Greetings, and welcome to the FLEETCOR Technologies Fourth Quarter 2018 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Jim Eglseder, Head of Investor Relations for FLEETCOR Technologies. Thank you. You may begin.

Good afternoon, everyone, and thank you for joining us today. By now, you should have access to our fourth quarter press release and supplement, which can be found on our website at 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 non-GAAP information at other companies. Quantitative reconciliations of historical non-GAAP financial information to the most directly comparable GAAP information appears in today's press releases and on our website, as previously described. Also, we are providing 2019 guidance on both a GAAP and non-GAAP basis with reconciliations. 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 guidance and outlook, 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 upon 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 annual report on Form 10-K filed with the Securities and Exchange Commission. These documents are available on our website and at sec.gov. With that out of the way, I would like to turn the call over to Ron Clarke, our Chairman and CEO. Ron?

Okay, Jim, thanks. And as always, we're delighted to be with you this afternoon. Upfront here, I'm going to plan to cover 4 subjects. So first, I'll run through my view of our Q4 results. Second, I'll provide a bit of a wrap-up on our full year 2018 results. Third, I'll preview our guidance for this year, 2019. And then lastly, I'll speak to our company's top priorities. Okay, so onto the quarter, Q4 results. We reported Q4 revenue of $643 million and cash EPS of $2.78. That's up 15%. Revenue did surprise us on the upside, finishing over $20 million better than our expectations. We had virtually no scope differences in the quarter. On a consistent GAAP basis, both GAAP revenue and organic revenue both grew 11% in the quarter. On the good news front, our fuel card organic revenue growth accelerated to 9%, obviously, overall Q4 revenue particularly strong, first off, because the fuel card growth did normalize into the high single digits. Our corporate pay business rocked, up 24%; toll business, strong again on the back of tag volume, up 4%, along with incremental parking and fuel spend lifting revenues there. Our lodging business continued its healthy small business room night growth. Room night's up 22%. That resulted in 19% overall lodging growth if you exclude FEMA; so really strong revenue performances really across the board. Our trends in the quarter also remained very solid; same-store sales, plus 1%; overall client retention, 92%; new sales, new bookings hit record levels, finishing up 20%; and inside of that, our new fuel card sales, up 17%; so a really terrific sales finish. So look, all in all, Q4 may be one of our best quarters ever, revenue way above expectations, accelerating organic fuel card revenue growth back to 9%,…

Okay, thanks, Ron. Before I get started on the numbers, I want to remind everyone that the company has adopted the new revenue recognition standard, ASC Topic 606 via the modified retrospective method of adoption effective January 1, 2018. Under this method, 2017 results are not restated. As I have done previously, I will talk about revenue in 2 ways: first, using the new GAAP convention, which compares 2018 using the new ASC 606 standard to 2017 using the prior standard; and then I will discuss revenue for 2018 and 2017 as if ASC 606 was never adopted so you can compare revenues the way we have historically presented it. This is the last quarter I will be comparing revenue to the prior revenue standard, ASC 605, as starting in 2019, the quarters will be comparable. Now onto the quarter. For the fourth quarter of 2018, on a GAAP basis under ASC 606 standard, we reported revenue of $643.4 million, up 5.5% compared to $610 million in the fourth quarter of 2017. As a reminder, merchant commissions and certain third-party processing expenses are now netted against revenue, which resulted in a reduction in revenue of approximately $36 million in the fourth quarter of 2018 versus the prior standard. For the fourth quarter of 2018, GAAP net income increased 7% to $302 million or $3.33 per diluted share from $282.7 million or $3.05 per diluted share in the fourth quarter of 2017. Included in the fourth quarter of 2018 net income was $153 million gain from the sale of the Chevron portfolio. Included in the fourth quarter 2017 net income was a benefit of $127.5 million from the adoption of the new Tax Reform Act. Revenues in the fourth quarter of 2018, excluding the impact of ASC 606, were $679.9 million,…

[Operator Instructions] Our first question comes from the line of Ramsey El-Assal with Barclays.

