Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

FleetCor Technologies, Inc. (NYSE:FLT)

J.P. Morgan Ultimate Services Investor Conference Call

November 14, 2012 2:00 pm ET

Executives

Eric R. Dey – Chief Financial Officer

Analysts

Tien-tsin Huang – JPMorgan Securities LLC

Tien-tsin Huang – JPMorgan Securities LLC

That’s all right. So my name is Tien-tsin Huang. For those of you in the audience, I cover the Computer Services and IT Consulting Group. And so, next up to bat we got Fleetcor, ticker FLT. From Fleetcor we’ve got Eric Dey, the CFO, and obviously Fleetcor has been, it’s been a terrific start, numbers are moving higher, combination of great organic and inorganic growth.

So wanted to give Eric chance to just quickly give a commercial about the company, give us an update on current trends for those that have been a little bit further removed from it, and then I’ve got a list of questions we can go through and then we’ll do some Q&A as well with the audience.

So with that, maybe Eric, if you just want to give us a quick intro and maybe quick update on current trends.

Eric R. Dey

Sure. For those of you, who don’t know the Fleetcor story, let me just spend a few minutes and give you the quick 20,000 foot kind of flyover. Fleetcor is a leading global provider of fuel cards and workforce payment products to businesses. Our products are designed to help businesses better control employee spending and provide merchants with a loyal customer base.

Approximately 90% or so of our revenue today is derived primarily from our fuel card products that we issue around the world. We have approximately 25 different card or so products around the world today, and the other 10% or so of our revenue is derived from our other products, such as our corporate lodging product in the United States and such as our food card and voucher products in Mexico and our Telematics products in the Czech Republic.

We market our products effectively to businesses and government entities of all sizes around the world. We’re a global company today and we have operations in 23 different companies or countries around the world. However, we’re primarily in five specific countries. We have operations in the United States, the UK, the Czech Republic, Russia, Mexico, actually six, and more recently Brazil.

We are also very well diversified. From a revenue stream perspective, we have revenue both derived from our merchants and our customers. Approximately 55% of our revenue today is derived from our merchant relationships and approximately 41% or 45% comes from our customer relationships. We have experienced a tremendous amount of growth over the last seven or eight years. We’ve grown our revenue with a compounded annual growth rate of 28% over that period of time and we’ve grown our cash net income or adjusted net income, as we say it internally, at a compounded annual growth rate of 41% over that period of time. About half of the growth has come from organic means and the half has kind of come through acquisition.

We’ve been able to do this by employing our three-pronged growth strategy. I said this many, many times. Before you may have heard, Ron actually said, but we build, we buy and we partner. We build the businesses that we own by investing in sales and marketing and grown in the old fashion way. We buy businesses that have attractive business models and in attractive geographies and to-date I think I’ve lost count, but I think we’ve done literally over 50 acquisitions since 2003. So we’re actually getting pretty good at this and we partner with big major oil companies. So in the United States we partner with the likes of Chevron and BP, Citco and Arco and more recently we have a relationship with Euroshell.

We’re also again, very diversified from a geographic perspective. 55% of our revenue is generated from our businesses in the United States and 45% generated from our businesses again outside of the United States. So again very well diversified both from a business model perspective and from a geography perspective. We also have very low customer and merchant concentration. Again, we have no particular merchant and no particular customer that represents any significant portion of our business whatsoever.

Our EBITDA margins are very robust. We have over 50% EBITDA margins and our financial model is transaction based. So effectively we grow our revenue by increasing transactions and by increasing revenue per transaction. So again very, very good story. EBITDA margins, kind of running over 50%.

Our growth strategy going forward is going to be much the same as it has been in the past, meaning we’re going to continue to build by and partner. I’ve been saying this, and I know Ron has said it a couple of times. Our target for acquisitions is spending approximately $300 million a year. So we are going to continue to grow our business, kind of that way. We are also going to continue to invest, again, in building the businesses that we own by doing it the old fashioned way organically, and our target organic growth is approximately 10% a year, certainly in the mid-term. And we hope to partner with big new, kind of major oil companies down the road.

If you look at our business over the last two or three years, we effectively doubled the size of our business in the last three years, and I think more importantly, we think we are going to do more or the same over the next three years. So our goal is effectively to double the size of this business again. And again, we are going to do it by doing the three things I just talked about.

So that’s kind of FleetCor in a nutshell.

