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FleetCor Technologies, Inc. (NYSE:FLT)

Q3 2011 Earnings Call

November 09, 2011, 17:00 p.m. ET

Executives

Eric Dey - CFO

Ron Clarke - Chairman, President and CEO

Analysts

Reginald Smith - JPMorgan

Glenn Fodor - Morgan Stanley

Phil Stiller - Citi

Wayne Johnson - Raymond James

Operator

Welcome to the FleetCor Technologies Incorporated Third Quarter 2011 Earnings Conference Call. During today’s presentation, all parties will be placed in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator instructions) This conference is being recorded today, Wednesday, November 9 of 2011.

And I’d now like to turn the conference over to Eric Dey, Chief Financial Officer. Please go ahead, sir.

Eric Dey

Good afternoon, everyone, and thank you for joining us today. By now, everyone should have access to our third quarter 2011 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 and adjusted net income. 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 described previously. Also, we’re reviewing 2011 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 2011 guidance. 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 8-K with the Securities and Exchange Commission; others are discussed in our Form 10-K which is available at www.sec.gov.

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

Ron Clarke

Okay Eric, thanks. Hello everyone and thanks for joining us today. I thought I’d cover just three subjects here in my opening remarks. First, our Q3 results; second, our Q4 outlook and full-year 2011 guidance; and then finally provide an update on our strategic initiatives.

So, first off our Q3 results. For the quarter we reported revenue of 134 million up 20% and cash EPS of $0.56 a share up 36%. So, these results represent a beat against our internal plan and to beat again street consensus. So, obviously, we are pleased to report another good quarter and really pleased to be ahead of the financial estimates we provided when going public last December.

If we step back and look at the first nine months of 2011, FleetCor revenue is up 16% year-to-date September, and cash EPS is up 32% year-to-date September. So, that is year-to-date 16 and 32 which is well ahead of our 10 and 20 stated growth targets. So, let me shift to the drivers of our Q3 results, and then a high level, I’d say it's really more of the same.

First, the environment continues to help us. We had relatively stable and steady economies in our serve markets, fuel prices that continue to run higher than previous periods, market spreads, good FX rates, and continued low interest rates. So, all in all, the environment has been pretty positive and helpful to our Q3 numbers.

Secondly, we had a number of individual businesses that performed well this quarter. Our U.S. fuel card business, which is made up of our direct and partner businesses they were way up for the quarter, combined their revenue grew over 25%. Our hotel card business, CLC grew over 20% and our Russia business, PPR grew over 70%.

The third driver of our Q3 performance is our extended network card initiative. We are continuing to make great progress and increasing the number of clients using our extended network card. And in fact, the number of active extended network card almost tripled in Q3 versus the prior year.

And lastly, we get a little bit of help in revenue from our Mexico prepaid acquisition that closed September 1st. So, in summary, lot of the same drivers that contributed to our Q2 performance also contributed this quarter.

Now let me transition over to our views on full-year guidance. So, for full-year 2011, we are out looking revenue between 500 and 510 million and a cash EPS midpoint of 2.10. With that, you can see we are expecting Q4 to finish roughly in line with current street estimates, mainly because Q4 historically is a bit softer quarter, as a result of the holidays. Also FX rates have been trending lower recently, and lastly we expect to make some additional growth investments in Q4 to help further jumpstart 2012. We are also not expecting any meaningful profit contribution from our recent Mexico acquisition in a quarter as we digest both deal related and some initial restructuring costs.

Okay. Lastly, let me provide just a bit of a strategic update. As a reminder, FleetCor strategy is unchanged. We grow through a combination of build, buy and partner. That is we build the assets that we own. We buy attractive targets with attractive models and we run in the FleetCor way. And we add new partner relationships many that come to us with an already existing customer portfolio. So, as we reflect on our strategic progress for 2011, I’ll tell you we are feeling pretty good. So, we expect to grow our core assets approximately 16 and 30 for the full-year versus our stated target of 10 and 20. So, really a good year on the build objective.

