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Executives

Ron Clarke - Chairman, President & CEO

Eric Dey - CFO

Analysts

Tien-Tsin Huang – JP Morgan

Julio Quinteros - Goldman Sachs

Glenn Fodor - Autonomous Research

David Togut - Evercore Partners

Phil Stiller - Citigroup

Tim Willi - Wells Fargo

FleetCor Technologies, Inc. (FLT) Q4 2012 Earnings Call February 7, 2013 5:00 PM ET

Operator

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to FleetCor Technologies Incorporated fourth quarter conference call.

At this time I would like to turn the conference over to Eric Dey, Chief Financial Officer. Please go ahead.

Eric Dey

Good afternoon everyone and thank you for joining us today. By now everyone should have access to our fourth quarter and full year 2012 press release. It can also be found at www.fleetcor.com under the Investor Relations section.

Throughout this conference call we will be presenting non-GAAP financial information, including adjusted revenues, adjusted net income and EBITDA. This information is not calculated in accordance with GAAP and may be calculated differently than other companies’ similarly titled non-GAAP information.

Quantitative 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 2013 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 2013 guidance, new product and key initiatives and potential business development and acquisition. They are not guarantees of future performance and therefore you should not put any undue reliance on them.

These statements 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 and Form 8-K filed with the Security and Exchange Commission. Others are discussed in our Annual Report on Form 10-K. These documents are available on our website as previously described and at www.sec.gov.

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

Ron Clarke

Eric thanks. Hello everyone. As always appreciate you joining the call today. In my opening remarks, I am going to comment a bit on our Q4 results, discuss some of our highlights from 2012 and then I will close with speaking a bit about our outlook for 2013.

So first off let me turn to the results for the quarter. The Q4 results we just reported were very, very good and up significantly versus Q4 last year. We reported Q4 revenue of $202 million, up 45% and cash EPS of $0.82, up 46%. So basically mid-40s top and bottom for the quarter.

EBITDA reached $108 million for the quarter and at the high level this Q4 performance was really driven by two things. So first, a full quarter of our three newest acquisitions, AllStar in the UK, NKT in Russia and CTF in Brazil. And second, every other major line of business in the company except for our check business grew revenue 14% or more in the quarter. That's 14% or more in Q4. So obviously our core businesses are very, very healthy in their own right.

So let me comment on the reasons that these lines of business grew at this rate. So starting off in the U.S., our U.S. direct business grew double-digit because the MasterCard product volume grew 27% in the quarter, so that product continues to perform. Our U.S. partner business grew on the continued strength of the universal co-branded offering still doing great, and we got some additional lift in our CLC hotel card business from added emergency room nights in Q4 related to hurricane Sandy.

In Europe, our legacy UK businesses, those we’ve owned prior to AllStar both turned around in Q4 and both grew double-digits mostly as a result of stronger volume. And finally, our Mexico revenue grew over 25%.IIt was driven by higher merchant pricing and the continued mix shift to the higher-margin fuel card business versus the food card business. So basically the Q4 was a combination of the three new acquisitions, a full quarter of those and then really terrific 14% plus revenue growth in the rest of our businesses.

So let me now transition over to our full year 2012 results. So for full year ‘12 we reported revenue over $700 million which was up 36% and cash EPS of $2.99, which is up 38%. So the major highlights for ‘12 included first, 14% revenue growth in our U.S. businesses for the full year, all organic. So again a very healthy here in the U.S. We completed two new acquisitions, one in Brazil and one in Russia. We went live with Shell in Asia, the first market helped improve out our GSM system credibility. We turned around two of our existing UK businesses, so they are pointing in the right direction.

We reorganized and strengthened our business development capability to chase even more deals and more places. And alongside that upsized our credit facility to create about $1 billion in liquidity to fund new deals. We turned 20 million shares into public float as our PE investors reduced their shareholdings and finally, FLT led the processing category of stocks returning 76% for 2012. So all in all a really, really terrific year for FleetCor.

And now it’s time to shift over and talk a little bit about 2013 and our overall outlook. So at the midpoint today we’re providing 2013 guidance of $800 million in revenue with almost 50% of that now outside of the U.S. and $3.65 in cash EPS. So that $3.65 reflects about a 22% profit growth target.

So let me speak a bit about the bridge that takes us from $2.99 cash EPS in ‘12 to $3.65 in cash EPS for ‘13. So first, about half of this anticipated earnings increases is already in our run rate or exit rate. So our Q3 and Q4 cash EPS was in the low 80s, so that alone gets us approximately halfway to our $3.65 target.

