FLEETCOR Technologies, Inc.
Q2 2015 Earnings Call Transcript

Published: 6 Aug 2015

[Operator:]

Hello, and thank you for standing by. Welcome to the FleetCor Technologies, Inc. Second Quarter Earnings Conference Call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. At this time, I'd like to turn the conference over to Eric Dey, Chief Financial Officer. Please go ahead.

[Eric Richard Dey:]

Good afternoon, everyone, and thank you for joining us today. By now, everyone should have access to our second quarter press release. It can be found at www.fleetcor.com under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial information, including adjusted revenues, adjusted net income and adjusted net income per diluted share. This information is not calculated in accordance with GAAP, and may be calculated differently than other companies' similarly titled non-GAAP information. Quantitative reconciliations of historical non-GAAP financial information to the most directly comparable GAAP information appears in today's press release and on our website as previously described. Also, we are providing 2015 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 2015 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 on Form 8-K filed with the Securities and Exchange Commission. Others described in our Annual Report on Form 10-K. These documents are available on our website as previously discussed, and at www.sec.gov. With our standard disclosures out of the way, I would like to turn the call over to Ron Clarke, our Chairman and CEO.

[Ronald F. Clarke:]

Okay, Eric. Thanks. Good afternoon, everyone, and I appreciate you joining the call today. Up front here, I'm going to plan to cover three subjects. First, I'll comment on Q2. Second, I'll provide a bit of an update on SVS. And then third, I'll talk about the second half and our raise in full year 2015 guidance. Okay. So on to Q2. We reported Q2 revenue of $405 million, up 48%, and cash EPS of $1.48, up 16%, so 48% top line, 16% bottom line. The quarter finished a few cents better than our expectations, but that was primarily, because we got a little help from higher fuel prices in the quarter, at least higher than our internal plan. But when you look at the macro environment versus the prior year, it's actually quite negative. We estimate that unfavorable FX and lower fuel prices negatively impacted our Q2 cash EPS by approximately $0.28 a share. I'm not a big fan of could have, would have, should have stuff, but our cash EPS would have been $1.76 versus the $1.48 we reported, up 39% on a constant like-for-like basis. Let's look at the four drivers of our growth in Q2. So first-off, our high-growth businesses continue to perform well. Our Direct MasterCard business grew 30%. That's at a constant fuel price. Our CLC business was up 13%; and our Mexico business was up 14% in local currency. So good performance across those three businesses. Two, our new oil partner wins delivered some incremental revenue in the quarter. First-off, our Chevron Asia and Caltex Australia, new processing relationships began to generate some revenue. Our Husky and Ultramar relationships in Canada continued to build and add volume and revenue. And our Shell Europe outsourcing program was extended into three additional countries in the quarter, bringing our total country count to five. So some good progress with new oil partners. Third, a couple of our newer acquisitions performed well in the quarter. Epyx, our maintenance business in the UK was up over 30%; and Pac Pride, our card lock business that we acquired last summer was up 26%. So our new acquisitions doing well. And then the fourth driver of Q2 performance was obviously the addition of Comdata, which continues to make good progress against our 10% organic revenue growth target. So look, overall, our Q2 fundamentals were quite good

[Eric Richard Dey:]

