Wright Express CEO Discusses Q4 2010 Results - Earnings Call Transcript

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 |  About: WEX Inc. (WEX)
by: SA Transcripts

Wright Express Corporation (WXS) Q4 2010 Earnings Call February 10, 2011 10:00 AM ET

Operator

Good morning. My name is Tameka and I will be your conference operator today. At this time, I would like to welcome everyone to the Wright Express Fourth Quarter and Year End 2010 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Mr. Steve Elder, Vice President of Investor Relations, you may begin your conference.

Steve Elder

Good morning. With me today is our CEO, Mike Dubyak and our CFO, Melissa Smith. The financial results press release we issued earlier this morning is posted in the Investor Relations section of our website at wrightexpress.com. A copy of the release has also been included in an 8-K we submitted to the SEC.

As a reminder we will be discussing non-GAAP metric specifically adjusted net income during our call. For this year's fourth quarter adjusted net income excludes non-cash mark-to-market adjustments on our fuel price related derivative instruments and the amortization of acquired intangible assets as well as the related tax impacts. Please see Exhibit 1 included in the press release for an explanation and reconciliation of adjusted net income to GAAP net income.

I'd also want to spend a moment discussing our future reporting segments. When we file our Annual Report we will have two reporting segments; fleet payment solutions and other payment solutions.

The fleet payment solution segment will include what we have historically reported in the fleet segment as well as the Australian fuel business we recently acquired. The other payment solutions segment will include our MasterCard business as well as the Australian prepaid business.

I would also like to remind you that we will discuss forward-looking statements under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors including those discussed in our press release, most recent Form 10-K and other SEC filings. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not rely on these forward-looking statements after today.

With that, I’ll turn the call over to Mike Dubyak.

Michael E. Dubyak

Good morning, everyone. Thanks for joining us. Let me begin by saying that I'm extremely pleased with our 2010 full-year results. We finished 2010 in a very strong position reporting full-year revenue growth of 24% and adjusted net income growth of 26% compared to the prior year. The growth was fueled by improving trends within our core fleet business, exceptional growth in our MasterCard business and the addition of Wright Express Australia.

During my prepared results this morning, I will focus on a few key areas. First, I will briefly review some highlights for the fourth quarter including key performance metrics and trends. Second, I will talk about some of the recent advancements we have made in our long-term strategy to diversify our business and drive long-term growth. And finally, I will wrap up with our outlook for 2011.

Revenue in the quarter exceeded the high end of our guidance range, while earnings met the top end of our range.

Total revenue for the fourth quarter rose to $114.9 million from $83 million in the prior year quarter, primarily driven by stronger growth in our MasterCard revenue, transaction growth, fuel prices, and a full quarter of revenue from our Australian businesses, which was $17.4 million and inline with our expectations.

As you recall, Wright Express Australia is comprised of the recently acquired assets from Retail Decisions. For the quarter, we also reported adjusted net income of $28.8 million or $0.74 per diluted share.

Looking at our core domestic fleet business, as we noted last quarter, trends continue to show improvement with fleet fueling volume in our installed base or same-store sales growing 2% over the prior year. Payment processing transactions trended higher posting 14% growth year-over-year, which included our Australian fuel business.

In addition, this was our best quarter of growth domestically since 2008 and our third consecutive quarter of year-over-year growth. We also saw the number of vehicles serviced during the quarter continue to rise. We ended the year with a total number of vehicles serviced at 5.4 million, an increase of 17% over Q4 of last year. This healthy improvement was driven by both domestic and international growth.

Our domestic sales force added over 500,000 gross new vehicles in 2010 with key wins including ConocoPhillips and the State of Florida. On the international front, we added 320,000 vehicles with the purchase of the Australian business and BP came online in New Zealand in September.

Our commitment to customer service continues to pay off. We believe that our ability to assess customer credit risk and our focus on proactive conversations with our customers has led to increase customer satisfaction and lower credit losses than historical levels. As a result, we saw total attrition decrease to 4.1% with voluntary attrition at a low of 1.4% for the year. Essentially, these numbers reflect our long-term customer centric focus and strategy.

Our MasterCard product has been a significant driver of growth over the last 12 months and we expect it will continue to be a significant growth engine in 2011. MasterCard spend volume in the fourth quarter increased 54% year-over-year to $1.2 billion, driven in large part by our single-use electronic payment product. We are focused on expanding the customer base and have experienced some strength in other verticals such as insurance.

