Corpay, Inc.
Q3 2018 Earnings Call Transcript

Published: 30 Oct 2018

[Operator:]

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

[James Eglseder:]

Good afternoon, everyone, and thank you for joining us today. By now you should have access to our third quarter press release and supplement, which can be found on our website at www.fleetcor.com, under the Investor Relations section.

[Throughout this conference call, we will be presenting non-GAAP financial information, including adjusted revenues, adjusted net income and adjusted net income per diluted share. This information is not calculated in accordance with GAAP and may be calculated differently than other companies' non-GAAP information. Quantitative reconciliations of historical non-GAAP financial information to the most directly comparable GAAP information appears in today's press release and on our website, as previously described. Also, we are providing updated 2018 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 www.sec.gov.:]

[With that out of the way, I would like to turn the call over to Ron Clarke, our Chairman and CEO. Ron?:]

[Ronald F. Clarke:]

Okay, Jim, thanks, and it's good to be with everyone this afternoon. Up front here, I'll plan to cover 2 subjects. So first, I'll provide my view of the Q3 results, review our guidance for 2018 and provide a bit of a preview of 2019. And then second, I'll provide a progress update on our growth initiatives and M&A activities.

[Okay, so on to the quarter. We reported Q3 revenue of $620 million, up 12% and cash EPS of $2.68, up 23%. So both revenue and cash EPS finishing the high end of our guidance range. Organic growth, revenue growth 11% for the quarter. So quite good. Inside of that, fuel finished at 5% and our nonfuel categories, again, very strong. Toll, up 17%; Lodging, up 21%; corporate pay, up 28%; even gift in the positive column, up 4%.:]

[So behind that, some of the drivers of the performance. So in fuel, a number of our fuel card businesses doing quite well. Our card lock business, double-digit from the fleet-wide extended network card. Our climate [ controlled ] trucking business, double digit through the rollout of this fuel and payroll card combo. And 4 of our international businesses, Russia, Mexico, Australia and the Netherlands, all double digits on the back of strong volume increases.:]

[Unfortunately, some of these high-growth fuel card businesses were offset by revenue declines in our GFN MasterCard and Chevron portfolios, which we're finally about to lap.:]

[Toll was up really on the strength of new sales, lots of new accounts added and lots from our new channels, and the client base grew a bit as the Brazil economy strengthened. Our usage-based pricing structure also added to the total growth.:]

[Lodging, up over 20%, mostly due to the small business accounts growing very rapidly. In that segment, we're at 3x the rate per transaction that we do in the large account segment. We also benefited from increased usage from our existing hotel clients, in part because of the ease of use of our new digital booking tool. Corporate pay, another very good quarter, up 28%. The pure spend or volume growth in our direct construction and reseller channels, up over 20%. So simply put, just more business.:]

[Additionally, inside of corporate pay, our payroll card business up significantly. That was based on a pricing change from earlier in the year. So look, good performances across really all 4 of our product lines.:]

[Now on to the fundamentals or trends, so very consistent in the quarter. Same-store sales up 1%. New sales up 6% with over 32,000 new clients signed and customer retention were improved to 92%, which is a tick better than Q2.:]

[So from our perspective, Q3, a solid quarter. Good revenue and profit growth despite a not very helpful environment, also continued steady fundamentals and trends.:]

[Okay. Let me transition over to rest of year guidance. So today, we're raising 2018 full year cash EPS from $10.42 to $10.45 at the midpoint. That reflects our overperformance in the quarter. If we achieve Q4 cash EPS of $2.70 at the midpoint, that will result in full year 2018 EPS profit growth of 22%. Additionally, full year 2018 cash EPS of $10.45 would be 50% higher than full year 2016 cash EPS of $6.92. So profits up 50% in 2 years.:]

[Underlying our Q4 profit guidance is an expectation for Q4 organic revenue growth in the 8% to 9% range, with fuel card growth expected to accelerate to 7% to 8% as we finally lap GFN conversion issue.:]

[So our 3-year organic revenue growth looks pretty consistent, 8% in calendar '16, 9% last year in '17 and we're expecting 9% here in 2018.:]

[Okay. Let me move on to a brief preview of our 2019 outlook. It's still early days in our '19 budgeting process, but we do want to confirm an outlook of 8% to 10% organic revenue growth again next year, with an expectation that fuel would be in the 7% to 9% range and our nonfuel lines in the low to mid-teens, excluding gift. We will have a view on our profit flow-through for '19 based upon this high single-digit revenue growth expectation when we talk to you again in 90 days. Still lots of macro assumptions to sort through.:]

[Okay. Let me transition over to an update of our major growth initiatives in the company. As we previously have discussed, we believe it's FLEETCOR's 3 growth paths, which are more customers, more spend and more geography, provides us with ample opportunity to continue to grow the business over the midterm.:]