I had a question on guidance. In the context of the acceleration that you're anticipating in the second through fourth quarters, how much are you depending on the new products, like beyond fuel and beyond tolls, to accelerate, to basically gain traction? And how good of a line of sight do you have that, that will materialize at this point?

Ramsey, it's Ron. I'd say still not super significant, maybe, call it, 1 point just to give you an estimate.

Okay. And then I wanted to ask about just in general, the impact of fuel prices on the business. It seems like over time, we've seen the part of your business that is directly exposed to fuel, the discount revenue side of that get a little more heavily weighted versus the spread-based revenue. And I'm sure -- I know Comdata, when you bought that company, it had -- it mixed that around a bit. Should we continue to see the sort of discount exposure of the business grow and the spread exposure shrink? And what are the drivers there now of that mix shift?

Say again, Ramsey. I'm not sure I'm clear.

So you have revenues there directly exposed to fuel and some of it is basically sort of like interchange exposure and some of it is spread-based exposure, basically. Now we're seeing that the spread-based exposure is a little smaller than it used to be historically and I'm just wondering whether that trend continues. In other words, did this more and more of your fuel exposure relate to this sort of direct interchange exposure versus spread-based pricing? Is it -- did I make sense? Or am I still confusing you?

No. Ramsey, this is Eric. I think what you said is basically correct. I mean, obviously, our spread-based businesses are growing at a little slower rate than the other business are in total. So as the other businesses grow, clearly, the revenue in those businesses or that the revenue impacted by spread is going to continue to get smaller. If that's what you're...

It's basically -- it's just mix issue, basically, kind of a geographic mix issue almost here.

It's completely a mix issue.

Our next question comes from the line of Ashish Sabadra with Deutsche Bank.

So my question was on the non-fee businesses. You had some difficult comps there in -- going into '19 and still you talked about this mid-teens growth. And so I was just wondering if you could help us understand how you plan to overcome some of the difficult comparables in '19.

Yes, Ashish, it's Ron. I'd say again the reason for a bit of deceleration from this year is we lapped some pricing. In most of those businesses, it's just volume. Like in corporate pay, in Cambridge, it's really all volume. In tolls, it's a bit of mix and a bit of the new things. And in lodging, it's basically volume in the small SMB segment. And so we've modeled the sales and retention rates in those business. And I'd say we're pretty comfortable all 3 are heading towards mid-teens, plus or minus 1.

That's absolutely great. And then just maybe one quick clarifying question. The guidance, the 2019 earnings guidance, that does not include any kind of capital allocation in 2019, including any kind of share repurchases that you might be making in 2019. I just wanted to confirm that. And it just includes whatever you did in 2018. Is that right, Eric?

That is correct, Ashish. We do not anticipate and we sure didn't plan for any additional share buybacks or any M&A similar to what we do in prior -- what we've done in prior years as well.

That's good, so if any kind of additional share repurchases that you do this year would be incremental. That's helpful.

Our next question comes from the line of David Togut with Evercore ISI.

Good to see the 24% growth in corporate payments for the fourth quarter. Can you talk about the underlying drivers of that growth in terms of what specific verticals or products were particularly strong? And then in connection with that, can you give us a status update on ASAP, the new full bill payment automation solution you launched in the third quarter with AvidXchange?

