Good day, ladies and gentlemen. Thank you for standing by. Welcome to the FleetCor Technologies Inc. Fourth Quarter Earnings Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, February 5, 2014. I would now like to turn the conference over to Mr. Eric Dey, Chief Financial Officer. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining us today. By now, everyone should have access to our fourth quarter press release. It can also be found at www.fleetcor under the Investor Relations section. Throughout this conference call, we'll be presenting non-GAAP financial information, including adjusted revenues, adjusted net income and EBITDA. This information is not calculated in accordance with GAAP, and may be calculated differently than other companies’ similarly titled non-GAAP information. Quantitative reconciliations of historical non-GAAP financial information to the most directly comparable GAAP information appears in today's press release and on our website, as previously described. Also, we are providing 2014 guidance on a non-GAAP basis. Finally, before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. This includes forward-looking statements about our 2014 guidance, new products and fee initiatives, and potential business development and acquisitions. They are not guarantees of future performance and, therefore, you should not put undue reliance on them. These results are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of those risks are mentioned in today's press release and Form 8-K filed with the Securities and Exchange Commission. Others are discussed in our annual report on Form 10-K. These documents are available on our website as previously described and at www.sec.gov. With that out of the way, I would like to turn the call over to Ron Clarke, our Chairman and CEO.

Okay. Eric, thanks. Good afternoon, and let me add my welcome to everyone. So upfront here, I plan to cover 4 subjects. First, comment on Q4; second, discuss some of our highlights from 2013; third, comment on our 2014 outlook; and then lastly, I'll discuss a bit our go-forward strategy. Okay. So first off, Q4. Results for the fourth quarter were very, very good. We reported revenue of $256 million, up 26%; and cash EPS of $1.08, up 32%. So 26% top line, 32% bottom line. There are a few puts and takes baked into those numbers. So on the plus side, again, we had the same businesses continuing to perform well. Our U.S. business was up 18% for the quarter, and our U.K. fuel card business, up 28% for the quarter. Second, we did get a lot of help from our recent acquisitions, particularly VB in Brazil and Epyx in the U.K., our 2 biggest acquisitions. On the not-so-good side, the Q4 environment was not particularly helpful. U.S. fuel prices and U.S. fuel spreads were both unfavorable to the prior period. And we had a Q4 tax rate that was 2.5% higher than our full year 2013 average. So obviously, depressed cash EPS for the quarter. But look, overall, we're happy with our results, happy with this growth rate, and pleased with the exit rate we've got heading into 2014. All right. So let me transition over to 2013's full year in which we reported revenue of $895 million, up 27%, and cash EPS of $4.05, up 35%. So 27% top line, 35% bottom line for the full year. And since our IPO in December of 2010, so our first 3 years as a public company, we've grown cash EPS 31%, of 38%, and this year, 35%. So pretty…

Thank you, Ron. For the fourth quarter of 2013, we reported revenue of $255.5 million, an increase of 26% from the fourth quarter of 2012. Revenue from our North American segment increased 15.5% to $125.4 million from $108.6 million in the fourth quarter of 2012. Revenue from our International segment increased 38.4% to $130.1 million from $94 million in the fourth quarter of 2012. For the fourth quarter of 2013, GAAP net income increased 13% to $68.1 million or $0.80 per diluted share from $60.1 million or $0.70 per diluted share in the fourth quarter of 2012. Included in GAAP net income for the fourth quarter of 2013 was $10.6 million in expense related to new stock awards granted and vested during the quarter, and an unfavorable tax adjustment due to a tax law change in Mexico, which adversely impacted the quarter results by approximately $0.02 per diluted share. The other financial metrics that we routinely use to measure our business are adjusted revenues and adjusted net income, which we sometimes also refer to as cash net income or cash EPS. Adjusted revenues equal our GAAP revenues less merchant commission. We use adjusted revenues as a basis to evaluate the company's revenues net of the commissions that are paid to merchants who participate in certain card programs. The reconciliations of adjusted revenues and adjusted net income to our GAAP numbers are provided in Exhibit 1 of our press release. Adjusted revenues in the fourth quarter of 2013 increased 28% to $237.7 million compared to $185 million in the fourth quarter of 2012. Adjusted net income for the fourth quarter of 2013 increased 30% to $92.1 million or $1.08 per diluted share compared to $70.7 million or $0.82 per diluted share in the fourth quarter of 2012. For the fourth quarter…

[Operator Instructions] Our first question comes from the line of David Togut with Evercore.

