Greetings, and welcome to the FLEETCOR Technologies Third Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Eric Dey, CFO. Thank you, sir. Please go ahead.

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 2017 guidance on both a GAAP and non-GAAP basis with a reconciliation of the 2. 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 2017 guidance, new products and fee initiatives and expectations regarding business development and acquisition. 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, which could cause actual results to differ materially from what we expect. Some of those risks are mentioned in today's press release on Form 8-K and on our quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Others are described in our annual report on Form 10-K. These documents are available on our website, as previously discussed, 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. Hi, everyone, and thanks for joining the call this afternoon. Up front here, I plan to cover 3 subjects. First, I'll comment on the quarter and rest of year outlook. Second, I'll provide a brief update on some recent developments, happenings in the company. And then lastly, I'll talk a bit about our way forward from here and the opportunities that we see. Okay, so on to the quarter. We reported earlier good Q3 results; in fact, a bit better than our internal expectations. We reported revenue of $578 million, up 19%, and cash EPS of $2.18, up 13%. That exceeded the high end of our guidance range. The Q3 macro was positive, lifted revenues about $3 million in the quarter but unfavorable interest rates and unfavorable tax rates against the prior period took the favorability back. Same-store sales ticked up, were 2% positive in the quarter. And importantly, customer retention was 91%. That makes 10 consecutive quarters of 90%-plus customer retention. The hurricane impact was basically a push for us, overall. It did hurt our fuel card businesses that operate in Texas and Florida, but it did help our lodging business generate some incremental room nights through our FEMA contract. Everything now is back to normal. In terms of organic growth, revenue growth overall in the company, 8% for Q3, and our fuel card line of business, 6% for Q3. The GFN MasterCard conversion earlier in the year negatively impacted both our fuel card and overall organic growth, implying that the Q3 fuel card organic growth would have been about 3% better. So 9% instead of 6%. And our overall growth also would have been 9% instead of 8% if the MasterCard product line had come in on plan. In terms of drivers for the quarter,…

Thank you, Ron. For the third quarter of 2017, we reported revenue of $577.9 million, up 19.3% compared to $484.4 million in the third quarter of 2016. The revenue from our North American segment increased 5% to $364.4 million from $345.9 million in the third quarter of 2016. However, excluding the NexTraq business, which was sold in July from both the 2016 and '17 results, revenue growth in our North America segment would have been 9%. Revenue from our International segment increased 54% to $213.4 million from $138.6 million in the third quarter of 2016. For the third quarter of 2017, GAAP net income increased 56.5% to $202.8 million or $2.18 per diluted share from $129.6 million or $1.36 per diluted share in the third quarter of 2016. Included in the GAAP numbers for the quarter are the impacts of selling the NexTraq business and changes in our investment arrangement in Masternaut that caused our accounting to change from the equity to cost method as we executed on our plan to exit the telematics space. The net impact of these events resulted in an approximate $65 million or $0.69 per diluted share favorable impact on our GAAP results. We have excluded the impact of these events in our adjusted net income and adjusted net income per diluted share numbers. The other non-GAAP 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. 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 2017 were $550.2 million, up 20.6% compared to $456.2 million in the third quarter of…

[Operator Instructions] Our first question comes from Ramsey El-Assal of Jefferies.

I wanted to ask, in the context of this new Russia deal, how the European outsourcing pipeline looks specifically for these sort of smaller regional programs. Forgetting about the giant brands that we've, I think, all been focused on for a while, is there more movement in the pipeline on the smaller end, not just in Russia but across Europe? And maybe will that be the sort of fit-in in to the wedge when it comes to opening up the market?

Ramsey, I don't think we know. We've called this wrong so many times, I kind of used to go out on a limb with you. But look, every one of these incremental, I think, helps, right? Maybe builds more confidence for other people to take the leap. And yes, there are smaller guys wading into the RFP stage now. So I'd like to sound even more hopeful, but given our past, I'm trying to be a little bit cautious.

All right. That's absolutely fair. And then, I wanted to ask about the Walmart agreement. I get the sort of acceptance side of that, but should I read that press release that now Walmart trucks in the U.S. are going to be using FLEETCOR cards? And can you just help us sort of size that deal?

Yes, so you're reading it right. It's a 2-part deal; one is an exclusive acceptance deal for our kind of commercial cards, which should be quite helpful to us, right, because of their pricing; and the other one is really a competitive win. This is what we would call their light vehicle segment. Think of people driving around to their stores doing servicing versus the big trucks doing delivery. So it's about, oh, I think, it's just around 4,000 employees or vehicles. And it's 1 million-ish plus kind of contract, I'd say, in that ballpark.

Our next question comes from Sanjay Sakhrani of KBW.

