Greetings, and welcome to the FleetCor Technologies Third Quarter 2015 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Dey, CFO of FleetCor Technologies. Mr. Dey, you may begin.

Good afternoon, everyone, and thank you for joining us today. By now, everyone should have access to our third quarter press release. It can be found at www.fleetcor.com under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial information, including adjusted revenues, adjusted net income and adjusted net income per diluted share. This information is not calculated in accordance with GAAP and may be calculated differently than other companies' similarly titled non-GAAP information. Quantitative reconciliations of historical non-GAAP financial information to the most directly comparable GAAP information appears in today's press release and on our website, as previously described. Also, we are providing 2015 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 may include forward-looking statements about our 2015 guidance, new products and fee initiatives and expectations regarding 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. Others are described in our annual report on Form 10-K. These documents are available on our website, as previously discussed, and at www.sec.gov. With our disclosures out of the way, I would like to turn the call over to Ron Clarke, our Chairman and CEO.

Okay, Eric. Thanks. Good afternoon, everyone. And as always, thanks for joining the call today. Upfront here, I'm going to plan to cover just 2 subjects. First, I'll provide a little color on Q3; and then second, I'll comment on our full year 2015 guidance. Okay, so on to the quarter. We reported Q3 revenue of $451 million, up 53%, and $1.67 in cash EPS, up 22%. So 53% top line, 22% bottom line. Included in the $1.67 of reported cash EPS was approximately $0.06 to $0.07 net tax favorability, which implies $1.61 without the tax benefit. As a reminder, we did guide to $1.61 for the quarter when we last reported. Fundamentals were quite good in Q3. Organic revenue growth of 9% on a constant like-for-like basis, excluding SVS. The environment was essentially neutral against our last reported guidance, with above average spreads effectively neutralizing low fuel prices and weak FX. Of course, when you look at the macro environment against the prior year, it was quite challenging, giving us an overall negative impact estimated at $0.28 for the quarter. So that obviously would reduce our cash EPS profit growth from a like-for-like rate of 42% to our reported EPS growth rate of 22%. So continues to be quite challenging. The story of the quarter is really summarized in 3 themes. So first off, our spread-based businesses, which would include CFN and Fuelman for example, were up significantly in the quarter on wide spreads. And that helped neutralize our fuel price-sensitive businesses like MasterCard and our U.S. partner portfolios, which were negatively impacted by lower fuel prices. Second, our 2 largest Comdata businesses performed quite well in the quarter. NAT, which is our North America Trucking unit, saw its gallons expand 6% in the quarter, which is partially the…

Thank you, Ron. For the third quarter of 2015, we reported revenue of $451.5 million, an increase of 52.9% from the third quarter of 2014. The revenue from our North American segment increased 114.2% to $334.9 million from $156.3 million in the third quarter of 2014. Included in the third quarter results was the impact of Comdata, which was acquired on November 14, 2014. Revenue from our International segment decreased 16.1% to $116.5 million from $138.9 million in the third quarter of 2014. For the third quarter of 2015, GAAP net income increased 22.3% to $116.8 million or $1.24 per diluted share from $95.5 million or $1.11 per diluted share in the third quarter of 2014. The other financial metrics that we routinely use 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 commissions. 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. We prepare adjusted net income to eliminate the effects of noncash items that we do not consider indicative of our core operating performance. A reconciliation of adjusted revenues and adjusted net income to GAAP numbers are provided in Exhibit 1 of our press release. Adjusted revenues in the third quarter of 2015 increased 55.3% to $419.8 million compared to $270.3 million in the third quarter of 2014. Adjusted net income for the third quarter of 2015 increased 34% to $157.6 million or $1.67 per diluted share compared to $117.6 million or $1.37 per diluted share in the third quarter of 2014. Elements of the macroeconomic environment had a significant impact on our results in the third quarter, specifically market fuel…

[Operator Instructions] Our first question today is coming from Ramsey El-Assal from Jefferies.

Wanted to just -- and I may have missed this. But in the fourth quarter specifically, the beat is not flowing through, obviously, to the full year largely because of the macro headwinds, but there's no incremental caution in any part of your business. It's basically just the macro that is preventing the top line this quarter from flowing through to the full year.

Correct.

That is the assumption, Ramsey

Okay, great. And it sounds also like some of the top line beat didn't necessarily flow all the way through to EPS. Obviously, there was the tax benefit in there, but excluding that, you called out some higher expenses related to Comdata. I mean, are these -- will we see your sort of operating margins kind of revert to more normal levels going forward? Was most of the incremental expense in the quarter kind of fleeting in nature?