Second, we’re implementing a number of new product initiatives that will create incremental growth. For example, the U.S. we've launched a new cobranded heavy-truck card that will help us better target our mixed fleets. We've launched a new diesel card for one of our major oil partners to provide an extended diesel network that will give us incremental volume, and we’ve launched the universal fuel card in Mexico, with some selected discounts back at our proprietary network. So a really attractive offer there.

Third, our new assets, we expect to generate additional profit dollars from our four newest businesses. So some of those initiatives we’re introducing a new extended network convenience in our UK business. We’re transitioning to a per trend pricing model from a traditional license pricing model in Russia. In Brazil we expect to get paid for administering millions of dollars of special local merchant discounts for our clients, which we really had historically managed for free. And in Mexico, we’re getting paid more from our fuel merchants as those discount levels are now getting in line with general-purpose credit cards in that market. So really all of these initiatives should contribute to higher revenue per tran in our new assets in 2013.

And then lastly in terms of the bridge, we believe we’ve got some meaningful upside in our global business development pipeline. We’ve got a number of partnership proposals that are finally maturing and which we expect 2013 decisions. We've also got a very developed acquisition pipeline, which we expect will convert into some real business this year. So the combination of run rate, new products, improved performance in our new assets and global BD should drive our results for 2013.

So in closing, I’d say again we’re very pleased with our finish to 2012. We’re optimistic about our prospects for 2013 and I think you know that we will give it our all to try to deliver this guidance this year. So with that, let me turn the call back over to Eric to provide some additional details on our Q4 results and on our 2013 guidance. Eric?

Eric Dey

Thanks Ron. For the fourth quarter of 2012 we reported revenue of $202.6 million, an increase of 45% from the fourth quarter of 2011. Revenue from our North American segment increased 19% to $108.6 million in the fourth quarter of 2012 from $91.3 million in the fourth quarter of 2011. And revenue from our international segment increased 93% to $94 million in the fourth quarter of 2012 from $48.8 million in the fourth quarter of 2011.

For the fourth quarter of 2012 GAAP net income increased 59% to $60.1 million or $0.70 per diluted share from $37.8 million or $0.45 per diluted share in the fourth quarter of 2011. The other financial metrics that we routinely use to measure our business are adjusted revenues and adjusted net income, which we sometimes also refer to as cash net income.

Adjusted revenues equal our GAAP revenues less merchant commission. We use adjusted revenues as a basis to evaluate the company's revenues net of the commissions that are paid to merchant to participate in certain card programs. Commissions paid to merchants can vary when market spreads fluctuate in much the same way some of our revenue can fluctuate when market spreads vary. For this reason we believe the adjusted revenue financial metric is a more effective way to evaluate the company's performance.

Adjusted net income is GAAP net income adjusted to eliminate non-cash stock-based compensation expense related to share-based compensation award, amortization of deferred financing costs and intangible assets, amortization of the premium recognized in the purchase of receivables, a loss on early extinguishment of debt and adjusted for the income tax effect of such item. The reconciliation of adjusted revenues and adjusted net income to our GAAP numbers are provided in exhibit one of our press release.

Adjusted revenues in the fourth quarter of 2012 increased 47% to $185 million compared to $125.5 million in the fourth quarter of 2011. Adjusted net income for the fourth quarter of 2012 increased 49% to $70.7 million $0.82 per diluted share, compared to $47.3 million $0.56 per diluted share in the fourth quarter of 2011.

For the fourth quarter of 2012 transaction volume increased 23% to 78 million transactions compared to 64 million transactions in the fourth quarter of 2011. North American segment transactions were all from organic growth while transaction volumes in the international segment were positively impacted by an acquisition closed in the fourth quarter of 2011 and two acquisitions closed in June and July of 2012. To remind everyone in December of 2011, we acquired AllStar business solutions, a leading UK fuel card company. In mid-June of 2012 we completed the acquisition of NKP in Russia and in July of 2012 we expanded into the Brazilian market with our acquisition of CTF Technologies.

Adjusted revenue per transaction for the fourth quarter of 2012 increased 20% to $2.36 from $1.87 in the fourth quarter of 2011. Adjusted revenue per transaction can vary based on geography, the relevant merchant customer relationship, the payment product utilized and the types of products or services purchased, a mix of which will be influenced by our acquisition, organic growth in the business and fluctuations in macroeconomic environment. When we talk about the macroeconomic environment we are referring to the impact of market spread margin, fuel prices, foreign exchange rate and the economy in general can have on our business.

