WEX Inc (WEX) 2012 Q1 法說會逐字稿

Good morning. My name is Jennifer and I will be your conference operator today. At this time I would like to welcome everyone to the Wright Express first quarter 2012 financial results conference call. (Operator Instructions). Thank you. Mr. Elder, you may begin your conference.

Good morning. With me today is our CEO, Mike Dubyak.

The financial results press release we issued this morning is posted in the Investor Relations segment of our website at wrightexpress.com. 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 first quarter, adjusted net income excludes non-cash market to market adjustments on our fuel priced related derivative instruments and the amortization of intangible assets as well as the related tax impacts. Please see exhibit one included in the press release for an explanation and reconciliation of adjusted net income to GAAP net income.

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 obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today.

With that I will turn the call over to Mike Dubyak.

Good morning everyone and thanks for joining us. I am pleased to announce another great quarter for Wright Express.

For the first quarter revenue increased 17% to $140 million while adjusted net income rose 22% to $0.91 per diluted share, both inline with our guidance. During the first quarter we saw continued organic growth in our fleet business with consolidated payment processing transactions up 3% over the prior year and vehicle growth of 13%, primarily driven from the launch of BP Australia in the second quarter of 2011.

We also saw a very strong performance from our corporate charge card product in our Other Payment Solutions segment as spend volume increased 52% year-over-year. Overall we are executing well and these results underscore the strength of our growth strategy to expand our Americas fleet business, diversify our revenue streams and build out our international presence.

During the first quarter we made further progress in expanding our Americas fleet business. Despite choppy economic indicators, the macroenvironment has remained largely stable which coincides with what we are seeing in our existing customer base or same-store sales trends. Our existing customer base or same-store sales were down approximately 0.5% compared to Q1 2011.

Looking at our portfolio by SIC code our two biggest concentrations, business services and construction, were both slightly positive for the quarter relative to the first quarter of 2011, as was transportation. However, nearly all other SICs were down compared to the prior year.

Our existing customer base for the first quarter had relatively steady performance with fourth quarter trends. Looking regionally, the Southwest was once again the strongest region. Consequently growth in our core fleet business is being driven by new business wins, a testament to our innovative products, strong customer service and proprietary technology.

On the new business front we had new signings up-market and we experienced continued momentum in our down-market strategy with small to mid-sized fleet wins during the first quarter. The down-market pipeline remains robust with small and mid-market fleets.

Additionally, we saw a fair amount of activity in terms of large fleet contracts including the renewal of the State of Georgia. We also signed three year extensions with Enterprise Fleet Management and LeasePlan, both long-term co-brand partners. As announced last week, MAPCO Express joined us as a private label partner and will also be offering a co-brand universal card. We believe our continued success with large fleets and partners is due to our sustained investments in our products and services as well as outstanding customer experience.

One of these recent investments is our free mobile app for iPhone an android device that is called Octane which we introduced in March. Octane is the industry's first fuel site locator that incorporates accurate real-time transaction based fuel price data and text-to-speech capabilities. In a nutshell, this app helps people find the nearest fueling locations with the lowest prices based on actual transactions from our broad network.

This app demonstrates our continued focus on developing innovative solutions and providing customers with the best possible fleet management tools. We believe this helps drive new business and enhances the value we provide to our customers.

Turning now to the second part of our growth strategy diversification of our business. During the first quarter our other payments solution segment generated revenue growth of 44%, once again led by our corporate charge card product. Spend volume increased to a strong 52% over the prior year to $2.2 billion primarily from our single-use electronic credit product in the online travel vertical. Though online travel was the predominant driver for growth, we did make greater headway on our initiative to achieve customer and industry diversification with this project.

During the quarter additional wins in the insurance and warranty vertical, an area where we already have several customers. Going forward we expect the online travel vertical to remain an important growth channel for us.

We anticipate gross spend for our corporate charge card product to now be in the 25% to 35% range for the year. That said, we also believe new client wins, international expansion and greater penetration into additional verticals could provide additional layers of growth in the future.

On the prepaid side rapid! PayCard continues to make increasing contributions to our results albeit still small. Having acquired this business a little more than a year ago, it has been performing to our expectations. In 2009 the domestic market for prepaid payroll card loads totalled almost $20 billion and is projected to increase to $100 billion by 2017. Over the longer term we continue to be optimistic on the prepaid payroll business and we are looking for ways to expand or gain greater reach in this area.