Second, we announced this prepaid Mexico acquisition in September. Obviously, delighted to have this newest asset join the FleetCor family, but the real attraction to us in this deal is the Mexico market itself. It's in a very early stage of card adoption and even earlier in terms of commercial fuel card adoption. The government there provides VAT tax savings that make fuel cards extremely attractive for businesses. And the fact that the gas station network is 100% franchised leads to both high barriers to entry as you have to sign up stations one at a time and it leads to very attractive discount rates. So, we are bullish on the growth prospects for Mexico and expect this asset to add at least $0.05 of cash EPS next year.

Finally, as you will recall, we signed a new partnership agreement with Shell announced last February. We have been underway with application development work that began in the spring and is now nearing completion. And we should be on-track to begin initial market implementation starting in Q2 of next year. So, I’d tell you we also feel good about the client relationship that we are building with Shell and it may lead to additional opportunities with them over time.

So, in closing we are pleased with our Q3 results. We are raising full-year 2011 guidance and we continue to progress against our three prong growth strategy. All of this leads to a very positive outlook for 2012.

So with that, let me now turn the call back over to Eric to cover our financial results in more detail. Eric?

Eric Dey

Thanks Ron. For the third quarter of 2011, we reported revenue of 134.2 million, an increase of 20.2% from the third quarter of 2010. For the third quarter, net income increased 21.3% to 40.5 million from 33.4 million in the third quarter of 2010 or $0.48 per diluted share compared to $0.41 per diluted share in the third quarter of 2010.

The other financial metrics that we would keenly 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 revenue net of the commissions that are paid to merchants who participate in certain card programs. Commissions paid to merchants can vary when market spreads fluctuate in much of the same way some of our revenues can vary when market spreads fluctuate. 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 and the purchase of receivables, and the loss on early extinguishment of debt.

Adjusted revenues in the third quarter of 2011 increased 23.4% to 120.9 million compared to 97.9 million in the third quarter of 2010. Adjusted net income for the third quarter of 2011 increased 37.5% to 47.3 million or $0.56 per diluted share compared to 34.4 million or $0.41 per diluted share in the third quarter of 2010 on a pro forma basis. 2010 adjusted net income on a pro forma basis provides comparability by including the public company expenses, including the third quarter of 2011. Additional non-cash compensation expense related to our new option plan, increases in the effective tax rate to equal the effective tax rate in the third quarter of 2011 and fully diluted shares equal to those in the third quarter of 2011, all of which are described in Exhibit 1 of our press release.

In the third quarter of 2011, transaction volumes increased 9% to 54 million transactions compared to 50 million transactions in the third quarter of 2010. Adjusted revenues per transaction for the third quarter of 2011 increased 13% to $2.23 from $1.97 in the third quarter of 2010. Adjusted revenues are defined as reported revenues less the commissions paid to merchants who participate in certain of our card program. Adjusted revenue per transaction can vary based on geography, the relevant merchant relationship, the payment product utilized, and the types of products or services purchased. The mix of which will be influenced by our acquisition, organic growth in the business, and fluctuation in environmental factors such as foreign exchange rates, fuel prices, and fuel price spread.

During the third quarter, adjusted revenue per transaction was positively impacted by organic growth in certain of our payment programs and generally positive environmental factors in the quarter.

Also during the third quarter, the company completed the acquisition of a Mexican prepaid fuel card and food voucher business, which contributed to the increase in transaction volume and adjusted revenues. However, the Mexican business produces a lower revenue per transaction product and when combined with our other businesses transactions and revenues, results in a lower revenue per transaction than would have resulted without the acquisition.

I also wanted to note, that the third quarter of 2010 transactions volumes and revenues have been adjusted for the wind-down of a partner contract in Europe inherited from an acquisition, which we chose not to renew. This partner had a high number of transactions and very little revenue. A reconciliation of this contract wind-down is contained in Exhibit 2 of the press release.