Yes, David, it's Ron. So a few things. I think one, the health care portion of that business continues to shrink relative to the total. It's actually in the plus column. So I'd say that that's the first thing. And then the core business, the geographic business and the construction business are just booming way, way up. And then I'd say, third, a couple of the new channel partners, the CSI, the AvidXchange, we signed Bill.com in the fourth quarter. Some of our partners, I'd say, are accelerating their growth, their spend growth. So those would be the handful of drivers. On part 2 of the question, ASAP, I'd say it's still early days. We're out of the blocks. We've got a couple of teams selling first set of accounts wrong. We've worked out the model, how we're going to price and service. So I'd say that we're up, we're live, we're building. I'd say the real confidence or interest in the thing is through these partner relationships through the lenses of seeing how they're doing. So 2 or 3 of these relationships that we serve are squarely in this full AP business. So as their process or we see those volumes, so we see that the market is receptive to that offer and the sizes of the clients taking an offer, so we're seeing firsthand the acceptance of that. So I think it's just a pacing thing. I think our conviction that that's going to be a big, big deal is there.

As a quick follow-up, Eric, what average fuel price assumption are you using in the first quarter guidance?

Yes, we use $2.60 across all 4 quarters, David.

In North America.

In North America, right. So for those businesses that are sensitive in the movement in the retail price of fuel, we use $2.60.

Our next question comes from the line of Sanjay Sakhrani with KBW.

I guess, Eric, when you look at the revenue growth versus the EPS, it seems like the operating leverage isn't quite there as much as one would think. Can you just help us think through that?

Yes. Actually, from our perspective, it's right where it kind of should be. Our EBITDA margins are running in the high -- kind of the mid- to high 50% range. If you look at the incremental revenue and the incremental EBITDA in our budget next year, it probably -- EBITDA margins in the low 60s, which is in line with the leverage we would expect from our business. Our fixed cost run approximately 2/3, and variable costs run around 1/3. So it's in line with the way we would always think about the business.

Sanjay, it's Ron. You're referring to Q4 or '19 in the question?

It would be '19.

More '19. I was just wondering if there's more upside to the margin over time, I guess.

Yes, again, if you follow the bridge, it's kind of 10% and 17%, right, normalized, so without the divestments and without the macro. So we think that's decent kind of leverage.

And shares in there.

Okay, great. And then maybe on M&A, it's obviously been quite a long time since we've seen the deal from you guys. Could you just talk about the environment right now and sort of what's hurting or helping your cost right now?

Yes. I'd say it's kind of business as usual. We've got, as I said in the opening remarks, a number of near-end 4, 5 transactions that we're well into, that we're looking at, sitting in our core categories in fuel, lodging and corporate pay. And so I'd say, hey, what's the reason we've taken a 1-year hiatus, the answer is that when we got to the goal line on some of the deals last year, we just didn't like them enough versus the prices. Some of the prices have gone up in our space certainly pre this correction, and so we just want to make doubly sure at high price levels that the thesis is sound and the returns are there. And so I'd say that it's certainly -- more likely, you'll see us pull the trigger in 2019, given we didn't last year, but we're -- for all those wondering, we are still in the M&A business.

Our next question comes from the line of Oscar Turner with SunTrust.

So my first question is on corporate payments and some of the partnerships you just discussed. I was wondering if you can give some color on what portion of revenue in that segment today is indirect through partnerships with AvidXchange as opposed to direct. And then does more of a partnership approach have implications on pricing power long term?

Yes, Oscar, it's Ron. So I'd give you kind of a ballpark. I'd say in our corporate pay without our FX business, it's in the neighborhood of 1/3, 30% to 1/3 of our revenue. Our interest in it is that, that space is just a massive TAM. It's a massive market and so it needs a lot of coverage, and so we like the fact that there's more marketing pressure from more people that's kind of off-balance sheet doing that. And so we like the business a lot and then the -- obviously, we learn as our partners take different approaches or go after different segments. It's obviously informative to us. And then on your question of pricing and stuff, we've obviously got good relationships. We sign pretty long contracts with those kind of partners so we don't get them into business and then find their way away from us. So I'd say that generally, our channel contracts are longer in term than some of our other contracts in the company.

Okay. That's helpful. And then follow-up questions on tolls. Just wondering how we should think about what's driving the mid-teens growth outlook for that segment. Transactions growth there, I guess, which is more synonymous with subscriptions, has remained at the low single-digit range. So is pricing likely to remain as the main driver for that segment?