Moving on to the final area driving our growth we are pleased that the build out of our international presence is also taking shape. On the fleet side Wright Express Australia has been performing according to plan with continued steady growth and we remain focused on increasing our market share in under penetrated segments of the market. In the first quarter we signed a multi-year contract renewal with the western Australian government and we have seen greater traction with our co-brand partners on our universal fleet card.

Additionally, to help further drive our growth we are implementing some best practices from our go-to-market strategy in the Americas as we move up-market in the region. Else where we continue to work on building stronger relationships with major and regional oil companies to develop the sales pipeline. In addition, we are continually exploring other ways to further accelerate our on the ground presence in Europe and Asia-Pacific via acquisitions and strategic alliances.

We are also moving along with our plan to expand our corporate charge card product overseas. Since our fourth quarter call we have signed another client in the online travel vertical in the UK and we see a growing pipeline of additional opportunities in Europe. With the European marketplace embracing single-use accounts, otherwise known as virtual cards, we believe Wright Express is well poised to capitalize on this growing trend.

Outside of Europe we are working to develop the market for our corporate charge card product in Australia. We have been leveraging our prepaid relationships to penetrate the online travel vertical and are encouraged by the positive feedback we have received from two of the largest OTAs in the country. We remain confident in our ability to win new business and believe this recent development further elevates the globalization potential for this product.

To conclude, we are very pleased with our performance notice first quarter and believe we are off to a good start in 2012. Overall our Fleet and Other Payment Solution segments are doing well, and we are seeing broad based growth across our business as a result of our strategy. Over the remainder of 2012 we will continue to execute against our multi-pronged strategy to expand our Americas fleet business, further diversify our business and accelerate the build-out of our international presence to capitalize on the many opportunities that lie ahead.

In addition, we plan to continue investing across our business to accelerates the growth and maturity of our programs like OTR, prepaid payroll and our international OTA single-use product. With positive momentum in the business we feel very good about the path we are on and the growth platforms we are deploying. We believe the foundation we have established puts us on solid footing as we focus on further developing the business to driver our future growth.

With that I will turn the call over to Steve to discuss our financials and guidance for 2012. Steve.

Thank you, Mike. For the first quarter of 2012 we reported total revenue of $140.1 million, an increase of $20 million or 17% from the prior year period and slightly above the high end of our guidance range of $134 million to $139 million. This performance was driven primarily by continued strength in our Other Payment Solution segment, payment processing transaction growth and higher fuel prices.

Net income to common shareholders on a GAAP basis for the first quarter was $23.2 million or $0.59 per diluted share. Our non-GAAP adjusted net income increased to $35.6 million or $0.91 per diluted share. EPS is up 21% compared to the $0.75 per diluted share reported in Q1 last year on an adjusted net income basis.

Taking a look at some key performance metrics for the first quarter, total fuel transactions increased 8% over the prior year. Payment processing transactions were up 3% in total. Transaction processing transactions increased to 31% primarily driven by the addition of the BP contract in Australia. Each of these growth rates were in line with our expectations for the quarter.

The net payment processing rates for Q1 2012 was 1.64% which was down 4 basis points versus Q1 2012 and down 2 basis points versus the fourth quarter of 2012. This rate will vary with fuel prices due to the impact of our hybrid merchant contracts. The primary reason for the decline in our rate from Q1 last year was due to changes in fuel prices. The rate this quarter was very much in line with what we saw in the second, third and fourth quarters of 2011 as fuel prices were relatively consistent.

Finance fee revenue in the Fleet segment was up $1.2 million compared to Q1 last year. As a percentage of total dollars of fuel purchased it was approximately 3% lower than last year. The average balances that are past due and incurring rate fees continue to be smaller when adjusted for changes in fuel prices, and the number of customers that are paying late has continued to decrease compared to the same period last year.

Due to the fact that more of our customers are paying on time, late fee revenues were below our expectations by more than $1 million in the quarter given the higher fuel prices. The trade off of lower late fees compared to sharply lower credit loss rates was a favorable mix change for our profitability and is a good sign for the long-term health of the portfolio.

Over the first quarter, revenue in the Other Payment segment increased 44% or $9.4 million year-over-year to $31 million and now represents 22% of our total revenue. The increase in revenue was once again driven primarily by our corporate charge card product in the online travel vertical with a smaller contribution also coming from rapid! PayCard.