Moving to our international business, during 2010 we substantially expanded our capabilities to provide both payment processing and card issuance services. As we noted earlier, BP New Zealand is live and we are in the final stages of bring bringing BP Australia on line this quarter. In addition the acquisition of Wright Express Australia has proven successful with this business showing solid traction and growth since we closed in mid-September. In fact in just three months total vehicle serviced in Australia has grown to $320,000, which was primarily driven by the initiation of their first private label program.

The hiring of Gareth Gumbley, which we announced last month, is another important step in executing on our global expansion strategy. Gareth joins the company as Executive Vice President for Wright Express International. Gareth’s expertise in the payments and processing businesses will surely bolster our capabilities on the international front. Additionally, David Howe, Managing Director of Wright Express Australia Fuel Cards will be broadening his role to manage fleet card operations in the Asia Pacific region.

Now I’d like to take some time to go over our general thoughts for the upcoming year. I am very confident about our prospects into 2011 and I expect this to be another year of impressive growth with adjusted net income growing roughly 20%.

Over the course of 2011, our strategy remains unchanged. We will continue to capitalize on the multiple avenues of growth we have in front of us. One, extend our leadership position in North America and grow our core fleet segment. Two, grow MasterCard purchase volume and pursue new prepaid products. Three, further build on our successes internationally.

In domestic fleet, we plan to build off the front-end growth that we achieved in 2010 as we target in excess of 400,000 gross new vehicles for 2011. We will also start to see the impact from recent customer signings late last year such as the ConocoPhillips portfolio.

In addition, we expect to drive organic growth in our existing customer base by leveraging our competitive advantages, attractive credit terms, unique financing model and unrelenting focus on customer satisfaction. We will continue to explore new strategies to bring innovative new products to market. And finally, we expect further lift as the macro environment continues to improve.

Our other payment solutions continues to be a growth engine for us. To support the opportunity we see for the MasterCard business, we plan to expand our sales force and are targeting additional verticals for our single-use electronic payment product. We will also further explore new platforms in the prepaid card space such as payroll cards and incentive loyalty programs, which we can leverage our current client base.

Lastly, building off the success we have had with Wright Express Australia, we will be focusing on bolstering our international business. We will look for additional opportunities to expand our international business that leverage our competitive strengths and open new avenues of growth through both acquisitions and organic opportunities.

To summarize, in 2011 we are focused on delivering solid growth by continuing to expand to our existing customer base, diversify our business with new products and build out our international capabilities. We plan on leveraging the company's financial strength and flexibility to take advantage of opportunities for acquisitions and alliances in the marketplace, which will further support our strategy to drive substantial long-term growth for Wright Express.

With that, let me turn the call over to Melissa to discuss our financials in more detail and to provide our guidance for 2011. Melissa?

Melissa D. Smith

Thanks, Mike, and good morning everyone. To echo Mike's comments, we had another great quarter with better than expected results and continued improvement in several key performance metrics.

For Q4, the acquisition of Wright Express Australia, growth in MasterCard purchase volume, higher fuel prices and payment processing transactions growth favorably contributed to our results compared to Q4 2009. The improving trends reinforced our confidence that the positive momentum that we have seen over the past few quarters will carry over into 2011 and is reflected in our guidance.

For the fourth quarter of 2010, we reported total revenue of $114.9 million, an increase of $31.9 million for the prior year period. This compares to our guidance range of $107 million to $112 million. For the fourth quarter, revenue from Wright Express Australia was $17.4 million.

For the fourth quarter net income to common shareholders on a GAAP basis was $18.5 million, a $0.47 per diluted share compared with $12.1 million or $0.31 per diluted share in Q4 last year. Our non-GAAP adjusted net income increased to $28.8 million or $0.74 per diluted share, which met the high-end of our guidance range.

For the full year 2010, revenue grew 24% to $390 million from $315 million in 2009. On a GAAP basis, net income was $2.25 per share in 2010 compared to $3.55 per diluted share in 2009. On an adjusted net income basis, earnings grew 26% to $2.75 per share versus $2.18 per share last year. As referred to Exhibit 2 in our press release beginning with this quarter, you will see statistics include our international business.

Our net payment processing rate for Q4 2010 was 1.73%, which was down two basis points versus Q4 2009 and down five basis points from the third quarter of 2010. The biggest driver of the sequential decrease in the rate was higher fuel prices. In addition, as we discussed last quarter, Wright Express Australia has a slightly lower net payment processing rate than the domestic business.

MasterCard purchase volume was up 54% from Q4 last year to $1.2 billion, which was in line with our expectations. Revenue from MasterCard was up by 57% year-over-year to $15.9 million. The MasterCard net interchange rate for Q4 was 1.01%, down 11 basis points year-over-year primarily due to higher foreign spend which has you know has a lower interchange rate.

