WEX Inc. (WEX) Q3 2011 Earnings Report, Transcript and Summary

Good morning. My name is Jennifer and I will be your conference operator today. At this time, I would like to welcome everyone to the Wright Express Corporation Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Elder, you may begin your conference. Steven Elder – Vice President and Chief Financial Officer: Good morning. With me today is our CEO, Mike Dubyak. The financial results press release we issued early this morning is posted in the Investor Relations section of our website at wrightexpress.com. A copy of the release has also been included in an 8-K we submitted to the SEC. As a reminder, we will be discussing a non-GAAP metric, specifically adjusted net income, during our call. For this year’s third quarter, adjusted net income excludes non-cash mark-to-market adjustments on our fuel price related derivative instruments, a small impact related to our tax receivable agreement, and the amortization of acquired intangible assets as well as the related tax impacts. Please see Exhibit 1 included in the press release for an explanation and reconciliation of adjusted net income to GAAP net income. I would also like to remind you that we will discuss forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release, most recent Form 10-K and other SEC filings. While we may update forward-looking statements in the future, we disclaim any obligations to do so. You should not rely on these forward-looking statements after today. With that, I’ll turn the call over to Mike Dubyak. Mike Dubyak – Chief Executive Officer: Good morning everyone and thanks for joining us. We are very pleased with our results for the third quarter with revenue and adjusted net income exceeding our expectations. Our revenue increased 52% to $152 million and adjusted net income grew 38% to $39 million or $0.99 per share. We executed well again this quarter with exceptional growth coming from our corporate charge card product in our Other Payment Solutions segment and a solid increase in fleet transactions. But more importantly, our strategy to capitalize on the strategic opportunities in front of us including expanding our core fleet business, diversifying our business and building out our international presence continues to gain momentum. We believe we are in an excellent position to continue to drive performance across our businesses in spite of the challenging macroeconomic environment. Let me now turn to a few key metrics. Consolidated payment processing transactions increased 14% over the prior year with North America increasing 7%. Existing customer gallons domestically or same-store sales was more or less flat with Q2 down roughly 0.8%. We continue to believe our same-store sales trends which have been relatively consistent reflect the broader macroeconomic landscape. That said we continue to focus on driving new customer wins and acquisitions which has helped contribute to our overall growth. Breaking down same-store sales by SIC code, our largest concentrations are business services, which was positive for the quarter and construction which was slightly negative for the quarter. Regionally, the Southwest posted strong positive same-store sales growth while the Southeast was the weakest region. In terms of vehicle growth, the total number of vehicle service average $6.5 million, a 29% increase from the same period last year driven by the launch of BP Australia last quarter, the acquisition of Wright Express Australia and fleet wins in North America. Our core fleet business in North America has performed steadily and we continue to have low voluntary attrition rates at 1.4% for the quarter. This is one of the lowest attrition rates we see since 2008. In North America, our private label channel continues to be a source of opportunity for us and positions us well for future growth. Last quarter, we discussed that we had signed Wawa as the customer and I’m happy to report that they have gone alive during the third quarter and we have begun implementation on the Pep Boys program announced in August. We expect GoGas which was signed earlier this year to begin implementation in the fourth quarter and we just signed a seven-year extension with Sunoco. And we expect to announce the signing of another regional lower company who has a portfolio to convert is scheduled to go alive next year. This private label programs all provide access to small businesses and a critical mass to our strategy down market. Looking ahead, we expect to see nice transaction growth in our core fleet business as we increased our penetration down market and take market share from our competitors up market. We also continue to look for ways to capitalize on market opportunities and expand our product offering as we build the business for future growth. As an example in August, we launched our OTR-PRO fuel card program through a strategic alliance with Sky Capital LLC. This program is designed to meet the needs of long haul fleet in truck stop owners, an area where we are currently under-penetrated. Although, we are still in the early stages, we are optimistic about the long-term potential of the OTR product. On the international side of the fleet business, Wright Express Australia continues to hit our expectations and we expect to drive incremental revenue from the pipeline of customization work for BP Australia on our processing system. While the economy in Australia has been a bit softer than we anticipated. This is not ended our ability to expand he Wright Express customer base and we continue to look for additional opportunities for growth in this market. Elsewhere, we continue to fast the relationships with major and regional oil companies in Asia and Europe and have been working on building our sales pipeline with these companies. In addition, we continue to pursue strategic alliances and/or acquisition opportunities in order to build our on the ground presence overseas. Moving on to other payment solution, growth in this segment continues to exceed our expectations primarily due to our corporate charge card product in the online travel vertical. Spend volume in the third quarter increased 83% over the prior year to $2.4 billion driven by our single use electronic product in the online travel vertical. The single use electronic product has seen tremendous growth since it’s introduction with spend volume increasing from $2.4 billion for all of 2008 to $2.4 billion in this quarter alone. We expect growth in this segment to be very strong again for the fourth quarter. Diversifying our customer base and the verticals that we operate in remains the priority for us in the segment. On our last call, we mentioned our plans to increase the size of the sales team dedicated to our electronic