Yes, Ramsey, it's Ron. I'd say 2 things. One, we had $1 million or $2 million what we call kind of one-time, on-budget in expenses, deal-related things, bonus things, things like that. And then two, we have a JV telematics and called Masternaut that kind of performed worse for us. So I'd say those are the 2 negatives basically underneath revenue.

Okay, got it. And then lastly for me. On SVS, are you -- can you update us on your sort of your long-term plans for that subsidiary? I know you got the ADP JV structured there. I was wondering if there's any update in terms of divesting the asset, keeping it in the company longer term, or what are your thoughts there?

Yes, we're still working on this other alternative we mentioned in the last call. And I'd say, certainly by the time we talk next, we'll either land that plane or not. I'd also say that the couple of interested buyers appear to continue to be interested. They continue to call. So I'd say our hope is to proceed on this basis that we've been going, but I'd say we'd have a definitive answer next time around.

Our next question today is coming from Sanjay Sakhrani from KBW.

This is actually Steven Kwok filling in for Sanjay. I guess, first question is just around the health care vertical. One of your public peers have been acquiring other companies within the space. I just wanted to see if you could provide some color around the competitive dynamics. And then additionally, I believe, last time, you called out that there was an account that you could potentially get back, and just wanted to get an update around that account.

Yes, it's Ron. Let me take the second one first. We did call out, I think, in the first quarter report that an account had dropped off. We've gotten confirmation that, that account plans to come back, which is good news. I'd say it's still not clear to us when exactly we'll start to book more revenue, but we have been advised that they plan to come back online.

Which is good news.

And the second question was around WEX's health care. Was that the question?

Yes, and just around the competitive nature of the health care segment.

Yes. Again, I'd say that we would not run into WEX generally in terms of the health care segment that we're focused on. Again, the Evolution1 really does very different things than our line of business. I would say that competitively, we're bidding against other treasury banks fundamentally in the health care segment that we're attacking.

Our next question today is coming from Jim Schneider from Goldman Sachs.

I guess, the first one I would have is, in terms of the revenue per transaction increase in Q3, was that all down to higher spreads, or was there also the impact of pricing and Comdata or some other part of business?

Jim, this is Eric. Well, first, the revenue per tran in the third quarter was actually down on a reported basis. So I'm not exactly sure what you're looking for. If you exclude the impact of the macro environment and you exclude the acquisitions as an example last year, then revenue per tran was actually up. So the way we calculate it, again, excluding the macro and excluding Comdata, revenue per tran on a consolidated basis was around $3.41 compared to around $3.10 last year. So it was up.

Yes, I was just talking about North America, excuse me. Okay. Maybe I'll take that one off-line, but as a follow-up, maybe you could provide a little bit of an update on kind of where the landscape stands with the M&A environment in Europe and whether you thinks that's kind of any closer to getting fruition outside of your Shell deal where obviously you performed very well?

So you, Jim, on partners, or you're on acquisitions?

Both actually, if you can provide an update on both ends of it.

Yes. So on the first one, I think I feel like we're replaying a tape, but the answer is there are a couple of oil partners in Europe that are actively looking, RFI-ing, if you will, processing and/or outsourcing agreements. So although we say we're hopeful in terms of time, our guess is that at least one or the other will make some kind of a decision in 2016. So we are, as you can imagine, in the couple of processes and hopeful that they'll make some decision. On the deal side, we remain busy. We're in a much better place than, let's say, 6 months ago, our -- got leverage penciled out about 2.5x.

2.49.

We've got some people in Comdata. We've done most of the integration work we want to do there. So we've got 3 or 4 things that are active that we are on now, one of which I'd say is pretty late innings. So I'm hopeful that we will provide some news to you guys shortly here.

That's helpful. And then just to clarify my comment before, what I was talking about revenue per transaction stepping up I meant from Q2 to Q3 in North America, so from $0.73 to $0.90. That's what I was asking about.

Yes, I think both of those things that you said directionally are right, Jim. One, clearly, the per-tran grows when you have a good spread quarter like we did in Q3; and your second comment is also right that some of the price recovery things that we did earlier in the year have come kind of fruition. And so we're kind of getting all of the benefit or most of the benefit of those now as you run through Q3. So I'd say both of those statements are right.

Our next question today is coming from Phil Stiller from Citi.

I just wanted to ask about international business. So the transaction growth decelerated a bit. I think, Eric, you said the organic revenue growth was about 4% in the quarter. Just wondering how you guys were thinking about that on a go-forward basis. I know some of your businesses there are struggling with the economy, but just wondering how you guys think about that as we progress over the next few quarters?