[So we've got initiatives underway in each of our 4 product categories to attract more customers and to get more spend. So in fuel, our initiative is Beyond Fuel. We're running this growth initiative in both the U.S. and the U.K., in which our fuel card programs run on the MasterCard and Visa rails. That enables us to open up the card to additional spend categories like maintenance, construction supplies, G&E or just general payables.:]

[So our Beyond Fuel initiative has taken really 3 forms. So first, a construction card for the construction vertical in which cardholders can buy both construction supplies and fuel. Second, a fuel and prepaid payroll card in 1 for our trucking segments, in which truck drivers can receive their payroll while on the road and then use it like a prepaid card within the MasterCard network. And then lastly, our companion card, which we issue to existing fuel card clients to purchase general AP on the same account.:]

[So each of these 3 new Beyond Fuel card programs are live, gaining traction and will contribute to incremental revenue in 2019.:]

[So second, Beyond Toll or Fuel First initiative in Brazil, the idea there is to expand STP's acceptance network Beyond Toll, so parking, fuel, fast food, even rental car acceptance. The idea is to attract urban, non-toll users into the fold and also allow STP's 5 million existing toll users to enjoy the added convenience of the new acceptance sites. So we're making some real progress on expanding the STP network. So we recently signed the largest parking operator in Brazil, which added 500 new parking sites to the existing 500. So airports, malls, sporting events. Fuel, we've been operational with Shell and recently signed Petrobras, installing 150 new fueling locations now.:]

[Fast food, some terrific news. We ran a test recently with McDonald's which went well. So we signed an agreement now to expand to 100 McDonald's drive-throughs to speed people through the line. And then finally, rental cars, we're testing with 2 of the largest rental car companies in Brazil, adding STP tags to their fleet. So as we build out acceptance, we will turn on our pretty large customer base to these new expanded locations. We believe this is a fundamental transformation for STP from an electronic toll-only company to a broader mobility payment company, which we think provides really a long runway.:]

[So next, Lodging, making good progress there on a couple of fronts. So first in digital booking. We expect 50% of all small business Lodging room nights this quarter, Q4, to be booked electronically. That's up from virtually 0 just 2 years ago. So this not only increases spend or lift among our existing SMB clients, it also makes a more attractive proposition for new clients.:]

[Second, we plan to expand our hotel network from 15,000 proprietary locations to 25,000 locations as we bolt on a convenience network, which will give our clients more choice in where to stay. So we expect this network expansion to further lift our client room nights once it's rolled out in Q1.:]

[Lastly, in corporate pay, we've now gone live with what we call our full bill pay automation solution or ASAP, in which we pay 100% of the clients' invoices really irrespective of how the bills are paid. Our partner on this initiative is Avid, who's been at this for quite some time and is growing rapidly. We're live. We're signing up our own small clients now to this complete solution and building out our field sales and digital distribution. So we think this initiative will be incremental to our core corporate pay business because it targets a different and smaller customer.:]

[So I hope the message is clear. We're working a number of new incremental growth initiatives in each of our 4 businesses. They generally target new users or new segments and/or create lift or more spend among existing users, so chasing more customers and more spend.:]

[Okay. Last up is M&A. So as we usually report, we are quite active on the M&A front, currently working on a number of transactions, most of which are within our 4 existing product categories. We do continue also to explore new homes for our gift card business. As I say every time, I hope to have a better view on that next time as we speak.:]

[So look, in summary, from our perspective, a good Q3, over 20% profit growth in the quarter and continued consistent fundamentals and trends. We expect a good finish to '18, in which we'll deliver greater than 20% EPS profit growth for the full year, which would be a 50% increase versus full year 2016. 2019, we're outlooking high single-digit organic revenue growth that would be consistent with the last 3 years.:]

[And finally, some progress on a set of new organic growth initiatives and M&A opportunities that we think present upside over time.:]

[So with that, let me turn the call back over to Eric to provide some additional detail on the quarter. Eric?:]

[Eric R. Dey:]

Okay. Thanks, Ron. Before I get started on the numbers, I want to remind everyone that the company has adopted a 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. And as I've done in both quarters previously, I will talk about revenue in 2 ways. First, using a 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 at where we have historically presented it.