Tien-tsin Huang – JPMorgan Securities LLC

Okay, that’s great. And that was great. So maybe I was thinking a little bit. So you’re targeting through 10-ish% organic revenue growth. Can you just simplistically break that down for us in terms of transaction growth versus rate per transaction, your dependency on that to build up to the 10%?

Eric R. Dey

Sure. We invest in sales and marketing. We grow our business the old fashion way and obviously we grow transactions at a net level, at about 2% to 3% annually and the other kind of 7% or 8% comes from growth and revenue per transaction, which comes primarily from simplistically mix. We’re adding new customers at a higher revenue per tran value then we’re loosing customers and we’re also upselling other products and services to the existing customer base, which help us to grow our business kind of in that 10% organic range.

Tien-tsin Huang – JPMorgan Securities LLC

So, I guess before we digging on the revenue per tran – there is some cyclicality to the business as well right. So I think in the quarter you mentioned $4 million to $5 million sort of the negative impact from the macro. So help us understand the cyclical elements of it, if you don’t mind?

Eric R. Dey

Well, from a cyclical perspective, first we have a couple of things, when we have a little bit of seasonality to our business. Historically the second and third quarters are traditionally our best quarters and our first and fourth quarters are traditionally a little bit of slower than the other two quarters. And the first and the fourth quarters are impacted by either number of holidays, obviously there are business is not working to the holiday periods and two in certain of our geographies around the world, weather can be a factor, so that hinders fuel consumption kind of as well.

Tien-tsin Huang – JPMorgan Securities LLC

What about fuel volatility just in general, how much exposure do you have today to spot prices spread today versus the (inaudible) of the business has changed quite a bit.

Eric R. Dey

You know about 20% of our revenue today is directly impacted by the movement in the retail price of fuel and the trend has been going down.

Tien-tsin Huang – JPMorgan Securities LLC

Okay.

Eric R. Dey

We’ve acquired a number of businesses since the IPO, in most of those businesses have been non-fuel price centric type businesses they’ve been more fixed fee type businesses. So as a result, you’re going to see that percentage has dropped and it should continue to drop over time.

Tien-tsin Huang – JPMorgan Securities LLC

Okay, okay. Do you think of the rest of world is being a faster grower, because I think North America or U.S. is actually going in a nice clip today. What’s some of the near-term, long-term view on U.S. versus rest of world?

Eric R. Dey

Yeah, I would say our U.S. business has actually performed very well and it’s grown over the last couple of years at, organically in 10% to 12% kind of range. So we are very pleased with the performance. And what we are really pleased, but it’s really all of our businesses in the U.S. have all performed very well and I know that. On the last couple of earnings call, we’ve called out a couple businesses that have performed kind of a little better than the average.

Our MasterCard, universal product in the U.S. has been growing at a much higher rate, kind of closer to the 50% range. And our corporate lodging product or hotel card product in the U.S. has also been growing kind of in the mid-teen. So we are very, very impressed with that. Also our recent acquisitions have performed very well, particularly those acquisitions in the emerging markets, which as you would expect have more opportunities than the other markets that are more penetrated. So we are very, kind of, bullish on the performance of those businesses going forward.

Tien-tsin Huang - JPMorgan Securities LLC

Okay. So let’s dig in on MasterCard. It grew almost 50%. Roughly how big is the MasterCard portfolio today and, if you think about your whole business in the U.S. as a denominator, how much more can you potentially mix shift to this MasterCard product?

Eric R. Dey

Well, in terms of size, I mean, we don’t disclose individual product revenues. But I can say that has become a material part of our business. It is our universal card product. And if you think about it for a second, it has universal acceptance. It has the same fuel controls that our proprietary card has. So it’s a product that appeals to businesses and fleet managers of all sizes and it’s got a recognizable brand name. It’s got a big name. So where are we in the lifecycle of that product? The answer, that’s early. I mean, we’ve only had this product for the last three years or so. So we think there is lots of runway to go with that product.

Tien-tsin Huang - JPMorgan Securities LLC

Do you take on more risk by having this universal product? What’s the negative or things that we should watch you just think it’s bigger?

Eric R. Dey

There is a couple of things with that product. One its, its more of an interchange phase products, so there is some impact related to fuel prices going up and down, it does have some sensitivity to that. But much like all of our other products in the United States I mean we do take the credit risk associated with it, but it’s a fuel card product only, it’s not a universal purchasing card. We’re not into that that business today at all. So effectively it’s the same exposure we would have with any of our products.