Yes. I mean, certainly, there's a lot of puts and takes, Phil. We certainly are getting impacted by places like Brazil. Transaction counts in Brazil were actually down, I don't know, around 10% approximately. But yet our revenue in Brazil was actually flat in local currency, kind of year-over-year. And we're seeing a similar story in Russia where the economy is causing transactions to effectively step back a little bit. But we're seeing a lesser impact when we look at the revenue from the business in a constant currency basis.

Okay. And I guess when you guys acquired the Comdata business, you talked about getting that to a 10% growth rate. It's certainly tracking towards that, but not there yet. But just wanted to get an update on your confidence getting to that level.

Yes, Phil. It's Ron. I'd say that we've just provided a Q4 forecast update, and sitting inside that it's an expectation that both of the big businesses, the trucking business and the corporate payments business, will be at that or above that. So that's kind of in this quarter's forecast. So I'd say that other than that little surprise we had back in Q1, I think our message is that things are going better outside of the health care slowdown that we had. I think it's tracking to what we thought. And sales were up. I think I mentioned in my opening that the Q3 corporate payments was literally an all-time record sales quarter, which doesn't give us any revenue in the quarter they sell it because it's 4 to 6 months implementation. But when you're selling in a lot, you're going to get revenue a different day. So I'd say that both in the trucking business, where we've added 50 people, and in corporate payments, where we've added a bunch, we're seeing the early signs of the sales stepping up, which is really bodes well for next year.

Good to hear. Last one, somewhat related topic. Maybe we could get your comments on the EFS WEX transaction, what that might mean for you guys strategically either from a product -- competitive perspective or pricing, that'd be great.

Yes, I'm not sure we would have much to say in terms of whether our view of the WEX owning it does something or doesn't do something to the business. I'd say that we know the business well, Phil. We diligence the business pretty hard when it was being sold. And we obviously had a chance to buy that business. And not to gloat, but we think we bought the better business, which we did purposely. So I'd say we'd wait and see. We're kind of happy with, again, how our trucking business is competing and growing now, and we'll, I guess, stay tuned to what they might do that would be different.

Our next question today is coming from Ashish Sabadra from Deutsche Bank.

So on the North America, we saw the organic growth improve compared to the second quarter. Looks like CLC also showed improvement and then MasterCard universal product is delivering pretty solid growth. Just wanted to see if there are any kind of events there that you would like to highlight, what's driving the improvement in North America?

Yes, Ashish. This is Eric. It's just more of the same stuff. I mean, in all honesty, it really is the MasterCard portfolio continues to perform well as we called out on the call growing around 30% organically on a constant fuel price basis. And CLC continues to do well, and we had some small partner wins prior year. We're seeing some more revenue from those things as we get into this year. So it's just really a combination of all those things that just continued into the third quarter. So really, it was -- as Ron indicated, it was a pretty good quarter for us.

That's great. That's great. I was wondering if you can just provide what the Comdata revenue was in the quarter.

Ashish, we don't disclose that specifically. I mean, that's one of our businesses. We got lots of businesses around the world, so we don't want to talk about individual businesses.

No worries. And then quickly on the expense -- a follow-up on the expense side. So Ron mentioned a couple of expense items. So when I was looking on the individual line item, I saw the processing expenses were a bit high in third quarter. Any particular call-outs there?

No, it's just more, again, business as usual. We are -- we do have Comdata this year. We didn't have Comdata last year. So again, all of those expenses, the increase in the expense is really related to owning that business this year versus last. With the exception of that, there really is no unusual item in the quarter versus last year other than the couple million, again, that Ron called out, but those were in a number of different lines versus just one.

Our next question today is coming from David Togut from Evercore ISI.

The 33% direct MasterCard growth was very strong. Could you break down the underlying unit growth at constant macro factors versus any pricing increases you implemented?

Yes, David. It's Ron. It was high teens for the quarter.

High-teens unit volume growth?

Correct.

Great. And then where do you stand with that product? I think before you've said you're in the early innings. Do you still think you have a long runway for that product?

Well, I mean, I just call out the growth rate, but I think we said when we introduced that product, whatever, 5 years ago, that finally our company got a product that can work in every geography and basically for every size account. And so it's taken us a long time to build up the sales and distribution system to kind of chase that whole market. So I'd say that, yes, we've done an early look at our 2016 plans. And I'd say we are bullish again next year on the thing. So plenty of runway still.