Yes. I mean, I guess it's a classic mix, I'd say, in the plan in front of me. But I'd call out, I think, 4% volume or tag growth in Q4. My guess is it's in that similar range, kind of 4% to 5% volume growth. There is some inflation both in revenue and in cost in that market, which would be another few percent. And then really, it's the mix of the type of business that we sign up and it's the add-on things that we talked about. So I think I mentioned that with this parking expansion and the fuel expansion, we get MDR now, so without having to change fundamentally what the customer pays, picking up incremental revenue. So I'd say it's those 3, volume, some inflation, and then basically some spend lift.

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

Darrin, are you there?

Oh, guys, hey, sorry about that. Can you hear me now?

Yes.

We can hear you now.

All right. Look, just given the strong growth we're seeing in the quarter on fuel, I think it'd be helpful if you could just walk us through a bridge from the '18 growth rate in fuel to the '19 organic assumption of 9% to 11%. Just there's a lot of moving parts. So what's the contribution of each, whether it's a sales process or now the MasterCard growth assumption or anything on pricing? I mean, it is clearly a good result in the quarter on it and the trend in the outlook was good.

So let me sure I got your question. Hey, hey, how are you going from a 9% fuel organic to a 9% to 11% in 2019, what's going on there?

Yes, pretty much. I mean, it was, yes -- and I think it trended up through the year even to the 9%. So I guess, I'm just looking at the full year '18 versus '19.

Yes. So the short story on why 9% versus, I think, full year of a 5% in '18 is clearly, the comps, Darrin, that grow over, right? We finally -- hopefully, we'll never speak about the 2-year-old GFN conversion. So we completely lapped that in Q4, and our MasterCard product line here in the U.S. went positive. So instead of being negative against the comps, it turned positive. And that thing -- we put resources back onto it this year. So that thing is out looking almost mid-teens again, back -- almost back to the old days in 2019. So the way we would help you guys think about it is really look at Q4 as the base, not the full year, because that's the better view of the comps and look at it sequentially and say, okay, how are you going to go from 9% to, call it, the midpoint of what we've given you, 10%. It's really kind of 1 point of acceleration. And it's in -- I'd say it's the comment that one of the guys asked at the beginning. I'd say the incremental 1% are kind of the new, new things, the new combo, payroll, fuel card and that, the beyond fuel, so a bunch of the new things we're working on, extended network in Russia. There's things going on really in every business that will eat that thing up. And again, off of the sequential number, it's really going up 1 point, kind of 9% to 10% at the midpoint.

Okay, that's helpful, guys. And then just quick follow-up. Is there any large-scale deals on the horizon or RFPs we need to know about that could be opportunities or even risks to your current portfolio?

You want M&A or on partners?

No, I'm talking about either partners potentially, potentially in Europe or elsewhere as well as current existing portfolios that could be in -- looking around.

Got it. So on the -- let me take the second part first. No, we do a contract review. I would say that there were no significant, call it, very large contracts up in the midterm and the next few years. And then two, I'd say on new partners, I'd say there is nothing close-in -- if you said to me, is there something that would be signed by anybody, us or someone else, in the next 6 to 9 months, I'd say no, not that I know of. I mean, like I commented on M&A earlier, I'd say yes, there are a number of active deals that are enclosed that we're far along on that will either go or not go. So I'd say most likely on door 3.

Our next question comes from the line of Tien-Tsin Huang with JPMorgan.

Solid results, I just wanted to better understand. I think you answered in Darrin's -- in your answer to Darrin's question. But the outlook for fiscal '19 is a little bit better than what you previewed 90 days ago. So what got a little bit better? What's giving you more confidence in laying out this outlook that you have?