Tien-tsin Huang – JPMorgan Securities LLC

You’ve mentioned in the past that the merchant litigation might have a little bit of impact, because of the exposure there. Can you remind us what that might be; I know the settlement is not done yet, but just?

Eric R. Dey

Based on their early read of that it looks like there could be a 10 basis point impact on a MasterCard settlement rate over some eight-month period of time, I think it would impact some part of 2013 and some part of 2014.

Tien-tsin Huang – JPMorgan Securities LLC

Yes.

Eric R. Dey

If the legislation actually passes, and if it does, the impact on our business is relatively minor. May be $2 million to $3 million spread over that kind of two year period of time. So not material in (inaudible) share perform.

Tien-tsin Huang – JPMorgan Securities LLC

Okay, okay and then the lodging management business, you mentioned right, CLC was up in the mid-teens call it. How much of that is just bookings versus increases in spread or yield, just trying to understand how sustainable that growth is for your lodging business?

Eric R. Dey

I going to tell you that business has really, really performed well since we acquired that business back in 2008.

Tien-tsin Huang – JPMorgan Securities LLC

Right.

Eric R. Dey

And literally we have doubled the size of that business. There is two big products, on the lodging business, when we bought it, it was primarily a service that was sold to big companies across America and they would get a certain markup over the cost of a room. Since we acquired the business, we’ve implemented a new product and that’s something that we call check-in direct. And effectively it’s marketing that same huge hotel network basely to small to mid-size fleets. But because of the lack of purchasing power of customers in that segment, we’re able to get a much greater yield when we sell two businesses of that type. So it’s been very, very successful and we are just scratching the surface in that kind of small to mid-size sector.

Tien-tsin Huang – JPMorgan Securities LLC

Okay. So still more to go there?

Eric R. Dey

Yeah.

Tien-tsin Huang – JPMorgan Securities LLC

Your [mind]. So anything sort of booked during the backlog that could drive some big changes to transaction growth or revenue per trend in the North American segment that we should be aware of?

Eric R. Dey

I think it’s just going to be more or the same. Again, I think that we are executing very well. Our businesses are performing very well and I think we should expect to see more or the same certainly in the near to mid-term. So we are very bullish on our prospects.

Tien-tsin Huang – JPMorgan Securities LLC

Okay. So let’s do international and then we can open it up to the audience. You and Ron have been talking about, sort of, I guess four new assets is what I have written down. Maybe can you just go through each of those a little bit Ron, where you are now, where do you see it going and then I shall follow-up to that?

Eric R. Dey

Okay. So we’re talking about just a quick run down on the four businesses we acquired?

Tien-tsin Huang – JPMorgan Securities LLC

Yeah, the four new assets you talked about.

Eric R. Dey

I guess the first business that we bought back in, my God, September of last year was we bought a business in Mexico called Efectivale, and effectively it is a fuel and food card and voucher business in Mexico. Obviously it’s a very under-penetrated market in Mexico. So we’re very, very bullish on just the sales opportunity in the market alone.

But one of the things that we want to accomplish, both from a yield perspective and from a cost perspective was to kind of shift the market away from kind of paper vouchers and more into cards. And in doing so, we can increase the average revenue per transaction, but actually strip a lot of costs out of the business as well. So again, to-date, we are very, very happy with the performance of that business. I think I called that in the last earnings call that we are kind of growing that business organically, kind of in the mid-teens range right now. So I think off to a very good start.

Tien-tsin Huang – JPMorgan Securities LLC

So, just to stay Mexico real quick so, how hard is that conversion going to be, is it going to be a significant upfront cost to drive that change to plastic or is that just something you just turn on at this point.

Eric R. Dey

Well, there is not a big cost to it, but it certainly is a shift in the mentality of the customer base, because they’ve got to get used to using cards versus vouchers. I think it’s an inevitable shift.

Tien-tsin Huang – JPMorgan Securities LLC

Okay.

Eric R. Dey

It’s going to happen, over time, so it just where we are kind of making progress, I think we are going to continue to make progress.

Tien-tsin Huang – JPMorgan Securities LLC

Okay, right. So I’ll let you continue, sorry.

Eric R. Dey

The second business that we bought was a business called AllStar, which is one of the largest, universal fuel card companies in the UK. We acquired that business in September, I am sorry December of last year, the first six months of the year, we are waiting for clearance from the OFT, which is the office of fair trade in the UK and we actually finally received clearance in the middle of this year. So we can actually start running the business kind of the FleetCor way.