In light of the company’s solid results in the third quarter, I’d like to give some examples of how we achieved this performance. First, our combined U.S. fuel card business performed extremely well during the quarter growing 27% versus the third quarter of 2010. Helping drive this performance was revenue generated from our direct market MasterCard product, which was up approximately 80% compared to the third quarter of 2010. This increase was also driven by strong new customer sales and existing customer same-store growth resulting in higher transaction volumes as well as the effect of higher fuel prices over the prior year.

CLC Group, a provider of lodging management programs had another solid quarter and grew revenues by approximately 24% over the third quarter of last year. This increase was primarily driven by an increase in same-store sales, higher sales volumes and our higher margin product and higher revenues due to restructuring of certain customer contracts.

In our International business, our independent fuel card provider based in Russia, PPR grew revenues approximately 64% over last year in local currency. This increase was driven primarily by an increase in same-store sales and strong new customer sales resulting in higher transaction volume as well as the impact of higher fuel prices.

Also in the third quarter, the company entered the Latin American market by acquiring a prepaid fuel card and food voucher company in Mexico. With this acquisition, FleetCor is one of the largest providers of fuel and food card voucher services to businesses and government entities in Mexico. The acquired company serves over 10,000 businesses with over 800,000 cardholders and beneficiary. Purchases are predominantly prepaid and similar to most of our other businesses. Revenues are earned both from customers and merchants. The Mexican fuel card market is large, underpenetrated and allows full tax deductions for companies with the submission of electronic fuel card invoices. Results from the Mexican business are reported in our International segment.

This acquisition will be accretive to revenues but not earnings in 2011 as acquisition deal cost and restructuring related costs will offset most of the company’s profit in 2011. However, in 2012, we expect this business to be accretive to our 2012 revenue and profit.

In certain of our businesses, a portion of our revenue involves transaction, where we derive revenue from fuel price spread, which is the difference between the price charged to our customer for a transaction and the price paid to merchants for the same transaction. In this transaction, the price paid to the merchant is typically based on the wholesale cost of fuel. We experienced fuel price spread contraction or expansion, typically when the wholesale cost of fuel increases or decreases at a faster rate than the fuel price we charge our customers. In the second quarter earnings call, we noted a favorable fuel price spread variance of approximately 3.8 million. However, in the third quarter fuel price spreads returned to more historical level and were in line with our expectations.

Now moving down the income statement. Total operating expenses for the third quarter were 63.4 million compared to 53.7 million in the third quarter of 2010 an increase of 18%. Included in operating expenses are merchant commissions, processing expenses including bad debt, selling expenses and general and administrative expenses.

The increase in operating expense in the third quarter of 2011 is due primarily to additional non-cash compensation expense related to our new stock option plan, incremental public company related costs and additional costs to support the growth of our business.

Credit losses in the third quarter of 2011 and 2010 were 4.8 million, 20 basis points for the quarter ended September 30, 2011 and 27 basis points for the quarter ended September 30, 2010. The 7 basis point or 26% improvement in credit losses was primarily due to the improvement in collection and a shift in our marketing and sales strategy emphasizing slightly larger fleet prospects.

Depreciation and amortization increased 1% to 9.1 million in the third quarter of 2011 from 8.9 million in the third quarter of 2010. Increase was primarily due to the impact of amortization of intangible assets related to two small acquisitions completed during 2010 and the Mexican acquisition in the third quarter of 2011.

Interest expense decreased 44% in the third quarter to 3.1 million from 5.6 million in the third quarter of 2010. This decrease was due primarily to the expiration of an interest rate hedge in November 2010, lower principal balance during the quarter and the impact of refinancing our term loan in June 2011 at a more attractive rate.

Effective tax rate increased to 31.5% of pre-tax income in the third quarter of 2011 from 24.4% of pre-tax income in the third quarter of 2010. The increase in the effective tax rate was primarily due to the favorable impact on the third quarter of 2010 rate of reversing 2.1 million of additional taxes provided during the first two quarters of 2010 related to the expiration of the controlled foreign corporation (inaudible) exclusion, which expired in December of 2009 and was not extended until December of 2010 and was retroactive back to the beginning of 2010.