For the second quarter of 2015, we reported revenue of $404.6 million, an increase of 48% from the second quarter of 2014. The revenue from our North American segment increased 104.9% to $284.6 million from $138.9 million in the second quarter of 2014. Included in the second quarter results was the impact of Comdata, which was acquired on November 14, 2014. Revenue from our International segment decreased 10.9% to $120 million from $134.6 million in the second quarter of 2014. For the second quarter of 2015, GAAP net income increased 11.4% to $98.7 million, or $1.05 per diluted share, from $88.5 million or $1.03 per diluted share in the second quarter of 2014. The other financial metrics that we routinely use are adjusted revenues and adjusted net income, which we sometimes also refer to as cash net income or cash EPS. Adjusted revenues equal our GAAP revenues less merchant commissions. We use adjusted revenues as a basis to evaluate the company's revenues, net of the commissions that are paid to merchants who participate in certain card programs. A reconciliation of adjusted revenues and adjusted net income to GAAP numbers are provided in Exhibit 1 of our press release. Adjusted revenues in the second quarter of 2015 increased 51% to $382.9 million compared to $253.2 million in the second quarter of 2014. Adjusted net income for the second quarter of 2015 increased 28% to $138.9 million or $1.48 per diluted share, compared to $108.9 million or $1.27 per diluted share in the second quarter of 2014. Elements of the macroeconomic environment had a significant impact on our results in the second quarter, specifically, market fuel spread margins, fuel prices and foreign exchange rates. In the aggregate, we estimated that these macroeconomic items negatively impacted our business in the second quarter of 2015 versus the second quarter of 2014 by approximately $47 million in adjusted revenue, or approximately $0.28 in adjusted net income per diluted share. On a constant currency, fuel price and market spread margin basis, we would have reported approximately $1.76 in adjusted net income per diluted share in the second quarter of 2015 compared to $1.27 in the second quarter of 2014, or a growth rate of approximately 39%. Changes in foreign exchange rates were unfavorable in all geographies for the quarter, and overall, we believe, negatively impacted adjusted revenues during the quarter by approximately $24 million. Fuel prices also decreased during the quarter versus prior year, which were partially offset by favorable fuel spread margins. And although we cannot precisely calculate the impact of these changes, we believe they negatively impacted adjusted revenues by approximately $23 million. To better understand the organic growth for the quarter, we calculated revenues using constant currency, fuel price and market spread margins. Based on these criteria, we would have reported an approximately 10% organic growth rate for the quarter, excluding the Comdata business, and approximately 8% on a consolidated basis. For the second quarter of 2015, transaction volumes increased 382% to 435.1 million transactions compared to 90.2 million transactions in the second quarter of 2014. The increase in total transactions was primarily due to the acquisition of Comdata on November 14, and also organic growth in our businesses. Excluding the impact of Comdata, our transaction volumes were 94.6 million in the second quarter of 2015 compared to 90.2 million transactions last year, or a growth rate of 5%. North America segment transactions grew 812%, driven primarily by the acquisition of Comdata, and also organic growth in our U.S. businesses. Transaction volumes in our International segment fell slightly and were down approximately 3.9% to 45.7 million transactions. Transaction volumes in the International segment were impacted primarily by market softness in Russia and Brazil. For a discussion on revenue per transaction, we will exclude the impact of the SVS business, which had approximately 296 million transactions in the quarter at a very low revenue per transaction. Revenue per transaction for the second quarter of 2015, excluding the SVS business, decreased 11.5% to $2.68 from $3.03 in the second quarter of 2014. Revenue per transaction can vary based on the geography, the relevant merchant and customer relationship, the payment product utilized and the types of products or services purchased. The revenue mix was influenced by our acquisitions, organic growth in the business and fluctuations in the macroeconomic environment as previously discussed. Revenue per transaction decreased 16.6% in North America, due primarily to lower fuel prices during the quarter versus the prior-year quarter, partially offset by slightly higher spread margins during the quarter. In the International segment, revenue per transaction decreased 7.2%, due primarily to the unfavorable impact of foreign exchange rates across all of our geographies. This unfavorable impact was partially offset by organic revenue growth in several lines of business. Now let's shift over and discuss some of the other drivers of second quarter performance. For our North American segment, most of our lines of business perform well. On a constant currency, fuel spread and fuel price basis, we reported approximately an 11% organic growth rate in the quarter, excluding the impact of the Comdata acquisition. Some of the positive drivers in North America revenue during the quarter were similar to the last several quarters, including the exceptional performance of our MasterCard product, which had revenue growth of approximately 30% over the second quarter of 2014 measured in constant fuel price. The increase in revenue was driven primarily by increases in both transactions and revenue per transaction on a constant fuel price basis. The CLC Group, provider of our lodging card programs, had another solid quarter, with 13% revenue growth over the second quarter of 2014. This revenue growth was driven primarily by increases in our CheckINN Direct product, which target smaller accounts. As I mentioned earlier, the macroeconomic environment was mixed, slightly favorable fuel spread margins in the quarter versus the second quarter of 2014 positively impacted adjusted revenues for the quarter, but was more than offset by the impact of lower fuel prices during the quarter. In total, we believe lower fuel prices negatively impacted adjusted revenues by approximately $23 million. And finally, the second quarter also benefited from our acquisition of Comdata, which closed in November of 2014. Our Comdata business, excluding SVS performed well in the quarter, and had an organic growth rate of approximately 7% on a constant fuel price basis versus prior year. However, as we discussed on last quarter's call, lower RFID sales in our trucking business, and higher opt-out rates in the healthcare segment impacted the organic growth rate in the quarter, and is included in our balance of the year forecast. Organic growth in the International segment was approximately 9% for the quarter, measured in constant currency, however, as I mentioned earlier, unfavorable foreign exchange rates in all geographies negatively impacted adjusted revenues by approximately $24 million in the quarter versus last year. Most of our International businesses posted good organic growth rates on a constant currency basis. Some of the highlights for the quarter include the continued successful conversion of the Shell small business portfolio. We are now in a total of five European markets