Spend volume in our corporate charge card product increased $754 million over last year or 52% to $2.2 billion for the quarter. The net interchange rate on our corporate charge card product for Q1 was 90 basis points, down 11 basis points year-over-year. The drop was primarily due to the mix of contracts, higher foreign spend which generally has a lower interchange rate than domestic transactions and a reduction in customer specific incentives received from MasterCard.

Moving down the income statement total operating expenses on a GAAP basis for the first quarter were $82.2 million versus $73.9 million last year. The majority of the increase was related to our service fees and salary expense. Salary and other personnel costs for Q1 were $28.7 million compared with $25.7 million in Q1 last year. The increase was driven primarily by additional headcount to support our growth strategy as well as a reduction in the amount of capitalized payroll related to internally developed software. In addition, accelerated expense related to performance-based stock unit also increased salary expense.

Service fees were up $7.3 million over the prior year to $20.3 million. As a reminder, approximately 60% to 65% of this expense was associated with processing fees we pay on our corporate card product including cross-border fees. These are typically related to spend volume.

Additionally, service fees include professional and other fees which are unrelated to spend volume such as third-party consultants, advisors and legal expenses. The increase in the expense this quarter was primarily related to the 52% increase in volume on our corporate charge card product. In addition we had an increase in expenses related to corporate development activities.

In total credit loss for the first quarter was $5 million which includes $900,000 for a sudden and significant bankruptcy in our Other Payment segment compared with $5.7 million in Q1 last year. Total charge-offs in the quarter were $7.4 million. Recoveries of amounts previously charged off were $1.6 million.

Domestically, complete credit loss was 7 basis points, a record low for the first quarter compared to 14 basis points in the prior-year period. The outperformance in credit loss relative our expectations was driven by improvement in the aging and an increase in recovery. We expected to see our aging deteriorate during Q1, but it came in better than we anticipated.

During the quarter we completed the earn out period related to rapid! PayCard. The earn out came in slightly lower than we expected, so we have recorded that benefit as a reduction to our other expenses.

The effective tax rate for Q1 on a GAAP basis was 36.9% compared to 36.4% in the first quarter of 2011. The adjusted net income tax rate this quarter was 35.9% compared to 35.8% for Q1 a year ago which was in line with our expectations. We expect our A&I tax rate to be approximately 36% for the remainder of the year.

Turning now to our derivatives program, for the first quarter of 2012 we recognized a realized cash loss of $5.3 million before taxes on these instruments and in unrealized loss of $13.6 million. We concluded the quarter with a net derivative liability of $13.6 million.

As previously announced, we have hedged approximately 80% of our domestic exposure through the first quarter of 2013 and lesser percentages in the second and third quarters of 2013. For the second quarter of 2012 we have locked in at a price of range of $3.32to $3.38 per gallon. For the full year, the average price locked in is $3.33 to $3.39 per gallon, and increases each quarter as we move through the year.

Given the fact that we have been hedging in a rising fuel price environment, the Company's average hedged price of fuel continues to increase while protecting the Company against the volatility in both short-term fuel prices and cash flow. We continue to target hedging 80% of our fuel price exposure in the US on a rolling basis which will effectively cover 65% to 70% of our overall exposure.

Spending a moment on the balance sheet, we paid down $6.9 million on our financing debt balance during the first quarter. We ended the quarter with a total balance of $288.4 million on our revolving line of credit and term loan. As of March 31 our leverage ratio was 1.1 times EBITDA compared to 1.9 times at the end of Q1 last year. In the near-term our priority remains to pay down debt and we continue to look at acquisitions as a way to further our growth objectives.

In terms of capital expenditures, CapEx for the first quarter was $5 million. For the full year we expect CapEx to be in the range of $30 million to $32 million.

Now for our guidance which reflects our views as of today and is made on a non-GAAP basis. For the second quarter of 2012 we expect to report revenue in the range of $145 million to $150 million and adjusted net income in the range of $36 million to $38 million or $0.92 to $0.98 per diluted share. These figures assume normal seasonality trends in the corporate purchase card and the prepaid businesses as well as credit losses.

For the full year 2012 we expect revenue in the range of $602 million to $617 million and adjusted net income in the range of $160 million to $168 million or $4.10 to $4.30 per diluted share. Our full year guidance assumes higher growth expectations for our corporate charge card product, as Mike alluded to earlier, and elevated fuel prices. These are offset by an acceleration in non-cash stock-based compensation expense for the remainder of the year and continued investments across our business. The guidance does not reflect the impact of any stock repurchases that may occur in the future.