Now, turning to the balance sheet. We ended the quarter with 195 million of total cash, 57 million of which is restricted and are primarily customer deposits in our Czech Republic business. Company also has 500 million accounts receivable securitization facility. At the end of the quarter, we had 150 million drawn on the facility and have the ability to draw an additional 186 million, based on eligible receivables pledged against the facility. We also have 296 million outstanding on our term loan and nothing drawn on our 600 million revolver.

As of September 30, our leverage ratio was 1.1 times EBITDA compared to 1.5 times in the third quarter of 2010. The company intends to continue to use its free cash flow to temporarily pay down the securitization facility balance and maintain liquidity for acquisitions and other corporate purposes.

And finally, we are not a capital-intensive business, as we spend approximately 2.5 million on CapEx during the quarter and only expect to spend approximately 11 million for the full-year of 2011.

Now turning to financial guidance. Given our strong results for the quarter and year-to-date, the continued positive environmental factors, and our progress and our growth initiatives, we are again raising our financial guidance for 2011.

Our guidance for 2011 is now as follows. Revenue between 500 million and 510 million, up from our previous guidance range of 480 million to 490 million. Adjusted net income between 173 million and 178 million, up from our previous guidance range of 168 million to 173 million. And adjusted net income per diluted share between $2.08 and $2.12, up from our previous guidance range of $2 to $2.05. This full-year guidance produces a 16.4% full-year 2011 revenue growth rate and 28% cash earnings per share growth rate at the midpoint of our guidance range versus 2010 on a pro forma basis. Company’s full-year 2011 guidance includes approximately 2 million of incremental cash operating cost in 2011 for public company costs that did not exist in 2010. Full-year guidance also assumes a 2.3% increase in our effective tax rate from 28.7% of pre-tax profit in 2010 to 31% of pre-tax profit in 2011.

Finally, we get an increase of 2.9 million diluted shares outstanding from 80.8 million shares in 2010 to 83.7 million shares in 2011 due to stock vesting in conjunction with the IPO and stock option exercises in 2011. Company’s full-year 2011 guidance includes the anticipated impact of our Mexican acquisition, but does not reflect the impact of any future acquisitions or material new partnership agreements. In addition, our full-year guidance assumes similar macroeconomic and business conditions exist in the fourth quarter as existed at the end of the third quarter.

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

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And our first question comes from the line of (inaudible) from JPMorgan. Please go ahead.

Reginald Smith - JPMorgan

This is actually Reggie filling in. Thanks for taking my question. I guess I’m trying to understand the international transaction growth. It accelerated quite a bit this quarter. And I think it maybe from the Mexican acquisition. Is that correct?

Eric Dey

That’s correct, Reggie. Our International segment includes the impact of our Mexican acquisition. Obviously, it had a high number of transactions during the quarter, but the transactions that we actually produced from that acquisition earned a lower revenue per transaction amount. So, you can see also that that schedule shows an actual decrease in revenue per transaction, but it’s simplistically mixed.

Reginald Smith - JPMorgan

Right. So, is that one month of transactions or I guess, how should we think about the quarterly run rate of transactions in that segment? Is there any seasonality there?

Eric Dey

Well, I mean there is seasonality to our business in general. The fourth quarter typically is a little bit lower than the rest of the quarters. But to answer your question, our Mexican acquisition closed effectively September the 1st. So, there is one month worth of transaction activity in the third quarter.

Ron Clarke

Reggie, its Ron. That business actually has a bigger Q4 than the rest of our business. It’s seasonally a strong quarter for them.