Moving down the income statement, total operating expenses on a GAAP basis were $72 million for the fourth quarter. We continue to focus on tightly controlling our underlying cost structure while making incremental investments in growth initiatives including research, marketing, and international business development. Salary and other personnel costs for Q4 were $23.6 million compared to $20.3 million in Q4 last year. The majority of the increase is due to the Australian acquisition.

Domestic fleet credit loss was 19 basis points for the fourth quarter compared to 20 basis points in the prior year period and within our guidance assumption of 17 to 22 basis points. In total, credit loss for the fourth quarter was $7.2 million compared with $5.2 million in Q4 last year.

Total charge-offs in the quarter were $4.2 million and recoveries were $1 million. Our effective tax rate for Q4 on a GAAP basis was 37.6% compared with 40.9% in the fourth quarter of last year. Our adjusted net income tax rate this quarter was 37.5% compared to 39.1% for Q4 a year ago. The decrease in the rate is due to a mix of international earnings. We expect our ANI tax rate will be between 37% and 38% for 2011.

Turning to our derivatives program, during the fourth quarter of 2010, we’ve recognized realized cash loss of $1 million before taxes on these instruments and an unrealized loss of $10 million. We concluded the quarter with net derivative liability of $11 million.

As previously reported, we have hedged approximately 80% of our domestic exposure to the fourth quarter of 2011. Including our purchase in December, we’ve also hedged 53% of our North American exposure for the first quarter of 2012 and approximately 27% of our exposure for the second quarter of 2012.

For the first quarter of 2011, we’ve locked in a price range of $2.77 to $2.83 per gallon. For the full year, the average price we've locked in at the top end of our collar is $2.95 per gallon and increases quarterly as we move through the year.

By hedging in an environment of increasing fuel prices, the company's average hedge price of fuel continue to rise while protecting the company against the volatility of short-term fuel prices. In addition the unhedged portion of our fuel business should experience a positive impact of higher fuel prices.

As a reminder on a go forward basis, we do not plan to hedge our fuel price exposure specific to Australia as the exposure is more limited and is not historically fluctuated to the degree it has in the United States. We will continue to target hedging 80% of our fuel price exposure in the U.S. on a rolling basis, which will effectively cover 65% to 70% of our overall exposure.

Turning to the balance sheet, we ended Q4 2010 with a balance of $332 million on a revolving line of credit and $75 million on our new term loan. The line of credit carries an interest rate of LIBOR plus 70 basis points while our term loan carries an interest rate LIBOR plus 250 basis points.

At the end of the year, our leverage ratio was 1.9 times EBITDA compared with 0.9 at the end of Q4 last year. As we noted last quarter, our near-term priority will be to pay down debt while we continue to explore acquisitions.

In the fourth quarter, capital expenditures were $7 million. For 2011, we expect CapEx to be in the range of $28 million to $35 million compared to $28 million for 2010. Again this is comprised of ongoing investments in new products, efficiency initiatives and international investments, which comprised a majority of the year-over-year increase.

Now to our guidance for 2011, which reflect our views as of today and are made on a non-GAAP basis. For the first quarter of 2011, we expect to report revenues in the range of $113 million to $118 million and adjusted net income in the range of $24 million to $27 million or $0.63 to $0.69 per diluted share. These figures assume normal seasonality trends in the MasterCard and prepaid businesses and credit losses.

For the full year 2011, we expect revenues in the range of $497 million to $517 million and adjusted net income for the full year of 2011 in the range of $123 million to $131 million or $3.17 to $3.37 per diluted share.

Our guidance assumes domestic fleet credit loss for the first quarter will be between 20 and 25 basis points and the full year is expected to be in the range of 15 to 20 basis points.

The fuel price assumptions for the U.S. are based on the applicable NYMEX futures price. For the first quarter we expect fuel prices to be $3.20 per gallon. For the full year, we expect fuel prices to be $3.19 per gallon. We are also extending the exchange rates for the Australian dollar will remain a parity for the year.

Now we’ll be happy to take your questions. Tameka, can you proceed with the Q&A session please.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Tien-Tsin Huang with JPMorgan.

Tien-Tsin Huang - JPMorgan Chase

Hi. Thanks. Good morning.

Michael E. Dubyak

Good morning.

