Greetings. Welcome to the FleetCor Technologies, Inc. Second Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Eric Dey, Chief Financial Officer for FleetCor Technology. Thank you, Mr. Dey. You may begin.

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

Eric, thanks. Good afternoon, everyone, and thanks for joining the call today. Upfront here, I'll plan to cover just 2 subjects: first, I'll comment on the quarter and our updated full year outlook; and secondly, I'll provide a bit of an update on some of our major initiatives and our acquisition pipeline. Okay. So on to the quarter. Earlier today, we reported Q2 revenue of $274 million, up 24%, and cash EPS of $1.27, up 28%. So 24% top line, 28% bottom line. And this was a bit of a beat against our internal plan. The drivers in the quarter were basically 2 things. One, our biggest businesses continued to perform well: our U.S. direct business, up 9%; our CLC business, up 27%; our U.K. fuel card business, up 19%, so big businesses doing well. Second driver in the quarter was new revenue from our 2013 acquisitions. And again, here, the biggest contributors would be: VB Brazil, which is our transportation card business, Epyx in the U.K.; and NexTraq, our telematics business here in the U.S. So our story is quite somewhat of Q1, strong organic growth from some of our biggest businesses and contributions of new revenue from our 2013 deals. Russia reported results lower than our internal plan, but still 4% ahead of last year in local currency. Russia's sales, that is new business that day onboard, was up 21% versus the prior period. So I'd say that business is hanging in there. The macro environment was generally neutral to slightly negative in the quarter, so it did not help our Q2 results. FX, overall, was generally neutral, the pound quite favorable and the other important currencies to us, unfavorable. The U.S. fuel spreads were soft in the quarter versus the prior year, and we estimate that created…

Thank you, Ron. For the second quarter of 2014, we reported revenue of $273.5 million, an increase of 24% from the second quarter of 2013. Revenue from our North American segment increased 16% to $138.9 million from $119.5 million in the second quarter of 2013. Revenue from our International segment increased 32.8% to $134.6 million from $101.4 million in the second quarter of 2013. For the second quarter of 2014, GAAP net income increased 21% to $88.5 million or $1.03 per diluted share from $73.1 million or $0.87 per diluted share in the second quarter of 2013. The other financial metrics that we routinely use to measure our business are adjusted revenues and adjusted net income, which we sometimes also refer to as cash net income or cash EPS. Adjusted revenues equal our GAAP revenues less merchant commission. We use adjusted revenues as a basis to evaluate the company's revenues net of the commissions that are paid to merchants to participate in certain card programs. The reconciliations of adjusted revenues and adjusted net income to our GAAP numbers are provided in Exhibit 1 of our press release. Adjusted revenues in the second quarter of 2014 increased 26% to $253.2 million compared to $201.3 million in the second quarter of 2013. Adjusted net income for the second quarter of 2014 increased 30% to $108.9 million or $1.27 per diluted share compared to $84 million or $1 per diluted share in the second quarter of 2013. For the second quarter of 2014, transaction volumes increased 14% to 90.2 million transactions compared to 79 million transactions in the second quarter of 2013. North America segment transactions grew 4%, driven primarily by organic growth in our U.S. businesses and a telematics transaction we completed in October of 2013. Transaction volumes in our International segment…

[Operator Instructions] Our first question comes from Philip Stiller with Citi.

I guess I wanted to get a bit of a finer point on the guidance. It looks like you raised revenue by about $5 million, but the EPS went up more. And, Ron, you mentioned that you're progressing on the synergies from the acquisitions that were done last year. Is that what's driving the better profit outlook in the back half of the year?

Phil, this is Eric. Yes, first of all, I mean, the revenue was a -- is a pretty wide range, I mean, just so you know. But from a momentum perspective, I mean, certainly, as we get into the second half of the year, the existing businesses that have performed well are going to continue to perform at a very high level. So we should see a lot of organic growth coming from the same sort of businesses in the second half that we had in the first half. We're also going to start layering in some of the new partner agreements in the second half of the year, so you'll see Husky come on and then some of the other partner wins that Ron mentioned. We'll see some revenue kind of into the fourth quarter. And then finally, some of the synergies, some of -- for some of the acquisitions that we closed last year should also kick in, in the second half of the year as well. So all of that's driving both the revenue and profit.