Tien-Tsin, yes, it's a good question. I'd say it's incrementally better. I don't want to get on your -- make like 90 days, the whole world has changed. I'd say that everything has inched a bit better. Our sales were a bit better, right, came in at 20%. That rolls forward. Our retention eked up another point, so when you roll those into the model. So the trends have improved a bit. And then for the other question, I think that progress on some of our new stuff has given us kind of a tiny bit more lift here in '19. So I'd say those 2 or 3 things were -- are incrementally better than when we talked to you guys last.

Okay. It's good to see the retention efforts are showing up here. So on the -- as a follow-up, the 20% growth in the new sales, I feel like I always ask you this, forgive me. Can you decompose that for us a little bit what's selling well? You mentioned 17% in fuel. Anything else to share?

Yes. I mean, that was the main thing also I wanted to call out. It's, "Hey, the company's total sales are growing. Hey, maybe it's just all in corporate pay." No, I want to make sure people are clear of it. The core, 45% of the company, sales are up 17% in the quarter. It's almost across the board we're having a record sales in Brazil. I call out because of the new channels, 1/3 of all the sales now. In the toll business or the new channels, those were kind of 0 virtually when we bought the company 2 years ago. Cambridge, I think I called out on its performance. It's just rocking and they've got a big sales plan again in '19. So I'd say it's really generally across the board, mid-teens plus kind of selling going on in every segment; lodging going good. So it's really everywhere.

Our next question comes from the line of Bob Napoli with William Blair.

On same-store sales, so when you put out a stable number, good number, 1% growth, is that -- can you talk about that by segment? Where are you seeing any acceleration or deceleration, I mean, a little more noise in the U.S. economy and in some regards with -- related to the oil industry? Can you just talk about by segment where you're seeing any strength or any softness?

Yes, Bob, it's Ron. I would say it hasn't moved a lot. We quoted these numbers over, probably many quarters now, kind of whatever it's been, plus 2%, plus 1%, the last set of quarters. So if you look at the trend chart, which I have, it hasn't moved a lot. I'd say the super positive same-store are in places like lodging. That's super healthy because of this SMB digital stuff. We're in double digits there of same-store because we just get more out of the clients we have, and the large clients like rail and stuff have gotten way healthier in the last 12 to 18 months. So that one's great. The corporate pay has built in same-store right because expenses grow in companies and the merchant, network growth -- so a single client might have $20 million of invoices to pay per month then we're getting 20% of them. We eke it up to 25% and then their invoices go up to 22%. So it has a built-in fundamental client spend and revenue growth. And then I'd say the couple of markets, the Russia, Brazil economies are way better certainly than 2 years ago and, I think, still improving. So we have really good, high same-store in both of those locations, so pockets of strength. And I'd say the rest of the stuff, like the U.S. stuff, kind of solid, chugging along as it has been.

Okay. And just on Brazil, with that market -- I mean, it obviously is a little volatile, politically and otherwise. Are you -- how are you feeling about that business in that market as a -- long term from a growth perspective? And you said you have -- obviously, you're seeing a little bit better on the ground but just maybe a little bit of about your confidence in building that business and what you expect out of it over the next 3 to 5 years.

Yes, that's a great question. Obviously, a market like that is a bit of a mixed bag and has had some amount of uncertainty. I'd say on the good news front, the political thing looks like it's gone pro-business. The economy and, more importantly, the employment numbers have gotten way better, again, in the last year or 2. So I think inflation is frankly down and forecasted to be down. So I think the core economic things there look better certainly than they have in a couple of years, but for us, it's really, I think, the long view that it's a big, big market, lots of people, and it's a great payments market and it's an underdeveloped payments market, and it's a big TAM in the stuff that we do. One of the guys, one of the companies that does a bit of what we do, called Edenred, has half of the company's total profits in that one country. And so I'd say that we feel from the payments lines that we're above. We've got to be there. It's just too big and too early days not to try to go capture some of it but with that, make sure you guys aren't missing. We're aware of some of the other kinds of risk and obviously take that into account as we look at things there.

Our next question comes from the line of James Faucette with Morgan Stanley.