Tien-Tsin Huang - JPMorgan Chase

Great quarter. Few questions, I guess first the high level question for you Mike. Maybe just thinking about the pipeline, 2010 obviously was a great year for new wins. I'm curious how does 2011 look now in relation to ‘10 in terms of pipeline in the word potential.

Michael E. Dubyak

Well we clearly are saying we are still targeting in that range of 400,000 vehicles. We feel very confident where our pipelines are today. Both from small fleet to large fleet, we see great production. We are seeing better results today than we were a year ago on the marketing side to generate leads, search engine marketing, online apps, so all of that’s working well on the small side. We’ve taken on two new private labels over the last year and a half and they’ve added sales reps that we manage. So on the small side we feel very bullish. We are expanding up market we had great wins last year. We have great opportunities in the pipeline this year.

MasterCard still has we are seeing great runway in front of it. We are getting the macro improvements on the economy. We see our annuity growing the same-store sales so from just our core business that alone start talking about international, we feel very bullish going into this year.

Tien-Tsin Huang - JPMorgan Chase

Terrific. And just I guess maybe the international side, how does that qualified pipeline look today?

Michael E. Dubyak

As we said, it's more long-term. We are going to roll out BP Australia in the first quarter so that will come online. We’ve talked about signing an agreement with them on an international basis, so it doesn't mean we automatically win other business, but we have the ability now to work with them on a global basis. And we are pursuing some others.

I think for us it’s always about can we build something long-term with some of these people in terms of offering operational services. So in Australia we know we can do that.

David Howe’s promotion is all about that and we think he is a strong leader. And there is no reason why he shouldn't be now trying to get fully operational services for his operation with the oil companies that we are doing business with. So we will continue to try to do that around the globe to build the operations capability either through acquisitions or alliances. So that pipeline is being worked and we are hoping for successes this year that we can announce.

Tien-Tsin Huang - JPMorgan Chase

All right, great. And I guess in Australia Wright came in a little better than we expected. I'm curious to hear if there have been any surprises with Australia Wright now that you own it and separately with some of the floods that are happening there, any impact plus or minus you can you’re managed to talk about?

Michael E. Dubyak

Yeah, there’s no surprises. We did well on the year. I would say the prepaid business was down slightly there fourth quarter, as you know in prepaid its all about the month of December as pretty much about all 10 days before and after Christmas.

Tien-Tsin Huang - JPMorgan Chase

Right.

Michael E. Dubyak

They have some dynamics in their market place that depressed gift cards sales where a lot of the retailers were doing sales before the holidays. So people were actually going to stores to take advantage of that versus buying gift cards and getting the sale prices after the holidays. But again that was down slightly. We are still very bullish about that business growing this year. The fleet card business was up slightly. So together they came in pretty much on the expectations we expected.

We talked about a private label pizza business that was brought on since we have owned them. That is the first that they done, we hope there will be more of those since we do that as you know in the U.S.

The Queensland situation, it's still hard to say, we are building some of that into our plan this year. So we’ve already downward adjusted to some extent and we are being careful also on how we’re projecting bad debt. But just like Katrina, we’re going to do the same things with our business down there.

When Katrina hit in the Mississippi Coast and New Orleans was hit, we worked with all of our small fleets and fleets of all sizes to workout payment schedules versus shutting them off and we’ll be doing the same thing in Queensland to work with these small businesses. They will come back, they’re just going to have the cash flow problem for a while. So I do think we’ve taken initial downward hit, what we don’t know is how much of an upside hit on the rebuilding we will get.

Melissa D. Smith

One other thing to note is that the revenue came in a little higher than the range we’ve given out, but that's just conforming to our reporting conventions. The business came inline with our expectations.

Tien-Tsin Huang - JPMorgan Chase

Good to know, Melissa. Maybe just one more housekeeping and then I will get off, maybe I missed it if you gave it, I’m sorry. The Australia ReD impact on transaction growth, in the quarter, did you provide that?

Melissa D. Smith

You can see in Exhibit 2.

Tien-Tsin Huang - JPMorgan Chase

Okay.

Melissa D. Smith

You can actually do the math because we provide the fuel price split out, so you can see gallons both for the domestic business as well as the international business and you can calculate from that. The domestic business grew 7% in Q4. And so you can actually do the math on the other side too.

Tien-Tsin Huang - JPMorgan Chase

Perfect. I'm punching in a calculator. Thanks a lot.

Melissa D. Smith

Sure.

Operator

Your next question comes from the line of Greg Smith with Duncan Williams.

Greg Smith - Duncan Williams Inc

Hi, good morning. The account servicing fees were way up, was there anything unusual in that number this quarter?