[Operator:]

Thank you, sir. We will now begin the question-and-answer session. Our first question today comes from David Togut of Evercore ISI. Please go ahead.

[David Mark Togut:]

Thank you. Good afternoon, Ron and Eric.

[Eric Richard Dey:]

Hey, David. How are you?

[David Mark Togut:]

Very well, thanks. Could you quantify the growth in Comdata earnings that you expect for 2015 as a whole?

[Eric Richard Dey:]

You know, David, we really haven't disclosed that information anywhere. I think we have provided some relative range in the past. And I think what we've said is we want to exit 2015 in that kind of 20% trajectory. Our objective is to invest more money in sales and marketing, and take that business from what was a kind of historical 6% organic grower, and get it into that 10% range. So we are in the process of investing more money in sales and marketing, and we tend to build that sales engine throughout the year, and we hope to exit in a much better place as we get into 2016.

[Ronald F. Clarke:]

Yeah, David. Hey, it's Ron. I'd probably guide you to, call it, mid-teens. We had planned kind of 10% and 20%, and although we don't have that number handy, we've backed off a tad on the corporate payments thing, so that would be our estimate – kind of mid to high-teens.

[David Mark Togut:]

Got it. And then on the corporate payments, could you give a little more granularity in terms of what you're seeing with the opt-outs on the healthcare side in virtual, and then also just a little more on the RFID roll-out, which you called out in Q1 as well?

[Ronald F. Clarke:]

Yeah, I think the good news is, it's stabilized, so kind of the surprise we got that we mentioned in the last call in the first quarter is kind of not much new, so I'd say the healthcare piece is basically stabilized, and I'd say we've got a 50% chance of getting that account back, that I called out, so I'd say that's the update.

[David Mark Togut:]

Got it. And then, you called out 125 sales people added year-to-date, could you give us a sense of what businesses you added them? And any perspective you have on the OTR business at Comdata, particularly given the 3% decline in WEX's same-store sales in OTR would be helpful.

[Ronald F. Clarke:]

Yeah, so the – I think I mentioned it in the opening, David, but we went into kind of the emerging markets, at least emerging for us, which would be Brazil, Mexico and Australia, and we put some fair number into Comdata – into both businesses in Comdata. So those four areas got the majority of the 125. And then, was the follow-up on OTR? Was that the second part of the question?

[David Mark Togut:]

That's right. Given what we heard from WEX on their call.

[Ronald F. Clarke:]

Yeah. That revenue was up on a pro forma basis. It's funny, yesterday I was reviewing something, and we're looking at that exiting in Q4 well above 10%. So in the forecast that we've given, I've got good news to report, that that forecast that we have has outlined a business over Q3 and Q4 of growing double-digit, which was the goal we had. So I'd say we're on track to get that done this year.

[David Mark Togut:]

That's very encouraging. You mentioned Uber, 75% adoption rate; can you dimension for us what Uber might mean from a revenue and earnings perspective once you have a full year of that contract under your belt?

[Ronald F. Clarke:]

Yeah, not so much because of the confidentiality with them, but I would say that the client, Uber, and us, we're delighted. I mean to go out to 100 people with an offer and get 75 to take it and get 40 to actually use it in the first 60 days to 90 days, I think speaks to the promotion that they've done, and the interest in the thing. So it is way, way ahead, David, of what we thought it would be over the last two or three months. And we're standing by for their call to try to take it to additional places. So it's off to a great start.

[David Mark Togut:]

That's great to hear. Just a quick final question; where do you stand with some of these big oil companies in Europe with respect to outsourcing, particularly as oil prices continue to decline?