Phil, Ron. So the short answer is yes. We'll have higher margin on some of the synergy revenue.

Okay. And I guess last couple of quarters, you've been talking about some new products that were in the pipeline, I think the EMV card in the U.K. business and some of the products you're introducing in Brazil. Can you guys provide an update on this?

Yes. Still not there, Phil. I'd say we're probably a quarter later on the U.K. chip and pin because of some POS issues. And we're about ready to launch the new fuel card in Brazil, I'd say probably next month. So again, a little bit of a IT delay in both, but I'd say virtually ready to go now in Brazil.

Okay, great. And then I guess last question for me. I mean, you -- it sound like you reiterated the M&A target over the next 3 years. Obviously, there's been some speculation in the market recently. I guess can you talk about your capacity for potentially spending more than that over the next several years?

Yes. I mean, obviously, Eric laid out the leverage ratios, so depending on what we pay or what we buy. I think I've been consistent that we want to kind of run a company that's circa 3x. It's kind of where we are from a management perspective. So I think depending on what we would buy, that would give us significant capacity.

Would you go above 3x for larger acquisition or no?

Yes, yes, we would. But again, I'd say it wouldn't be equilibrium. We might at the close of the deal, but I'd say we wanted to kind of operate the company on an ongoing basis at 3 or below.

Yes. Phil, let just remind you. Our business generates a lot of cash. So although we could go above the 3, we would pretty quickly delever because of the cash flow profile of the business.

Our next question comes from Jim Schneider with Goldman Sachs.

Just one more follow-up on the M&A pipeline, if I could. Can you maybe just talk about the profile deals you're looking at, just in general terms, whether you find the over-the-road segment more attractive than you historically might have been? Or do you think more international deals that might complement your existing deals in Europe might be a little bit more interesting?

Yes, Jim, it's Ron. I'd say as long as we have the mix of things that we're looking at, in terms of geography. And in terms of over the road, I'd say that the decision to pilot, to exit the card business probably makes that area look more attractive than it has historically. So you now have a separation of kind of the biggest merchant in the U.S. kind of exiting the card business, which we would like.

That makes sense and helpful. I guess as a follow-up. Can you maybe just talk -- you gave an update a little bit on the Shell preparations. Can you maybe talk a little bit about whether that is going on plan or maybe even a little bit ahead of plan? And any kind of update on revenue expectations you might expect to realize when that fully ramps?

Yes. Again, I'd say we're laughing a little bit as you asked that, because as you know, most IT projects run on the backside of plan. I'd say this one is kind of what you said a bit ahead. In fact, we had to review this week, they're really in final testing. So that's -- so kind of -- with Shell, everything is green, basically, to convert that book of business in September. So I'd say that looks good. And in terms of the projections, really, no different. This is kind of a single-digit millions market, this one market, but in totality, again, I'd say we're still comfortable with kind of the ramp being $20 million to $30 million.

Great. And just one last clarification. I think you called out VB Servicios and NexTraq as the biggest contributors in the quarter in terms of pipeline of deals you did last year. Can you maybe talk about as we head into the back year -- back half of the year whether you'll see any of the other deals start to contribute more meaningfully?

Yes. I think for Phil's question, Jim, that we'll have a lot more acceleration in Q3 and 4 as those 13 deals kind of lap the 1-year mark. So the one you didn't name was Epyx in the U.K. What was that, Eric, an October 1 kind of a close?

Yes, correct. It's in the fourth quarter.

So I'd say, in every one of those cases, we're expecting revenues to be up pretty significantly from 1 year ago.

Our next question comes from Ramsey El-Assal with Jefferies.

Can you parse out the organic versus inorganic growth separately for the U.S. and international markets? I've been hopping around on calls. You might have spoken to this. I might have missed it but...