corporate payments area in order to accelerate this strategy. During the third quarter, we added six sales reps increasing our team by 50%. In addition, we continue to make inroads in our targeted verticals, which will service new avenues for future growth. Most recently, we have signed the University of Montana in the education vertical and we have made solid progress in the insurance and warranty verticals. In the future, we continue to expect great growth in our corporate charge card product driven by continued execution in our existing verticals, new wins, and international expansion. As our corporate charge product has experienced aggressive growth and has a significantly larger base of volume spend, our growth rate for this product is expected to moderate to the 20% to 30% range in North America. However, we will continue to focus on generating new client wins and expanding this area internationally, which could provide additional layers of growth. The international team is delivering new opportunities for existing product suite as well as working on expanding our corporate payments products. We are laying the foundation for future growth by adapting our payment processing capabilities to foreign markets, including Europe and Asia. We expect to have our first point customer using the single use electronic product in the first half of next year. In the prepaid payroll card product, we are making good traction and rapid pay card continues to meet our expectations in terms of adding new customers. We have become more aggressive in this market and in order to capitalize on the opportunities in front of us, we have substantially increased a number of sales reps from four to eight year-to-date. The progress we have been making with rapid! has been encouraging and we are seeing success in cross-selling efforts into our existing fleet customer base. In the first six months, we have owned rapid!. We have increased the overall number of cards issued by more than 50%. In 2009, prepaid payroll cards loads totaled almost $20 billion and are estimated to be growing at 15% to 20%. We believe prepaid payroll along with other prepaid corporate programs have the ability to become an important contributor of long-term as we continue to gain market share and expand our product offerings. As we wrap up 2011 and look out to 2012, we continue to believe that we are in an excellent position to drive solid performance across our businesses. Before I turn the call over to Steve, I would like to provide some color on our thoughts regarding the macro environment. Despite lingering concerns about the economy, our same-store sales numbers indicate to us that the economy continues to be relatively stable. In addition, we believe we have the capacity to still generate strong growth in spite of a potential slowdown in the economy due to new client wins, multi-faceted expansion of the business, increased hedge prices, and good control over our credit loss expense. Further, recent conservations with our customers in the construction, trucking and travel industries indicate they expect stable if not stronger demand for their products and services in 2012 which gives us additional confidence, then we are well-positioned to execute through this choppy macroeconomic environment. While data points and economic indicators can fluctuate, we have proven our ability to grow earnings, generate significant cash flows, and maintain strong liquidity in a challenging environment. Importantly, while we have built the foundation for future growth, we believe we are also better prepared to navigate through varying economic conditions given the diversity of our business. Our continued focus and execution on multi-pronged growth strategy has resulted in greater diversification of our business from where we stood just a few years ago. And today roughly 33% of our business is generated outside of the North American fleet card business. These elements in conjunction with the fundamental performance across our business support our optimism as we continue to execute on our strategy. Additionally, our new credit facility which we discussed last quarter will facilitate our ability to capitalize on the opportunities on the horizon enabling us to expand our core fleet business, diversify our business, and build up our international presence. With that, I will turn the call over to Steve to discuss our financials in greater detail and provide our outlook for 2011. Steve? Steven Elder – Vice President and Chief Financial Officer: Thank you, Mike. For the third quarter of 2011, we reported total revenue of $151.9 million, an increase of $51.6 million from the prior year period and above our guidance of $145 million to $150 million. Top line results were driven primarily by performance in our Other Payment Solutions segment which helped offset a small decline in fuel prices relative to our guidance and speaks to the diversity of our business model. Net income to common shareholders on a GAAP basis for the third quarter was $48.1 million or $1.23 per diluted share. Our non-GAAP adjusted net income increased to $38.7 million or $0.99 per diluted share which was above our guidance range of $0.89 to $0.95 per diluted share. This compares to $0.72 per diluted share reported in Q3 last year. We benefited in the third quarter from a couple items that we did not anticipate would happen until later in the year. Taking a look at some key performance metrics this quarter, total fleet transactions increased 19% over the prior year. Payment processing transactions were up 14% in total and 7% in North America. Transaction growth was in line with our expectation for the quarter. Our net payment processing rate for Q3, 2011 was 1.64%, which was down 14 basis points versus Q3, 2010 and flat with the second quarter of 2011. This rate will vary with fuel prices due to the impacts of our hybrid pricing contracts. The primary reason for the decline in our rate from last year is due to changes in fuel prices. Finance fee revenue in the fleet segment was up $3.3 million compared to Q3 last year. However, as a percentage of total dollars of fuel purchased, it was significantly lower domestically than last year. The average balances that are past due and incurring late fees continued to be smaller when adjusted for changes in fuel prices and the number of customers that are paying late has continued to decrease compared to the same period last year. This is a good sign for the long-term health of the portfolio. However, it impacts our short-term profitability. Revenue in the Other Payment segment increased 108% year-over-year to $34.8 million. For the third quarter, the Other Payment segment represented 23% of our total revenue. Growth in this segment was again driven primarily by our