[Now on to the quarter, for the third quarter of 2018 on a GAAP basis under the ASC 606 standard, we reported revenue of $619.6 million, up 7% compared to $577.9 million in the third quarter of 2017. And as a reminder, merchant commissions in certain third-party processing expenses are now netted against revenue, which resulted in a reduction in revenue of approximately $28 million in the third quarter of 2018 versus the prior standard.:]

[Also recall that in the third quarter of 2017, the GAAP numbers included approximately $2.2 million of revenue from our NexTraq business, which was sold in the third quarter of 2017.:]

[For the third quarter of 2018, GAAP net income decreased 22% to $157.7 million or $1.71 per diluted share from $202.8 million or $2.18 per diluted share in the third quarter of 2017. Included in the third quarter of 2017 was a net benefit of approximately $65 million from a gain on sale of the NexTraq business, partially offset by an impairment charge resulting from changes in our investment arrangement in Masternaut that caused a change in our accounting from the equity to cost method.:]

[Excluding approximately $0.69 per share positive impact of these items, net income per diluted share would have been up approximately 15%. Non-GAAP financial metrics that we'll be discussing are revenues excluding the impact of the new ASC 606 standard to provide comparable revenue amounts between periods and adjusted net income, which we sometimes also refer to as cash net income or cash EPS. A reconciliation of GAAP revenue using the new ASC 606 standard to the prior revenue convention is provided in Exhibit 7 of our press release, and adjusted net income to GAAP numbers is also provided in Exhibit 1 of our press release.:]

[Revenues in the third quarter of 2018, excluding the impact of ASC 606, were $647.5 million, up 12% compared to $577.9 million in the third quarter of 2017. Adjusted net income for the third quarter of 2018 increased 22% to $246.6 million compared to $202.8 million. And adjusted net income per diluted share increased 23% to $2.68 compared to $2.18 in the third quarter of 2017.:]

[We experienced a mixed macroeconomic environment in the third quarter of 2018 compared with the third quarter of 2017. Movement in foreign exchange rates were primarily negative, which most of the impact was from the Brazilian real, as the currency was roughly down approximately 20% from last year's levels. We believe foreign exchange rates negatively impacted revenue during the quarter by approximately $27 million. Fuel prices were mostly favorable during the quarter. And although we cannot precisely calculate the impact of these changes, we believe positively impacted revenues by approximately $14 million. And finally, fuel spreads had about a $3 million positive impact in the quarter.:]

[So in total, those changes had a negative net impact of about $10 million in our third quarter revenue compared with the third quarter of 2017.:]

[The impact of the macro changes versus the guidance we gave on last quarter's earnings call were slightly negative, as unfavorable movements in foreign exchange rates more than offset higher fuel price, resulting in a net negative macro impact to revenue of approximately $1 million. Organic revenue growth improved to 11% overall this quarter. Most of our major product categories performed well during the quarter. As expected, our fuel card business was at 5% growth and would have been approximately 8%, if you exclude the negative impact of the GFN portfolio conversion in 2017 and Chevron in the quarter.:]

[To remind everyone, we started lapping the conversion impact at the end of the second quarter of 2018 and expect the fuel card category to exit the year in the upper single-digit range.:]

[The Corporate Payments category continued to perform well and was up 28% organically during the quarter. The growth in Corporate Payments was driven by both our Comdata and Cambridge businesses, both of which grew in excess of 25% in the quarter. The growth in this category was driven primarily by adding more accounts and more spend.:]

[Our toll business had another great quarter, up 17% organically. The growth in this category was driven primarily by a combination of more new sales, stronger existing client base to growth due to the strengthening of the Brazilian economy and from our new usage-based pricing structure.:]

[Our lodging business was up 21%, driven primarily by an increase in room nights. We did still have about $500,000 benefit from FEMA room bookings during the third quarter and currently do not expect any material benefit from the recent hurricanes in the next quarter. The third quarter of 2017 also had approximately $2.5 million of the FEMA benefit. Excluding the FEMA benefit in both periods, the growth rate this quarter would have been approximately 28%. As a reminder, there was approximately $6 million in FEMA benefits in the fourth quarter of last year, which will cause a reported organic growth rate for our lodging segment to be -- potentially be in the low single digits in the fourth quarter.:]

[All in, we expect fourth quarter organic growth to be in our targeted range at approximately 8% to 10%. Included in the organic growth assumption will be some strengthening of the fuel category as we lap more of the GFN conversion issue and some moderating of the other nonfuel categories as we lap higher growth from fourth quarter of last year.:]

[I would remind you that organic revenue growth has been calculated -- adjusted for the macro impacts and assuming that ASC 606 was implemented in January 2017 in order to calculate organic growth using a consistent revenue standard in both periods.:]

[Now moving down the income statement. Total operating expenses for the third quarter were $338.5 million compared to $345.2 million in the third quarter of 2017. Included in the third quarter of 2018 was the impact of ASC 606, which netted approximately $28 million in merchant commissions and certain processing expenses against revenue. Excluding these impacts in both quarters, operating expenses would have been up approximately 7%. The increase was primarily due to acquisitions completed in the second half of last year.:]