Melissa D. Smith

See Australian fleet business has significantly higher account servicing fees per month per vehicle than we do here in the U.S. a little bit less on payment processing revenue. And so that's really driving the bulk of the growth.

Greg Smith - Duncan Williams Inc

Okay. So it just purely Australian?

Melissa D. Smith

Yes.

Greg Smith - Duncan Williams Inc

Okay. And then what’s your diesel/gas mix at this point I guess the average fuel price was a little higher is it creeping up towards diesel in the overall mix?

Melissa D. Smith

It's about 30%.

Greg Smith - Duncan Williams Inc

Diesel?

Melissa D. Smith

Yeah. Yeah, I’m sorry 30% diesel and that's been relatively consistent.

Greg Smith - Duncan Williams Inc

Okay. Fair enough and Melissa, was there any movement on the wholesale and retail spread this quarter?

Melissa D. Smith

There was nothing significant, no.

Greg Smith - Duncan Williams Inc

Okay. And then just the single-use payment product that's obviously growing very nicely, can you just remind us of the margin profile of that business. What does it look like relative to the rest of the business?

Michael E. Dubyak

Typically when we are talking online travel especially since there's not much customer interface, we've rebate at a higher level than we would on a say a purchasing card program or some of the other single use programs were there might be more interface. So as those transactions and that growth continues it does bring down the overall net payment processing rate because we are rebating a lot back to the customer or the partner.

Melissa D. Smith

But in terms of margins, they are pretty prevalent, it’s a little bit lower but not significantly lower because they are paying us more rapidly and the credit exposure is minimal.

Greg Smith - Duncan Williams Inc

Yeah, I mean only credit exposure is to the corporation essentially?

Melissa D. Smith

Correct.

Greg Smith - Duncan Williams Inc

Thank you. Okay.

Melissa D. Smith

Correct.

Greg Smith - Duncan Williams Inc

Great that’s all I had thanks guys.

Melissa D. Smith

Thanks.

Michael E. Dubyak

Thanks.

Operator

Your next question comes from the line of Bob Napoli with Piper Jaffray.

Robert Napoli - Piper Jaffray

Thank you. And good morning and nice job. So I just wanted to make sure your 10-cents question on the domestic transaction growth was 7%?

Melissa D. Smith

Gallon growth. Payment processing gallons and you can get that from Exhibit 2 in the press release.

Robert Napoli - Piper Jaffray

Okay. What was the transaction growth in the U.S.?

Melissa D. Smith

It was approximately 5%.

Robert Napoli - Piper Jaffray

Can you give me a January number? How does that trend through the quarter and basically it’s an important driver for 2011?

Melissa D. Smith

We haven’t seen any significant changes. I guess I would say that. The business still looks strong going into the first quarter so far.

Robert Napoli - Piper Jaffray

So January is around 5%?

Melissa D. Smith

I wouldn't be that specific, but I would say so far the trends are still looking positive in the first quarter.

Robert Napoli - Piper Jaffray

Okay.

Michael E. Dubyak

I would just add on a normal basis. We are seeing a little bit of impact from the weather. So you can see when some of those storms hit, but then it bounces back. So it’s a little choppy, but I still think we feel good about the trends. When there is no storms we see very strong trends.

Robert Napoli - Piper Jaffray

In Chicago, you must do got crushed last week any way.

Melissa D. Smith

Not a lot of traffic moving.

Robert Napoli - Piper Jaffray

The BP Australia, is that bigger than the New Zealand piece and when did that come on board?

Michael E. Dubyak

It is larger. It is scheduled to come on in the first quarter.

Robert Napoli - Piper Jaffray

Okay. Any feel for size of transactions?

Melissa D. Smith

It’s larger, I would say significantly larger than New Zealand.

Robert Napoli - Piper Jaffray

Okay.

Melissa D. Smith

Maybe double.

Robert Napoli - Piper Jaffray

Okay. And then, you had mentioned payroll cards. What are your thoughts around, I mean, to mention it, how much work have you done on – I mean, I assume you're talking about the U.S. I mean, the prepaid business you acquired is in Australia. I don't know how you would leverage your gift card business in Australia to a payroll card business in the U.S., but what are your thoughts around a payroll card and how much – I mean is this something that's like a few years away or is this something you’ve done material work on?

Michael E. Dubyak

We have done material work on it. So we have a partnership with somebody today that is already doing payroll cards and is working with us to help us penetrate our customer base. So we will be launching a payroll card program this year. We are not expecting a lot of growth is probably slightly dilutive just because of the investments you make on the front end with sales reps and some of the product before you start to see payback.