corporate charge product, and in particular, the online travel vertical. The spend volume was up $1.1 billion over last year or 83%. In addition, our acquisitions of rapid! PayCard and Wright Express Australia Prepaid contributed to the increase in revenue. The net interchange rate on our corporate charge product for Q3 was 99 basis points down 4 basis points year-over-year. This was primarily due to the mix of contracts and higher foreign spend which has lower interchange rate. In addition, we also had a one-time benefit in this rate for additional incentives we received from MasterCard for new business generation, which added a couple basis points to the rate. While this benefit had been assumed in our previous guidance for the full year, we had anticipated it in the fourth quarter rather than the third quarter. Moving down the income statement, total operating expenses on a GAAP basis for the third quarter were $86.6 million versus $64 million last year. The prior year operating expenses included approximately $5.4 million for the purchase of Wright Express Australia. Roughly $13 million of the increase was driven by the operations of the Australian businesses we acquired in Q3 last year. The remainder of the increase is due to higher service fees and credit losses. Salary and other personnel costs for Q3 were $27.4 million compared with $23.7 million in Q3 last year. The increase is due to the addition of the employees in Australia. We also have additional headcount in the U.S. primarily in the sales and marketing group. Service fees increased $4.8 million from the prior year to $20.8 million. We call that the prior year included approximately $5.2 million related to our Australian acquisition. The majority of the expense increase was driven by the significant increase in volume of our corporate charge product as well as the increase in cross-border fees. In addition, we also had increases for the acquired businesses and the cost related to our telematics product as it continues to gain penetration in the market. Domestic fleet credit loss was 17 basis points for the third quarter compared to 12 basis points in the prior year period in our guidance range of 18 to 23 basis points. In total, credit loss for the third quarter was $8.7 million compared with $3.9 million in Q3 last year. Total domestic charge-offs in the quarter were $5.2 million and recoveries were $1.3 million. Last quarter, we indicated that the ageing of our receivables was coming off the very low delinquency levels and turning back towards historical levels. This played out as we expected during the quarter. We continue to maintain good control over our credit loss expense given the practices we have put into place over the last several years. Our effective tax rate for Q3 on a GAAP basis was 35.3% compared with 45.5% in the third quarter of last year. Our adjusted net income tax rate this quarter was 35.8% compared with 40.1% for Q3 a year ago. The decrease in the ANI tax rate compared to the prior year is due to non-deductible items associated with the purchase of Wright Express Australia last year. We expect our ANI tax rate will be just under 36% for the year in the fourth quarter. Spending a moment on our derivatives program, during the third quarter of 2011, we recognized a realized cash loss of $6.8 million before taxes on these instruments and an unrealized gain of $20.7 million. We concluded the quarter with a net derivative asset of $2.9 million. In August, we announced that we had extended our fuel price management program to include a portion of 2013. We have now hedged approximately 80% of our domestic exposure to the third quarter of 2012 and portions of the fourth quarter of 2012 and first quarter of 2013. For the fourth quarter of this year, we have locked in at a price range of $2.97 to $3.03 per gallon. For the portion of 2012 that we have completed, the average price locked in is $3.30 per gallon and increases each quarter as we moved through the year. While fuel prices have moderated recently, we had been hedging in an environment of increasing fuel prices. As such, the company’s average hedged price of fuel continues to rise while protecting the company against the volatility in both short-term fuel prices and cash flow. All else equal, the higher prices that we have already locked in for 2012 roughly equate to an incremental $0.25 in the EPS compared to this year. We continued to target hedging 80% of our fuel price exposure in the U.S. on a rolling basis which will effectively cover 65% to 70% of our overall exposure. On the currency side, we have not hedged our exposure to the Australian dollar which had a small negative impact during the quarter, a reversal from the prior two quarters where we had a small benefit. Turning now to the balance sheet, we ended the quarter with a total balance of $360.2 million on our revolving line of credit and term loan as we paid down $26 million in debt during the quarter. As of September 30, our leverage ratio was 1.5 times EBITDA compared to two times at the end of Q3 last year on a pro forma basis. Our near-term priority continues to be paying down debt, but we continue to look at acquisitions as the way to further achieve our growth objectives. With respect to capital expenditures during the third quarter, CapEx was $7.4 million. For the full year, we expect CapEx to be approximately $29 million. Now, on to our guidance for the remainder of the year, which reflects our views as of today and are made on a non-GAAP basis. The fuel price assumptions for the U.S. are based on the applicable NYMEX futures price. For the fourth quarter, we expect domestic fuel prices to be $3.41 per gallon. This is $0.17 less than our previous estimate for the fourth quarter and would make the full year average $3.59 per gallon. We are also assuming that the Australian dollar will remain at a premium to the U.S. dollar for the remainder of the year although it has weakened compared to our last guidance. Given the decline in fuel prices and the weakening of the Australian dollar from our guidance last quarter, we now expect to report revenues in the range of $135 million to $140 million for the fourth quarter and adjusted net income in the range of $34 million to $36 million or $0.88 to $0.94 per diluted share. For the full year 2011, we now expect revenues in the range of $548 million to $553 million and adjusted net income in the range of $138 million to $140 million or $3.53 to $3.59 per diluted share. Our guidance assumes domestic fleet product loss will be between 22 basis points and 27 basis points for the fourth quarter and in the range of 16 to 17 basis points for the full year. With that, we’ll be happy to take your questions. Jennifer, please proceed with the Q&A session now.