Could you break out the organic revenue growth rate for North America and International, and also the organic revenue per transaction growth rate for each?

Yes, David, for the full year, if you look at our full year organic -- our full year revenue growth rate of 27%, about half of that through the year is from organic growth. And kind of the other half is obviously the full year effect of acquisitions that we acquired in the year. And the organic growth in the United States for the year ran around 11%, and was slightly higher in the International business for the year.

Okay. That's very helpful. And then as a follow-up, the $10.6 million of stock comp expense you mentioned for Q4, did that all fall into U.S. SG&A?

The majority of that was in the U.S., that's correct.

Okay. And then the growth rate you gave for direct MasterCard, 30%, that was a nice acceleration from what we saw in Q3 which I believe was high-teens. But I think you guided to 13% growth for direct MasterCard for this year, do I have that correct?

Yes, that's -- David, it's Ron. That's the overall direct business which has another set of products in it other than the MasterCard product.

Got it. So is it possible to understand what direct MasterCard growth would be for 2014?

It's in that same kind of 30% range. And like I told to you, we took a bit of a breather on rate for a quarter and we're kind of back on our standard rate plan. So kind of 30% for the full year.

Okay. Did you quantify the acquisition pipeline for 2014?

No, but active. We've got a handful of deals we're working and a handful of partner things. So busy. We took a little break in the fourth quarter. We're busy again. We kind of raised the target internally to $500 million per year from $300 million. So we're -- given the size of the company now, we're trying to step it up. We did almost $1 billion in 2013.

Is most of that $500 million outside of fuel cards?

No. There's still a number of interesting fuel card, both partner and deals, that we're looking at, but we are on this whole workforce payment space as well, so look for a mix.

Yes, yes, and David, just to add to that, that $500 million is just a guideline. Again, people ask us that question all the time and obviously, we're very opportunistic around acquisitions and partner deals. So we'll close deals when they make sense. But we are targeting about $500 million a year. It could be more, it could be less. Just like it was last year, it was significantly higher.

That makes sense. A final question for me. Timing for possible launch of direct universal card in Europe?

No comment, David, yet. Still not closed in.

Our next question comes from the line of Phil Stiller with Citi.

The outlook for 2014, I think you said 22% revenue growth at the midpoint. Is there a way to think about how much of that is organic versus from the businesses acquired in '13?

Yes -- hey, Phil, this is Eric. It's kind of similar to this year. I would say probably a little less than half is our target for organic growth. And as you know, historically, we've kind of guided people to think of our business as kind of high single-digit to kind of low double-digit organic growth kind of company. And that the guidance we provided for next year is kind of in that range. And then the remainder of that is obviously the full year impact of acquisitions that we closed in 2013. And it includes no new deals for 2014 or new partner deals that we've not already disclosed.

Okay. With the acquisitions that were closed during 2013, it sounds like you're expecting some improvement in terms of the profit performance of those companies, which is normal for you guys. But can you give us some milestones to look out for? Which of the acquisitions might be the biggest contributors, and when would we see some of that upside?

Yes, Phil, it's Ron. I'd say probably half of the improvement will be in the second half of this year, and then the balance basically rolls in into 2015. And the 2 biggest deals that we did was the VB deal in Brazil and this Epyx deal in the U.K. They're the largest and will provide the most lift.

Are there specific initiatives that you guys are working towards with those acquisitions that we could keep track of?

Yes. As you know, every deal, before we sign and wire, we have a thesis, a profit curve, and so they're based on specific plans that we have. And so -- although, when we did the majority of the deals, I guess, in the second half of the year.

That's correct.

So I'd say some of that is getting underway now, Phil, kind of in the first quarter. But again, I'd say it's backloaded based on when we close those deals. But every single deal has its checklist of things we're trying to do.

Okay. Last question. The chip and PIN rollout in the U.K., is there an updated timeline on that?

Yes. Great question. Finally closed. So Q2, we should be live in the market in Q2 with that product. And by the way, we'll be the first one in the U.K., we believe, if we get out in the quarter. So...

Our next question comes from the line of Glenn Fodor with Autonomous Research.

Eric, just real quick. Apologies if you mentioned it, but restructuring and deal expenses in the fourth quarter, if there were any, do you mind calling them out and quantifying?

Yes, there was approximately $2 million in the fourth quarter, Glenn.