Ramsey, this is Eric. First, let me tell you that first and foremost, I think we're still pretty optimistic that our kind of 10% guidance for the full year is kind of still where we're tracking to, on a full year basis. We're a little lower than that in the second quarter. The U.S. business performed, again, extremely well as we called out a couple of lines of business there. Our MasterCard business grew organically at around 34% in the quarter, and our CLC business grew at 28% organically. So the U.S. business actually did very well, was around 10%. Our International businesses performed a little bit lower than that for the quarter. And then in the back half of the year, again, I would say that we plan our organic growth to accelerate somewhat. The businesses that have performed well in the first half of the year are going to continue to perform well in the second half of the year. Some of the partner wins, again, that we called out are going to be layered on in the second half of the year, particularly as we get into the fourth quarter and we exit into next year. And then finally, some of the acquisitions that we did last year in the second half of the year will start to accelerate some of the organic growth in those businesses in the second half as well. So on a full year basis, I -- we are still looking at around that 10% range.

Okay, that's helpful. On your telematics segment, you bought NexTraq and then more recently, obviously, you picked up Masternaut in the U.K. I'm trying to understand the degree to which the telematics solutions you now have can kind of scale in different geographies. In other words, is Masternaut more about buying the customer base or distribution capabilities? Or was it technology you were after, where you have to buy a different provider in different geographies? Or is this something that's sort of more once you to test these assets you have, you can kind of independently scale them elsewhere?

Yes, Ramsey, it's Ron. The answer is the second. We really bought it for the market position, the feet on the street, the customers, the people. And so it was an asset that was going to trade, and so we took a position in it. So if we conclude that we like this space, we're set to go in the 2 big geographies. That was the basis.

Okay. One last one. And not to beat the dead horse on this, it's Comdata. There's chatter about Comdata. But my sort of broader strategic question is, Comdata has a lot more business lines than just fleet services. I've always kind of considered you guys as being pretty focused on fleet or transport-related solutions. I mean, has your thinking changed, just in general, on getting into unrelated business lines, like virtual cards or health care merchant processing? Or should we think about your M&A activities being kind of just as focused on fleet as before? Or are you kind of thinking about getting into other unrelated areas? Maybe that's independent of Comdata?

Yes, a couple of comments. So, one is a quarter of our estimated revenue for the full year is beyond fuel cards. It's "not fuel cards." So I'd say we already have some diversity. Two, we're not going to do anything unrelated. But payments for us, what we call workforce payments, we view as related as long as the model, Ramsey, looks the same to us. So we will have more nonfuel card in our revenue mix as we go forward for sure.

Right. But I was taking about it's not just -- it's not fuel card, but it seems like your product still kind of revolve around that kind of transport solutions, whether it's lodging, whether it's the different payment products you have. Would you contemplate just getting into a completely separate business line that had nothing to do with servicing that transport sector, like health care or something like that?

Yes. Again, we don't really look at it that way, right? We look at the end client being a business is kind of cut one; and then the second one is we look at the model that's basically used, is it IT-centric, the revenue model, the recurring nature of the business. So I'd say we're not -- we don't really define the business around, hey, it's got to have some "transport piece." It's basically got to be B2B payments, and it's got to be a model that we get.

Our next question comes from David Togut with Evercore.

Your 2 biggest drivers of organic growth in North America, direct MasterCard and CLC, showed pretty strong acceleration over the growth we saw in the first quarter. Can you talk about what drove that acceleration in Q2? And how should we think about growth in both of those products for the back half of this year?

David, it's Ron. So the -- I'd say the good news in both cases is sales. So the 34% number in MasterCard and the 27 in CLC were virtually 90%-plus volume-driven. And if you look at the reason, it was basically sales. We're just selling the you-know-what out of both of those product lines and, as we've said before, in CLC, particularly the down market of the small business market. And so the sales in both of those, which were not recorded in the quarter, but billed, as you know, are both above plan and going great. So I would say our outlook in the next couple of quarters is big, similar to what you're seeing.

Just as a quick, quick follow-up, you've talked before about rolling out the 12 other markets in Europe with Shell after you complete Germany and then potentially introducing the food card and telematics products. Has your thinking on those new products at all changed? And I guess, what might be the timeline for those?