I guess, my first question is on the MasterCard conversion. I was just wondering, when we think about its impact going forward and relative to the previous quarter, does it deteriorate sequentially? And then, how should we think about it going forward?

It's Ron again. So the first thing I'd say is it's kind of going like we called it. So we made an estimate back 3 months ago and it kind of stayed on that curve. So sequentially, it's basically flat, kind of over these few quarters, inching up a bit, we think, in this quarter. And again, it's about $15 million off of our plan in the second half. So I think the way you ought to think about it, it will be soft again in Q1 because this thing happened at the end of Q1 and then start to lap at -- when we get into the second quarter next year.

Okay. And then, Ron, your comments on the 4 segments that you outlined. Is it fair to assume that then those are sort of the core segments that you're going to focus on? Or could there be other areas that you sort of plug into the model?

Yes. Again, we're -- I think that's a great question. We're more, as you guys know, about the model, but I do think we want a simpler company both to operate and communicate. So I'd say, evidenced by the deals that we've done this year, we're hunting a lot in those kind of 4 spend categories. But as you can imagine, there are 2 or 3 spend categories that look a lot like the 4 we're in, in terms of their structure. So I want to call out, hey, don't get shocked if we found our way into a fifth one. But with that said, I think you should assume the priority are these 4.

Our next question comes from Darrin Peller of Barclays.

I just want to start off, I mean, you obviously had, even beyond fuel, you had good growth over your main nonfuel card businesses. Really, I think I saw acceleration across all 3 of them. CLC growth was particularly strong. Maybe you can comment on what the hurricanes actually did to benefit that. And then, what are the CLS deal economics in terms of what does this contribute to you guys? And then,, a quick follow-up would be on the other 2 areas. I mean, 19% growth in tolls. I know pricing probably kicked in there. And corporate also, how sustainable are those trends in the high teens?

That, Darrin, is a multipart question. But let me try to go back to your first one. So CLC, yes, very good Q3. So kind of really 3 reasons. One is because it's been doing well, so we're obviously selling a lot more business than we're losing. So just one is the momentum we've had. Two is, we're now on the plus side of the same-store sales. We're up 3%, 4% on same-store there. And if you recall a year ago, we were actually on the other side due to the railroads and stuff. And so we've lapped that now and [ the thing's ] back, helping us. And then, I don't have it in front of me but I'm going to guess we've probably got, I don't know, 2 or 3 points of growth in Q3 from the incremental hurricane room nights. We'll probably, depending on the shape of that, get even a bit more here in Q4. So those would be the 3 drivers. Solid on its own, same-store on the plus column and a few points from the incremental FEMA rooms. Your second one was CLS?

Yes. Just the economics around -- I mean, if you can give us more color on what kind of contribution that can have.

Yes. The economics are -- looks -- it's kind of a lookalike to CLC. So if you think about both businesses, it's -- there's a street price for a room, let's say it's $100. We have a buy rate based on volume, let's say $70 to pick a number, and we offer to the customer at $80. So the customer gets $20 off the lowest street price, we make $10 a [indiscernible] between the buy and the sell price. It's the same exact model for CLS.

And is it a material contribution to your CLC overall segment now?

Yes. I mean, it's good for a couple of reasons. One is, we've been studying other segments, things that we're not in like the airlines, distressed segment is an example, the insurance segment is a segment. And then this one, which, internally we kind of call it the project segment, long stay segment. People -- 10 guys on a consulting trip that go for 15 days, so they buy whatever, 80, 90 rooms. So this company was kind of targeting that area and has a distribution model and a reference base to go get that. So that gets us into a market segment that we haven't been in, in a big way. But the great news is it uses almost an identical hotel supply side network. And obviously, we've got 10x, if you will, the volume in our network. And so we'll pick up obviously a lot of synergies there.

Okay. Just quickly, the toll side. Pricing did kick in, I guess? I mean, is that growth profile almost 20%?

It did. I think, I try to say things that come true to you guys. So I think we said, hey, we're hoping to get to 20% at STP this year as we're exiting the year. And we got there a bit sooner. So we did print 20% for the quarter. We're outlooking about the same, 20%, for this quarter that we're sitting in. And yes, I'd say this quarter, we will be fully implemented with whatever pricing we're going to put in, we'll be in before we break for the holiday.

Our next question comes from Danyal Hussain with Morgan Stanley.

Just, Ron, following up on that comment you made about moving to full accounts payable outsourcing for repayments. That sounds like it would pit you, I think, more directly with a lot of large commercial banks. Could you just talk a little bit about how -- or minus how you differentiate it, not just on the virtual card product but then ultimately, how you would differentiate it throughout accounts payable?