[Ronald F. Clarke:]

Yeah. I'd say not much new to report. I think we – it sounds like we could just tape-record the prior session that I think, at least two or three of them are still kind of waiting to see how we do with Shell and how WEX does with Exxon, but I think I mentioned in the last call that we are in conversations with a couple of big ones that are evaluating, going the same way, and my guess is they'll make some decision later this year or next as they get a chance to see more. So I think again, we still view it as a really big opportunity with the million dollar question being when. When will they pull the trigger?

[David Mark Togut:]

Understood. Congrats on a strong quarter.

[Ronald F. Clarke:]

Thanks, David (35

[Operator:]

The next question comes from Phil Stiller of Citi. Please go ahead.

[Philip Edward Stiller:]

Hi, guys. Thanks for taking my questions. You guys introduced some new products in Europe over the last couple of quarters in the UK and Germany. Maybe you could talk about how those products are being received thus far?

[Ronald F. Clarke:]

Yeah, Phil, it's Ron. I'd say still early days on the Universal card in Germany, which is, we think, a big, big opportunity. I'd say we're still in the kitchen testing, trying to get the product right, kind of get Level 3 and that capability into the version 1.0. And second, we're trying to get the sales team and the message buffed up so that we can get some traction. The good news is, the stuff is working. We've obviously got a pile of clients running on the product, and we've got people selling it. So I'd say that, so far so good. And on the UK, I think the reception has been terrific, and we expect to convert a very sizeable part of our base in the second half over to this new Allstar One product. They really like it; they've been waiting quite a while, because it was quite complicated, changing the platform to Visa from proprietary and chip and PIN and adding a discount network to it and getting all that to work on one card on a system we put in, a year and a half ago was a ten in terms of difficulty. But we've got it all working and all rolling now. And it's – the thing we like is, it's not only good for customers because they get more benefits, but it's good for us because we get improved economics. So that'll roll, as I said, in the second half.

[Philip Edward Stiller:]

Okay. That sounds encouraging. Can you provide an update on Shell? So you're in five countries. I think you have a few more rolling out. How would you grade your progress thus far, and I guess, how does that play into what David asked about in terms of further discussions with other companies?

[Ronald F. Clarke:]

That's a funny one; because I grade all of our execution progress in staff meetings and that one, if you sat in the meeting, is an A. So the couple of guys running that is our Europe guy and our CIO, because it's pretty technical. And they not only have gotten to the conversion schedule of five to-date and two more, seven this year, but we've gotten to the revenue plan in terms of the timing. So I'd say of all the new things we do, that's been about as good as anything we've done, and I'd say that, we communicated, or I did, that that project would deliver, I believe, $20 million to $30 million of new incremental annualized revenue, and I'd say we're highly confident it'll exit this year into 2016 inside of that range So A – A to A minus on that project.

[Philip Edward Stiller:]

Okay. Good. Last question, and I'll turn it over, it's just M&A pipeline. Obviously, the balance sheet has improved, given the cash flow you produced since Comdata. Any update on the pipeline?

[Ronald F. Clarke:]

Yeah. I guess we could say that we've got a number of deals that are active. A couple of those are getting to be pretty late innings. As you said, I think our comfort level – I don't remember, recall Eric's number, 2.7 (39

[Philip Edward Stiller:]

Great. Sounds good. Appreciate it.

[Ronald F. Clarke:]

Thanks.

[Operator:]

The next question comes from James Schneider of Goldman Sachs. Please go ahead.

[James Schneider:]

Good afternoon. Thanks for taking my question. Following up on the theme of the earlier questions, with respect to Shell and the proof points that you think other oil companies in Europe look to, what are some of the key metrics? Is it just productivity per account? Is it growth in accounts? Or what are the metrics or dimensions that you think that the other oil companies are looking to in that proof? And I guess, maybe you can give us any kind of internal metrics you might be using to grade that beyond the letter grades?

[Ronald F. Clarke:]

James, it's Ron again. I think that's a good question. I'd say the two primary metrics would be around reliability and satisfaction. So the first one is hey, I moved a big part of my portfolio over to you, Mr. Outsourcer; how are you doing with it? Are they happy? Are the cards working? Are the calls being answered? Are the bills accurate? All the mechanics of running a program reliably and in a satisfactory way. And then, two, I'd say volume and sales. They hired us to try to build these files, so are we selling? Are we producing new business? Because a lot of the other pieces of their decision were already in the contract, right, the economics and some of the other things, so they already know those as part of the contract. So I'd say those would be the two primary gates for other people to want to study.