Secondly we spend the last six to nine months or so trying to implement our GFN platform in the AllStar business, so we’re kind of well down the path to making that happen and we’re projecting our new system to be in place around the end of the year, give or take 30 days or so. So we are very, very pleased with the performance and then once that system is in, we can actually start marketing other products and services and help to, with various cost reduction initiatives I think we are going to see as a result of that there as well. So

Tien-tsin Huang – JPMorgan Securities LLC

Do you just turn off the legacy platform at that point.

Eric R. Dey

We do, we are going to turn off the legacy platform.

Tien-tsin Huang – JPMorgan Securities LLC

So there will be some savings from that.

Eric R. Dey

That is correct. So there are some significant savings particularly in the IT area, like with any acquisition, I mean our objective is not to struggle on and grow these things that kind of 5% or 10%. Our objective is to double the profitability of these businesses, we are well on our way to do that in Mexico. We think we are going to double the profitability of this thing in the UK as well. So again, couple of steps along the way and more to be done in 2013, but we think we’ll see some real progress at that point in time.

The other two assets that we acquired, they’re more recent acquisitions. In July of this year we acquired a company in the Russian market. So we are just starting the implementation phase there and similarly we just bought a company in Brazil, a company called CTF Technologies. So we are just starting the integration work there as well. So more work to be done, but so far I’d say we’re right on track with both of those deals as well.

Tien-tsin Huang – JPMorgan Securities LLC

Talk a little bit about Brazil. It sounded pretty unique in terms of how you are going to reshape that business from where it is now to where FleetCor wants it to be?

Eric R. Dey

It’s really a unique kind of a business. It’s not a card business. It’s not a traditional fuel card business. For those of you who don’t know the Brazilian market, fraud is a big issue in Brazil. So this company effectively developed (inaudible) RF technology-based product and effectively what it is, is what we’ve partnered with the two biggest oil companies in Brazil where we go and we install a piece of equipment actually on the pump itself, and then we install a piece of equipment on the vehicle itself.

So when a customer wants to buy gas, they actually drive into a gas station, take the pump, put the pump into the gas station and when those two devices actually connect, it sends a signal to our authorization center. Authorization center will then verify that the [validity] of the gas station and verify that that’s an actual customer and if both of those things are validated we’ll actually turn the pump on, but only to the extent that the customer has defined those parameters.

So he may decide that, hey when you going to allow 20 gallons of gas to be pumped in that that vehicle. So we’ll turn the pump on, and when it hits 20 gallons of gas we’re going to turn off the pump.

You know more importantly, because of that technology fuel starts flowing in a different direction we’re going to be aware of that as well. So again it helps to basically minimize fraud. And we’ve also marketed that product to if you think about what it does to some of the largest mining companies in Brazil, think of a giant vehicles that are running around in Brazil that consume massive amounts, these giant vehicles that consume maximum amounts of fuel. So that technology is very, very helpful there as well. So again if we like the technology, it’s kind of a – it’s the biggest fuel management product in Brazil today; enables us to actually get into the country, and down the road, you know we see our way to implementing a card product there that we will market more to the small to mid-size sector, so last to come there.

Tien-tsin Huang – JPMorgan Securities LLC

Is it fair to say that, internationally there is less fuel relatively exposure in a way you price the business? What are some of the drivers, the revenue drivers there that we need not be aware of?

Eric R. Dey

Our models are a little bit different. Again we’ve got 25 different products sell around the world. Each one of those models is unique. We have some models that are spread based models, some models that are sensitive to the absolute moment in the retail price of fuel and we have some fixed fee type businesses as well. You know the businesses we’ve acquired recently had more of a fixed fee component to it. So there is less volatility related to spreads and other things such as fuel price. So, we like that as well.

Tien-tsin Huang – JPMorgan Securities LLC

Just one more on international and then we’ll open it up. Just Europe, legacy Europe, check-in and other areas I think that goes a little bit weaker cyclically or from a macro standpoint. How is it growing versus some of the other regions, there are any sort of quick fix that Fleetcor is working on to be a less cyclical?

Eric R. Dey

Well, we’re always working on something. And I would say that again if I had to characterize what’s going on in Europe, again we’ve got products that perform at different levels. Emerging markets are doing extremely well. Russia is kind of growing in the mid-teens level. I said Mexico was growing kind of in the mid-teens. Brazil is actually off to a great start. It’s actually grown even a faster rate than that.

