we realized at the close of the transaction.

Salary and other personnel costs for Q3 were $23.7 million, up $5.1 million from the third quarter last year. This increase was primarily due to additional employees, contractor expense, annual salary and benefit increases, commissions and employee travel. The remainder was due to an increase in incentive plans based on current projections of our financial performance.

Fleet credit loss was 12 basis points compared to 19 basis points in the prior year and within the 11 to 16 basis points we assumed in our guidance. On a total basis, including both Fleet and MasterCard, credit loss for the third quarter was $3.9 million compared with $5.7 million in Q3 last year. Total charge-offs in the quarter were $4.4 million and recoveries were $1.1 million.

As of September 30, balances past due 30 or more days represented 1.1% of the portfolio compared with 1.4% last year and 1% at the end of Q2. The slight increase in past due balances was in line with our expectations.

Our effective tax rate for Q3 on a GAAP basis was 45.5% compared with 39.6% in the third quarter last year. Our adjusted net income tax rate this quarter was 40.1% compared with 37.8% for Q3 a year ago. Both tax rates were negatively impacted by non-deductible expenses associated with the acquisition. In addition, there were also small true-ups, resulting from the filing of our state tax returns.

On a go-forward basis, without the cost associated with the transaction and state tax true-ups, we expect our ANI tax rate will be approximately 37% for the fourth quarter.

Turning to our derivatives program, during the third quarter of 2010, we've recognized a realized cash gain of $3 million before taxes on these instruments and an unrealized loss of $6.7 million. We've concluded the quarter with a net derivative liability of $0.9 million. As previously reported, we've completed our purchases for 2010. For the remainder of the year, we have locked in at a price of $2.69 to $2.75 per gallon. Including our most recent purchase in October, we've also hedged 80% of our North American exposure through the third quarter of 2011, 53% of our exposure through the fourth quarter of 2011 and 27% of the first quarter 2012 exposure.

So the periods in 2011 for which purchases have been completed, the average price we've locked in at the top end of our collar is $2.94 and increases quarterly as we move through the year. On a go-forward basis, we do not plan to hedge our fuel price exposure specific to Australia, as the exposure is more limited and has not historically fluctuated to the degree it has in the United States. We will continue to target hedging 80% of our fuel price exposure in the US, which will effectively cover 65% to 70% of our overall exposure.

Turning to the balance sheet, we ended Q3 2010 with a balance of $345 million on revolving line of credit, and $75 million in our new term loan. The interest rate on our line of credit will increase slightly in the fourth quarter based on our increased leverage. The term loan carries an interest rate of LIBOR plus 250 basis points. Our leverage ratio was 2 times EBITDA compared with 1.3 at the end of Q3 last year.

In the third quarter, we also entered into an 18-month interest rate swap that locks in LIBOR at 56 basis points on $150 million through February of 2012. Capital expenditures for the third quarter were $6.9 million; our anticipated CapEx for 2010 is in the range of $24 million to $26 million, up from the actual spend of $17.8 million in 2009. Again, this is comprised of ongoing investments in new products, inefficiency initiatives with the majority of the year-over-year increase reflecting our international investments.

Moving to our outlook for the remainder of the year, let me remind you that our forecasts reflect our view only as of today and are made on a non-GAAP basis as Steve discussed earlier. For the fourth quarter of 2010, we expect to report revenue in the range of $107 million to $112 million, and adjusted net income in the range of $26 million to $29 million or $0.68 to $0.74 per diluted share.

For the full-year 2010, we expect revenues ranging from $382 million to $387 million and adjusted net income for the full-year of 2010 in the range of $103 million to $107 million or $2.69 to $2.75 per diluted share, which represents a 24% increase over last year. Both fourth quarter and full-year 2010 adjusted net income per diluted share is on approximately 39 million shares outstanding.

Before I review the key assumptions incorporated in our guidance, I want to spend a few minutes discussing the impact as a result of our recent acquisition. We closed the transaction late in the third quarter, and as a result, the contribution from these businesses in the quarter ended September 30 was not material.

For the third quarter, we anticipate rolling the results of the Australian fuel and prepaid businesses into our Fleet results when we file our 10-Q. However, over the next several months, we will be evaluating the best way to characterize this business in terms of its result, and expect to provide any changes or updates on our fourth quarter call and full-year 2010 filings.