(Operator Instructions) Your first question comes from Sanjay Sakhrani with KBW. Sanjay Sakhrani – KBW: Good morning. Good quarter. I was just wondering if you could talk about the opportunities for M&A broadly and specifically in Europe within the fleet business? And then secondarily, I was just wondering on the master card business, I think last quarter you guys talked about little bit of moderation in the purchase volume growth and we did have a pretty strong growth. Sorry, if I missed it, hop down a little bit late, but could you just talk about what drove the strong growth this quarter and kind of how we see it playing out over the course of the next four quarters? Thank you.

Yeah, on the M&A side, I can’t give specific, clearly we are going to be looking at ways to either enter different markets or accelerate our potential in different markets internationally that’s on the fleet side or the other payment solution. So, there are opportunities that we’re looking at and pursuing as you know we have to look at a lot go through the process, but so it’s hard to predict any of that and we’re doing the same thing domestically. We are still very bullish about what can we do continue to invest in our fleet car program in the U.S. if it’s adjacent markets or even if it’s possibility, I hope expand in current markets looking at the payroll prepaid space as well as the other payment solutions with our MasterCard so all of those are being explored, all kind of fitting with our strategic vision of where do we want to drive opportunities in these new markets internationally and also make sure we’re going to be strong in the U.S. market and North American markets. On the MasterCard side, we continue to rollout aggressively with the new business that we’ve been bringing on that pretty much has now been fulfilled. There is no additional rollout of that new business, but we’re still going to see because of that business strong growth in the fourth quarter probably not at the same range of the 83%, but still a very strong number. We’ll continue to see strong numbers in the first half of next year and then we talked on the call about moderating to the 20% to 30% range, which will probably be something we’ll start to see as we get further into next year, but still very strong growth in that – those markets. The good news is as to where came from so, it is bringing on this new business, it’s other online travel programs growing very nicely, but if you look at some of the verticals we’re in, they also were growing at 25%, which is a good growth rate. So, we feel very good about the other verticals that we’re entering as well. Sanjay Sakhrani – KBW: Okay, great. Thank you.