[As a percentage of total revenues, operating expenses were approximately 55% compared to 60% in the third quarter of 2017. Excluding ASC 606, operating expense as a percentage of total revenue would have been approximately 57% in the third quarter of 2018.:]

[Credit losses were $17 million for the third quarter or 6 basis points compared to $8.3 million or 5 basis points in the third quarter of 2017.:]

[Depreciation and amortization expense decreased 3% to $67.2 million in the third quarter of 2018 from $69.2 million in the third quarter of 2017. The decrease was primarily due to the sale of the NexTraq business in the third quarter of 2017 and foreign exchange rates, which had a favorable impact on expenses.:]

[Interest expense increased 23% to $36.1 million compared to $29.3 million in the third quarter of 2017. The increase in interest expense was due primarily to increases in LIBOR and additional borrowing for the Cambridge acquisition and share buybacks.:]

[Our effective tax rate for the third quarter of 2018 was 33.6% compared to 38.1% for the third quarter of 2017. The 2018 third quarter rate included a $23 million true-up of our provisional transition tax liability, originally reported at the end of 2017 in conjunction with U.S. tax reform. If we exclude the impact of the transitional tax adjustment, the tax rate for the quarter was 23.4%, which is in line with our 2018 expectations.:]

[The reduction in the tax rate from 2017 was primarily due to the effect of U.S. tax reform, which went into effect on December 22, 2017. Also, the third quarter of 2017 rate was impacted by the nonrecurring gain realized in the sale of the NexTraq business and the Masternaut impairment charge.:]

[Now turning to the balance sheet. We ended the quarter with $1.19 billion in total cash. Approximately $264 million is restricted and consists primarily of customer deposits. As of September 30, 2018, we had $3.5 billion outstanding on our term loans and revolver and approximately $675 million of undrawn availability. We also had $931 million borrowed in our securitization facility at the end of the quarter, and we did not repurchase any shares of common stock in the third quarter. We currently have 629 million in total repurchase capacity available.:]

[As of September 30, 2018, our leverage ratio was 2.39x EBITDA, which is well below our covenant level of 4x EBITDA as calculated under our credit agreement. We intend to use our future excess cash flow to temporarily pay down the balance on our revolving credit facility and securitization facility and maintain liquidity for acquisitions and other corporate purposes.:]

[Finally, we're not a capital-intensive business, spending approximately $21.7 million on CapEx during the third quarter of 2018.:]

[Now, on to the update for the outlook for 2018. We are raising our 2018 guidance to reflect our third quarter results compared to our prior outlook. While there has been some improvement in exchange rates since our last guidance update, it continues to be volatile, especially in Brazil. We continue to believe that movements in foreign exchange rates will more than offset the continued impact of favorable fuel prices and be roughly in line with our guidance from the August earnings call. We remind everyone we expect that the macro will impact fourth quarter revenue by approximately $20 million to $25 million, which is currently reflected in our updated full year guidance. The good news is, as we did in the third quarter, we believe we can offset the unfavorable macro due to continued overperformance in some businesses, expected lower expenses and the impact from a lower share count in the second half.:]

[Additionally, for those looking for an update on the Chevron portfolio, terms for selling and transitioning the portfolio have been agreed to. The expectation is that we will start to transition the portfolio late in the fourth quarter and be complete early in the second quarter. We expect to receive proceeds of approximately $160 million from the sale. These proceeds will result in a taxable gain and are excluded from any of our guidance for 2018 to follow. And from a modeling perspective, we estimate that fuel revenue will be about $35 million lower in 2019 as a result.:]

[So with that out of the way, our guidance is as follows:]

Total revenues, including the adoption of ASC 606, to be between $2,390,000,000 and $2,420,000,000; net income to be between $695 million and $705 million; and as I just mentioned, this and all related amounts following do not include the gain from the Chevron portfolio sale. Net income per diluted share to be between $7.50 and $7.60; revenues excluding the impact of ASC 606 to be between $2,495,000,000 and $2,525,000,000; adjusted net income to be between $960 million and $970 million; and adjusted net income per diluted share to be between $10.40 and $10.50. And some of the assumptions we have made in preparing the guidance include the following

[With that said, operator, we'll open it up for questions.:]

[Operator:]

[Operator Instructions] Our first question comes from the line of Sanjay Sakhrani with KBW.

[Sanjay Sakhrani:]

Quick question on the Corporate Payments growth acceleration. I know, Eric, you mentioned the new accounts in spending associated with those accounts. But could you just talk about the sustainability of this growth rate and sort of what we should look out for and how we should think about the growth rate of that segment?