That said, for the fourth quarter, we expect Wright Express Australia to contribute between $14 million and $16 million in revenue. In addition, the majority of the increase in our adjusted net income guidance for the full year is the result of the acquisition. With that, let me provide other key assumptions on our financial guidance for the fourth quarter and guidance for the full-year 2010.

Reflecting the thoughts Mike expressed, our guidance assumes the volume in our existing US customer base or same-store sales volume will be positive for the remainder of the year. US fleet credit loss for the fourth quarter is expected to be 17 to 22 basis points and the full year is expected to be in the range of 14 to 15 basis points. This loss rate reflects the favorable experience so far this year, but no other meaningful changes to our assumptions.

The fuel price assumptions for the US are based on the applicable NYMEX futures price. For the fourth quarter, we expect fuel prices to be $2.82 per gallon; for the full year, we expect fuel prices to be $2.81 per gallon.

To echo Mike's comments, we're pleased with the results this quarter and have confidence that we will continue to see growth as we move into 2011.

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

(Operator Instructions) Your first question comes from John Williams from Goldman Sachs.

Good morning. Thanks for taking my question.

Good morning.

Good morning.

Very quickly, I was just curious if you could possibly pull out the revenue contribution. I know it was only a few weeks in the quarter. But from the Australia business, it would just be helpful to try and get to the operating margin as a clean number when we ex out the one-time expenses?

Yes, we said it's not material to what we reported in Q3. There is a little bit of seasonality in the number that we gave for Q4, the $14 million to $16 million because of the prepaid business. So you can presume there is two weeks of activity in Q3, roughly and a little bit less of the run rate of what we're projecting in Q4.

Okay. In terms of that seasonality, how should we think about that when we're just trying to model that business? Obviously, Q4 is going to be set a little bit higher, right?

Yes. Yes, it's slightly higher, the prepaid business is still a small part of the total Australian -- Wright Express Australian business so that it will have an impact, but not a significant impact.

And when we think about hedging as just sort of a share of the total revenue and exposure to earnings that you're hedging, on the international side presumably, it's less of an issue because you're more tilted towards processing, is that fair to say?

On the international side, there is actually funded relationships on the Australian fuel business. And so there is fuel price volatility, but it's less of a piece of their business because they earn more account servicing fee as a percentage of their total revenue and fuel prices are more stable there from what we've seen in the last couple of years of results for Retail Decisions' Australia business.

And the prices, John, are higher. So when crude oil prices change, it has less of a percentage change on their volatility.

Got it. Okay. And overall, I think you had said 65% to 70% of earnings exposure is what you're going to be hedging now when you factor in the international impact?

That's correct. Yes.

Okay. That would be presumably versus what was 80% before you did this deal?

Correct. Yes. We're still hedging 80% but just off the North America base.

Great. Okay. So the --

Yes. You are right. If you translate in the Australian business, you get to 65% to 70%.

Okay. Great. Thanks, guys.

Thanks.

Thank you. Your next question comes from Greg Smith with Duncan Williams.

Yes, hi, guys. Melissa, any way you can give us an indication of what D&A is going to look like in the fourth quarter or at least the extra increment related to the Australia acquisition?

Yes, the amortization expense in that -- when we file the Q, we'll actually have our first estimate of the purchase accounting adjustments, which is just an estimate at this point, but rough order of magnitude is about $100 million in intangibles that are getting added and they've got various lives of storage associated with them, most of them are pretty short lives.

Short as in five years?

Five to ten is range.

Okay. And then, in the quarter -- or the -- I guess the finance fees stepped up pretty nicely, that was a little surprising. And also the other revenue, and I'm just thinking on a sequential basis, was there anything unusual in those two line items this quarter?

Yes. The impact for late fees has to do with the timing of when a period -- a cycle, thank you -- cycle and because of the dates that the cycle closed, we actually ended up with a little bit more late fees than we've seen in other quarters.

And the other revenue?

And in terms of other revenue, the MasterCard business has cross-border currency fees, which are included in other revenue and because we saw more volume outside of the US, we saw a pickup there. But you also see a corresponding cost associated with that, which is going through our service fees.

Okay, very helpful. And then, with -- on the MasterCard side, what's the latest on some of the larger, do you, I don't believe you talked about it, I'm sorry if you did, but what's the latest on some of the larger potential deals and some of the trials you have going on there?