Okay. And how does that compare to, say, the third quarter?

For the full year, we spend about $5 million. So most of those deal costs were in the second half, so I would say most of those were in the third quarter. That's when we closed the other Brazilian deals, the larger deals. And there were some obviously associated with the New Zealand and Australia deals kind of at the end of the first quarter into the second quarter. But I'd say the majority were in the second half of the year.

Okay. And then, Ron, at times, you've been a little more direct in your comments on the deals and -- kind of reading between the lines, if they're close or not. I didn't really hear that texture today. And you talked about paying down the revolver with near-term cash flow. I mean, can we read into the fact that -- can we read anything into this that there's not likely to be anything sort of notable in, say, the first quarter, that you'll eventually get there, but, you say, first quarter not likely, or is that a little bit of a reach?

Yes, that's a reach. I'd say, as always, we have things that are "close in" and farther away, and no different today.

Okay. Great. Then just a final last one. It's good to hear the guideline on $5 million of acquisitions, noting that it's a guideline. But any reason to expect you won't be able to get the same rates of ROI and accretion in future acquisitions and that you've gotten on past ones? And then also, what's the likelihood and potential to get even more accretion since you have greater scale and you'll load these things onto a bigger network and probably rip more costs out?

Yes, that's another, I think, good question. So the first part of that, I'd say, it's deal-specific. So every deal we look that we elect to do, we've got some thesis of how we can make a lot more money. So I'd say the ones that we do, that's basically the only reason we go forward, Glenn. And we believe we can get a much bigger number.

Our next question comes from the line of Darrin Peller with Barclays.

This is actually Adam here on for Darrin. Just a quick one on the revenue guidance. You've kind of talked about your expectations for FX. Is there any way to sensitize what the revenue growth guidance would have been if you used the fourth quarter average exchange rate or even a constant currency growth rate?

Adam, are you talking about for the full year budget for next year?

For the full year guidance, yes, revenue guidance.

We really didn't look at it that way. Obviously, there's a -- we're in a number of different geographies around the world, so exchange rates are moving in different directions. Our 2 big currencies that have the most impact were obviously the pound, which is been moving more favorably towards the end of the year versus the Brazilian real, which has actually been moving more unfavorable kind of throughout the year. In terms of average, Adam, I don't have that calculation in front of me.

Okay. And then secondly, we talked a little bit some of the synergies that you guys are going to look to recognize from some of these most recent deals in the back half of the year and into 2015. I just wanted to see where you guys are at from earlier deals, particularly the AllStar acquisition and CTF in Brazil, what the existing runway is there for synergies and what we should be expecting in 2014?

Yes, Adam, it's Ron. I'd say we've made good progress. Both of those businesses have significantly higher profits than when we acquired them. I'd say, particularly in the AllStar case, it would be significantly more profit planned again here in 2014. And probably, we're getting a little later inning, I'd say, in the CTF plan, but we'll kind of going in a different direction there with the new products. So I'd say that one, we're really chasing kind of revenue growth more than profit growth this year.

And our next question comes from the line of Tien-tsin Huang with JPMorgan.

Just a few quick ones, I hope, if you don't mind. Just on the -- you get a lot of questions about emerging markets. You talked about FX already. Can you give us a sense of what's going on in the ground in places like Brazil or Russia? Any surprises there? And roughly, how big now is emerging market, or maybe if you can just give Brazil as a percentage of revenue?

Hey, Tien-tsin, this is Eric. From an on-the-ground perspective, I would say, really, we don't see a lot going on from an economic perspective. I think our volumes are kind of where we expected them to be. I don't think that the GDP in both of those markets, I think, is still up. So I think, still kind of good from our perspective. From an FX perspective, unfortunately, you had the pound going in one direction and you got the British -- the Brazilian real heading in the other direction. So those 2 currencies have effectively mostly offset each other. So not a lot of headwind in FX, if that stays the course.

Right. Understood. And then just, I guess, I'll ask about the Europe market. Obviously, with WEX talking about the Esso deal, just curious what the implications are of that. Any implications to the Shell U.K. portfolio, and maybe just the organic, inorganic growth there competitively, any thoughts there?

Can you ask, Tien-tsin, that question again? What's the question, exactly?

Yes, sorry, Ron. Just, WEX was -- gave a lot of airtime to the Esso deals. It seems pretty interesting on their side from a platforming standpoint. So my question is, does it change the competitive landscape at all, implications to say in your Shell, U.K. deal, that you've launched in the past. Just trying to get a sense of, if that changes the end market.