Reginald Smith - JPMorgan

Okay. And then I guess looking at the cash flows statement, you have seen acquisition, if I looked at the differential between what you had for acquisitions in the second quarter and the third quarter, is that a fair approximation of the price of that acquisition, because I also look at the balance sheet and I see a pretty substantial step up in goodwill and intangibles, so I’m trying to figure out what the cost of that deal was?

Ron Clarke

Reggie, it’s Ron again. We will leave that to your creative analytical skills. I think we said the last time around that for privacy to the seller, we have decided not to disclose that but you are a good math guy, so we trust you will probably get quote.

Eric Dey

Yes. On the cash flow statement, Reggie, that business came with a lot of cash because of the prepaid nature of the business. So, if you are looking to get the purchase price from the cash flow statement, you really are not going to be able get there.

Reginald Smith - JPMorgan

Okay. And then I guess finally, this is obviously a great deal, you talked about the $0.05 accretive next year. Is there any update or anything else internationally that you guys maybe looking at or thinking about?

Ron Clarke

Reggie, it’s Ron again. I’d say same as the last call, we are working on a number of interesting partner deals, some of them that are pretty close and as always, we are continuing to process some M&A opportunity, and most of those are outside of North America. So, I’d say the pipeline is still pretty busy on both fronts.

Operator

Thank you. And our next question comes from the line of Julio Quinteros from Goldman Sachs. Please go ahead.

Unidentified Analyst

This is actually [Roman] for Julio. Thanks for sharing the $0.05 commentary on the Mexico business as far as contribution you expect next year, but I wanted to see if maybe you can give us sort of even a high level of contribution that it had this quarter. And maybe do you expect the next year in terms of the revenue contribution and the transaction contribution obviously, we saw what one month worth could look like it had a significant impact on a transaction and on the revenue per transaction. So if you can help us out there with, it would be helpful?

Eric Dey

From a contribution perspective for the quarter, if you recall, from the remarks that we made, it had almost no impact at all in the quarter from a profit perspective. There was a number of deal related costs that we booked in conjunction with the transaction and some restructuring costs that are going to be booked in conjunction with it. So, we are not anticipating it will have any sort of significant impact our results of operations in 2011. And as Ron indicated, we are obviously expecting it to be accretive to our results in 2012.

Ron Clarke

It's Ron again. We are sorry, I know we are not being helpful, which is we decided to provide a little bit of help there. So really, no profit contribution in September or for Q4, and think at least a nickel for next year, that’s really kind of all the help we can give you.

Unidentified Analyst

Okay, that’s fine. In terms of your guidance for the full-year and kind of what that implies for the fourth quarter, I guess is it safe to assume that overall transaction trends. If you look at it on a sequential basis in the fourth quarter should look a little bit like the sequential growth we saw in 4Q ‘10, but given all the things you are doing to an increased revenue per tran that should be pretty healthy fourth quarter versus third quarter?

Ron Clarke

It's Ron again. I mean, I think what we tried to say is, the guidance is kind of at the midpoint of the range Eric gave is two-tenth. So, if you take the year-to-date cash EPS number that obviously gives you a target for Q4, which I think, I said is in line with what you guys have for us for Q4. And the reason that number is lower than what we reported here is, Q4 is a slower quarter seasonally, the FX has ticked down and we plan to spend some additional money this quarter for next year basically. So, those three things will kind of dampen profits a bit versus Q2 and Q3.

Eric Dey

But still in line with our previous guidance.

Operator

Thank you. And our next question comes from the line of Glenn Fodor from Morgan Stanley. Please go ahead.

Glenn Fodor - Morgan Stanley

On the lower yield in Mexico business, story here being able to increase that over time or is it simply it just is always going to be a lower yielding business, but it's growing so fast that it's still good overall. What is the combination of both?

Ron Clarke

Glenn, its Ron. So, be careful again with the lower revenue per tran, implying lower margins in the business. Those two metrics are not necessarily related at all, right. So be careful with that. But yes, it's dramatically lower than the international line average and we expect it to grow dramatically faster than the rest of our business next year.