[Eric R. Dey:]

Yes, Sanjay. There's 2 pieces to the growth. Obviously, we've got the Cambridge business and we've got the Comdata Corporate Payments business. The good thing about that business is all of the incremental spend or the vast majority of the spend is basically new accounts or additional spend on existing accounts that we already have. So really, really it's a very, very healthy business. It's also a pretty easy business to actually predict on a go-forward basis as most of the new revenue that's going to come our way in 2019 has already been actually sold, given the period of time it takes to onboard a new account. From an expectation perspective for next year, we're obviously in the middle of the budget process kind of as we speak so we don't have any, obviously, any final guidance numbers related to any particular business category. But I would expect that growth rate to kind of be in the mid-teens kind of next year as we are lapping some pretty strong growth rates in 2018.

[Ronald F. Clarke:]

Sanjay, it's Ron. Let me just add the -- remember the volume growth in the verticals I called out were around 20% to kind of the spend growth. So the other couple pieces in there is healthcare again, which goes the other way, which will tick us back a bit next year and probably a little bit less price. So if you said the numbers are well into the 20s this year, I'd say our number ends up where Eric said, probably 15-ish for 2019.

[Sanjay Sakhrani:]

Okay, great. And just my follow-up, Ron, you mentioned you're active in the deal market and there's a pipeline. Could you just speak to anecdotally maybe to like the sizing of the deal that you're looking at? Because you seem to have a decent about of capacity. And just one clarification on that preliminary outlook you gave for revenues in 2019. Did you incorporate sort of the Chevron impact? Or was that organic ex that impact?

[Eric R. Dey:]

Yes. That was mostly, obviously, again, Sanjay, we're in the middle of the budget as we speak. We've gone through kind of the first pass of the budget so all indications are that on an apples-to-apples basis, our growth rates are within the guidance range that we've previously given into that kind of 7% or 8% to 10% range. But yes, that would exclude Chevron.

[Ronald F. Clarke:]

And, Sanjay, on the deal question, I've got it in front of me. So I think like we normally report, it's a mix. We've got 2 or 3 decent-sized deals, call it $400 million or $500 million-plus and then a handful, 3 or 4 kind of tuck-in deals, call it $100 million to $300 million. So those would be the 5 or 6 things I'm looking at that are the closest in. And as I mentioned at -- in the opening, they're all basically inside of the 4 categories.

[Operator:]

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

[Tien-Tsin Huang:]

I want to ask on the organic growth, 11% this quarter. That's the highest we've seen in a couple of years and that's above the 8% to 10% you called out or that you previewed. Is -- what's driving the upside? I didn't quite catch what the upside is. And what brings the growth back down in the fourth quarter, understanding that fuel should improve as well in the fourth quarter?

[Ronald F. Clarke:]

Yes, Tien-tsin, it's Ron. So again, the couple of things, the 3 big nonfuel were all way up. I think toll was 17; Lodging, 21, 28. So those obviously were high. And then the sequential thing is gift. I called out in my comment that "even gift" got into the positive column of plus 4 in the quarter. If you remember, it had a super bumpy, kind of crummy Q2, which brought our overall organic number down and then again, fuel at 5. So that's the mix that gets the 11. I think the sequential change, honestly, is the gift being low to being a bit into the plus column. And then continuing, obviously, super good growth in the 3 non-fuels.

[Tien-Tsin Huang:]

Right. And the fourth quarter, with fuel moving up, that's just maybe some normalization in the nonfuel piece to gets you the -- back to the high single-digits in the fourth quarter plus the gift normalizing, perhaps?

[Ronald F. Clarke:]

Yes, exactly. So I'd say I don't have all those numbers in front of me, but we have fuel again kind of recovering, call it 8% in Q4, mostly again because we're finally lapping and hope to never speak of this GFN thing again. So that will be out of the number. And then some moderation as we've gone by some of the price. What I said to Sanjay, about think about corporate pay and stuff coming from kind of 25-ish down into the mid- to high-teens. So we'll see some of those numbers come back a bit in the 3 nonfuels. And I think we have kind of flattish to the prior year. So it's a little bit more of the same. It ticks down a couple because the other 3 won't be quite as high in Q4.

[Tien-Tsin Huang:]

Understood. So just my follow-up, maybe to follow up on Sanjay's question, just on the acquisition and M&A pipeline. You haven't done a larger deal in over a year. You didn't repurchase shares in the third quarter. Don't know if you can say those are tied or not, but could we expect you to buy back stock in the fourth quarter here, if some of these deals don't materialize in fourth quarter?

[Ronald F. Clarke:]

I can say clearly at the screen that I'm looking at, in 48 hours, our window opens. That would be my comment to you. So our window will be opening soon here. Yes, at this price, you should expect we'll be looking to buy back stock.