So our sales reps are being trained in this quarter. So they at least can start talking to their prospects, some of our national account managers can talk to our current customers and marketing will gear up to start also trying to penetrate the 285,000 businesses that we have that might be candidates for payroll cards because we anticipate and that 285 that there’s probably 30 million or 40 million employees.

Some of those may be unbanked and may be candidates for payroll cards. So we want to take advantage of that. We think we have great relationships with our fleets. So we are not – again, we are saying it’s slightly dilutive this year, but we think it's an asset, we should be leveraging and it is a product that we are ready to launch this year.

Robert Napoli - Piper Jaffray

Thanks. And last question just on your I mean you are deleveraging, you are going to deleverage at a pretty good clip, are you looking at other transactions internationally other M&A deals you are in Australia and obviously you're looking at processing transactions organically, but are you looking is, are their potential for other M&A deals?

Obviously your largest competitor has grown through numerous deals. I don't think that your mode but…

Michael E. Dubyak

So I think, I can say we’re active in the marketplace both domestically and internationally. I think that we still feel the synergy potential is there for what we did in Australia with David Howe is now taking on a broader role.

One of the first things she will be looking at is how do we start to plan looking at different platforms down there how do we then use that platform to be more aggressive in the Asia-Pacific market as we can do in Europe now that we are hosting the platform in Vienna. So if there are acquisitions that we can layer in that will help us with some of the fully operational services that's where we want to drive these relationships.

So it has already business if it’s a good business like Australia and you can bring the other synergies, we will look at that. And maybe even other payment solutions. Gareth Gumbley with his background is looking at, how can we use our MasterCard capabilities internationally. And are there acquisitions potentially we’ll look at that as well. So it’s going to be international and domestic.

I don’t think we are going to doing a lot of transactions but I think we are going to look strategically what can help us on the international capabilities or strategies and what can help us domestically.

Robert Napoli - Piper Jaffray

Great, thank you.

Operator

Your next question comes from the line of Tom Mccrohan with Janney.

Thomas Mccrohan - Janney Capital Markets

Hi, everyone. Most of my questions have been answered that I have a couple modeling related questions. The average number of gallons, which was down a little bit sequentially, how should we assume, was the result of December's bad weather?

Melissa D. Smith

It was really flat. That was mostly the impact of layering in the Australian business.

Thomas Mccrohan - Janney Capital Markets

Okay. So weather really didn't have an impact on that?

Melissa D. Smith

No.

Thomas Mccrohan - Janney Capital Markets

Okay. And the reason is well in Australia people don't drive as far oversee anything on that?

Melissa D. Smith

It's a different mix of vehicles and just geared toward smaller transaction transactions sales on average.

Thomas Mccrohan - Janney Capital Markets

Smaller, okay. And what assumptions if any are you baking in your guidance policy regarding funding costs? Are you baking an increase, flat, down? How should we think about that?

Melissa D. Smith

Yeah. We are looking at the forward curve which has got slight increases in their.

Thomas Mccrohan - Janney Capital Markets

Okay. But do you have anything rolling over into potentially lower-cost deposits this year?

Melissa D. Smith

We were actually very low this year. So we don't think that's going to be a benefit for us in 2011.

Thomas Mccrohan - Janney Capital Markets

Yeah, okay. And then my last question, have you folks had time to review that said document on the regulatory guidance surrounding non-banks, banks, but I really couldn't really figure out how it applies to you, I just wonder if you had a better feel for it?

Michael E. Dubyak

No. I think, I'm not sure, I'm aware of what you're talking about. So we can check to see if it does have any application. We don't know of any application.

Thomas Mccrohan - Janney Capital Markets

Okay. Fair enough, thank you.

Michael E. Dubyak

Are you talking about the Dodd bill?

Thomas Mccrohan - Janney Capital Markets

Yeah, yeah, there was some guidance that was published earlier in the week that with the term on which type of institutions will be subject to federal oversight.

Michael E. Dubyak

Okay.

Thomas Mccrohan - Janney Capital Markets

But it wasn't really clear, when I red it.

Michael E. Dubyak

Yeah, and I don’t think – I think the bill that really affected us, the fact is the fact they are doing a much moratorium for three years and they will do a study. We will just wait for that to come out that will basically talk specifically about IOC's.

Thomas Mccrohan - Janney Capital Markets

Great. Thanks, Mike.

Michael E. Dubyak

Okay.

Operator

Your next question comes from the line of John Williams with Goldman Sachs.