Our guidance assumes that domestic fleet credit loss for the second quarter will be between 9 basis points and 14 basis points and between 10 basis points and 15 basis points for the full year. The reduction in our credit loss guidance compared to last quarter is largely offset by a reduction in our expectations for finance fee revenue.

Our guidance also assumes domestic fuel prices for the second quarter will be $3.93 per gallon and $3.72 for the full year. These fuel price assumptions for the US are based on the applicable NYMEX futures price. We are also assuming that the Australia dollar will remain at a premium to the US dollar in the range of the current Spot Rate.

With that we will be happy to take your questions. Jennifer, please proceed with the Q&A session.

(Operator Instructions). Your first question comes from Sanjay Sakhrani with KBW.

Thank you. Good afternoon. I guess I have a question on the M&A outlook for you guys. Obviously your competitor made an acquisition in Europe recently and yesterday announced another one in Brazil. I was wondering whether or not those are potential targets for you guys that you would have considered, and if yes, what some of the barriers were to make those acquisitions?

(inaudible -- technical difficulty) -- comment that we know of both businesses. We knew a lot more about the UK business than we do about the Brazilian business. That was a process that was run. We were involved.

This is a company that used to be a sister company under Cendant with Wright Express. We knew the business very well, but for different reasons it was not something that we were successful at. So that's pretty much it. We had an interest, but just not successful in completing a transaction.

Okay. And then are there any other items that you're looking at that you think might pan out over the course of the next year or so?

Yes. There's no doubt we're actively looking. So now it's going to be from our strategic standpoint what's the right fit, what's the right price.

Steve mentioned we had some development costs. We feel optimistic about completing some deals this year, but as you know, that still means getting to the finish line and we're going to be prudent about what we're doing to look at these companies. But we are inquisitive, and we will continue to be inquisitive.

Okay. That's fair. I'm sorry if I missed this because I jumped on a little bit late, but just in terms of the other processing business. First Steve, you mentioned the interchange rate was lower for a variety of reasons. Is that the rate we should consider on an ongoing basis?

And I guess secondarily, just in terms of some of the pipelines of new customers, how much of that for the year is factored in? I think you had mentioned a couple last quarter of prospective customers. Did any of those impact the numbers this quarter, and how should we think about it on the go-forward basis?

Well, the first part of your question, yes, we do expect that net interchange rate to remain pretty consistent with what you saw in the first quarter for the rest of the year. The only caveat I would throw in there is mix changes can affect that, and to the extent it comes from one of our OTAs versus a small purchase card customer, the interchange rates could vary a little bit from that as well as foreign spend, which as I pointed out, it does tend to have a lower interchange rate than we have here in the US.

In terms of the pipeline we did mention that there's been a couple of signings in the UK. They have not gone live yet although we do expect that to happen in the next couple of months or so. But there's some impact in our guidance for that, but it's not particularly meaningful.

Okay. Great. Thank you.

Your next question comes from Roman Leal of Goldman Sachs.

Yes. Hi. Thanks for taking my questions. You have been alluding to a nice pipeline for international clients potential wins for your corporate charge product. Any update on that, and any color on the pipeline maybe either the size of these potential customers or expected timing?

Yes. I think as Steve just said, we have signed two in the UK that we expect to roll out pretty much mid-year third quarter time frame. But the pipeline is strong, so we're seeing good activity in Europe and we've been expanding our sales force there.

Australia, again, because of the relationships we had with the prepaid product we were able to leverage those and we feel very confident that two of the largest OTA partners that we can develop will eventually be partners of Wright Express on our OTA product, and we believe there's other opportunities there. So that would probably roll out later in the year. We have to do some things just to get everything ready.

The good news is we were already in Australia. A lot of fundamentals are in place, we are a just building off of that to be able to put these customers up and on the books, if you will, this year. So we will continue to be aggressive in those markets.

Because of what we're seeing with the trends some of the investments we're going to be making is to expand more aggressively internationally on the online travel side. So that's again, where some of the longer term investments are coming from.

Okay. And on I guess the co-branded opportunities how does the pipeline look fair, and is that mostly a US opportunity or is there some potential partnerships in I guess the rest of the world as well?