[Operator:]

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

[Darrin Peller:]

I just want to start off on the -- just, first of all, the timing on, the latest timing on Chevron's deconversion. Does your new fuel exit rate of 78% include the impact of this in the fourth quarter at all or sounds like you're not necessarily including it yet? And just if you can remind us the building blocks that get us to the, call it 7% to 9% growth where -- you talked about organically for 2019. I know some of it is just anniversary-ing the tough MasterCard deconversion, but what else -- just remind us what else is going to really drive that to be sustainable there?

[Ronald F. Clarke:]

Yes, Darrin, it's Ron. So the story is, we have finally landed the plane on Chevron and reached an agreement, and I'd say that in our forecast, we anticipate keeping the majority of that, call it probably 80% or 85%, in the quarter. And then obviously rolling off as you get into Q1 next year. So that's point one. And then point two, yes, the step-up is really mostly the GFN grow-over is gone. And the rest of the businesses, I'm looking at the page, are kind of what I called out. We've got some set of super high-performing businesses like the 4 international. They're all double digit. The [ NAB ] business, which is double digit. Even our MasterCard business getting positive again in Q4. So I'd say that as we finally lap 2 things not growing very well, but the organic print, I'd say we're pretty comfortable at 8 because it doesn't require really a lot of delta sequentially in what we're doing.

[Darrin Peller:]

Okay, all right, that's helpful. Just quick follow-up. I mean, we talked a lot about corporate. But quickly on tolls, I mean, that area, you had very good growth in '17 and pricing benefits, you're going to anniversary some of that. Just wonder in terms of 2019 if the RFID, what kind of traction are you going to have in terms of revenue contribution? It seems like you signed some good deals already. You announced McDonald's and others.

[Ronald F. Clarke:]

Yes. So again, I'd say the toll outlook would be probably again midteens for 2019. And again, the drivers behind that would be the new sales channels. So again, most of our revenue is kind of tag-centric or active user-centric than -- more than it is transactions, so that number is growing. We expect it to grow a bit more next year. And then we have layered in a bit of incremental revenue next year in the plan for this Beyond Tolls set of things, primarily fuel but even a little bit, as we said, the fast food and even a tiny bit for the rental cars. So I think the plus or minus, call it 15 in tolls next year will be a function of the pace of this Beyond Toll network. So if we get out of the blocks faster and open it up sooner, we'll get some lift on the upside and if we get out of the blocks slower, open it up a bit slower, we'd see it maybe tick a bit down. So I think again, the headline for the call today with you guys is we like the prospect long term. We've gotten the partners to sign up. We've done the testing, like the McDonald's thing. They're over the moon from the tests and signed a contract with us to go to all 400 drive-through locations in the country between this quarter and next year. And so -- and same in the fuel. We have Petrobras beating the door down to sign the thing, so I think that the juicy 5 million users that are already kind of ready to go and show up at new parking lots and new fuel stations and new drive-throughs, I think it's a timing question more than a we will get the money question.

[Operator:]

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

[Ashish Sabadra:]

My question, just wanted to go more high level. Thanks for the update on the growth initiative. As we think like in 2019, but more importantly 3 years out, as you make progress on these growth initiatives, how should we think about these contributions from the growth initiatives to your 8% to 10% organic growth target? Does that reinforce your confidence? And how should we think about the contribution to the growth?

[Ronald F. Clarke:]

Yes, Ashish, it's Ron. I think that is the $1-million question. I guess what I'd say is that the opportunity that it opens up, right, in each of the businesses, if you think about in fuel, the fact that the nonfuel spend among our existing customers is to 2

[Operator:]

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

[David Togut:]

Good to see the step up in client revenue retention in the quarter. That looks to be the best level in at least 2 years. Can you talk about the drivers of the higher revenue retention and whether you think that's sustainable into '19?

[Ronald F. Clarke:]

Yes, David, it's Ron. I mean, again, it's kind of a point tick up sequentially, and I'd say the 2 main drivers of it are, one, improvement in the MasterCard file. So as we leave the compares against the conversion snafu, those retention numbers in MasterCard are getting better. And then second, I would say, is mix. So as our corporate pay and STP businesses grow and they're growing faster, they have higher retention levels innately than the fuel card business because again, they target larger accounts generally. So those would be the 2 drivers. It would be better MasterCard retention and improved mix to higher retention businesses.

[David Togut:]

And as my follow-up, can you talk long-term view about expansion in electronic toll roads in Brazil? That was part of your buy case on STP. And clearly we've got a new president in Brazil now. How does that affect the longer-term growth case for STP?

[Ronald F. Clarke:]

Yes, it's a good question. So the good news is, there are, I believe, 2 toll roads. One, I think, is actually going up, going live this quarter that we're in and one next year. This rolls back to, I don't know, 3 or 4 years ago that those were bid on and approved, and I think there's finally one is live and one will be live. I think that's worth kind of 2% to 3% incremental toll revenue in the country of which will capture our RFPs. And then I'd say who knows? It seems like the guy that was elected is pro-business and maybe pro-privatization. As so certainly, pushing more toll roads as a way to obviously to generate income and keep taxes down would be an attractive thing to do. So I know that there's a bunch of bids that were sitting in a backlog, were kind of stuck, of roads that they were going to put tolls on. So I don't know, but I think the election, if anything, would be a plus to that.