No. I'd say it's unchanged. I'd say that this is iceberg work, David. So much of the work is below the waterline, right, to kind of get there, get some big accounts, to trust, build the systems that we need. And so having this mega template effectively going live in a month or so, I can't stress again how big a deal that is for the company, getting on to the continent there with a meaningful piece of business. And so we're going to digest that. And assuming that goes well, we'll pick up the pace on other markets there on the continent. And then obviously, post having those positions, we'll start the layering of the other things. So I think we're getting closer to actually now realizing a vision that we've had for quite a while.

Our next question comes from Darrin Peller with Barclays.

Look, I just want to start off with the comments I think you made around exiting the year. With respect to layering on revenue, the organic growth rate was, I guess, a tad below the 10% this quarter. I think it was a little higher than that last quarter. And then second half, you -- again, you see things rolling on. First of all, the trends underlying that, I mean, like -- I think David just brought up. I mean, you have MasterCard growth at 30-plus-percent CLC growth, that's clearly higher than last quarter. I mean, if those trends continue and you're layering on, shouldn't the exit run rate be pretty indicative of sort of a stronger organic growth rate next year?

Yes. I would say, Darrin, that that's probably not far off. I'd say internally, our outlook is above 10% organic in both Q3 and Q4. And it's what you said, it's the businesses that have performed, it's this onboarding of a series of new accounts that won't be a lot in the quarters, but will be as we exit. And then, again, it's the lapping of the 13 deals that are way up. And so I'd say our confidence in the next 2 quarters is high. And to your point, that'll feed into '15. So I'd say we're pretty bullish on the forward organic look.

All right, that's great. Just specifically on the deals now. If you can give us a little more color on what are the specific ones we expect the most synergies from over the course -- that you haven't really recognized yet, over the course of the next, let's call it, 4 to -- 3 or 4 quarters, if you don't mind.

Yes. Again, it's -- we don't do a deal where they're not significant. But again, you got to measure it against the size of the deal. So again, the big deals would be that VB deal, the NexTraq deal and the Epyx deal would be the 3 biggest from last year. And so we're literally just -- what were they? It's all kind of third quarter. Eric?

Yes, all in the second half.

So, Darrin, we're just getting kind of now to the place where our programs is in and we're starting to get some of those dollars. So those are kind of fourth, fifth inning in terms of where they're going. And then even some of the smaller deals like Australia and New Zealand that we're just kind of lapping now, those would be up a lot but they're just smaller, right? In terms of absolute dollars. So again, I think the good news for those of you that care about our future M&A, I'd say that our 13 vintage of deals that our execution has been good and our outlook for that set of deals is good. So I can't always say that our '14 and '15 vintage will be good, but our record on those, I think, is pretty good.

All right. I mean, I guess just last question and then I'll turn it back to the queue. And the partnerships you guys have done. Obviously, Chevron was announced last quarter and Shell's the acquisition -- we haven't really heard -- I mean, there's been a lot of acquisitions. But I mean, what other types of -- are there any other real partnerships like that on the -- in the pipeline that we've seen and talked about in the past?

Yes. Again, I think we've announced not only a couple of those larger ones you mentioned, but the Shell, 12 markets, the Caltex, the Chevron kind of some of the big names that we've named, another kind of 4 or 5, what we would call, kind of midsized or regional North American deals. I'd say we're kind of full up, Darrin, digesting, what is it, 5, 6, 7 of these things that -- literally that almost no revenue so far that are going to be coming online. So I'd say in terms of the other ones, who are more early days, we want to do a good job on these, particularly the Shell one and the Caltex and Chevron, so that the other oil see us as a good performer. So I'd say the company's pretty focused on getting these things online.

Our next question comes from Smitti Srethapramote with Morgan Stanley.

So just a follow-up question on the CheckINN product. It's been around a couple of years. Just wondering what's been the key driver to sort of ignite the adoption of this product over the past couple of quarters?