Yes. In the US we've got the six largest co-brand partners today which really dominate that landscape. We've got solid strong relationships. We talked about two that we just extended longer term relationships over three years with LeasePlan and with Enterprise. So most of the opportunity we see in the co-brand business is quite frankly in Australia.

That program when we bought it was primarily a down-market small fleet oriented business, and we're trying to bring some of our best practices. They have a universal card that is good at over 90% of all the of the petrol stations, or gas stations, in Australia.

So we are moving up-market with our own proprietary program. That's what we talked about a little bit in the prepared remarks. And we're working with co-brand leasing partners to also bring them into the fold. They were doing a little bit of that. We're just being more aggressive with those co-brand partners and we're seeing good traction.

Okay. And then last one. At the beginning of the prepared remarks you talked about the SIC codes and what you saw there. Would you say that the trends were in line with expectations, maybe [just practically], upside or downside?

Yes. They were pretty much the same as we saw in the fourth quarter, and we've also looked at April's numbers since we have those and there's really no change. I mean it's hard in one month because things can mover around, but we're still seeing the same thing. Construction, business services and transportation even through April being up where the others are slightly down to down some extent.

Thank you.

You're welcome.

Your next question comes from Phil Stiller with Citi.

Hi, guys. I just wanted to ask about the expense ramp. Steve, I think you talked about stock comp and some accelerated investments. I was hoping you could perhaps quantify each of those buckets, and then talk about what particular investments you're making and where we should expect the pay offs on those to be?

Yes. I mean the stock comp for the full year is probably in the range of $0.02 to $0.03 of EPS. And to be clear, this is not about changing the size of the pool or the number of shares that we're granting. It's simply the timing of when we recognize the expense. And the rules are all very complex around it, and the grant was slightly different than we had planned on. So we've got a little bit more expense this year than we had planned on originally.

In terms of the other investments I think we hit on them a little bit already. The single-use product expanding that internationally which essentially means getting ourselves up and running in various countries. That means getting licensed to actually be an issuer ourselves, or finding a partner in those regions to work with us to be an issuer on our behalf, as well as just some continued corporate development activities, M&A kind of activities.

Okay. On the payment processing transactions you guys have been running I guess around 3% the last couple quarters. I think you talk about the pipeline. It seems like more of the opportunities are in the small to mid-sized fleets. Is there anything large in the pipeline that could get that growth rate back to the mid to upper single-digits any time soon?

Yes. I think to get it back to mid-to-larger single digits would really be the existing customers showing growth. It's really hard to offset with the majority of your business being your existing customers that basically are down a little bit or flat.

So I think we feel good about the new business, even gallons themselves were up 4% which is more indicative of revenue, but I think we would have to see some of these existing customer SIC trends start to get better over time to start to get back into that middle 5%, 6%, 7% growth rate. There are still opportunities to sign, some step functions, either some private label partners. There are some big fleets out there, but those are long-term and there's nothing that's imminent right now that we would say would on the large fleet size that is going to change things in the next quarter.

On that point about the gallons, you guys have seen a couple quarters here with the gallon per transaction has been up year-over-year. I know you didn't really know why last quarter. Any further insights into that now?

It's really hard across-the-board. There's so many SIC codes, and I would like to say it's because we're seeing different mix of trucks and vehicles, but I don't think we have a good sense because it's so embedded in so many transactions. But that's what's driving exactly the 4% gallon growth versus the 3% transaction growth is because the transaction number -- or I'm sorry -- the gallons per transaction are up.

Alright. Okay. Last question for me. On the M&A pipeline you guys clearly have aspirations there. Can you remind us what financial criteria hurdle rates you guys look at? And then given how aggressive your competitor is being in terms of making acquisitions, have you thought about adjusting those in looking at international expansion?

Yes. I mean it's going to depend on a number of things. What's the growth projectory of the Company will determine sometimes what the multiples we're willing to pay. Clearly what's the synergistic value of the Company. We're going to look at MPVs and returns and how to make sure we're deploying our cash properly.

We've got our strategic list. We're your pursuing them. We feel very good about what's in our pipeline and what meets our strategic criteria.

So I think it's just as I said, until you get to the finish line, things can pop that just says this is something you just can't finish in terms of acquiring. But we feel good where we are and what we're looking at, and as I said we're optimistic about announcing some things this year.

Okay. Great. Thank you.

Your next call is from Robert Napoli with William Blair.