Glenn Fodor - Morgan Stanley

A combination of just transaction growth and yield growth or mostly transaction?

Ron Clarke

It's both. As I said, I mean that market compared let's say, to the U.S. is just so early and these tax incentives that I referenced are so strong. And the brand there that owns all the gas stations called Pemex creates a lot of incentives to move people to electronic payments. So, there is just a lot of wind really at our back to add cards there. And obviously, we know some FleetCor ways to increase yield as you have seen. So, it will be both of those things.

Eric Dey

Glenn, this is Eric. I think to start with, I think, the operating margins there will be a little lower than the line average. And as Ron indicated, as we get into the business we will be able to restructure the business and hopefully to get it more do the line average for our businesses.

Glenn Fodor - Morgan Stanley

And then when you think about acquisitions on international front. Now you have planted seeds in Mexico, would you be more biased to just continue to build out Mexico and the surrounding areas or could you just go somewhere else entirely?

Ron Clarke

I think the latter, Glenn. I think we stated a year ago when we were on the road that the strategy of the company is to acquire position in interesting and attractive places like Mexico. And so we put the majority of our emphasis going to those places, BRIC kind of places. And so that's really where our pipeline is where we have been focused the last year or so.

Glenn Fodor - Morgan Stanley

Okay. And then finally just, can you expand out a little bit. You said on the fourth quarter, you are making some investments and that will affect the cost line. Can you shed a little light on where you are investing? Anything you want to call out. Is any of this kind of unexpected say versus six months ago or is this always part of the plan?

Ron Clarke

Yes. I’d say some of its unexpected. I think we decided basically because we are obviously earning a lot more than we budgeted in plan. We have seen some opportunities to invest really in sales and marketing and to step on the conversion that’s extended, higher conversion a bit more. We found some other segments that seemed to like this product. And so those would be the two primary areas. So, it’s not overhead related. It’s really growth spend that we are planning.

Operator

Thank you. And our next question comes from the line of Phil Stiller with Citi. Please go ahead.

Phil Stiller - Citi

Obviously, you commented on the Russian business being very strong. So, wondering if you could comment on the U.K. and Czech businesses as well, how they performed in the quarter?

Eric Dey

Obviously, hey, Phil. Good to have you on the call for the first time.

Phil Stiller - Citi

Thanks.

Eric Dey

The European businesses have been impacted somewhat by the recession that is occurring across Europe right now. I think our Czech Republic business is kind of holdings its own right now and I think we are seeing a lit bit of softness in the U.K. business.

Phil Stiller - Citi

Okay. And then on the deal pipeline specifically in Europe, have you guys seen any impact on that as a result of what’s going on there as well?

Ron Clarke

Yes, Phil. It’s Ron. Not really. Again, the people that we are dealing with in these large healthy companies just march on. So, I'd say that we continue to progress with them and my guess is that some of these conversations are going to land. So, they seem to be moving ahead really just fine despite the environment. They are big, they make a ton of money, they like oil prices. So, our prospects are actually very, very healthy.

Phil Stiller - Citi

Just on that topic, do you think that some of these potential contracts are waiting to see what happens with Shell before they pull the trigger or do you think that the two aren’t related?

Ron Clarke

I think it's a fair question. I think there is some relationship. Obviously, people change jobs between those companies. So, people know each other in Europe, across the top 5 or 10 oil companies, and obviously talk both formally and informally. So, that announcement we made, as I said, sped up some conversations. But I’d say that although people look at the other guy, they all do their own homework as well. So, I'd say in some ways yes, it help get us into the conversation, but I think some people will decide to go ahead, prior to us, launching with Shell, which is not that far away. I'm not sure if I said it or not, but we expect to be in the first set of market as early as Q2 next year live. So, it's not far off.

Operator

Thank you. (Operator Instructions) And our first question comes from the line of Darrin Peller with Barclays Capital. Please go ahead.