John Williams - Goldman Sachs

Good morning, guys. Thanks for taking my question. A lot of them have actually been answered, but I do have a question for you though on the average price per gallon that you seem to be expecting for next year is a little bit higher than where we were and I'm just curious is that a function of mix shift because of Australia, you know, Australia just seems to be generally a lot higher than that U.S. on a dollar basis. So is that part of the reason you are expecting that 320 range?

Melissa D. Smith

That 320 range actually does not include Australia, that’s just the U.S. price. And it’s being skewed a little bit higher because of diesel prices, which are higher. So that is impacting it somewhat. It’s about 30% of the mix.

John Williams - Goldman Sachs

Okay, that’s helpful. There was not a cash flow statement in the release, is that a function of filed at your K is coming versus the Q or should we see expect to see that soon?

Melissa D. Smith

Yeah, no, its – you are right, it's going to come with the K. It’s really more results as the complexity introduced to the consolidation of Express Australia into our financial results. So that it will be coming shortly.

John Williams - Goldman Sachs

Okay. And I guess the last question is, I am curious to dig a little bit deeper into Europe specifically as an opportunity for you and you’ve given some helpful updates on previous calls and I was wondering Mike if you could just give us a little update on what you are seeing on your biggest competitor out there on the public side at least there’s talk a lot about that. So I'm just curious to hear about your sense of what's going on?

Michael E. Dubyak

Yeah, it's a big market. I don't think we expect to win all of the opportunities, but we are looking at opportunities that we think fit us in terms of longer term providing fully operational services. So clearly, we are talking to BP because we have an international contracts signed and we are talking to others that we think we still have great opportunities with, but there is competition not just from them, but from others as well. So we are still in the marketplace and still looking at pursuing those opportunities that’s why I said we think there could be announcements later this year but these will be longer term as well in terms of their growth capabilities.

John Williams - Goldman Sachs

Mike, do you think the fact that you are new there is maybe changes the dynamics when you are talking to potential partners a little bit? Do you get pushback to that effect or is that not really an issue were sort of the kind of thing that ramps up pretty quickly for you unless you compete pretty quickly as well?

Michael E. Dubyak

Well, I think that not having business today in the European market, the good news is we are now processing in New Zealand and Australia, it's proving that the platform is working and working well then is just building out some the key functionality for Europe or other parts of the world to bring our processing system and fully operational capabilities to those oil companies or partners.

John Williams - Goldman Sachs

Okay. Thanks, appreciate it.

Operator

Your next question comes from the line of David Parker with Lazard Capital Markets.

David Parker - Lazard Capital Markets

Thank you and good morning. Just building off that prior question, for the last year you have talked about doing some development work with oil companies over in Europe. I mean is that still ongoing that hasn’t you are still seeing momentum in that business? Are you now talking about new business that you might be getting because of our Australia in that acquisition that you made?

Michael E. Dubyak

The opportunities in Europe there are still opportunities that we are pursuing. Sometimes its the oil companies who changed their timelines. So some of them for different reasons delayed making decisions, so we get caught up in that as well, we have no control over that even though initially we thought they are going to be making decisions earlier and some of them have decided to make decisions later. So it's a little bit of that but we still see opportunities in Europe and but we will be pursuing just by the fact David Howe is going to be looking at Asia-Pacific, we have a general manager in Europe, who will continue to work there and we’ll continue to look at other opportunities on the globe.

David Parker - Lazard Capital Markets

So it's not business that you’ve lost or costs that you’ve that have been sunk and you're not going to recoup later on. It's just that the oil companies are taking longer than expected to make a decision?

Michael E. Dubyak

It's mostly that. There are pieces of business out there that we’ve been competing for, but we are not going to win all those pieces of business.

David Parker - Lazard Capital Markets

Okay. And then just looking at the same store sales growth, it look like it was tracking at 4% over the last two quarters and then its slipped to around 2% this quarter, any color you can provide or add to that?

Michael E. Dubyak

Yeah. I would say that it was only 2%. I think we were talking more like 3% the last two quarters. But when we look at it, what’s interesting public administration was one that was down pretty much going to flat from over 2% before which probably makes sense with some of the stimulus money coming off in the third and fourth quarter. We saw some areas grow, but some other areas like wholesale trade was pretty much the same as the previous quarter. Manufacturing was down, which was surprising from the third quarter. So a little bit of bumpiness, what was good for us was, construction was strong, it was up. The months of October and November for some reason were weaker and December was very strong. So we take that as a positive sign moving into this year. So there’s a little bumpiness even with some things like manufacturing, you hear the news about manufacturing and again, they got stronger in December, but October and November were down for them.