[James Schneider:]

Yeah. That's helpful. Thanks. And then just as a follow-up, specifically on Comdata, I know that growing the Small Fleet business within Comdata in OTR was kind of always a big priority for you. Can you maybe talk about where you are in terms of those initiatives, what you've done to grow that business and where you think you might be as we go into 2016 in terms of driving some kind of absolute amount of revenue from that?

[Ronald F. Clarke:]

Yeah. Again, I think well I've said that last time, I'd say it again, I think the best surprise, the happiest surprise for us in the Comdata deal is the – what we call the North America trucking business, that the, not only it's progress, as I outlook, it'll be double-digit Q3, Q4 off of pro forma. But I think, as I said before, the set of ideas that we have now to grow that thing are longer. We weren't quite as smart in diligence, and so I'll give one example beyond the salespeople. So we started our CLC a quarter or so ago, and saw a large concentration of trucking companies in there. So went to the Comdata trucking clients and found a massive demand if we could put the hotel purchasing capability on to the Comdata fuel purchasing card, kind of make that into one card. So that'd be an example of something that is, we think, super interesting to that client base that was not in our plans, that we expect to have out in the second half. So there's two or three of those kinds of thing that are kind of big new ideas that leverage this leading position Comdata has that we like a lot.

[James Schneider:]

That's helpful. Thanks so much.

[Operator:]

The next question comes from Darrin Peller of Barclays. Please go ahead.

[Darrin D. Peller:]

Thanks, guys. Look, I know it might be a little bit of a repeat, but if you could help explain some of the drivers underneath the 8% organic growth? I know you went through some of the revenue per transactions items, but some of it was without Comdata or SVS. And I guess just building – the building blocks are up to that 8%, just given all the moving parts again, and the revenue growth rates? I think that'd just be helpful, really what's driving that? And then just a bigger-picture question after.

[Eric Richard Dey:]

Yeah, hey, Darrin, this is Eric. You know, I think we try to answer those on the call, and I think they're similar to the last quarter, last several quarters, and that is, in the United States, as an example, we've been very successful growing our MasterCard business, and we continue to grow that very successfully, and it was up another 30% in the quarter. Similarly, CLC continues to do very well, and that was up kind of 13%. Even the Comdata business, if you look at it first, call it, excluding the SVS business was up about 6% or 7% organically, and probably about 6% or 5% or 6% organically with the SVS business because that was relatively flat in the quarter. So overall, the U.S. businesses grew, again, excluding Comdata for a second, grew organically in the 11% range. But again, these are primarily by the same couple businesses that they have in the past.

[Darrin D. Peller:]

Okay. That's helpful.

[Eric Richard Dey:]

And then internationally, the organic growth was around 9%, and again driven by specifically a couple of things that we called out; hey, Shell Europe's doing very well; we're into five different countries. We closed on this Epyx deal a while ago. We're seeing a lot of success in doing some of the things we do around those new businesses, and that business was up, call it, around 30%, again, helping to drive some of that. Mexico business was up double-digit as an example. And even Russia, as bad as that economy is doing, you even look at that on a constant currency basis, that business was even up still kind of around 4%. So a lot of things kind of – just were chugging along and doing okay, but I think the things that have always performed well continue to perform well.

[Darrin D. Peller:]

That's helpful. I think it's just – you hear about transaction growth rates like International being down 4%, and you kind of wonder a little bit if – it seems like it's really a compilation of just all the other, all these other drivers.

[Eric Richard Dey:]

Yeah, I mean, the transaction growth were down internationally, because there's a couple of economies that are soft. You look at Russia as an example, and we've got a product in Russia that has a lot of transactions, but lower revenue per tran, so our transaction volumes are actually down in that particular business, but they're actually up in the business that we're investing more sales and marketing dollars in, and it's a much higher revenue per tran business. So it's a trade-off, kind of bad calories for good calories there. And similarly, in Brazil, although you know what's going on there. The economy is very soft, and our transaction volumes have been impacted kind of there as well. But we've also been doing a lot of the things we do to help improve those businesses, and we're seeing improvements in revenue per tran in the businesses that we have, although transaction volumes have been down.

[Darrin D. Peller:]

That's helpful. And Ron...