Yes. It's -- we've talked about one particular customer that we haven't disclosed their name in respect to them at this point. But that continues to ramp quarter by quarter and that will continue to grow and ramp even through next year. So there's still strength and the momentum from that particular customer. And then, we're seeing other online also being strong and as we said, some new verticals that we've been closing in the warranty and insurance business. So overall, MasterCard has great momentum and we see it continuing.

And that customer then, it's not a trial, it's a phase-in to basically handle their business?

Yes, it's not a trial. I mean, we started fourth quarter of last year, it's continued to roll out, these are not trials and it will continue to get strong and roll out next year as well.

Excellent. Great. Thank you.

And Greg, just go back to your question about amortization that it will be closer to five years in our preliminary estimate. And obviously, that's going to be changing over time, but that's our first view.

Okay. I'll take a stab at it. Thank you.

Yes.

Your next question comes from Bob Napoli with Piper Jaffray.

Thank you. So, I mean, just to be clear, in the third quarter, there's a couple million of revenue if you take the fourth quarter guidance down to two weeks, it's like $2 million of revenue or somewhere in that range. And no expenses, yet, was there -- $0.72, did you get a couple pennies from the acquisition or just trying to be clear on what the run rate was in the third quarter?

Yes. We said it was accretive in the quarter so that we did get a little bit of a pickup. No, the transaction costs netted against the cost of the foreign currency gains. So those two things essentially to wiped each other out. And so there's revenue and then ongoing cost around the business. They're included in the results for those two weeks.

So, a couple million of revenue with an EBITDA margin slightly above the corporate average is what the effect would have been on the third quarter?

Correct, and the cost -- the financing cost of the transaction, have to net that against the two, yes.

Okay. Then, the growth rate of that business and the seasonality -- how seasonal was that, what is the seasonality, difference in that seasonality versus your business? Is that -- I mean obviously the prepaid, which -- what percentage of the revenue is prepaid of the $14 million to $16 million in the fourth quarter?

It's a small piece of the total Australian entity. And so that's why it doesn't have as much of an impact overall to the total. There is a little bit in there, but not -- it's not significant. But there is a little bit of impact in the seasonality and as Mike said earlier, it complements our business to a certain respect, because on the fuel side of the US business, there is a little seasonality down in the fourth quarter, as there are less business days in the fourth quarter. And so we actually think those two things are going to complement each other.

But the seasonality of the fuel business is similar to the seasonality of your core business in the US?

It is, yes.

And then, just strategically, where does that -- where do you go from here? Okay, so you got the prepaid business, what is the strategy to try to rule that out? I mean you generate a lot of cash flow, so you de-leverage really fast. I mean are you looking at other international deals and opportunities? I'd like to have some understanding of the organic growth strategy of what you acquired and what else makes sense to fit into that growing international business?

Yes. If we first just take the Australian businesses, I think we were clear saying, we didn't have any kind of specific synergies. Nothing was explicit. We feel good about the businesses, this geographic diversification. But we will be looking at opportunities. So there is already teams assigned to look at just on that business their platform, how that could be leveraged possibly into other parts of the world if we're looking at prepaid, looking at what we can do to bring to bear to help them with some of their fleet card strategies, in terms of how we've done things in North America. They've done a lot of what we do, but we do some things a little bit differently that might help them as well with growth opportunities.

So we'll see that business kind of be somewhat a standalone but we're looking at synergies, but none of that was how we -- when we bought it, we weren't basing it on those synergies. We will look at other international acquisitions. I think we talk about being both an issuer and a processor. I think in that case, the Australian business allows us in at least parts of Asia-Pac to be now a processor and provide operating services. So we will at least look at that strategy in other parts of the world as well to be a processor, and then look at potential acquisitions that can provide those back-end operating capabilities. So I don't know. And then, we will continue to look at BP as a partner to roll out internationally, and look at other oil companies where we could be a processor, and eventually layer in some of the operating services. So, I hope that helps, Greg.

Yes, it's Bob. But that's okay.

I'm sorry, Bob. I'm sorry.

No problem. All right. Thank you.

Thank you. Your next question comes from David Parker with Lazard Capital Markets.

Thank you, good morning. And congratulations on getting back to a growth in number of your important metrics. First of all, could you -- you've announced a number of positive wins in the last few months with BP and the renewal of Sinclair and Conoco, can you just talk about some of the reasons why you're winning business recently and just your competitive advantage right now?