Your next question comes from Robert Napoli with William Blair. Robert Napoli – William Blair: Thank you. A follow-up on the corporate card, I think Mike you would mentioned that North America, you would thought 20% to 30% that you suggested it international opportunities. At what percentage of that business right now is of that volume is U.S. versus international.

The only international on the other payment solutions right now is the gift card program in Australia, which is you know is a small part of the overall Australian business, but that’s the only international business. I did say as you probably heard Bob that we’re looking at bringing on business in the first half of next year on the other payment solution. So, we feel pretty bullish about that. These are not big pieces of business. I think it just indicative of the ability to transfer our intellectual capital in our products into those markets. So, there will be small in terms of numbers, but I still think indicative that we’ll start to see more penetration. We’re going to start to build our sales force in those markets as well. Robert Napoli – William Blair: The euro also processing internationally for price line in the (PDR), I guess.

That’s true, I guess I wasn’t thinking of that aspect, but it’s well over a billion dollars as more of an accurate number.

Yeah, for those U.S. based customers that have spent businesses is in point, it is quite a billion dollars annually.

Yeah. Robert Napoli – William Blair: Okay, while that’s moving faster that so, I’d imagine that’s growing faster you’d expect that to grow faster over the next few years than the North American fleet, but then the U.S. base fleet.

Well, I think it’s really it’s hard to predict because I think some of this is both the organic growth as they enter these markets, but they also look at acquisition, which we have very little inside into. So, we’d like to believe we will continue acquiring since the business models look well in the international markets, but again we just don’t have that insight. Robert Napoli – William Blair: Okay. Then just on the core business I try to understand what of the transaction growth, I think is a same store sales were stable, I think they were flat last quarter so, ex-Australia you had (indiscernible) 8% growth so, your good at growth always essentially from adding new customers.

Yeah, that what we reported as a North America, the payment processing transactions were up 7% and it was 14% in total worldwide with all of that extra coming from Australia the acquisition there.

But I think it is new business, I think we’re trying to emphasize that with kind of same store sales just being flat, which is indicative I think of the economy to some extent, we’re continuing to add new business, we try to highlight some of that with some of the wins that we’ve had with while we’re now going live, Pep Boys gives us in the maintenance products which are higher spend items, but they have the ability to allow their customers to also buy fuel so, it gives us a great diversification into those markets GoGas, we have another private label portfolio that will be converting over to us next year, we talked about extending the contract with Sunoco, so, all of that down market. So, we’re seeing growth down market and as we said we continue to take market share in the mid and large fleet marketplace as well. Robert Napoli – William Blair: And just last question on the terms, you compare yourselves to fleet core, if you look at the accounts receivable relative to revenue, I mean, you have a much higher receivable, so they have kind of a higher return receivable if you will. I think is it purely the mix of business then you are doing a lot more of the large like you are not going to dictate the terms to the U.S. government or the state government. And are your opportunities on your down market and mid market to have terms that would be similar to what fleet core offers?

Well, we don’t believe so. All of our research tells us that during some difficult periods in ‘08 and ‘09, they shortened their payment terms on a regular basis. They still offer our understanding from our research 30-day terms or whatever, but they charge for that as what the research we have been able to gather. So, we are still offering primarily 30-day terms. We do offer shorter terms. All of our research tells us that these small businesses want the cash flow capability, so they can collect some of their customers before they have to pay. So, we believe the 30 days is still very important to us in terms of giving us differentiation. We actually from a sales perspective use that to sell against our competition and we are selling down market. Robert Napoli – William Blair: Thank you.

Your next question comes from Robert Dodd with Morgan Keegan. Robert Dodd – Morgan Keegan: On the credit side, can you give us a little bit more color if you can on obviously there is kind of the underlying credit in terms of what your core portfolio is doing? And then the volatility that comes from potential bankruptcy or particular non-payment per customer in a quarter, when you look at Q3 to Q4 and obviously the higher credit loss projection in Q4. I mean, how much of that is resulting from expectation to bankruptcy which you talked about a little bit on the last call for Q3 versus just the ageing and just kind of the core underlying credit markets?