During the fourth quarter the decrease in the wholesale cost of fuel resulted in higher fuel spread margin, which we believe positively impacted our revenues by approximately $1 million to $2 million. Changes in foreign-exchange rate had a minimal impact on our business during the quarter. And finally fuel prices were up slightly in the U.S. and Europe, and we believe added approximately $1 million to revenue.

Adjusted revenue per transaction for the quarter was positively impacted by organic growth in most of our payment program. In addition, the impact of acquisitions closed in the fourth quarter of 2011 and in 2012 had a slightly favorable impact on adjusted revenue per transaction as some of these businesses have higher per transaction revenue product versus our line average.

Now let’s shift over and discuss some of the drivers of the fourth quarter performance. First, in our North American segment, all of our lines of businesses performed well resulting in an 18% organic growth rate in the quarter versus prior year at the adjusted revenues line. Included in the North American segment revenue was a slightly favorable impact from the macroeconomic environment. Fuel price spreads were favourable. During the quarter the wholesale cost of fuel fell at a faster rate than the retail price of fuel which increased fuel price spread margin and which we believe positively impacted our revenue by approximately $1 million.

Fuel prices were up slightly versus last year in the U.S. but had very little impact on the quarter. Some of the other positive drivers of North American revenue during the quarter included the continued exceptional performance of our direct market MasterCard product which had revenue growth of 48% year-over-year. The CLC Group, provider of lodging management programs continued to perform well and had another solid quarter with 20% revenue growth over the fourth quarter of last year. Included in the fourth quarter CLC revenue numbers was additional revenue from incremental hotel rooms booked related to hurricane Sandy.

Results for our international business were positively impacted by the AllStar acquisition which closed during the fourth quarter of 2011 and the two acquisitions closed in 2012, CTF in Brazil and NKP in Russia. In addition, our independent fuel card provider based in Russia PPR continued to grow with revenue up double digit over last year in local currency. Our legacy UK businesses, excluding AllStar, turned around in Q4 with both of our businesses reporting double-digit growth rates due to stronger volume.

Also, the Mexican prepaid fuel and food card portion of our business continues to perform well with revenues up double digits in local currency. And finally, the macroeconomic environment was generally favorable during the fourth quarter and although we cannot precisely calculate the impact we believe it positively impacted our revenues by approximately $1 million to $2 million.

Now moving down the income statement. Total operating expenses for the fourth quarter were $109.5 million compared to $85.9 million in the fourth quarter of 2011, an increase of 27%. Included in operating expenses are merchant commissions, processing expenses, bad debt, selling and general administrative expenses and depreciation and amortization expense. The increase in operating expenses was primarily due to additional expenses related to acquisitions closed prior to the fourth quarter of 2012.

Included in operating expenses for the quarter was $5 million of non-cash stock compensation expense versus $5.9 million in the fourth quarter of 2011. As a percentage of total revenue, operating expenses decreased to 54% compared to 61% in the fourth quarter of 2011. Credit losses were 13 basis points for the quarter compared to 20 basis points in the fourth quarter of 2011. The improvement in credit losses was primarily due to improvement in the economy and the impact of acquisitions closed in 2011 and 2012 which had product with lower bad debt as a percentage of billed revenue.

Depreciation and amortization increased 52% to $15.1 million in the fourth quarter of 2012 from $9.9 million in the fourth quarter of 2011. The increase was primarily due to the impact of amortization of intangible assets related to our acquisition of AllStar in the fourth quarter of 2011, the acquisition in Russia in June of 2012 and the acquisition in Brazil in July of 2012.

Our effective tax rate increased to 32.6% of pretax income compared to 25.6% for the fourth quarter of 2011. The increase in our effective tax rate was primarily impacted by two items. First, an increase in taxes of $1.9 million, due to the impact of the controlled foreign corporation look-through exclusion expiring for FleetCor on December 1, 2012. The exclusion was retroactively extended in January 2013. However, on December 31, 2012 the retroactive extension had not been passed. So we have to book taxes as of December 31, 2012 based on the law in effect on December 31, 2012 before the extension was passed.