Yes, I mean, I think, a, it's -- a number of those things are still a ways away. B, I'd say it's a very big space that historically has been all oil companies. So I think, again, there's just plenty of runway over there if we have the right product set. So I'd say, stay tuned again for our plans there.

Okay. Okay. Two more, and just workforce payments. I mean, when you talk about workforce payments, does that look like some of the stuff at Edenred, who does vouchers, et cetera. I'm just trying to get a better definition of that.

Yes, when we use that word, Tien-tsin, we're really talking about payments that go between the employer and the employee, fundamentally reimbursing. So we're not really in "corporate payments," like a bank doing AP or doing what WEX does. So our game is basically to call on people to deal with, get money to employees, and so that whole line of products kind of fits in there. Whether it's tolls or food or obviously, fuel or hotel, it's all basically money moving from the employer to the employee. So we like that space. That administrative ease is really well liked.

Got it. Okay. Last one, just kind of clarify some of the numbers that you gave, a lot of good data here. Just acquired revenues in the fourth quarter, and if I heard correctly, fiscal '14 is, call it, half of that is going to be inorganic versus organic. That would imply $100 million in acquired revenues for '14, is sort of the base case. Am I doing that math correctly, guys?

Yes. The ballpark is kind of a couple hundred million in total, which is low-20s, so it's kind of 9 to 10, is our organic view, and kind of 10, 11 is the deal piece.

And then the fourth quarter, Ron, I apologize.

The fourth quarter, I'd say, because of some of those headwinds, it would be -- I guess, the year was about 50-50 kind of low-teens organic for the full year and, what, 27 in total. So I'd say, it was probably 55 for the full year and maybe a little higher, Tien-tsin, in the fourth quarter because we had some of the headwinds that Eric pointed out in the quarter. So I think the acquisition piece would have been a little stronger than that in Q4. But again, we expect in our plans, so that to re-settle out basically at 50-50, which is what we've been on, I think, consistently, trying to grow the base business around 10 and then see what we can get done on top of that.

Our next question comes from the line of Smitti Srethapramote with Morgan Stanley and Company.

I'm just wondering if you could give us a little bit more detail on the CST outsourcing deal that was announced today. I'm assuming the numbers from the deals are included in your 2014 guidance. Just wondering when the -- when revenues will start hitting the bottom line for this deal?

Yes, Smitti, it's Ron. So I'd say our plan there is probably late second quarter in terms of that program, so we're taking over a portfolio and selling the product. And I characterize it as kind of a single-digit millions deal for us.

Okay. So single-digit sort of millions sort of run rate, once it sort of fully ramps up by Q3?

Correct. And again, I think that the interesting part, one of the reasons we included this, is really the focus on new markets in Canada. We won this Husky thing -- when did we announce that? 4 or 5 months ago.

Correct.

So we got 2 of these, and now we have a product, Smitti, that works there. And so we're going to sell it directly, and we've got these 2 accounts. Husky also planned to kind of go live in Q2. So come the second half of '14, FleetCor will have some decent business in a market that we had effectively 0 revenue in last year. So that -- this, I think -- and part of the call-out on this is to make the point that we're trying to find ways to get into important markets. I think Canada's just inside the top 20 in terms of biggest, so we're pleased with that.

Got it. And maybe just a follow-up question on Telematics. I'm just wondering if you guys have received inbound inquiries from your current customers on a global basis since you completed the deal back in Q4 last year?

Yes, we're -- yes, so it's another good question. We're early in that, but I'd say the early returns we've restructured and integrated to sales groups. This NexTraq company we bought is actually here in Atlanta, and so we got now a group of those telematics sales specialists calling into the FleetCor client base, with a goal to prove out whether there's an interesting cross-sell. And I'd say, it's very early, but I'd say, very encouraging so far.

Our next question comes from the line of Tim Willi with Wells Fargo.

Just a couple of questions here. A lot of other stuff's been covered. Eric, in terms of interest expense, is what we saw in the fourth quarter a pretty solid run rate for '14 on a quarterly basis?

I kind of called out the interest expense in my guidance, Tim. We're expecting about $24 million of interest expense next year, and that will be spread pretty ratably throughout the year next year.