Unidentified Analyst

This is actually Adam filling in here for Darrin. Just wanted to ask a quick question, you guys kind of looking at the North American segment. And just kind of seeing, this is kind of like the second quarter in a row where we have seen a higher revenue per trans number. I’m just kind of trying to parse out what's actually driving it. Is it really the MasterCard product here, and is this kind of a run rate that we could see going forward?

Ron Clarke

It's Ron, Adam. I think, as I said before, the U.S. fuel card, which is both our direct and partner business was up what 25%, Eric, for the quarter?

Eric Dey

That's correct.

Ron Clarke

So, that was a mix. I don't think we separated, but the direct business itself had volume growth of almost 9%. So, this is pretty healthy volume growth in the business. But the two biggest drivers were the extended network cards as I mentioned, its tripled point-to-point, and obviously, is much richer economically. And then two, obviously fuel prices point-to-point to the extent they we are on interchange based products, it was way up point-to-point. So, it's really those three things that caused the U.S. to be up.

Unidentified Analyst

And then just a quick follow-up. What was the exact dollar contribution from FX during the quarter?

Eric Dey

I don't have the exact number in front of me, but that it's returned more to the line average, particularly toward the end of the third quarter. And it's actually turned a little unfavorable as we are getting into the fourth quarter, but the contribution in Q3, as a whole, was not as great as it has been in prior quarters.

Ron Clarke

We can get that though.

Eric Dey

I can get it for you; I just don't have it in front of me.

Unidentified Analyst

And then, in terms of your guidance for the full-year 2011, you are just assuming that rates kind of remain relatively constant?

Eric Dey

That's correct. I mean my assumption is that, that rates in the fourth quarter are going to be equal to the exit rate of the third quarter, which obviously in some cases are actually trending a little unfavorable. So, in Q4 we are really not expecting to get a lot from that FX if anything at all.

Operator

Thank you. And our next question comes from the line of Wayne Johnson with Raymond James. Please go ahead.

Wayne Johnson - Raymond James

Great results all around in North America very strong as well, but when we look at the headlines we read the newspapers, it doesn’t feel as good. Could you, if you wouldn't mind just commenting on the economic outlook, competitive dynamics that are going on in the market right now, just in the U.S. and how you see that affecting your business if at all?

Ron Clarke

Wayne, its Ron. I know it does seem a little strange that the company’s growing earnings 30% and Italy is now down or whatever. But I think we have said that if you unbundle our numbers, we are not seeing really any growth in our same-store clients. I think we repeatedly said that both last year and this year we are lucky globally if our existing clients basically give us the same volume and transaction as the prior period. So obviously, we are growing despite that flat economy through obviously selling more than we lose, right? So, it's the sales engine of having more clients than we did before. And then second, it's really this product mix, what we are selling the clients creates more revenue and more profit. So, we are growing basically through things we are doing which is a harder way to grow, obviously, than growing because all boats are rising. So, please call me the day that you see the planet tick-up.

Wayne Johnson - Raymond James

Well, I’ll be on the lookout for that. The part of your message has been in prior presentations about the ability to improve efficiency or efficiencies within your network. Can you address that as it relates to the Mexico transaction? Can you give us any kind of sense on how that’s all going to work?

Ron Clarke

Yes. I think we obviously, built a pretty detailed acquisition case for that business and studied it. And I’d say that in some ways it was not managed the same way the FleetCor would manage the assets. So, when we go in and tear the network economics apart, we see things in the distribution where there’s opportunities to move merchants to more attractive rate. And again it's a fractured fragmented group of merchants that own one, two, three gas stations. So, I’d say that that deal looks a lot like most of the deals that we do where they build up a pretty good network and a pretty good client base but maybe have underleveraged position that they built and we plan to do that over the next 12 to 24 months.

Operator

Thank you. And that is all the questions that we have at this time. So, ladies and gentlemen, this does conclude our conference for today. We thank you for your participation. And at this time, you may now disconnect.

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Source: FleetCor Technologies CEO Discusses Q3 2011 Results - Earnings Call Transcript
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