This extension was passed in 2013. We will reverse these additional taxes in the first quarter of 2013, which will result in a lower overall tax rate in the first quarter. The impact of this item on our per share amounts was $0.02. If we had not booked the additional $1.9 million of taxes, our adjusted net income per share in the fourth quarter would have been $0.84 per share versus the reported $0.82 per share.

Second, the much lower rate in the fourth quarter of 2011 was due to the positive impact of retroactive adjustments related to tax planning successfully implemented in foreign jurisdictions where we do business and a reduction in the statutory rate in foreign jurisdictions where we do business.

Now turning to the balance sheet, we ended the quarter with approximately $337 million of total cash, $53.7 million of which is restricted and are primarily customer deposits. The company also had a 500 million accounts receivable securitization facility. At the end of the quarter we had approximately $298 million borrowed against the facility and have the ability to draw an additional $14 million based on eligible receivables pledged against the facility.

We also had $525 million outstanding in our term loan and $100 million drawn on our revolver. We have nearly $1 billion in liquidity to continue our global business development efforts and for general working capital purposes today. As of December 31, our leverage ratio was 1.57 times EBITDA compared to 1.34 times at the end of the third quarter. The increase in the covenant level was primarily due to the additional borrowing to help fund the share buyback in the fourth quarter. Our leverage ratio remains well above our covenant level of 3.25 times EBITDA. The company intends to use its free 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 are not a capital intensive business as we spent approximately $5.5 million on CapEx during the fourth quarter of 2012 and $19.1 million for the full year of 2012.

Now on to our outlook for 2013. For 2013 we’re providing our guidance for revenue to be between $790 million and $810, adjusted net income to be between $300 million and $310 million and adjusted net income per diluted share to be between $3.61 and $3.69. As a result, our guidance at the adjusted net income per share midpoint of the range of $3.65 represents a 22% growth rate over 2012. Some of the assumptions that we have made in preparing this guidance included the following: fuel prices equal to the 2012 average, market spread equal to the 2012 average, foreign exchange rate equal to the 2012 average.

We are also assuming a slight increase in our effective tax rate from 30.4% in 2012 to 30.6% in 2013. We are also assuming fully diluted shares outstanding of 84.5 million shares, a 1.2 million share decrease from 2012 due primarily to the company share buyback in December of 2012. And as always no impact related to future acquisitions or maturing of (ph) new partnership agreements.

For those of you that are looking for guidance for the first quarter, I want to remind everyone that our business has some seasonality and that typically the first and fourth quarters are lower than the second and third quarters in both revenue and profit. In this year in particular, the seasonality is magnified in the first quarter due to Christmas being celebrated in January in Russia and two factors in Brazil where most businesses are on summer break and also Carnival celebrations is in January as well.

As a reminder, we did not own NKP in Russia and TCF in Brazil in the first quarter of 2012. With that said we are expecting our first quarter adjusted net income per diluted share to be between $0.82 and $0.86. This guidance includes lower income tax expense due to the reversal of the $1.9 million in incremental tax expense booked in the fourth quarter of 2012 as I explained earlier. As a result, our first-quarter tax rate is expected to be lower than the remaining quarters of 2013. We have no plans to provide quarterly guidance going forward but rather to update our annual guidance each quarter.

And with that said, operator, we will open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Tien-Tsin Huang with JP Morgan.

Tien-Tsin Huang – JP Morgan

It’s great results and it’s a very strong outlook here. Just to dig into the outlook and the 13% revenue growth, can you break that down for us in terms of organic versus inorganic?

Eric Dey

Hey Tien-Tsin. The organic growth rates are effectively in line with the guidance that we previously had given. So we kind of guide people to around 10% number each year. So we believe our organic rates are in line with that.

Tien-Tsin Huang – JP Morgan

Okay, so no change there. And then similarly just thinking about for modeling purposes I know it’s really tough to be precise here. But just thinking about transaction growth and revenue per tran for the year, any callouts for us to consider as we layer that into the model?

Eric Dey

Yeah we haven’t provided any guidance on that, Tien-Tsin but it should be consistent with kind of the growth rate we experienced in the last couple of years.

Ron Clarke

Hey Tien-Tsin, it’s Ron. I would say that because we’ve got a number of new assets, rolling into ‘13 that we’re expecting higher revenue per tran in those particular assets.