[Ronald F. Clarke:]

Hey, Darrin. This is Ron. Let me just give you maybe just a different maybe simpler cut. Hey, we've got these 20 businesses, and we tell you we're growing 10% in a constant environment, pre-Comdata. I think another way to think about it is, from a portfolio perspective, a third of our businesses are growing super, 15%, 20%-plus, and we call them out, MasterCard, CLC, virtual card at Comdata, Epyx, the new deal, Mexico, oil partners that we didn't have before. So we tend to call out things to try to help you guys see, oh my God, so a third or more of this company is growing big, and they're calling it out. Well obviously, there's another third that's kind of growing; low to mid-single digits, telematics, Brazil because of the economy or whatever. And I think the other big turnaround, which we didn't call out is, we had some stuff that was going the wrong way. Right? Czech, Russia, some other portfolios that now basically have gotten back to neutral. So it's a lot easier to grow a business when you don't have two or three business basically going the other way. So I mean, the way we think about it in the company is, it's a portfolio of businesses and the goal is to kind of get all of them – we've called out the Comdata thing – up to this minimum 10%. And we've got some set of high flyers that we call out, some that aren't quite there yet and others that have a lot longer way to go, and that's the work that we're on.

[Darrin D. Peller:]

All right. That's really helpful. Thanks, Ron. Look, I mean, just one follow-up for you, Ron. I guess, with regard to the sort of added – additional pillars that might help the story out in acquisition terms or even organic, but I think more acquisition terms. You mentioned you're kind of late stage on some. I mean, obviously you also have some different things shifting around with SVS now. So I'm just curious, I mean, what are the types of things you're looking at right now in terms of both, whether it's industries or it's size?

[Ronald F. Clarke:]

Yeah. Again, I think the primary thing, Darrin, that we want to communicate as always is, we're looking at stuff we know. So the main thing, I think for any investors that read this or hear this is, we're not going way far afield and trying to buy stuff that we don't understand or, more importantly, that we can't make better. So I'd say, everything that's working into the later stages that we're looking at is something that we know and can make work. With that, I'd say we're always chasing, obviously, geography, trying to get positioned in places that are big or attractive. And then second, obviously, is to get positions with products that are in this high-performance kind of category. And so I'd say that we're fortunate enough in our pipeline to have a few deals that fit that screen, and so the question is, can we get them out the other side now? But I'd say we're in a good place, and I think, as I said earlier, is that the leverage ratio and the capacity are in a much better place now for us to pull the trigger.

[Darrin D. Peller:]

Yeah. So that's $750 million capital outlay per year average. I think you had discussed that, maybe in the last couple of comments around potential deals. Is that still about right – the right way to think about it?

[Ronald F. Clarke:]

Yeah. I think it'll be bumpy. We could come and announce something bigger than that or some series of smaller things. I think, again, the structural model thing that we're trying to do is design a company that can grow 10% and 15% organically and that we can add more than 5% on the bottom. And so our math says if we simply invest the free cash flow, which is circa what, Eric, $600 million, $700 million, $800 million this year?

[Eric Richard Dey:]

Yeah.

[Ronald F. Clarke:]

Over the three years, Darrin, that makes the math work and we can keep delivering the 20%-plus. So, that's the basis for the target.

[Darrin D. Peller:]

Make sense. All right, guys. Thanks very much.

[Ronald F. Clarke:]

Thanks.

[Operator:]

The next question comes from Smitti of Morgan Stanley. Please go ahead.

[Smitti Srethapramote:]

Thank you. So it looked like your processing costs came down quite a bit sequentially; can you talk about the factors that led to the decline in that line item?

[Eric Richard Dey:]

Yeah. Hey, Smitti, this is Eric. A lot of that had to do with the inclusion of the Comdata business. I don't have the specific items in front of me that were in there, but bad debt, as an example, is actually in processing if you're looking at that specific line on the P&L. And bad debt for Comdata runs substantially lower than it does for the FleetCor average. So if you recall, we averaged, what, 4 basis points this quarter; and historically we're probably in the 12 basis point, 13 basis point, 14 basis point range. So things like that are actually more favorable. But again, the Comdata business as a whole and the makeup of that business is just a little bit different than the legacy FleetCor business was. So that's all that's driving that. There isn't anything unusual going on there.

[Smitti Srethapramote:]

Thank you for that. And just a follow-up on just the growth rate within a particular division. In CLC I think you called out – you guys called out that CLC grew at 13% last quarter, which is – seems to be a deceleration from the growth rates that we've heard about in the past. Can you just talk about the potential for growth in that business over a longer term? And is there a potential to accelerate the growth rates in the coming quarters?