Okay. Sorry, I must have missed that. I apologize. And then -- and second is regarding operating leverage and margins, obviously, a lot's going on here with new deals coming on at different margin profiles versus sort of the organic base business. Is there any way you could just sort of give some color on margin trajectory of sort of the core base business relative to the drag and improvement of the acquired entities? Are we still seeing appreciable margin improvement from some sort of those legacy businesses? Or are they a little bit more stable in the margin lift on a go-forward basis, is really driven by the assets you've acquired?

It's a little of both. Obviously, we have a lot of organic growth in the existing businesses. We called out in 2013, we grew our business organically, call it 13%. About 4% or 5% of that came from transactions, and the remainder of that came from revenue per transaction. So that would create a lift in margins in the legacy businesses. And then certainly from an acquisition perspective, we generally buy businesses that have a lower margin profile than the company's average. So typically, we'll spend the next year or 2 to improve the performance of those businesses, which would obviously then improve margins as well over that period of time.

So just inferring from that, it would seem like is it a reach to think about there's probably margin expansion sitting here for the next 24-plus months if you don't do any other acquisitions from this point?

I don't know if 24 months is the right answer to the high or low, but I would say the answer to your question is yes. I mean, clearly, we're going to improve the performance of the businesses that we own and we're going to continue to grow the existing businesses organically. Again, given the fixed cost nature of our business, approximately 2/3 of our costs are fixed, so the majority of the improvement in revenue goes to the bottom line.

And remember, Tim, it's Ron, that we're constantly trying to sell higher revenue per tran products, which you see in our numbers. And so, obviously, that contributes to higher margins, right. The products are the "our step-up products" that carry higher revenue per tran, generally carry higher margin. So it's a density and scale thing, and it's a product mix thing. But you're right, there's a lot of moving parts, right? It's not only the other businesses, but it's things like stock comp and deal costs and severance costs, a lot of things, I think, make it difficult to see.

[Operator Instructions] Our next question is a follow-up from David Togut from Evercore.

Just a quick modeling-related question. Eric, what's the right quarterly run rate for SG&A for 2014? I'm thinking about the stock comp number in Q4. I'm just wondering, should we think about stock comp being more ratable through the year, or does most of it hit in Q4?

No. It was kind of the -- the $10.6 million in Q4 was more of a one-time kind of hit or is a catch-up entry, so we've booked an entire year's worth of stock comp in the fourth quarter for that one particular item. We spent about $27 million in stock comp in 2013. And from a modeling prospective, we're currently assuming that it's going to be flat next year. But our compensation committee meets towards the end of the first quarter and usually, we have new stock grants that are issued at that point in time, so that stock comp number will probably increase after that comp committee meeting. So we can give you a better number kind of after that point in time.

It's Ron. And your question is kind of point-to-point. The answer is it would step down significantly, right? So our Q1, Q2 operating expense is planned to be dramatically lower than what we reported in Q4, dramatically lower.

But from a stock comp perspective, I mean, it's generally ratable throughout the year. There's not a higher number generally in Q4 than there is in any other quarter. There just happened to be that in 2013. But 2014, I just spread it throughout the year.

So I guess just the final piece of this, should we expect SG&A to grow in line with revenue in '14?

It's obviously going to be up less. I mean, we get economies of scale from our business. Our margins, we're planning a 22% increase in revenue, and there's a 22% also increase in kind of cash net income per share. And there's a number of reasons for that. One is we got the full year effect of acquisitions that are kind of hitting into the year. So again, the trajectory of those acquisitions is such where you see most of the improvement coming in, in the third and the fourth quarters, and exiting into 2014 -- '15. We also have a number of below-the-line items that are impacting our cash EPS next year. Interest expense is going to be up pretty significantly due to the financing of the deal, so we're calling out $24 million of cash interest expense versus kind of $16 million this year. We also have a higher income tax rate next year. We're going up kind of 1%, which is where it's kind of about $0.05 a share. And then the share count is actually going up about 1 million shares as well.

But I think, David, in terms of the model, think about it as the revenue is on a curve each quarter going up, and I think about the operating expenses being much more flat. And that goes with that we're restructuring the expense side of these businesses and putting in these programs. And so that what contributes really to the earnings growth, getting better each quarter, is there really won't be growth in expenses, any significant growth in expenses, as we roll through the quarters here.

There are no further questions at this time. Ladies and gentlemen, this concludes the FleetCor Technologies Inc. Fourth Quarter Earnings Conference Call. Thank you for your participation. You may now disconnect.