[Operator:]

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

[James Schneider:]

I was wondering if you can maybe provide a little bit of a forward outlook, in terms of where you plan to take the Corporate Payments business longer term with respect to accounts payable processing either, with respect to new verticals or new product types, such as some of the invoice products that are out in the market. And maybe just kind of give us a sense of to what extent the deals that are in your pipeline are in that area.

[Ronald F. Clarke:]

Yes, Jim, I wouldn't comment specifically on the exact deals in our pipeline. But obviously, any businesses that nest around our 4 product lines in our ecosystem are things or companies we know and obviously that we look at. So I'd say at the high level, look, the core business that we're on, kind of company size, $100 million to $300 million is, right. We're selling a ton. The thing is growing. The spend is growing 20%-plus, if you kick out the healthcare, which is shrinking. And so to Eric's point, we've already in the sense made that plan for next year because we made the sales. We just have to get it implemented next year. So we like the core business as it sets up. I think the big, big opportunity that some others have demonstrated is this downmarket full AP thing that we've been working on and modeling and finally launched that in our mind, it's just totally incremental to what we're doing because it targets accounts literally $50 million to $100 million or $50 million to $150 million in revenue where we take the entire AP file and do some different things for them. So I think as we get that thing lifted off, certainly we would look to acquire businesses that are in that space, but that would be the primary thing. We're going to keep getting behind the midsized accounts that we're on and we're going to find a way, either internally or through deals, to build a bigger position in the small market.

[James Schneider:]

That's helpful color. And then can you maybe just talk at kind of a broad macro level, the 1% same-store sales growth seems fairly healthy and consistent with what you have seen. But clearly, there was a lot of concern out there in the market that whether it's the transports or the industrials or these other kind of sectors that you're exposed to, there might be some softening from a macro perspective. So I'd just kind of be curious whether you're seeing anything on in terms of the tea leaves or any kind of the real-time transaction data that would suggest that things are softening there with respect to an end market prospective. And if so, in what areas? And if not, where is it getting better?

[Ronald F. Clarke:]

Again, it's a tough metric, Jim, for us to forecast because the number we provide is a composite of lots of businesses and lots of geographies in lots of categories. So I'd say that the 1%, I think we reported, Eric, 2% in the prior quarter, is really a loss of an account in SBS, JC Penney, which was not super healthy. So like always, we've got a mix of superstrong high-base growers like corporate pay, lodging and SNB is way up because of that digital tool. Australia was crazy high. Russia was high. STP, actually the business accounts, the non-trucking accounts were high. So we don't really see anything in the Q3 same-store that would indicate kind of any type of slowdown structurally, like in any vertical or any particular geography. So again, our -- the only thing that we saw was again, this one account in the gift card business that nicked it a little bit.

[Operator:]

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

[Oscar Turner:]

So first question is on the toll segment. It seems that you guys have pretty strong momentum with new partner signings in the non-tolls part. Just wondering what those partners have cited as the main value proposition. Is it speed or safety or what? And then based on what you've seen and test so far, how do you look at the revenue opportunity in non-tolls versus the core STP over the long term?

[Ronald F. Clarke:]

Yes, Oscar. I think you're right. So as you think about the obviously parking and fuel and even the McDonald's thing today, obviously one thing is just the convenience, to your point, of speed and security that people don't have to roll down their windows, there's cost reduction for parking, things, right, in not having 2 lanes but having one where one is automated, like you see on the toll and security in the case of fuel, where particularly females are fueling. They have a tendency in Brazil so not having to put the window down but just pulling up and having the thing automatically refueled. And I think another one I'd add is the McDonald's guy said that it also showcases them as innovative in payments. So like a lot of the fueling guys are trying to do mobile things or have your car, turn the pump on. And so, I think to get out in front as McDonald's and show, hey, we're innovative. We've got the easiest ways to pay versus other fast food guys, would be another thing that the partners say. So I think they like it and then, they obviously love the fact that we've got 5 million users basically that we can help to direct and communicate with, right, and talk to. So those would be, I guess, the major benefits the partners see. And I think you're right, the evidence that they like those benefits is they're signing contracts with us. And the biggest ones, the biggest parking guy. We have 2 of the 3 biggest fuel guys. We have the biggest fast food guy by a factor of whatever, 5. So we're talking to the largest rental car company. So we're talking to the very biggest partners and signing the very biggest partners that they've got.