Our more core Central European businesses are kind of more flat to even down a little bit, primarily as a result of the economy in Europe today. But when you add it all up, again our stated goal is to kind of grow around 10% organically and I think we’re kind of right there where we thought we are going to be.

Tien-tsin Huang – JPMorgan Securities LLC

All right, good. So let me give the audience some chance to ask questions, if there are any or else we can move on.

Eric R. Dey

Yes.

Tien-tsin Huang – JPMorgan Securities LLC

Everyone is waiting for the mike.

Question-and-Answer Session

Unidentified Analyst

Thanks. About [take rate], fully loaded. So, for example, if you look at Sodexo or Edenred, their typical transaction, which is, it’s a similar model, but maybe different end-market to you. They are taking kind of 2.5% from the customers, 2.5% from the merchants, and then another 1% because they have flow. What’s the approximate number for you and how does it vary across different segments?

Eric R. Dey

When you’re talking about a model that kind of exists more in the Mexican market, I would say our models are generally similar because we are very competitive with those other people there. Our product in Brazil is very different than the couple of companies you mentioned, the Edenred and the Sodexo. We are not into the food card business there and we are not into the traditional fuel card market there either. So we have the different products, not very comparable.

Unidentified Analyst

I guess what I’m asking is of the total amount for the customers spend how much are you essentially charging and what percent are you charging for services and your product?

Eric R. Dey

Again, a lot of the economics come from the merchant. So it doesn’t come from the customer at all. In some cases we get card fees and some other miscellaneous fees from the customers. So I would say, in general, it’s a not a lot. Customers essentially pay around retail in those markets for a gallon of gas. So, again there is a not a huge market. The discounts actually come from the merchants.

Tien-tsin Huang – JPMorgan Securities LLC

Anyone else? So just thinking about growing, I am sorry, yeah Chris.

Unidentified Analyst

What do you think your organic growth has been for last three quarters (inaudible)?

Tien-tsin Huang – JPMorgan Securities LLC

Yeah. Question was what’s the organic growth over the two or three quarters?

Eric R. Dey

Again, I think we’ve been in the 10% range for the most part again. I mean, it varies by geography around the world and there’s a lot of puts and takes to it. There is some markets that are obviously growing at higher than the line average and there is some that are growing at kind of at the line average and some little bit less. But in general, I think we are growing at around our stated objective and that’s around 10% give or take. And that’s really before the impact of the economy, obviously the macro. The macro can have a positive or negative effect on organic growth rates as well. Obviously fuel prices, we can’t control. Spreads, we can’t control and FX rates, one way or the other kind of positive or negative impact as well. So I’d say it’s kind of where we thought it’s going to be.

Unidentified Analyst

In terms of the U.S. business, it’s been growing double-digits organically and if you call that the MasterCard has been driving a good amount of that. Can you give us just a little bit more of a sense of how much of that has really been the MasterCard business and really the contribution there?

Eric R. Dey

We have a number of businesses in the United States. We have what I’d call our direct business and we’ve got our partner business and we’ve got our hotel card business. I would say all of the businesses are actually performing pretty well. There is a couple businesses that are performing kind of above the line average. Our direct business, which would include the MasterCard product, is growing above the line average, but again, I called out the specific performance of that MasterCard product within that direct market product line. So that continues to do very well. And again, the CLC is also growing above the line average particularly, because of the success of our check-in direct product. And our partner business, which is also growing, also doing fairly well, but growing more in the single-digit kind of range on that. I answered your question or not but?

Unidentified Analyst

I mean, if so the business is growing 50% year-over-year eventually that becomes that I’m trying to get a sense of is, does if that growth rate precise. Do you actually see the organic growth for the entire U.S. business begin to tick up or just how do we think about just how material that 50% contribution is for the U.S. organic growth?

Eric R. Dey

Again, we haven’t stated organic objectives for pieces of the business like that. Again our organic objective is to grow around 10% at the consolidated level. And again, the U.S. has performed very well, I mean, obviously the MasterCard product is getting to be a significant piece of our business. But eventually, we’re are going to, that’s going to, we’re going to a lot of big numbers coming to play at some point and it’s not going to continue to grow at 50% range. But certainly its going to continue to grow at a very, very healthy rate certainly in the near to mid-term. So again very, very bullish about its prospects. But again overall, I think about our business as a 10% organic growth business.