Well, I think it goes back to during the crisis, we said we're going to continue to invest in our business, we did that. I think some of the capabilities that we're showing in terms of the services we can provide to a private label partner, to a fleet in terms of online services capabilities, other products that we've diversified just gives us the ability I think to compete very aggressively, and we are doing that, and we are winning business.

During the crisis, our bank was a strategic advantage, able to show that we could still improve at a high level. And we have found that if from a private label oil company and I see what my results were during those periods of time, and now see what Wright Express can show us and demonstrate during that same period of time, that's an advantage to be with Wright Express as a processor. So I think all of the investments being very aggressive in the marketplace, and just showing the results we were able to show during a very difficult period is playing very well for us right now.

Good. And then, are you funding the transactions for Conoco? And how does their -- how did they overlap with your current coverage in the US?

We will be funding, so we will be funding. We will actually be managing a lot of their marketing and sales. So this is a full comprehensive program. So fully operational, funding the receivables, carrying the bad debt, managing sales reps, managing marketing budgets. The good news is with some of their brands like the 76 brand, they gave us West Coast coverage with another private label capability. They're going to be rolling out a co-brand card. So it gives us more strength again with maybe mid-size and larger fleets with their co-brand card to penetrate on the West Coast and other areas that they are in. So it just complements, I think, in a lot of ways the ability to go after the small-size fleets and some of the mid-size fleets with the card programs we're putting in place with them.

Okay. And then, how does the pipeline look, specifically with some of the government deals that might be out there?

Well, I would say this that talking to the sales organization, they feel their pipelines right now are as strong as they have been for two years. And that's across all sectors, government and corporate. And that includes MasterCard as well as fleet.

Great. Melissa, just quickly, should we anticipate any foreign currency gains or other transaction cost associated with the Australia acquisition in the fourth quarter or are we done with those?

Not associated with the actual transaction. We've said before that we're not hedging the currency exposure to the Australian business and the presumption is that the exchange rate is pretty similar to what it is now in our guidance. And so we don't think that that's going to have material impact but that is just another thing to contemplate. It's probably why we widened the range by another penny.

Okay, great. Thanks, guys.

Thank you.

Thank you. Your next question comes from Tien-tsin Huang with JPMorgan.

Hey, good morning. It's actually Regi calling in. I guess, I jumped on a little late, did you guys talk about inter-quarter trends and if so, do you mind, I guess, kind of reviewing it briefly for me?

In terms of some of the existing customer trends?

Yes, or transactional trends, did things improve as the quarter kind of went along in through October, or kind of what are you seeing there?

Yes, actually it was a very strong quarter and it actually did progressively if I just look at the existing customer trends because that's really giving us the biggest indication of what our, if you will, 285,000 customers are doing. Every month get a little bit stronger than the previous month, so that was very positive. We saw, as we said, all regions of the country this time, either grew and the only one that did not was the West Coast, they were down a little bit, mostly because of Nevada; even California was flat. Our SIC codes, pretty much the majority of them had growth. And I think we announced on -- we talked on the prepared remarks about the construction trade actually was slightly up which was the first time we saw construction SICs up over the last couple of years, so that was very positive.

Okay. That's great. Appreciate that. I guess kind of focusing on Wright Express Australia, just curious, did you guys disclose, I guess, what '09 revenues were and kind of what '10 would look like if they fall within your fourth quarter guidance range?

We did actually announce the 2009's previous results on our last call. It was AUD50 million in their 2009 result and we will be filing pro forma statements towards the end of this month, so you'll see more information on 2010 as well as when we file the Q. We've got some limited pro forma information that will be filing included in that. So we are giving out selected pieces of information for the business. And then we also said for the fourth quarter that there will be $14 million to $16 million in our guidance for the [rest of] the Wright Express Australian business and that that's a little bit seasonal.

Okay. Perfect. And then, I guess I noticed a nice up-tick sequentially in your vehicles and I was just curious, is -- was that something macro or was that related to, I guess, some of the new wins you've announced in the Australia acquisition?

Yes, it was primarily the BP program that we brought on as a processing customer or partner in New Zealand, so that had the most material impact on the growth rate.

The vehicle number actually does not include any of the numbers from the Wright Express Australian acquisition. We've excluded that for this quarter.