Tien-Tsin Huang – JP Morgan

So this Q (ph) had a little bit more towards that – okay will do that. And then just last one and then I will let others ask, just Ron, you mentioned acquisition pipeline, partner deals pretty high, just curious about the acquisition pipeline, how has that changed, it’s the last time you spoke publicly and curious as to the size and quality of the things you’re going after, is it similar to what you actually closed in 2002 or should we look for something different?

Ron Clarke

I guess two comment. I’d say on both the deal side and the partner side the difference is I think they both are little more mature or more developed. I think we've progressed farther in terms of getting to the end of those. And in terms of the deal portfolio, I think it’s like – it’s a mix, we’ve got stuff in a variety of places and we’ve got some stuff that’s pretty big and we’ve got some stuff that’s not so big. So I would say across – so that is a mixed engine.

Operator

Our next question comes from the line of Julio Quinteros with Goldman Sachs.

Julio Quinteros with Goldman Sachs

Two quick ones, First the 14% number that you guys cited, was that all organic growth for the fourth quarter?

Eric Dey

It was, Julio. It’s all organic growth.

Julio Quinteros with Goldman Sachs

And then secondly, looking at the conversion between the revenue per transaction on the international side and the North America side, and that's a pretty dramatic shift in terms of how close you look now only about 30% -- $0.03 spread between those two, how sustainable is that as we think about kind of the outlook for 2013 in terms of the run rate and the revenue per transaction side relative to the international business here?

Eric Dey

Every time we do acquisitions, we effectively kind of reset the bar. So included in the revenue per tran in the international numbers are CTF and NKT which were obviously acquisitions that we closed in the middle of the year. So the run rate that we’re experiencing kind of at the end of the year is the new run rate.

Ron Clarke

Julio, it’s Ron, I’d just add a couple things. So one, the international you will see better revenue per tran in ‘13 in that segments of the regions that I mentioned earlier, to sell a bunch of assets in that international group and I tried to give a little flavour of what we're doing to kind of move that up. You should see a better number next year, this year.

The related one was just Shell, just going to comment on Shell, as we start to pour those transactions into our transaction count, that obviously is something that we take the international number the other way. We will again call it out for you but that would be the one -- one thing that we’d take the revenue per tran in the opposite direction.

Operator

And our next question comes from the line of Glenn Fodor with Autonomous Research.

Glenn Fodor - Autonomous Research

VeriFone had said they’re investing in re-terminalizing station owners with new acceptance methods that are little more sophisticated. Just wondering if you can opine a little bit on what you think about the implications for your company, as technology changes at the pump,.

Ron Clarke

Are you talking Glenn, here in the States or are you talking in Europe or where?

Glenn Fodor - Autonomous Research

In the states.

Ron Clarke

Until I guess the thing gets to the chip and pin like it is in Europe, I’d say it’s probably not much changed for us. So really until kind of the card format changes we would have to go through a card conversion I’d say it’s not very important to us.

Glenn Fodor - Autonomous Research

So the worries of increased investment costs in pace with technology not really is an issue here.

Ron Clarke

I guess for us we obviously run card no matter what’s at the point of sale. The only thing that would really affect our business would really be a technology change from mag-stripe to chip and pin that would cause us basically they have to cycle out those cards.

Glenn Fodor - Autonomous Research

We are facing chip and pin at some point, so have you couched at all or have you – what kind of cost that you’re going to have to incur because this is inevitable?

Ron Clarke

Again it’s not much for us, it’s really all in the cad because we’ve obviously got that capability inside of our platforms, as our platforms obviously run in Europe as well. So I would say it’s low single-digit millions kind of a number.

Operator

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

David Togut - Evercore Partners

Growth in North American revenue per transaction more than doubled to 13% year-over-year in the fourth quarter from 6% in the third. You mentioned the additional emergency rooms for CLC because of hurricane Sandy but can you walk through some of the underlying drivers of that acceleration in revenue per trans in North America and to what extent do think that’s sustainable in ’13?

Eric Dey

David, again from a guidance perspective we kind of guide people to from an organic perspective that we’re going to grow our revenue at around 10% organically. And as Ron indicated earlier going into 2013 it will probably be a little more skewed in the international side because of some of the acquisitions that we completed. Certainly we’re going to continue to grow the U.S. business at a very healthy kind of organic growth rate but we really haven’t provided guidance specifically for each of the two segments. So I would kind of think about it as a whole, as again FleetCor being around 10% organic growth business. And for a lot of factors that Ron called out in this section of the call.