Yes. I think it's M&A side of the research that we did. So as we start to go down market, going into a smaller AP shop and pitching the virtual card as a new concept, it's just a bit more difficult for people to follow hey, which vendors will take it? What percent of the payments is it? What do I do with the rest of the stuff? And so there's been other people in the marketplace that have done this full AP outsourcing, a private company, in fact, it's a partner of ours called [ Avid ]. So we went into test 6 months ago, I guess, back in the spring to sign-up the first kind of 20 or 25 accounts. And what I'd say is, it's got a different appeal, which is really about simplicity for the account more than it is about economics or anything else. And so I think the answer is that we think it will be quite additive, that we'll be able to take that thing, target a bit smaller set of prospects for that and obviously grab more the value chain as well. Obviously, there's more dollars grabbing a bigger piece of the AP. So I'd say that it's just an extension of what we're doing but will be probably pretty additive.

Got it. And then, just a question on -- a two-part question, I guess, on gift and then organic growth. But gift was low. You were able to accelerate through that. So just talk a bit about your outlook for gift and what the plan is there. And then, more broadly, how you're thinking about organic growth, I think, against the context of your 10% target that you've historically focused on.

Yes. So on the gift front, again, that business gets revenue from both processing and some margin on cards -- custom cards for custom accounts. And so it's bumpy. And so based on kind of shipping, it could have a really strong Q2 versus prior year and then a weak Q3 or vice versa. So it's a business that doesn't analyze well by quarter. It analyzes way more clearly by year. And so by year, it's going to be the same. This year, last year, kind of the low single-digit grower, 2%, 3%, 4% when all the dust settles for the year. And that's not different than it's kind of been since we bought it or different than what we planned. And yes, I know there's an old adage with the World Series on, 3 strikes and you're out, but we -- we're actually exploring yet a third idea. Our first idea was to look at selling the business if we get the right price, but we didn't like that with that tax leakage. Our second idea was to do this thing with First Data, and the antitrust didn't like it as well. And now we have a third idea that we're kind of excited about that we hope to report back on. So that's what we're doing. We're exploring a third alternative for that and should have some news the next time we talk. On organic, yes, we logged 8%. I think I mentioned in the opening that about a point of that was related to the losses from the MasterCard thing earlier in the year, so it would have been 9%. So kind of around the goal, the range that we had. I'd say, we're in the middle of our '18 budget now. So for me to give you something other than our aspiration of trying to be in the 8% to 12% kind of range is still what we're trying to do. And given that we got pretty stable on client retention for a few years, it’s really about the sales engine, which was good this quarter. So I'd say, again, we'll be specific when we talk to you the next time. But I think it's -- our aspiration is really the same.

Our next comes from David Togut of Evercore ISI.

This is Rayna Kumar for David Togut. It's good to see the 2% same-store sales in 3Q, and I know you mentioned CLC was the driver. Are there any other key drivers in the quarter to that growth?

I had a little trouble with the beginning of the question. Can you just resay? You're not close to phone. Just say it again.

Can you just point out the key drivers to the 2% same-store sales growth?

Sure. Sure, I got it. So it's Ron again. So yes, I did mention that the CLC thing was up. Our Corporate Payments business, the base was super healthy other than the health care segments that we're in, direct segment, a reseller segment, a construction segment, those things were super high single-digit; healthy; crazy. But the 2 markets that have been crummy are Russia and Brazil, strengthened dramatically, both of them in the quarter. Both on the positive, the Brazil legacy business, without STP, was up 3%, 4%. And the Russia business was way up; and our Mexico business were way up. So 3 of the international markets that had been soft and kind of bringing the consolidated number down were all in the positive. Our Comdata big account business was super healthy, too. It was 2% or 3% positive. So lots of stuff kind of around flat, and then those 4, 5 that I called out, pretty positive.

Great. That's really helpful. Could you quantify the third quarter revenue growth rate in the U.S. MasterCard products?

Which MasterCard product? I think, I said at the opening that the converted portfolio was actually down, it was actually backwards. We actually had less revenue in Q3 of this year -- I think Q3 of last year because we lost, I think, I told you, 1/4 or 1/3 of that book of business. The rest of the portfolio of MasterCard on the print was up 16% in the quarter. So it's a tale of 2 cities.

Great. And just lastly, if you can talk about the third quarter revenue and earnings growth rate at Cambridge and your expectations for 2018.

Yes. We owned -- I don't have it in front of me. We've owned Cambridge for whatever, half the period. I have the full year. I think we're looking at 15% to 16% on a pro forma basis in the local currencies for this year for calendar '17. And again, I don't have it in front of me, but based on the thesis, the business case to buy the thing, similar, kind of somewhere in the 15% to 17% range, I think, was our outlook for '18 for that business.

Our next question comes from Jim Schneider of Goldman Sachs.