I just had a couple of follow-up questions just to those that have already been asked. First, you mentioned, in response to Tien-Tsin's question, that -- where you'd see some improvement. I guess, my question there is, has there been anything particularly in the last 60 days or so as people have gotten more nervous about the economy that tempered your enthusiasm or where you were seeing improvement? Any indications where there could be some incremental weakness perhaps that made you a little less enthusiastic? And then my second question was, when you looked at and you talked about M&A and wanting to be sure but on some of the deals you might -- may pull the trigger, but are you adjusting at all your overall targets or strategy around the kinds of acquisitions you might like to do?

Yes, on the first one, James, I think, again, it's really to kind of repeat what I said. I think it's just incremental. I think our guidance -- 90 days ago, we're trying to be a bit conservative because we're looking at different compares to the period and I think again, over this last sets of days, the things -- all the things that drive the growth have gotten incrementally better. I think I mentioned at the outset that even we were surprised to the tune of, call it, $20 million better in the quarter. So things just got better. And our exit rates and stuff looked better. So I think we're as confident as you can be that, that thing has turned the corner and is heading to step up a bit. On your part 2 on the deal question, I think -- yes, I think the environment certainly has changed some in the last few years. The prices are higher because there's more people kind of in the game, kind of in our game, which I think is taking prices up. And I think we're focused on some different categories that have maybe more midterm potential than they do year 1 potential and maybe more revenue growth potential than immediate accretion potential. And so obviously, we weigh all of those things as we look at targets and try to balance it, try to not overspend for some hope and, at the same time, make sure we're buying businesses that have good midterm prospects, not just onetime profit improvement. So I do think we've moved a bit of the view and again, I think on the non-fuel categories, that we want to be really sure when we pull the trigger. So we're doing extra work. And if we don't feel confident enough, we'd walk by some things. But I would say again that people shouldn't think just because we spent $1 billion last year that we've retired from M&A and we're going to be buying back stock and delevering. I would say that we will be buying stuff.

Our next question comes from the line of Jim Schneider with Goldman Sachs.

Related to the corporate payments area, a lot of questions on that, but I wanted to ask you a sort of different question about your willingness to partner with the different partners you've already talked about over the past couple of quarters versus your desire to make a scale acquisition in this area. Is that something where you're trying to try out different kind of business models and verticals before you decide on a larger acquisition to make? Or how are you kind of weighing the benefits of buy versus partner?

Yes. I mean, obviously, Jim, in some of the cases that I've called out, they come to us, right, as the "supplier, as the vendor, as the processor." So we responded. And again, it's been an attractive relationship, commercial relationship because we have some things they need and, therefore, money and the sales and marketing, and we can make returns. And as I said, we can learn. So I think our modus up to now, we have been responsive to people that are trying to be in the space because we view there's plenty of room for a lot of people as the market is big. In terms of transactions, I think like always, if we thought whether it's a partner or not a partner that there's capabilities. We could telescope time by acquiring something that's always something that we're thinking about looking at. And obviously, it takes 2 to tango. You need people on the other side that have that interest as well. But for sure, we're -- as you know, we're looking at the landscape. We know everybody in it. And if we think something makes sense to acquire, we will certainly approach people.

Fair enough. And then on a related note, is there anything you see in the 2019 outlook that would prevent you from doing sort of the 20% plus growth rate in corporate pay that you -- the run rate that you've been on, especially given the new partnerships you've just signed?

Yes. Again, I think we -- outlook, I think we said kind of mid-teens. So if you said to me what do we think, our corporate pay business, which is the virtual card business, the partner business and the Cambridge business, I'd say we're comfortable with those numbers. And if you guys recall, lots of that business is effectively already sold. So in that particular line of business, it's much more of an implementation issue in terms of hitting the revenue plan than it is in new sales. So I'd say to you that we're pretty comfortable generally with the guidance we gave you guys.

Ladies and gentlemen, we have reached the allotted time for questions and this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.