Ron Clarke

Just another add, David, a couple other things to help in the U.S., so one, we introduced some add-on reporting features in the second half of the year that kind of hit that got booked, later in the year they gave us probably a couple of points of lift. And b, we finished from a Shell perspective really strong and so I think our volume was a little stronger in the fourth quarter than we had planned, gave us another call it one or two. So I would say that we picked up three or four points for those regions and probably again to Eric’s point, you guys should think about 10% going forward.

David Togut - Evercore Partners

On the MasterCard direct product 48% revenue growth in the fourth quarter, in what inning are you in terms of converting the private label books of business over to MasterCard and how long is the runway for growth in that business?

Ron Clarke

So again, those are two separate things, you said though, again our direct business – when we refer to the direct business, that’s a end fleet. So they run plumbing company where we go out directly to the end client. That’s the business that Eric related it’s growing up 48%. The partner business where we have co-branded offerings with big oil partners, I’d say that business is probably its seventh-inning in terms of conversion. When I say direct business, we are in the second or third inning still.

David Togut - Evercore Partners

Can you maybe give us a sense in terms of how big the driver of the direct business was versus the cobrand business in terms of driving revenue per transaction up in the quarter?

Eric Dey

They were both pretty significant drivers, in our direct business although we don't again specifically call out numbers for those various products, our direct card business was helped by spreads during the quarter. So we believe we had $1 million in kind of unusual favorability or one-time favorability because of higher than normal spread. So that was helpful during the quarter and again just increased sales in those two products, and those products have higher than kind of line average revenue per trans. So both of those factors kind of drove thegrowth in the quarter.

Ron Clarke

But we did disclose David, again just so you know, both of those businesses had grown 14% or more, so that they obviously were both growing.

Eric Dey

Correct, there was booked volume and revenue per tran.

David Togut - Evercore Partners

Quick final question from me, does your 2013 outlook include possible merchant litigation settlement being finalized between MasterCard, Visa, the issuers and the merchants and the 10 basis point interchange cut that they've offered up?

Eric Dey

Yeah David, I mean effectively that 10 basis point settlement for us is basically immaterial. And half of it will be spread over 2013 and half of it over 2014. So effectively – and we don’t specifically budget for it but again it’s just not a material number for us.

Operator

Our next question comes from the line of Phil Stiller with Citigroup.

Phil Stiller - Citigroup

I guess my first question on the international side you guys had roughly $9 million sequential increase in revenue. Just wondering if you could provide some more color on that, how much was related to some seasonality related to the two acquisitions that you have, how much was related to some of the new product and pricing adjustments you guys talked about?

Eric Dey

Hey Phil, this is Eric. Actually it’s a little bit of both. Obviously we cleared deal with the AllStar in the middle of the year. We’ve obviously started operating some of the other businesses we acquired, I mean CTF and NKP as an example. So we are starting to operate those businesses and as you would expect we’re starting to improve the performance of those businesses. So it’s a little bit of both. So our existing businesses are performing well and we’re starting to increase the revenue and the performance of those other businesses we acquired, so it’s both.

Ron Clarke

The other thing, Phil, is the two businesses that we called out the Brazil business and the Russia business, strangely the fourth quarter is actually the strongest quarter for those two businesses because their holidays basically fall in this quarter in Q1. So unlike a lot of the other lines of business in the company where the fourth quarter is softer, those two are every year significantly better in Q4.

Phil Stiller - Citigroup

In terms of your plans to extract the accretion from these deals that you completed over the past 18 months, and where would you guys say you are in terms of that progression? Are we at the full run rate of some of these product pricing adjustments in the fourth quarter or is it more to come in, and then I know you guys talked about some platform consolidation on the AllStar business in the past, where is that progressing?

Ron Clarke

I would say the headline is much more to come. So like always we do the state work on these things in terms of confirming our facts and testing reaction to these changes and in some cases like in Mexico we’ve got to go out to 500 merchants to get them to market in terms of rates for rates so that process can take months. So I would say we’ve got a little bit of that kind of exiting ’12 but much, much more to come in 2013.

Phil Stiller - Citigroup

Just last question on the acquisition pipeline, can you talk about competition you guys are seeing? I know there has been a few deals in the space you guys haven’t been involved over the past six to 12 months. As a product of your success, are you seeing more competition on those acquisitions and valuations are becoming more expensive, how do you guys think about that?