Bankruptcies for us are maybe 25%, 30% of the total charge-offs that we see in the quarter. They are quite volatile. Obviously, you can’t – it’s pretty hard to predict those things. But what we have seen and we can go back many, many years showing the pattern that Q4 is just seasonally weaker in either the second or third quarter. There is nothing in our guidance that there is anything different than these normal seasonal changes that we see. Essentially what it comes down to is that receivable pays out in fourth quarter especially in December. They recover somewhat in the first quarter and then they recovered back to the normal low levels in the second and third quarters. So, in our guidance, there is really nothing that we are expecting out of the ordinary in Q4. Robert Dodd – Morgan Keegan: Thank you. On the OTR product, it’s obviously very new and it’s a partnership, I mean, can you give us any color on how you are obviously in collaboration stock up, how your sales approach differs in terms of trying to get obviously a long-haul fleet which is very different from a small business own, 10 vehicles, I mean, what’s the difference in the project? So far, have you picked up any noticeable things that you have to do definitely in that market and how is that getting impacted?

Well, we know going into the market we have to do things fundamentally different to offer fleets as you know different products and services real-time transactions that they can make changes to who can buy, where they can buy, when they can buy, but I think the differentiation is that we are signing up merchants, because we are putting in kind of a new pricing model with the merchants that we think will be more consistent and will allow us to also offer more consistent pricing to the fleet across the Board not just by different chains, but consistently across the Board. I think the biggest opportunity for us is Sky Capital has a lot of customers that they provide a host of Internet services too today with all the different services that trucking companies require. The only thing they did not have was the fleet card product, so they are soliciting they are greater than $1 million customers that are basically vehicles to use this new product over time. So, we think that gives us the great advantage in the marketplace. And on the mix side, if we have a fleet that has mixed vehicles sometimes we would not service their heavy truck program because we didn’t have some of their services or products if they needed to satisfy that mix fleet now we do. So, we’re both tacking it from the mix fleets as well as the, if you will the long-haul trucking market. Robert Dodd – Morgan Keegan: Okay, thank you.

(Operator Instructions) Your next question comes from Tien-tsin Huang with JPMorgan. Tien-tsin Huang – JPMorgan: Hi thanks, good morning. Good quarter here, I, just a couple of modeling questions. First on the Australian piece I know that there – the gift card business is there seasonally anything we should look for there in terms of a pickup?

The gift card business is obviously seasonal there they’re selling essentially retail gift card. So, the holiday season in December it’s prime time for them. That said it is a pretty small piece of the overall business. So I’m not sure you’d really notice much of an impact, but clearly to them that is their busy time and frankly when we are in most net income for the year in that business. Tien-tsin Huang – JPMorgan: That’s probably not begin that for to call (indiscernible). Maybe some other revenue have comes in the first quarter?

No, the most of revenue in their experience gets recognized in that final week of the year of the transactions. But also the activation the actual card happens when people buy it. Tien-tsin Huang – JPMorgan: Okay understood. And then on the interchange rate or yield on the MasterCard product what’s the midterm outlook for the like your season I know I understand you said (indiscernible) the growth but some of your corporate clients are getting quite bit too. So how should we model that in the midterm?

I think of those larger customers that are essentially have the larger rebate they’re in long-term contracts and what you’ve seen over the last year or so is them affecting the overall mix I wouldn’t expect anything to change at those contracts for year or two other than the mix on those. Tien-tsin Huang – JPMorgan: Okay great. So that’s really should just track closer to the volume growth given and take if you busy in there?

Yeah. And like I said we did have that one time benefit in Q3 this year which of the rate. Tien-tsin Huang – JPMorgan: Yes, those very clear. Last one just thanks for giving the $0.25 list from the hedges right then for next year there I guess locked in. What’s the strategy here I guess what is the over the hedge rate look like now if you would have locked in today. And I’m curious of given some volatility here you could be looked more opportunistic?

We always trying to be a little bit opportunistic I mean we’ll say that we make one purchase in a quarter and it’s not a given day it’s not the midpoint of the quarter anything like that. So we’re always little bit opportunistic at least we try to be. I think today the prices have been so volatile you probably talking in the 320 range accretive to execute on next hedge, right now. I’ve seen what’s going on in the last few hours today. But that was last thing I saw. Tien-tsin Huang – JPMorgan: Okay, thanks.