Maybe if you can just provide a little bit of a clarification on what you're seeing for the -- whether you've actually restarted sales -- excuse me, on the MasterCard universal product. I think you had talked about that being kind of a 1- to 3-month lag. Can you confirm that those sales have restarted at this point? And if not, when will you expect to do that?

Jim, it's Ron. Yes, that's a good question. Yes is the answer. We have, I think -- what are we now? November? Sometime in October, early October, we began to resell on the same platform, right, [indiscernible] came across. So we want to make sure that the thing was not only stable but working well, so the salespeople that put new clients on it were going to have a good experience. So we can confirm that we're now back to onboarding new business finally.

Good to hear. And then, maybe as a follow-up, regarding the Corporate Payments business, I think, Ron, you give a little bit of color on how you're retargeting or refocusing the Cambridge people. But can you maybe talk about some of the cross-sell opportunities you talked about before kind of selling the Comdata corporate products to Cambridge clients or Cambridge products to the Comdata customers?

Yes. We actually literally had a call, a review yesterday on this subject and we barely have formalized it and they've already made some deals. So it was a quite fun call for me to hear that our thesis has taken shape before we've even officially launched the thing. But the plan there is -- the initial focus is going to be that the Comdata virtual card going to Cambridge. And the reason is 100% of Cambridge clients have domestic AP. So every single client's a target. So what they've done is we've taken the Cambridge U.S. base, prioritized it, took, I don't know, 400 or 500, we think, of the best targets in terms of verticals and stuff and in the process of dedicating 4 or 5 people from our virtual card business to buddy up with the Cambridge people that have those relationships and press ahead and see what kind of reception we get as we get introduced. So that thing is formally, literally just getting lift-off today. But informally, they've already made some deals or a couple of deals in the legal vertical already where our people had gone in with the Cambridge legal account team and made a couple of sales. So it's super early days, but we're pretty optimistic about it. The other way, the reciprocal side, Jim, we're going to hold the horses on. There's less opportunity obviously going the other way because less of the Comdata base clients will have international payments to make via smaller -- much smaller percent.

Understand. And then, quick clarification, if I could. You previously had talked about 2 European RFPs in the pipeline. Is the Russia deal -- you just announced 1 of those 2, and do you still anticipate another one to follow in the next 3, 6 months?

Yes, is the second part of the question. There were 2. I hope I didn't say there were 2 in Europe. I said there were 2 that are active. One of them was in Europe, which we announced today. And the second one is somewhere else and it is active and we've been told it's a Q1 decision.

Our next question comes from Oscar Turner of SunTrust Robinson Humphrey.

So I appreciate the insight into your growth opportunities. My question is on the Beyond Fuel program. How should we think about which of your clients this could apply to from a size or industry perspective? And to the extent you've tested it thus far, can you give any high-level color on the amount of spend upside that can be realized?

Yes, Oscar, it's Ron again. So again, I'd say it's pretty early days. We've tested it specifically against the construction industry, which is about 1/4 of our U.S. client base. And so we went out again starting in the beginning of this year with an offer to provide both a fuel card and a construction supplies card in one, and that's all you can buy on it. And we built about an $8 million run rate business in revenue from that initiative. It's about 50-50. About half of the spend in revenue is fuel and the other half are other supplies. So I'd say that our idea is obviously much, much broader than that. It's to look at lots of verticals and both small and large clients and figure out what adjacent spend, which would be interesting for them to put on this "one account" with us, particularly spend. It's the same employees, right, that are using our cards. So we're working through those various kinds of positionings and importantly credit dynamics to figure that out. But look, it's a whopper number, right? Fuel represents, if you carve out the trucking business, a small portion of our client spend generally. There's way more business spend in travel and purchasing and other kinds of areas. And so, I think it’s just a function of how wide and how much adjacent spend we can get, but it's a really significant upside if we can interest our clients in using our card for that.

Okay. And then, second question just on Walmart. How can we think about the yield on transactions at Walmart versus the rest of your fleet business? And then, I'd assume the volume pickup there would more than offset any lower pricing.

When you say on the first part, are you talking about the acceptance where Walmart would accept our commercial cards? Or you're saying on...

Yes. The acceptance part.

Okay. Yes. So I guess a good way to think about that is, yes, we've obviously reached a deal, a merchant discount deal with Walmart at their locations. I think, the reason it can work is that their pricing tends to be quite competitive, quite attractive. And so we think that, one, we'll get some incremental lift from accounts that we have. And two, maybe we'll sign up some accounts in the regions where they've got good position. So in the modeling that we've done, despite maybe having a bit narrower deal with them and some other merchants, we think it'll generate incremental economics for us.

Ladies and gentlemen, we have reached the end of our question-and-answer session. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.