Thank you. Good morning. Question on -- just wanted to be clear, Steve, on the interchange rights or the 90 basis points and the Other Payment segment. You're suggesting that would be a number that we would be good to use going forward, and you said that you have reduced incentive fees from MasterCard. Generally when you're growing your volume the way you are with MasterCard, you get a bigger piece as opposed to a lower piece, so I'm a little bit confused by that.

Well, you're right. The incentives we get from MasterCard are essentially based on growth. It's a matter of how much growth, though. We had such an explosive number last year when we were in the 60% and 80% ranges that when you drop it down to only the 50%, which we had this quarter, it brings the rate down. It's not a change in anything that we're seeing. It is just a matter of how the spend ramped so quickly last year. We got a lot more incentives last year than we're expecting to this year.

And so the 90 basis points is that -- I mean how much further reduction should we expect than that 90 basis points?

We think it will pretty consistent for the rest of the year.

Okay. And then are you seeing any new competition? When you have a business that grows the way you've grown this business, generally it attracts the entrepreneurs in America, the major capital firms, the private equity firms. Are you seeing other competitors targeting this market and do you have concerns on the competitive front? You had this all to yourself. It seems that you almost created the business.

Well, no. I don't think we have it to ourselves. Clearly even winning a piece of business like Expedia we took from a very large bank.

Right.

Who is very strong in their financial capabilities and had a product, so it was I think outperforming with some of the things we had built for functionality and service levels and responsiveness and air files and all those things that give us an advantage in the marketplace. I think what we're seeing as we start to expand more internationally that we're getting a better view of the landscape and we're seeing some international players as well in the marketplace that probably will have their sights on the US.

So again, it depends on how we keep ahead of the game with our investments in functionality and making sure we drive the best service levels so we can expand internationally, compete with whoever it is on the International front, but make sure they're not hurting us back here in our domestic front.

Now, you do not have the Priceline's Booking.com business in Europe today, and that's such a massive fast growing business. Does this product not work for Booking.com for structural reasons, or is it something that you feel like you have a got shot of winning at some point?

Yes.

Is there another product there?

The model that Booking uses is more of an agency model, whereas our product works better certainly for a merchant-based model. So the applicability isn't quite as strong as it is here in the US.

Okay. And then finally, on your second quarter earnings guidance it seems pretty conservative. And you guys have a history of being conservative, but is there -- I mean it's a pretty big slowdown in the earnings growth rate in that target range. Is there anything in the second quarter that's unusual? Why would there be that much of a slowdown? I understand you maintained your full year guidance and --

Yes. That would be my first point, Bob, is the full year numbers are unchanged. The other significant point I would say is that margins in the second quarter on a net income basis were at the high end of the guidance were 0.1% different than the actual result in Q1. So it's really not a lot different.

You do know that we raised the fuel price guidance for the year, and based on that you would expect a $0.02, $0.03 or $0.04 of EPSupside which you didn't see in the full year numbers. That's really being off set by the things that I mentioned before, the other investments in the business as well as that stock compensation which is non-cash.

Great. Thank you.

Your next question comes from Greg Smith with Sterne, Agee.

Yes. Hi, guys. Steve, just to follow up on the guidance. I guess what would it take to the get to the high end of your guidance? Would you need to see a material -- and I am talking on the full year -- would you need to see a material uptick in the economic activity out there?

I don't think it would be a material uptick in the fleet volumes, essentially. We're not counting on anything significant in our guidance, so if we got that it would certainly help us.

Okay. And then the stock comp, you said we're only talking the full year stock comp expense is really only about $0.02 to $0.03.

There's a little bit in the first quarter, but then there's another $0.02 to $0.03in the last three quarters of the year.

Okay. Great. And then they're talking about Hire One. I believe that's going to come on around the middle of the year. Just any expectations or quantification of what that will do to your operating financing costs?

Yes. We're actually on track to implement them this week on Friday. So initially we expect to receive somewhere in the range of about $300 million in cash. At the start as we said before, it's a very low interest rate. It's below market interest rate.

We're going to use that cash to replace certificates of deposit to the extent that they're rolling off and we can. We're also going to just add some on balance sheet liquidity at our bank, and that excess cash that we maintain there we'll just invest at the Federal Reserve. So very conservative investment, but that's the update on Hire One. We're on track to come out on Friday.

Are you pursuing any additional business similar to Hire One?