Your next question comes from Greg Smith of Sterne Agee. Greg Smith – Sterne Agee: Hey guys. First question just within the fleet segment the account servicing revenue the $70 million that’s been growing very nicely they must be what’s driving I mean that you suggest be the fees on your core fleet business but is that international what’s driving that to continue to grow some year–over–year and sequentially.

Most of that is just the Australian business that we acquired last year. So, you’ll see that growth rate well below when we have in four quarter. So our comps next quarter. Greg Smith – Sterne Agee: But even sequentially was up quite bit, I mean (indiscernible) talking a few million bucks, but on a sequential basis just 3Q or 2Q this year anything unusual?

No, I don’t think there is anything unusual in there I mean the pieces that you have in there – there just the account fees we tried in our core North American fleet customers they have the same thing in Australia as well but those fleets are higher than Australia than what we get here in the U.S. and then we have monthly fees on our Telematics product and the TelePoint business we got a few years ago with that’s been pretty study. So, I don’t think is there anything unusual in there. Greg Smith – Sterne Agee: Okay, okay. And then just back to the single use MasterCard product I just want to understand first it sounds like with your two large travel customers your at the point where you’ve sort of been share of their business. So, now you are going to grow as their business grows. Is that a fair characteristic or characterization?

Yes, that’s true. Greg Smith – Sterne Agee: Okay, perfect. And then second if I understand correctly you are with the single use MasterCard product you do have some new international customers that are going to get rolled out, is that correct?

That’s correct. We are saying in the first half of next year. Greg Smith – Sterne Agee: And what vertical is that in?

Well, it’s in the travel vertical. Greg Smith – Sterne Agee: Okay. So, it’s new, but these are entirely new customers.

That’s correct. Greg Smith – Sterne Agee: Okay, excellent. So, you’ve been able to report that same product, new customers international and what is the prospect for the single use outside of travel, what are their verticals that you are targeting and what are the prospects there?

Yeah. As you know, we have been talking about the insurance warranty business and that’s been something we have been penetrating with our sales force. It’s actually a larger market than the online travel market, but it’s not – you don’t have the concentration hits that you would have. So, it’s more sales reps on the street winning that business. And we grew that vertical in the range of 25% during the quarter. We have talked about entering the education and the medical area and we talked about winning the State of Montana. So, it’s indicative again of our sales force penetrating in that vertical. We have our poor purchasing card product that we also offer AP Direct, where they can line up other payments and pay it through a MasterCard solution in the U.S. and that’s been growing in the range of 25%. And when I say 25%, these are more material verticals that we have been in for a while. So, it’s not like from a very low base, it’s from a reasonable base that are growing. They are just not explosive growth, but they are nice growth that we’ll continue as we talk about moderating to the 20% to 30% range seeing those grow, seeing our online travel customers grow domestically, internationally, and now seeing some of the traction on the international side with businesses outside of the U.S. Greg Smith – Sterne Agee: And then just this has been a fantastic business for you, I don’t want to say too loudly , but what’s going on in the competitive front, are you seeing anybody or how do you think about the barriers to entry for competitors?

Well, the product is there, there is a lot of banks doing it. Clearly, in the U.S., there is a lot of banks doing it in Europe as we have seen. So, again, it’s a matter of continuing to make investments that build barriers in terms of our overall product solution and service solution. Greg Smith – Sterne Agee: Okay, great. Thanks a lot guys.

You’re welcome.

Your next question comes from (indiscernible) with Goldman Sachs.

Hi, thanks for taking my questions. Actually, a lot of them have been answered, so few quick follow-ups. First, with the single use product and the entrants into the online vertical internationally. Just wondering if that’s said you’re just trying to replicate your success there, is kind of that’s the first vertical that you are entering in and eventually you try to get into other vertical such as the insurance and warranty internationally as well? And then secondly on the prepaid side, it seems like it’s been growing pretty rapidly in North America and given that you have some (indiscernible) in Australia, wondering if you have any plaster role that payroll card product did internationally as well?

Yes, on the verticals, there is no doubt we are targeting travel first. We’ve got a business that’s been successful. So, we can point to that and we can talk to people about solutions that are real with what we are doing with U.S. based companies, but they are even doing it internationally. So, travel is going be a focus, but we are going to be doing more research around some of the other verticals to see if that single-use product can play in the international markets as well. On the prepaid side, clearly, we like what we see there, it is a marketplace that is doing well in the U.S. and then we’ll look at other international markets. The Australian market, its dynamics do not show a real un-banked portion of their population. So, it would not have the same opportunity that we would see say maybe in Europe, where there is payroll card and we think we have opportunities there. So, we’ll be looking at that. We don’t have a product yet ready for Europe, but we are clearly exploring in doing the research on payroll solutions at least in the European market.