Unidentified Analyst

Eric you bumped up your credit facility, I think you’re close to a $1 billion sort of liquidity available to use. So what’s next to buy is it more just planting flags in the certain geographies, is it buying the next CLC or do you looking to buy a portfolios or help us think what to expect potentially here based on the pipeline?

Eric R. Dey

Yes, yes and yes…

Unidentified Analyst

Okay.

Eric R. Dey

To what you said. You know for most of you, we did call the stat on our earnings call. We increase the size of our debt facility by $500 million. We did that for a couple of reasons; one, we wanted to take advantage of what was a very, very robust debt market today, and we want to take advantage of the very attractive rates. So we increased the size of our facility by that amount.

And we now have about a $1 billion worth of liquidity. As I mentioned earlier, our objective is to spend about $300 million or so a year in acquisition. So effectively that we want to spend about a $1 billion, effectively over the next three years. So it really gives us a lot of dry powder to continue on with our strategy of acquiring businesses that have attractive business models and geographies that we like so. I think we’re well positioned for the future.

Unidentified Analyst

Any change in who you’re competing against on, on these deals?

Eric R. Dey

You know for the most part they’re very geographically based on main, if you’re looking to a buy a business in Brazil, generally the somebody we may compete with to buy a business would be different than if we’re buying a business in the U.S. or buying a business in Europe or somewhere. Depending on exactly the asset we’re trying to acquire.

Unidentified Analyst

Do you have management capacity to add more countries I mean I know you know you are final over the place obviously? So could we see a little bit of a slowdown there in favor of some of the other areas?

Eric R. Dey

You know, we have a great management team and we really do have a lot of bandwidth and we’ve got a formula to effectively how we grow our businesses, how we acquire them, and how we initially manage the businesses after we acquire them. You know one of the first things that I do after we acquire a business is, is plan to new CFO on the business. The first thing I wanted to do is get control of the cash in these places. We also have a very, very talented group of business development people. And generally, what happens is one of the senior guys in the BD department will be with that, that acquisition kind of from beginning all the way though the end and actually develop the play book in terms of how we are going to run these businesses kind of push close. And that individual will actually stay with that business and help to implement the play book until we can put somebody in that business permanently. So we’ve been very successful doing that and I think we are going to be pretty successful doing it again in the future.

Tien-tsin Huang – JPMorgan Securities LLC

You mentioned on the call also some of this cash might go towards addressing some of the legacy shares that are out there. Can you elaborate on that?

Eric R. Dey

Yeah, on the call we basically describe some of the potential uses of the additional liquidity. And basically, what I said was we are going to have, we could use that money for future acquisitions, which is obviously what we do and we may use some of those proceeds to potentially do a share buyback from our legacy investors. That is a potential use of the fund, so.

Tien-tsin Huang – JPMorgan Securities LLC

Okay.

Eric R. Dey

We’ll see what happens.

Tien-tsin Huang – JPMorgan Securities LLC

Okay. Any other questions from the audience?

Unidentified Analyst

I guess it hasn’t been talked about in a little bit but a couple of quarters ago, you talked about a couple of partner RFPs that were out there. Can you give us an update there if any decision has been made?

Eric R. Dey

We really can’t comment on those stringent at this time. I mean when we have something to say about I think we’ll disclose some but until then I think they are confidential.

Unidentified Analyst

Okay. And then just in terms of – I get this question a lot from investors, just the criteria to do the deals. I know you said $200 million roughly on average is what you’re looking to spend annually. But give us a sense on your criteria or limitations on the size valuation, you are going to pay. I know management retention is something you’ve told me is very, very important. So just talk us through because this is an important part of the growth?

Eric R. Dey

From our perspective, it’s really not about what we pay for the business as much as what we think we can do with the business. I would say our internal goal is, we don't tend to buy many assets that we think that we can't double the profitability of that business over the near term. So if I pay 10 times EBITDA, a lot of cases because I think I'm going to double the profitability of that business and from my perspective I'm paying five or six times EBITDA and that’s the way we look at it internally.

Tien-tsin Huang – JPMorgan Securities LLC

Right, okay. Any other last questions? I got two more. So, just thinking about revenue per tran we sort of read with this I think we can - I guess the tran maybe end on it, I mean there is a big reliance on increasing revenue per tran you guys have had a great track record of doing that; but how do we sort of as external analyst covering the stock, how do we sort of get comfortable thinking about how high that can go? In terms of revenue of tran its really just mix or is it really or there some other factors there that we should consider to get comfortable with them?