Great. And then just shifting gears to Shell. You called out an expansion of that relationship to pick up cross-border. Can you dimension for us how big that incremental revenue might be on an annual basis and then where you might stand with the expansion of that relationship further, perhaps, into the larger fleet portion of the fuel card portfolio at Shell?

Yes. So the first part, I'd frame it kind of 10% to 20%. So again, to be specific, if you went into, let's say, Germany, Shell transferred x number of accounts and y number of leaders to us and then have decided, "Hey, look, there's some other small accounts there that go cross-border. We might as well give those to FleetCor." So that'll add, call it, 10% or 20% kind of volume and revenue to the original assignment. And I'd say on the second one, Shell is from the show-me state, they're going to want to see us finish these other markets. I think Eric mentioned in his comments, our plan is to put 2 more markets live to bringing the thing to 7 and then finishing that up in the first quarter. So they a, they want us to, I'm sure, complete, David, the initial assignment; b, show some progress in selling in these markets. And to the extent that we do those 2 things well, my sense is they would be inclined to do more with us. But I'd say it's probably into the middle of next year would be my guess.

Got it. And then staying on Europe, you've announced earlier the rollout of a universal fuel card for Europe along the same sort of geographic footprint as Shell. Where do you stand with the rollout of that? And when might that be material to revenue?

Yes, I'd say that is proven not quite as slow and difficult as Europe outsourcing agreements. But the patchwork of markets and the taxation, we've done a lot of rework in the kitchen, I'd say, on the product, trying to get the thing right. We have another launch, I think, towards the end of this month that we think finally has it right. And the same in sales. We have been trying to split the sales commitment we have to Shell versus this universal product and kind of tend to Shell first. So I'd say that we're progressing, but I'd say slower than we've hoped. I mean, with that said, I think you're an advocate like we are, we still think that, just like the U.S., that, that product -- if we can get it dialed in right has just enormous potential because it would be a one-of-a-kind fundamentally on that continent. There is no other control card that works everywhere that we are aware of. And so difficult kind of getting out of the test kitchen, but I'd say we remain incredibly excited about the thing over the midterm.

Would that product be interchange-based pricing or would you go a different route, given the interchange caps coming next month in Europe?

Yes, it would be both. Again, I think the commercial piece, the way we're doing it would be fundamentally protected, but we have some other as normal ideas of how to get paid on that product. So I'd say the chase for us is customers, David. Our game is to figure out how to build a distribution pipe to sign up accounts, and we know how to make money. So I think the answer is we're chasing accounts first.

Got it. Quick last question on telematics. You've said in the last 6 to 9 months you're evaluating what you do strategically in that business. What are your latest thoughts?

Yes, that's actually a pretty good question. I'd say that a couple of things. One, I'd say that the business, as we gotten to know it better, is actually a better business than I think we thought. We bought this business that's actually here in town in Atlanta. I think, I don't have it in front of me, but I think the profits will be up about 4x this year versus the year we bought it. And I think I mentioned the growth rate is double digit, and the early plan we have for next year is double digit. So the first comment is I think we like the -- at least the U.S. telematics business in category a bit more maybe than we thought. And I'd say we're probably slightly less optimistic about the FleetCor benefit. So we've spent about a year trying to cross-sell and use our clients and salespeople, fuel card people, to try to boost telematics, and it's working. But I'd say, David, call it 1/3 or 1/2 of what we expected it could add. So it's obviously still helping the business, but not helping it as much. So we actually had a review this with the board, and I'd say our conclusion as is that we're in less of a rush now. We like the space a little more than maybe we thought, and it's working but not quite as much. So I'd say we're going to kind of hang in at least another year and get a sense of whether we like it a little or a lot.

Our next question is coming from Tim Willi from Wells Fargo.

Two questions. First on International, with the decline in the transaction growth that you attributed to Russia and Brazil, just within those 2 regions. As you went through the quarter and, obviously, through October, had the trajectory in the year-over-year transaction metrics flattened out? Or did you see it continue to sort of worsen as you went through the quarter, just to get a feel for where we might be with those 2 regions?

Tim, this is Eric. I would say, if you look back and look at the United States back when we were in recession a number of years ago, I would say there's a lot of similarities to what we're seeing in both Russia and Brazil. Their economies have kind of slowed down. They've got negative GDP growth and that is kind of impacted transaction volumes really to a very similar degree to what we saw in the United States back in, like, 2008 and 2009.