Okay. Perfect. Going forward, they will be in there though, the Australia?

Yes.

Okay.

Yes.

Thanks. Great quarter, guys.

Thank you.

Thank you.

Thank you. Your next question comes from Tim Willi with Wells Fargo.

Thank you and good morning. Just had a question on the competitive landscape that you mentioned in a couple of questions back about why you're winning some private-label business based upon the capabilities that you think you can do better than a fuel company internally. Could you just address anything you've seen and thoughts around your capabilities versus the competition? Is there a functional and product gap do you think is widening between yourself and most of the competition, given your ongoing reinvestment or maybe some of your other competitors have struggled with leverage or just sort of lack of clear focus by being part of a larger entity, anything along those lines that you would point to?

Well, without getting into specifics a little bit of what you said is true, maybe focus with some competitors which I think we were able to take advantage of, especially in the down market where we've been very strong. The fact that, I think it really is a combination of the investments we've made to keep differentiating ourselves, if you're talking larger fleets that look at our online controls and capabilities together with our kind of customer service of how we work with them to make sure we're providing great value.

So, they can save money. It's kind of degrees of changes, not one thing. I can't say there is any major gap but I think people can see the differences. We worked very hard to win the GSA business and we've leveraged that into other government programs. What we've built there was investments we made over the years and they could see the differentiation. We've won a lot of these larger accounts with not being the lowest on price. So it does point to the fact that our overall customer capabilities and technical capabilities on products win out for us.

We did research last year that showed our net promoter score, kind of in that world-class level as well as our brand had the highest positive brand impressions against our competition. So, all of that I think plays well for us when you're talking at least partners and also large fleets and even in the MasterCard area.

Okay. And then, just a follow-up question if I could around expense growth and sort of thinking about where the revenue momentum has been trending and some of the -- you held the line obviously on expenses pretty well during the downturn. Any thoughts you have around discretionary spending, hiring plans that might take place if these revenue trends hold? Do you think you've found sort of a new productivity level that exists at the Company as opposed to prior to the downturn where margins or how you manage productivity could actually get above the peak levels prior to the economic slowdown?

I'll let Melissa talk on this as well, but I would say we've been -- during this period as we said, we keep investing, so we've been doing a lot of research and we are going to be investing in some cases that are going to have paybacks then as much as a year out, for example, we're going to continue to grow the MasterCard sales force which is very positive because we think there is great opportunities to continue that growth and even expand that growth. So we're bullish there. We're adding sales reps for ConocoPhillips. So you won't see their productivity for a while. So areas like that we will make those investments. I'd say, if you look at our core kind of operating side in terms of the contact center and even the IT side and the finance side, then we do show scale there and show productivity gains and that will continue.

Okay, great. Thank you.

Thank you. Your next question comes from Sanjay Sen with Bloombergsen.

Hello, hi there, Mike and Melissa. Congratulations on a very good year. I just had a couple of things I want to ask you about the Australian company. I know you had said and reported that in '09, it had AUD61 million revenues and you mentioned that fourth quarter which will be a little bit seasonally above average is $14 million to $16 million, which would sort of imply that it's about AUD60 million again with what '09 was. So I am just trying to understand what I didn't see. Is it -- would it be in Australian dollars? I know this is the US number you are talking $14 million to $16 million, but in Australian dollars, will '10 -- will 2010 be something like AUD65 million in revenues, very roughly speaking?

There are going to be differences and this is part of what we're working through is the pro forma numbers between -- the number you referenced was the audited number for Retail Decisions' assets. And that will have some reconciliations or differences between how we view things from a US GAAP perspective, which is part of what we're pro formaing and adjusting right now.

Okay.

So I don't think that they are exactly apples-to-apples. I wouldn't infer anything from that until we actually file the pro forma information, which is going to be later this month.

Okay. And yes, because I just -- okay. Yes, I was just trying to get a handle on where I thought that was. And the EBITDA margins, you said is a little bit above your average and your average by my estimate is about 50%. So are you saying that this Company would be a little bit above that, is that a correct understanding?

We did say it's little bit above ours, yes.

Okay. Okay, thank you very much.

Thank you. We have a follow-up question from Bob Napoli with Piper Jaffray.

Thank you. Now, the ConocoPhillips, I was just trying to make -- I mean is that the -- I'm trying to get an understanding of the revenue potential and I am sorry, I know you went through the transactions earlier and when -- I mean, when does this business kick off and how many transactions do you -- is the ConocoPhillips?