Ron Clarke

I think it falls, Phil, really into two buckets. I think where deals shopped, the answer is yes, but I think there is more people that like our space now and more people that have money, so it caused us probably to pay more and we still have obviously deals that we kind of sole source where we build relationships and we think a good home for the target. And so in those cases I’d say we are paying what I’d call reasonable prices. And I’d say sitting in our inventory today, we have both of those flavors.

Operator

Our next question comes from the line of Tim Willi with Wells Fargo.

Tim Willi - Wells Fargo

I had two questions. First in the North America, could you – if you made the comment, I apologize but could you talk about what you saw sort of same customer level, just sort of your sense around organic activity of your customers or new business formations, anything along those lines that you saw in the quarter that’s worth calling out?

Ron Clarke

Tim, it’s Ron. I’d say no real news there, it’s really still flat. We got really zero health in Q4 what we call same-store volume. So again our growth comes from having either a) more clients and more trans than we had before, or b) having them on product that we enjoy more revenue, not lift basically from them growing.

Tim Willi - Wells Fargo

As a follow up to that, your comments around the direct MasterCard, I think you said a 48% growth. What percentage of new direct sales are the MasterCard product, is that pretty much the only product that's being managed from new direct customers now?

Ron Clarke

Yeah I’d say without getting into too specific, it is probably around ballpark half our U.S. sales, so the answer is no. We still sell a fair amount of our proprietary products, they appeal to different segments of the market. So we still sell both. I think the new news of why the U.S. business is growing faster the last couple of years is that the new product appeals to a new segment that we couldn’t historically sell. Like selling minivans versus Ford’s cars, right, you bring different people into the market and then b) we’ve got a number of new channels working, I think I mentioned our Telematics partnership contributed 10% of the U.S. sales in 2012 and that channel didn’t exist two years ago. And so it’s a combo of the product opening up a new market and us expanding and investing more in the channels has allowed us to basically grow faster now.

Tim Willi - Wells Fargo

My last question and I will hop off. The UK, you talked about volume keeping up, is that something you're doing on market share or specific to the work with AllStar as compared to something at a macro level because I guess the macro news that we’re seeing here, wouldn't support any notable uptick in economic activity. I’d be curious what you attribute that reacceleration to?

Ron Clarke

That’s another really good question. So again the comments that we made deal with the legacy businesses we have in the UK. So those grew 14% or more without AllStar, so leave AllStar out. So the short answer to why those businesses are healthier and turned the corner is mostly about the market. So those two products are what we call spread based products, their appeal to the market is attractive pricing and our pricing is attractive when we have more spread to work with. So let’s say there was a dime of spread we might be able to give customers couple of cents off and still make some money versus it’s spread were four cents, we can’t really give customers anything off to make any money. So that UK market just why its spread is back to more of a normalized level versus the prior year. And so our products not only sold better to new prospects but we got greater utilization out of the customer base that we have, because the offer of our products was more attractive to them last year. So we are hoping that the 2013 environment stays basically in the same place as it was last year.

Operator

Our next question comes from the line of [Kotak Unoki] with Pacific Capital.

Unidentified Analyst

I have two quick ones, the first one as far as the Shell contract that concerned, can you guys please give us some sort of color to the size of that opportunity in terms of dollars and how much Shell revenues you guys have modeled in, into that $800 million of revenue for this year? And the second question the universal card, can you guys replicate the same model with Visa or do you have some sort of exclusivity with Comdata that prevents you from doing anything else?

Ron Clarke

This is Ron. Let me take the Shell question first. So again I think the short answer is there's not much impact in revenue for our company as we roll out Shell. Though again the plan is to start to bring on more of their market this year and in the balance of their market next year, and what basically is changing is the nature of revenue that we’re getting. So in the prior couple of years we got paid for developing and migrating and supporting and helping basically get them for paired and get the system in, and now we’re going to get paid basically for them running our system. So it’s more attractive revenue to FleetCor but frankly it’s not much different in absolute size. And the comment about that absolute size is it’s not material, again t’s a single-digit million relationship both whether it was the prior development model or the existing one. The play there as we've said is we’ve build a good relationship with that company and our hope is to be helpful to them running their program globally. Where they could use this for other things beyond just being a processor for them. So that was always the basis on which we target them with the client.

Operator

Thank you. Ladies and gentlemen that concludes our conference call for today. This is the conclusion of the FleetCor Technologies Incorporated fourth quarter conference call. We thank you for all of your participation and you may now disconnect.

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