Got it. And then just one final one, given that you essentially already have two customers that you are rolling with in 2012 internationally on the – get back to the single-use car product. Are you still comfortable with the 20% to 30% type of range for purchased volume or is that just – does that basically that roll out in or is that being fairly conservative of this plan?

Well, I think we are doing the best we can at this point looking at 2012 as we’re starting to roll-up our budgets for next year, we’re not done by any means, but it is giving us some visibility depending how successful we are international, but again right now we don’t see any major step function win we’re just going to see small wins as what we see on the horizon right now both domestically and some of the verticals internationally.

Thank you.

Your last question comes from Robert Napoli with William Blair. Robert Napoli – William Blair: A follow-up, I just wanted to stand a little better that the $0.25 comment, Steve, I’m looking at your hedge – your average hedge price I think for next year coming certainly from long as around 338 is our – is the average hedge price and the current gas price is around 340, I mean, that we’re assuming for the fourth quarter so shouldn’t there be – shouldn’t the hedge at this point almost be a neutral.

My comment was around the average price we locked in for 2011 versus the average price for 2012. Robert Napoli – William Blair: Okay.

So, the price in 2012 was about $0.40 higher than the price at this year. So, when you got about roughly 40 million gallons – about 40 million gallons of fuel at $0.40 higher price, that’s about $0.25 in EPS. Robert Napoli – William Blair: Great, but if you think about if you had never even hedged right now, you’re almost balanced, I mean, there would be almost no gain or loss.

That’s true, that would be – that would overall for the year that would be… Robert Napoli – William Blair: Kind of be at more designation of kind of earnings power. Okay, just on make sure that was understood. The University of Montana think that you mentioned that the signing of University of Montana with the corporate card. What is that product, is it for – is that entering a new market of is that students and parents paying the university is it a or how are you, what is that product for university is that something that you expect to expand significantly.

Yeah, it’s more the university paying their typical vendors and suppliers. Robert Napoli – William Blair: Okay.

So, it’s still a virtual or kind of single use product, but it’s more kind of an accounts payable product if you will. So, they can line up who they have to pay, they can put the dates in the dollar amounts and they are integrated with our system and then on those dates, those dollar amounts are basically released to pay those suppliers or those vendors if you will. So, a little bit different then on the hotel side where everyone is a different consumer if you will in this case, they pretty much know who their suppliers are and they can lineup payments on a regular basis. Robert Napoli – William Blair: Okay. And then Australia, I mean if 100 basis point move in the currency, Steve, what is the effect on earnings because you’re not hedging, what are the margins I think they were slightly higher than U.S.

Yeah, the margins in Australia are slightly higher the 1% move in exchange rate is couple of $100,000 or so of earnings so, it’s not a massive impact, but it has some. Robert Napoli – William Blair: Okay. Then I guess as far as you’ve been paying down a fair amount of debt and it sounds like when you talk about share count and they were no with the strong cash flow you have you’re not looking at – you’re still not considering buybacks given at this point given the debt pay down and potential acquisitions.

Yeah, we still have the authority, but quite frankly our priority is to invest in the business both from an organic standpoint and we’ll continue to do that create differentiations as we talked about on an earlier question with our single use product and also look at acquisitions as I’ve talked about looking around different parts of the world as well as domestically. So, that’s our preference to keep investing in the business. Robert Napoli – William Blair: And that wasn’t clear on your M&A comment, Mike, are you, I mean, do you have a pipeline such that you expect that you will be making some acquisitions in 2012.

Well, you can’t predicted because you can get all the way for intelligence process and something blows up and then you walk away from the deal, but I mean our plans are we are pursuing inorganic opportunities both domestically and internationally and it’s part of our strategy, but we got to make sure the right things are fitting at the right time and we’re being very careful in the macroeconomic situation both domestically and internationally right now. Robert Napoli – William Blair: But there are numerous opportunities that are worth considering that…

Yes, that is true. Robert Napoli – William Blair: Okay, thank you.

You bet.

There are no further questions. Mike Dubyak – Chief Executive Officer: Okay, well we appreciate everyone joining us this morning and we look forward to speaking to you next quarter. Thank you.