Yes, we haven't disclosed the number of transactions. It does have a soft conversion during the fourth quarter where we will be issuing cards. And then it has a hard conversion on January 1, where the prior cards provided by the prior processor will basically be expiring. But we haven't disclosed specifically what transactions will be.

I mean this sounds -- I mean, this is relatively material, which is why you are talking about it. But I mean, how many locations is it? And you haven't disclosed the cards. Can you try to give me some feel for -- try to give us some feel for --?

Well, they have approximately 7,000 locations between their Conoco brand, their Phillips 66 brand and their 76 brand.

And you are -- as you said, this is a payments, I mean, this is -- you are doing soup to nuts, if you will, with the full payment processing. Is there any way -- I mean, what would a typical company like this or do you have a customer that would be similar size or something that you could talk about or anyway to quantify, give me a little better feel for what this really adds and how many vehicles are involved?

Yes. Part of that is that we're just being careful of not disclosing information that they haven't given us the right to do. I would say that it is a little smaller than Sunoco, and I think you've done some modeling around that.

Yes. Okay.

So, I would be comfortable saying that.

All right. Then tax rate for 2011 with the acquisition?

Yes. We said, we think the tax rate in the fourth quarter of this year is around 37% on an A&I basis. And we're still evaluating 2011 and the impacts of that. But we do think that there is going to be a tax benefit of having the Australian business in the mix.

Okay. And then the MasterCard business, I mean, so you think it could be below 37% then in 2011?

Well, we're seeing the fourth quarter is about 37%, and that would include a full quarter of the Australian business in there.

Okay. And then, the MasterCard business, the lower interchange rate, which I understand is more international. Was that -- would you expect the mix of international to continue to increase? And then, I mean, just is it -- should I assume that the international business is somewhat less profitable than the US, because of the lower interchange rate or are there other benefits?

I would presume that it will increase based on the mixed changes that we're seeing. And in terms of profitability, maybe slightly less that you're going to see actually when we report the quarter in the Q that the MasterCard business was very profitable in this last quarter, even with the mixed change.

Okay. And so you're getting some operating scale, are you -- historically, you've -- I mean, I know you have a fair amount of variable cost in that business. But are there -- with the kind of growth you're getting, are you now seeing scale benefits?

There is scale and we also had a very low credit last quarter and there's typically not a lot in there anyway. But it was particularly low in the third quarter from the MasterCard program.

Okay. Thank you.

Thank you. Your next question comes from Leonard DeProspo with Janney Montgomery Scott.

Hi. Good morning and thank you for taking my call. I was just curious if there was any way you could parse out the expenses in the third quarter associated with the [Retail Decisions] acquisition in terms of line items to confirm? I think you had mentioned about $6.8 million, I don't know if that was all going to be in service fees, salary and other kind of split out?

There is approximately $4.5 million, the biggest chunk outside this is included in service fees.

Okay.

And then also in taxes. The increase in the tax rate we talked about was as a result of some of those expenses not being deductible.

Okay. Thanks. And the -- maybe I heard this incorrectly, but in terms of the transaction growth year-over-year, I think you had mentioned that some of the lift was due to BP coming on. So I was just curious if you all disclosed what that transaction growth would have been organically without the addition of the BP transactions?

The BP transactions were included in transaction processing transaction. So you can actually see it -- the number for payment processing transactions does not include that nor does it include the Australian business.

Okay. Thanks.

Thank you. Your next question comes from Marshall Jaffe with Henry Armstrong Associates.

Yes. Hello. Can you give a little bit of detail on the components of the increase in receivables? Was that better -- was there a change in the performance of payments? Some of it obviously was attributable to the Australian business. Can you just give us an idea?

Sure. The increases in the receivables were driven by the increase in fuel prices as well as the Australian businesses, say, between 10%-ish of the total receivable balance. So that's part of the growth.

Okay.

That were the two biggest components. The actual DSO for us is very consistent over time.

Okay. So that payment performance wasn't a meaningful factor in that. Is that right?

No, no.

Okay. Okay. Thanks very much.

Sure.

Thank you. I will now turn the call back to Mr. Elder for final remarks.

Well, thank you. We look forward to speaking with you again next quarter and that wraps the call. Thanks.

Thank you.