[Ronald F. Clarke:]

Yeah. Hey, Smitti, it's Ron, again. I'd say the explanation there is similar to last quarter, so there's nothing different than that business has gotten bigger, obviously quite a bit bigger because it's been growing 20%-plus. And I think I mentioned in the last call that, as part of the 2015 plan, we put another 50% sales investment in that business to get better aligned with the base, the size of the business. And basically we were a little late doing that, and so that group of sales, new sales producers, haven't started to produce enough yet to grow that base at 20%. But I'd say that, stay tuned for their progress in the second half. And then stay tuned for things like, again, taking that product and bringing it to a new market like Comdata's trucking market. So we continue to love that business and are just finding the right ways to invest more in it.

[Smitti Srethapramote:]

Okay. Thank you.

[Operator:]

The next question comes from Meghna Ladha of Susquehanna Financial. Please go ahead.

[Meghna B. Ladha:]

Hi. Thanks for taking my questions. Quick question, Eric, on guidance; what's the revenue contribution from SVS in the second half? And can you quantify the benefit from higher fuel price assumption?

[Eric Richard Dey:]

Yeah. To answer your first question, we're not going to provide that specific of guidance regarding SVS. As you know, we're trying to do some things with that business, so getting very specific with some of that information is not helpful to us in this process. So we're not going to disclose that. Regarding the – what was the second part of your question, again, I'm sorry?

[Ronald F. Clarke:]

Fuel price.

[Eric Richard Dey:]

Oh, fuel price. Our assumption was that, that fuel prices are going to average $2.80 over the balance of the year. And our assumption is kind of consistent with the way we always kind of think about and provide guidance, historically. Meaning we don't try to speculate where fuel prices are going, so effectively we put a stake in the ground and wherever that price is at the time we do our forecast, we'd assume that, that price is going to stay where it is over the balance of the year. That $2.80 price is up very slightly from the assumption that we had in Q1, so we're not looking for any sort of meaningful additional contribution related to higher fuel prices, that change in assumption, I would say.

[Meghna B. Ladha:]

Okay. Well...

[Ronald F. Clarke:]

Yeah. It's Ron. Let me just add to that. Again, I don't know if you guys track this, but we did get a little help in Q2 as I mentioned from fuel price being up a bit, but it's backtracked again, so if you look at, kind of the first quarter, which we – the first month of Q3, it's receded again, another $0.10 or $0.15 back, so it's kind of back more where we expected it to be in the second quarter, which is why we've kind of stayed put with the guidance.

[Meghna B. Ladha:]

Got it. So the $0.12 guidance that you raised for the EPS, it reflects Q2 beat SVS ex-FX? Correct?

[Ronald F. Clarke:]

You got it. That's the math.

[Meghna B. Ladha:]

Okay. And then, how should we think about the margins in the second half now that you will be retaining the SVS business through the year, through the rest of the year?

[Eric Richard Dey:]

Yeah, I would just assume that the margins we have in the second quarter continue through the balance of the year. I mean, they're not going to be dramatically off of that, up or down.

[Ronald F. Clarke:]

Well, they'll be a little bit better right now because of the revenue growth.

[Meghna B. Ladha:]

Okay, and just a quick question or clarification, rather. So one of the – WEX, they saw weakness in domestic same-store sales in the OTR space. I may have heard this either correct or wrong, please correct me if I'm wrong, but do you still expect 10% organic growth in the OTR space and you are not seeing any weakness in same-store sales here?

[Ronald F. Clarke:]

Yeah, the answer is in the Comdata trucking business we had neutral same-store volumes which means the trucking companies were able to add enough additional drivers to compensate for some of the fuel efficiency, so that was basically a push. But the incremental growth is coming from more sales in the second half, more price, and then again, some of these new products. So it's not coming from same-store sales, but again we're not getting hurt from that.

[Meghna B. Ladha:]

Got it. And did you quantify the contribution from Comdata in this quarter?

[Eric Richard Dey:]

From a revenue, we did not, but from a revenue perspective it contributed approximately $139 million in revenue in the quarter.

[Meghna B. Ladha:]

Got it. Thank you so much.

[Operator:]

This concludes the time allocated for questions on today's call. This also concludes today's conference call. You may all disconnect your lines. Thank you for participating, and have a pleasant day.