I can't say that we're actively pursuing it. I think we want to make sure that we get this one up and running and implemented first. Because there is a lot of work on the back end in terms of actually issuing the cards and getting the compliance correct on our end. I wouldn't rule it out in the future, but I wouldn't say we're trying to draw up a pipeline right now of these types of deals.

Okay. And then lastly, maybe for Mike. You guys mentioned some signings in insurance in the single-use product, but where do we stand with regards to maybe signing a very large insurance company? How are the prospects looking for that?

Yes. I don't think you're going to find the same step function like you're going to see with the online travel. I mean these are still good size spend numbers, but probably more in the $50 million to $100 million of spend. But we hope we can keep signing more and more of those types to keep adding to the portfolio.

Do you have any giants in the industry in the potential target list at this point, or should we just not expect that?

I'm not going to comment. I really don't feel comfortable commenting at this point.

Okay. Fair enough. Thank you.

Your next question comes from Tom McCrohan with Janney.

Hi, Mike. Hi, Steve.

Morning.

Hello.

Morning. In connection with pricing trends in the fleet business, just trying to get a sense for the net processing rate has remained relatively stable, but in the context of debit card fees coming down. I know you guys were not impacted by Durbin, but is your ability to maintain prices impacted at all going forward given the lower debit card fees, and assuming a lot of purchases at the point of sale are done with debit cards, and your ability to price assuming that is a function of the relative prices for the debit cards.

Yes. Well, first of all we don't see any pressure. Even with the high price of gas because I think we put in place our hybrids. We have no real discussions going onto change our prices with the merchants. We negotiate those one-on-one. There's no MCC or merchant category that we basically dictate what the numbers will be.

So we feel -- we're not seeing any pressure at this point coming from any of the legislation may it be the debit card changes in the marketplace. So we feel pretty solid where we are today, and feel good about the hybrids that we put in place with the oil companies.

Okay. Great. And then a follow-up on the online travel or the Other segment. Can you give us any market share statistics of what share you have today in that space, if there is one?

I don't feel comfortable giving you some off hand. We could maybe do a little bit of research, but it's a growing market. I don't know if I have a good number for you. You're talking in domestically, or internationally?

Well, I guess both. I'm just trying to figure out what adjustment market is. Where this could go.

The travel market in Europe is essentially the same size as the travel market in the United States. So we've got a huge share with the OTAs, not overall travel market in the US. But I think in terms of the domestic guys, we've got the big ones.

And have you broken out, or could give any color on the quarterly spend on these cards? What proportion of it is online travel versus something else like insurance? And then the same split for like US versus non US.

In our business the total purchase volume it's about 80% travel related.

And how much of that is initiated in the US versus non -- a consumer making a reservation outside the United States?

I don't have the exact number, but it's probably in the 15% to 20% range would be outside of the US.

Got it. Okay. Thanks guys.

Your next question comes from Tien-Tsin Huang with JPMorgan.

Hey. Good morning. I'm not sure if you covered this. Just on Australia, just wanted to get an update on same-store trends there and how new sales are performing versus plan.

Yes. They're meeting expectations. They're growing their portfolio as we have expected. They're going up-market which is very positive.

As I said earlier, they're good at 90% of all of the gas stations. So we have been working with them with our best practices and go-to-market strategies to go both direct after larger fleets, but also work through channels like some of the leasing companies which we're starting to sign and put in place in that marketplace. So we feel good about that core business and the growth of that business.

And goes with the gift business, too?

The gift is having some pressure because of the American dollar is weak compared to their dollar. So people are going online and buying some stuff online versus using gift cards in some of the retail stores which all the retailers are feeling. So we're seeing some of that impact in the marketplace, but that's why we're also trying to diversify with those relationships into OTA and some of that business that we've talked about earlier.

Okay. Makes sense. Just one last quick one. Just on the public sector side of the US. I know it's small for you, but giving some of the fiscal pressure any chance of you seeing more RFPs or proposals out to do a little bit more in the way of fleet cards out there for public sector?

Well, wherever there is an opportunity -- these are usually long-term contract cycles -- so when they're up we're bidding and we're aggressive going after state business. We're very aggressive going municipalities and other government entities even below the state level. We continually look at other ways we can even expand with the federal government. So we are constantly working all aspects from small municipalities up to the federal government.

Okay so sounds like normal course of proposals?

Yes. I mean we renewed Georgia, but we haven't signed any new ones of size since probably Florida when we announced that a little while back.