Yes, Tim. It's Ron. Let me maybe just add something to what Eric said. I mean, the economy, obviously, the GDP in those 2 countries is not good. But we're remembering workforce payments. So if you take Brazil, a big part of our business there is food cards and a big part of our business is transporter, commuter cards, which are tax-advantaged products for employees. And so not only does the economy shrink, there's less employment, but there's less formal employment. So remember, our products require employers to formally have the guy on the payroll to make these products work. And so our analysis is showing that not only are we kind of dropping in a bit with the general economy, but the formal employment thing is actually kind of heading back the other way as people, employers struggle. And so the softness that Eric refers to in those 2 particular places is quite large in our lines of business. And we're selling a lot. I mean, the thing that's so weird about it is, we've created a bunch of new products, particularly in Brazil, and we're starting to sell a decent amount of them, but the softness is so great. We're barely getting back to where we started, and so that's the challenge there.

Okay, great. Appreciate that. And then second question I have is just around the corporate payment. You talked about nice very strong quarter of sales. I guess now that you had that business almost a year officially and obviously knew it prior to the actual acquisition announcement, any thoughts or -- a, around the selling process to get where you're at, where you had a great quarter just what was learned, is there a new approach? Or is there some stuff you've done around the product and the platform that's aided those efforts outside of just adding bodies? And then if I could just add on to that, around that business overall, what are your thoughts around what you hear from the networks about maybe providing you some tailwinds around corporate payments? They talk about it periodically, but you're a bit closer to it at the ground level. Anything interesting going on there that might present tailwind for that business over the next several years?

Yes, so let me, Tim, go to the first one first. I'd say not so much on are we doing a lot to the product. I'd say that Comdata had a very good corporate payments product when we bought the company, which is one of our motives. I'd say what we've done is a lot around the targeting, so who to sell it to, and a lot around the sales force investment and marketing investment to try to sell more. So I'd say that the success in the quarter is really around marketing and selling more than some big product enhancement. And around the networks, I'd say, obviously, Visa has got a real interest even though we're with MasterCard, and MasterCard's incredibly helpful in pushing and providing leads and talking that up right as a way to get more card-based payments. And so they've been a very, very good partner to Comdata in terms of helping us grow.

Our next call is coming Tien-tsin Huang from JPMorgan.

I guess, I'll ask on the -- like Tim asked, but for the United States. How healthy are the fleets in general? Any change in same-store or just activity?

Tien-tsin, this is Eric. Yes, I would say, when you look at it at a consolidated basis, so you look at all of our products, our same-store sales are actually up a little bit, probably up around 1%. But when you break it down specifically and look at some individual businesses, like specifically, maybe, Fuelman, which is our small to midsize customer product, which is more geographically focused, you would see a little more kind of same-store sales impact in those markets, because that product is kind of centered more in Louisiana, Texas, Oklahoma. So you're seeing some impact there from kind of oil and gas, as an example, and maybe even some smaller trucking clients. But then when you shift over and look at businesses like Comdata, Comdata same-store sales are actually up a little bit. So again, I think it kind of varies by product. But when you look at our business at a consolidated level, I'd say we're flat to up a little bit.

That's good to know. And then just on the acquisition front, it sounds like you do have one that's getting close to the finish here. But just how has valuation been trending? Because it seems like there's more activity around corporate payments. You've seen, obviously, some larger deals as well. So where are we on the valuation side with M&A? Has it changed your appetite in any way?

Tien-tsin, it's Ron. I think it probably has drifted up a bit with the cost of capital still. And so I'd say for us, we say this all the time, we really look at the year one plans for these deals, and we don't buy things that don't look like a decent price to us kind of 1 year out. So that's really the benchmark. So I'd say to you that if we can't find a transaction where we like that multiple over the next 12 months, we generally don't go ahead. So we've obviously looked at some fair number of things since Comdata and have not pulled the trigger. But as I mentioned, we do have active things and one of them is pretty late. So that's always the call of for as is whether the guy wants the team dime trailing, our question is just what it is forward. And if we like the year 1 in the mid-term forward rate, we buy the thing.

Okay. No, I know you're disciplined. Just last one, I'll jump off. Just on the Comdata synergy front, with the -- on the cost side, how is that tracking versus plan?

I would say we're pretty much where we had expected to be. So most of the cost savings and the revenue synergies that we thought we are going to obtain are kind of in the run rate, Tien-tsin.

Yes, I'd add, Tien-tsin. The only add to Eric's is I'd say there is a little more room in the IT. I think we mentioned this when we did the transaction that there were some stuff we did at the close. There'd be some stuff kind of along the way and the longer pole would be IT. So as we've started to look at our budgets for 2016, I'd say there's still probably a little bit of wind left in lower IT.

That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.