Eric R. Dey

It is a couple of things. I mean, one as I mentioned earlier, we invest in sales and marketing. We grow our businesses the old fashion way. But if you think about our business, and look at all of our transactions on a line, I mean we have revenue per transaction in products that are as low as $0.20 a transaction and as high as $8 a transaction. You think about where I'm spending my sales and marketing dollars, certainly not growing transactions on the lower end of that scale.

So simplistically, we are just adding transactions or higher than the line average, so simplistically a lot of it is just mix. And in addition to that we are up selling other products and services, again think of those customers that are on the lower end of the revenue per tran scale. I’m trying to move them from the low end to the middle range or to the high-end. So we are trying to do more work and offer more products to those guys, to enhance our revenue per tran. So we’ve been successful with that as well.

Tien-tsin Huang – JPMorgan Securities LLC

To be clear this is not an outright price increase this is moving you in to a higher value added service and a higher yield.

Eric R. Dey

That is correct.

Tien-tsin Huang – JPMorgan Securities LLC

So we just maybe to build on that I know you’ve given me some examples in the past, can you just spill out one or two examples of you have to name names or specific network products but just to help us clarify MasterCard is pretty simple. But, maybe some of the others that may not be as?

Eric R. Dey

Yeah, some of the other products that we’ve rolled out would include, I mean think of the check-in direct product that I mentioned I mean that’s a brand new product that we rolled out just a couple of years ago that’s been hugely successful, and a much higher revenue per tran product. A couple of other things that we’ve done is we’ve offered these extended network cards.

Tien-tsin Huang – JPMorgan Securities LLC

Yeah.

Eric R. Dey

Where we have a product in the West Coast that we call CFN or Commercial Fueling Networks, and we have added a product to recash other product to that CFN product. And we call it fleet-wide. And effectively, its an extended network card so now a customer can not only buy fuel at the proprietary CFN network. But they can go outside the network and they can buy fuel at other locations. And when they do that it enhances our revenue per transaction because of the merchant relationship that we have with those people outside of the legacy CFN network. We’ve also attached the fuel, the MasterCard [bud] to some of our proprietary major oil company cards. So as an example we offer our card now not only as a proprietary Chevron or BP card but it’s a proprietary BP and Chevron card with a MasterCard [bud] on it. So effectively what we’ve done is we’ve made that card a universal card. But again the economics are much different to us when their customer, if the customer buys gas at a proprietary Chevron station the economics are different if he goes outside the network and buys that same gallon of gas somewhere else.

Tien-tsin Huang – JPMorgan Securities LLC

All right, good. Any others? Lord, I do have two more. So your (inaudible) I guess got bigger in the long haul market and I think in the past you’ve said that that’s not an area of focus for the company. Has your thinking changed on that?

Eric R. Dey

We were obviously involved in that process as well and we learned a lot through the diligence process. And I think that without naming names or anything, I think there is a piece of that business we like a lot and there pieces of that businesses we didn’t like a lot. What’s very attractive to us is some of again, the small to mid-size over the road customers going to some of the non-big three truck stops. The economics of that transaction are very, very attractive to us and we like it. So I think we may see some sales effort geared towards signing of some of those customers in the future.

Tien-tsin Huang – JPMorgan Securities LLC

Okay. Last one from me. Just thinking about mobile, mobile payments has been a big theme obviously for a while here. What’s sort of the mobile play for roughly, I know there’s Telematics and some of these other things, but do you see a big role to play in mobile as it relates to fuel and FleetCor?

Eric R. Dey

We think there’s lots of opportunity there. It opens up other products that we can sell to our customer base. One of the products that we are kind of exploring is a product called, that we like to call Telematics [lite] so to speak. So it’s a Telematics product that it’s geared to a cell phone. And it provides a lot of the same functionality that a hard coated Telematics product might have, but not all of the functionality. So again we think it opens the door to offer other products and services we can like.

Tien-tsin Huang – JPMorgan Securities LLC

Okay. All right, good. All right. I appreciate the update, Eric. Thanks so much for being here.

Eric R. Dey

Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: FleetCor Technologies' Management Presents at J.P. Morgan Ultimate Services Investor Conference (Transcript)
This Transcript
All Transcripts