Okay. Thank you for the details.

Your next question comes from Robert Napoli with William Blair.

Thank you. Just Mike when you talked about up-market are you only talking about Australia? You mentioned moving up-market a few times.

Yes. Well, we're already up-market in the US.

Right.

Between our own proprietary card and our co-brands we have a very large market share in the US up-market. So I'm really talking primarily Australia where we're trying to take some of those best practices and leverage what we know we can do here into that marketplace knowing they have some of the same assets with the universal card and the capabilities to move up-market more aggressively.

Okay. And then any update on the OTR market? How you're progressing there?

Yes. It's really a function of site coverage. So we're moving to get more site coverage, and that will determine when we can really start to see more fleet side up. There are some fleets on the program, but it is not significant today.

It really will be a function of even starting in the US. The chicken and egg, when you get enough merchants to start getting enough fleets. So we're making those investments, we're seeing good traction, but that will be something we'll see later this year into next year.

Okay. And when you say your coverage, what coverage do you need to get to, and where are you at this point?

Yes. We pretty much have a little under a thousand sites today accepting the card and we probably have to get in the 2,500 to 3,000 site range to really have good traction in that marketplace.

And you hope to get there by when?

Well, we are saying that our goal is to start to see a reasonable level of merchant acceptance so we can start to ramp more of the sales by the end of the year, the first part of next year.

Okay. And then just on the deal front, You guys had a shelf filing a week ago. Was that preparing that in case you do get involved with a larger transaction? And obviously, your leverage is becoming extremely low, so you must expect that it's highly likely you're going to make a significant new investment during the course of 2012.

Yes. The leverage is obviously low. We've got over $500 million available to us on our current credit facility. I think we would put the shelf offering in the category of just being prepared in case the opportunity arises. When we made the filing and we put out that press release, no specific plans to access it at all.

And just to be clear you are not interested in Brazil, you were not involved in that process?

Well, I don't want to say we're not interested in Brazil. We knew of the company. I won't go any further than that. We have our own strategic targets internationally and I would say that Brazil is one of the markets that we're actively looking at.

Okay. Then Last question on same-store sales, Mike. You're not seeing anything different than what you suggested you probably thought you would see, and looking at the 4% growth in gallons, 3.5% transaction, same-store sales. But the US economy does seem to be doing a little bit better and it just seems like same-store sales should be positive and not negative.

Do you think it is higher fuel efficiency more of a headwind than it has been in the past? Is the market more saturated, is there more -- what is going on with same-store sales? When would you would be you expect it to be a 2% positive in an economy that is growing 2%?

Yes. I don't think we have good data, but I think there's no doubt with higher fuel prices a business is doing whatever they can to conserve, but they still have to fulfill their customer demand. Quite frankly that's where things like our Octane product or Telematics can play a role let alone our core product.

So I think that is a factor having some impact when you're looking at a low GDP growth, and we're saying we're slightly down. So I think people are doing that, and I think as people turn over vehicles they're probably buying more efficient vehicles, so we're seeing a little bit of that impact. Not major, but I'm sure it's having an impact.

So the long-term organic growth should we be thinking a little lower number than what we have thought in the past for your core business? Unless you move into new faster growing markets?

I still think we feel comfortable in the mid-single digits depending on the economy overall.

I think the important thing to keep in mind even with this quarter is we have talked for a very long time about 8% to 10% overall revenue growth when you excluded the price of fuel and we were at the high end of that range this quarter. It didn't exactly where you might have expected it to come from, but we're in the range. We're at the high end of that range.

Thank you.

Your last question comes from Doug Greiner with Compass Point.

Going back to that higher (inaudible -- technical difficulty) agreement, would you expand on that economic price benefit from that agreement? Thanks.

Sure. I mean essentially the agreement is we will hold the deposits from the students. Whatever is left over from their financial aide, and we will be the official issuer of the credit card that they will use to access those funds.

So the agreement with Hire One is essentially any revenue earned with those issuing capabilities as well as any of the expenses of running those operations is theirs to keep. What we get is a deposit.

And as I said we're expecting about $300 million to start and that could flex up in time when financial aide is coming in to students. That can flex up pretty significantly. And we get those deposits at a below market interest rate, is how we're terming it.

There are no further questions.

Okay. Thank you very much and thank you for joining us today. We'll talk to you again next quarter.

This does conclude today's conference call. You may now disconnect.