[Oscar Turner:]

Okay. And then second question, just a broader one on business mix. I just wonder if you could give some color on how you envision the revenue mix looking over the next few years, just given the strong growth we continue to see in nonfuel card businesses. Do you see a mix shift away from fuel? And then, I guess related, should we expect that those businesses come in more investment, whether it's organic or M&A, just given the relative under-penetration in those markets? So Corporate Payments, Tolls, et cetera.

[Ronald F. Clarke:]

Yes. I mean, I think the math, you guys are good at math. So I think the differential in the growth rates, at least that we're outlining this year and the last couple of years in some of these new categories, have enormous potential and those lines of business are growing faster. Obviously, it takes the nonfuel mix up, A. B, there's obviously a fair number of targets, acquisition targets, probably 3/4 of what we're looking at, I'm looking at this year is in nonfuels. I'd say it's probably pretty likely that we'll acquire things that are nonfuel. So the mix answer is, you look 3 years out, the 45% that we have is probably 40% or lower. But I would like to make one point on it, which is, we love -- I want to be super clear, we love that the fuel card business and we love it because it is incredibly protectable. And we have proprietary networks and their mass of barriers and the products are incredibly unique and it limits the number of people that can be in it. So it's just a different business model and structure than some of the other things. Maybe the markets aren't quite as big but they're plenty big. But the defensibility, in our mind, is super high in those fuel card businesses. So I don't want people to get -- hang up this call and go, oh, they only like the nonfuel businesses. We like the fuel business and we want to be in the fuel business and we'll keep buying businesses in the fuel business because it's a great business. And the profit margins are even better, Eric (sic) [ Oscar ], than our line average.

[Oscar Turner:]

Yes.

[Ronald F. Clarke:]

So don't take it that we're, "giving up" on the fuel card business.

[Operator:]

Our next question comes from the line of Glenn Greene with Oppenheimer.

[Glenn Greene:]

Just wanted to go back to the lodging segment. The 21% growth seemed like clean quarter, not really any meaningful FEMA benefit. Can you just sort of like give us a little bit more color on what's driving that? Was it all sort of the incremental growth from the online booking tool? And you also made a comment about, I may have missed this, but going from 15,000 locations to 25,000 locations. Can you clarify that? And also would it be reasonable to think this is still a midteens grower in '19?

[Ronald F. Clarke:]

Yes. So the first one is what drove the growth here. You're correct, it was not much FEMA, virtually none. So all the growth really was 2 things. One, the small business selling way more than we're losing. We're selling, I think, 25% of the book and losing 10, so we're obviously adding way more business. And then two, what you mentioned, we're getting more business from the accounts that we previously had because they're taking more room nights with us. We think because of that tool, when we study the users of the booking tool versus the nonusers of the booking tool, that group's spend with us is growing faster. And then lastly, I think the big account business has gotten a bit healthier. We don't add many new accounts in the thing, but their room nights are up some and there was a while there a year ago where they were actually soft, so that thing's turned into the positive column. So I think those would be the 3. So no FEMA, more sales than we lose, more spend out of the people using the digital tool and a bit healthier big accounts. Yes, in terms of next year, do we like the prospects for that to be a midteens business? If you hack FEMA out, which we got a fair amount, particularly from the Houston thing, my guess is it would be probably high-teens and the FEMA would back it down into somewhere into the low- to the mid-teens. I mean, who knows if we'll have any FEMA in 2019? So we'd obviously plan 0. But it's an incredibly healthy business. And then the last thing you asked is the next extended network idea. We're going to bolt another 10,000 hotels onto our network in Q1. And so if you think we've got 15,000 now, when people run a search, we'll now basically put 40% more room nights up, and so we think we'll pick up incremental room nights from clients that are not finding the room choices that they want. And so we should see some lift as we head into Q2 and Q3.

[Glenn Greene:]

Okay. And then just quickly, I know it's an old topic but anything you can tell us in terms of coming to resolution on the gift card portfolio? What are the options you're looking at? Anywhere close to resolving that?

[Ronald F. Clarke:]

Yes. I feel a little bit like a broken record on this. So we are -- I know with this World Series concluding, 3 strikes, you're out. But we do have a new idea or a new structure that we're pretty far along with, with a couple of people. So this was a different thing we've been working on. So I'd say I'm hoping that I won't say this but by the next time that we talk that we'll have either found an answer to this or we won't. This is kind of our last idea. And so if we talk again and we don't get this idea to work, then we're in there retaining it. But if it works, it's quite attractive. It's a structure and an approach that allows us to retain a lot of the earnings and get the revenue growth issue out, and so it's an attractive idea if we can get it executed.

[Operator:]

Ladies and gentlemen, we have reached the end of our question-and-answer session as well as the conference today. Thank you for your participation. You may now disconnect your lines at this time.