Yes. I think it's really just sales execution. Again, this product -- we kid, Smitti, inside the company that it's probably the single-highest value product in the marketplace, where a small company that travels around regionally can go into these kind of economy and mid-scale hotels at 15%, 20% off the street price. And it's a pretty simple product. And so once you make that proposition to Ron's tree-cutting company, that he can say 20% at the Holiday Inn, they like the product. And so the key has been sales and distribution and marketing and making sure people know that we got the product. And so the guy that's running that has built a bigger, broader sales organization in the last year-plus. And we're actually funding an expansion of that here in the next couple of quarters. So I'd say it's really just scaling up of our sales behind, really, just a terrific product.

Got it. And then just wanted to get your thoughts on the prepaid fuel card market. One of your competitors announced a deal with Shell a couple of weeks ago. Just wondering, do you see that as another opportunity? And that's something that would be a new growth driver for you guys?

Yes. The market that seems to have some interest in that product is Asia. Obviously, we didn't chase it because we didn't think it was kind of a midterm opportunity. So we took some different priorities with our "GFN" product. So I'd say that our view of that is pretty low potential over the short term.

[Operator Instructions] Our next question comes from Tien-tsin Huang with JPMorgan.

Let me ask -- I think, Ron, you said that there's a bit of a beat versus internal expectation this quarter. I heard the big business are doing well. But maybe you can just specify, what was better than planned?

Yes, Tien-tsin. It was really, I'd say, almost across-the-board. I'd say the one place that was not better was our direct business because of the spreads. I think I called out kind of a $3 million headwind to that thing. That's around 9% instead of low double digits. But basically, it was -- we did better, frankly, in Russia than we thought. That was up 4% in local currency. We thought that thing was going to go south. The telematics business was up. The U.K. business is doing terrific. Our Mexico business sold twice as much than it had in the prior year. So I'd say it was pretty healthy in a lot of places, and it was just -- we, basically, are just selling better in a lot of places.

How does the fuel spread situation look like quarter-to-date here, almost into August? I know the fuel has been pretty volatile.

Yes, I'd say it's kind of back on normal again. We -- because of you, guys, we keep track of this thing quarterly, but we really look at it over annual cycles. And I think I've mention, we track it for 10 years, and it's a pretty steady number that allows all these retailers to stay in business, right? To some minimum return they need to run these locations. And so spreads have to respond at some point where they can make some money. And so again, it bumps around based on a bunch of factors. But work -- to Eric's point, we're outlooking, Tien-tsin, kind of history on the go forward, which -- who knows? But that's what we're outlooking.

Got it, understood. And then just the $2 million tied to the Shell build-out on the investment, what's the trigger for that incremental spend there?

Yes. So we spent some of it. Some of it's what I'll call getting ready. So we spent incremental IT money in terms of customizing stuff, doing data conversion work. We've hired some additional management. I hired a new guy, basically, to run the German market. He's an ex-GE guy who's great, but unfortunately, expensive. And now we're kind of heading into operating times. So we've got people, sales, web investment, service investment. Obviously, if we do the conversions we plan, we'll have some revenue offset. But I'd say we're trying to get ahead, basically, of that thing, particularly from a sales and marketing perspective, so we can show Shell that we know how to sell their product and make them interested and keep going with us.

I see, I see. Last question. Just on the -- I've spent some time with the -- with Edenred. And I guess there's a lot of activity going on in Brazil, and also, it sounds like Mexico could have some favorable regulations potentially. So I'm curious M&A-wise, could we see you sort of point back into those 2 areas?

Yes, we obviously are on the ground in both of those markets, have good relationships, Tien-tsin, with everybody in this space. So if there's a deal that'll trade, we'll certainly be looking at it. That -- the regulation you mentioned, which we thought was going to be a negative in Mexico. I don't know if we did call this out. But if you remember, they basically -- the government passed a law to basically eliminate the tax deduction on the paper on the voucher side of food. And so obviously, lots of clients are trying to move over to card. And so I'd say we got our better-than-line-average share of that, and it's caused people to kind of look up. So we've -- as I mentioned, we've sold twice as much in that business of new business than we had in the prior period. So it looked like it was going to be a problem, and I'd say it's actually turned out to be a positive.

Thank you for participating in today's teleconference. You may disconnect your lines at this time, and have a great day.