David Parker - Lazard Capital Markets

And does your guidance assume that it's going to continue to be around 2% for the full year?

Melissa D. Smith

We are presuming it’s going to be positive for the year.

David Parker - Lazard Capital Markets

Okay

Melissa D. Smith

Marginally positive, how about that?

David Parker - Lazard Capital Markets

That works. And then just final question you mentioned on with your single use MasterCard product that you are seeing some strength in the insurance vertical, can you add some more color on that?

Michael E. Dubyak

Yeah, we have been at that now for a little probably about a year and it’s now making up about 5% of our revenue. So we feel positive that we’re getting traction there. And we have been researching some other verticals that we are not comfortable talking about because we want to make sure we have some traction in those markets before others find out about it. But at this point, we feel very good about the insurance and warranty business and how that’s tracking. And we feel bullish and that’s why we are adding basically 12 new people this year on the – a kind of sales and support side for the MasterCard business.

David Parker - Lazard Capital Markets

Great. Thank you.

Operator

Your next question comes from the line of Robert Dodd with Morgan Keegan.

Robert Dodd - Morgan, Keegan & Company

Hi guys. Just two questions. When will the U.S. this year or last year you added 500,000 to stake hold this year you're going to add 400. How can you – can you give a little more color on that given a lower number this year yet you feel more bullish in general. I mean is it just the consequences of some large deals that they came on last year or is there more behind that 400,000 of this year?

Michael E. Dubyak

Robert, we usually were right around the 400,000 mark. I think the ConocoPhillips was kind of a step function for us. And I'm not saying there aren’t other opportunities in the pipeline, but some of those until you win you can really build it into your forward-looking numbers. And so I think the 400,000 is something we go into the year representing that's what we are targeting. And if we can maintain that on a year-on-year out basis we feel very good about the ability to take market share and continue to grow our business.

Robert Dodd - Morgan, Keegan & Company

Okay. And just following up on the international again, obviously you had a lot of traction in Asia and Europe with the Vienna platform. Can you give any color on the meaningful difference in kind of that the approach or that the sales process for European oil versus a U.S. private label operator?

Michael E. Dubyak

Yeah. I think the difference is that in Europe they historically have done it all themselves, primarily, at least funding receivables for example in some cases doing some of the customer contact they may use others to provide a system but a lot of that has been them on a proprietary basis managing their programs.

In the U.S. back in the '90s, people started to outsource everything including funding receivables. So in the U.S. pretty much when you win a book of business you at least doing all the operational services and in many cases you are funding the receivables as we do with ConocoPhillips than Sunoco and people like ExxonMobil.

So I think it's more of a gradual transition process with some of the oils. They talk about looking it fully operational over time, but in some cases some may want to do it right away, some may want to do it in the transitional phase so that's probably the biggest difference for us.

Robert Dodd - Morgan, Keegan & Company

Okay, got it. Thank you.

Michael E. Dubyak

But clearly, we are going in showing what we can do on a fully operational basis and trying to make sure they understand that our long-term goal is to try to get to that place with them with our value proposition.

Robert Dodd - Morgan, Keegan & Company

Thanks.

Operator

(Operator Instructions) Your next question comes from the line of Sanjay Sen with BloombergSen.

Melissa D. Smith

Hello?

Sanjay Sen - BloombergSen

…capital allocation. Can you hear me, Melissa?

Melissa D. Smith

We missed the first part of what you are saying.

Sanjay Sen - BloombergSen

Okay. Sure, I was just saying that I just wanted to get your thoughts on capital allocation a little bit more. When I add back the tax asset the free cash flow per share is somewhere near $4 a share sort of like a 13 multiple hear that companies that. I know you want to de-lever and I know that your patient with your acquisitions when you take your time with that which is all smart. But given that fleet core is trading up there 17 or 18 times which is probably reasonable multiple – your business to, do you think about maybe you want to do a little bit of buybacks too in addition to deleveraging or how do you think about just want to delever and then wait for the right thing to buy?

Michael E. Dubyak

Buybacks will still be something we will consider. I think in the short-term, we will be paying down debt mostly because we do see some opportunities on the acquisition side, but we still have the ability to buy shares and we will still look at doing that.

Sanjay Sen - BloombergSen

Okay, great, all right. Thanks and congratulations on a great year.

Melissa D. Smith

Thank you.

Michael E. Dubyak

Thank you.

Operator

(Operator Instructions) At this time there are no further questions. We would like to thank you for joining in on today's conference call. You may now disconnect your lines at this time.

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