Fleetcor Technologies Inc

NYSE:CPAY

Earnings Call Transcript 2017-Q4

[Operator]

Greetings and welcome to the FleetCor Technologies Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]

I would now like to turn the conference over to your host, Jim Eglseder, Head of Investor Relations.

[Jim Eglseder, Head of Investor Relations]

Good afternoon, everyone, and thanks for joining us today. By now, you should have access to our fourth quarter press release, which can be found on our website at www.fleetcor.com under the Investor Relations section. I would like to point out that we also published a supplemental presentation in conjunction with the release that we hope it will be useful in reviewing our results and outlook.

Throughout this conference call, we will be presenting non-GAAP financial information, including adjusted revenues, adjusted net income and adjusted net income per diluted share. This information is not calculated in accordance with GAAP and may be calculated differently than other Companies’ similarly titled non-GAAP information. Quantitative reconciliations of historical non-GAAP financial information to the most directly comparable GAAP information appears in today’s press release and on our website, as previously described. Also, we are providing 2018 guidance on both a GAAP and non-GAAP basis, with the reconciliation of the two.

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 2018 guidance, new products and fee initiatives, and expectations regarding business development and acquisitions. They are not guarantees of future performance, and therefore, you should not put undue reliance on them.

These results are subject to numerous risks and uncertainties, which could cause actual results to differ materially from what we expect. Some of those risks are mentioned in today’s press release on Form 8-K and on our Annual Report on Form 10-K filed with the Securities and Exchange Commission. These documents are available on our website, as previously discussed, 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?

[Ron Clarke, Chairman and Chief Executive Officer]

Okay. Jim, thanks. We’re delighted that you’ve joined us, the Head of IR here at FleetCor. And hi to everyone, appreciate you joining on the call this afternoon. So upfront here, I’ll plan to cover three subjects. First I’ll provide my take on Q4 and full year 2017. Second I’ll discuss our plans and our guidance for 2018. And then finally, I’ll share our thoughts on our mid term prospects those beyond 2018, okay. So on at the quarter, we reported Q4 revenue of $610 million of 18%. And cash EPS up $242 million, up 28%. So $610 million and $242 million, 18% top line, 28% bottom line.

Some good news on organic revenue growth for the quarter. Overall organic growth improved to 10% in Q4. Inside of that, our fuel card organic growth was 5%. Although, we believe it would have been 8% to 9% if adjusted for the MasterCard conversion. Our non-fuel card product categories tolls, lodging and corporate payments, excluding Cambridge all grew organically in excess of 20% for the quarter, so very strong. In terms of other trends our same-store sales were positive plus 2% for the quarter. That’s on top of 2% last quarter as well. We saw increased strength in Brazil and Russia inside our hotel business the rail and oil and gas recovered nicely and a lot of strength across the board in our corporate payments business.

Another train customer attention very strong 91% in Q4 that makes a 11 consecutive quarters at 90% plus. Our sales – our new sales bookings terrific up 23% in Q4, and that’s on back of 23% sales growth reported in Q3, so new sales bookings accelerating here in the second half versus the first half. So look in summary, we’d say a very good Q4 cash EPS of 28%. Revenues came in at the high end of our expectations. Organic growth improved to 10% overall. Continued record sales growth of 23%, strengthening of our same-store sales plus 2% and continued 90% plus customer attention.

So in terms of full year 2017, let me talk about just a few highlights. So first revenue of $2 billion, $250 million, up 23% full year cash EPS of $8.54, also up 23%. So 23% top, 23% bottom for full year 2017. Our full year 2017 new sales bookings up 18% for the full year, but again 23% the second half, our full year 2017 organic revenue growth potential about 9%. We did reposition the portfolio in 2017 for faster growth, we acquired Cambridge along with two tuck-in acquisitions and sold next track our telematics business to Michelin.

Our STP worked out quite well. We integrated at nicely here in its first full year of FleetCor. Revenues for the full year grew 18% and their profits grew over 50% versus 2016 pro-forma. In terms of presenting our company, we think we simplified the presentation of FleetCor into four primary spend categories enhanced our disclosures hoping to make the company easier to understand. And we did return some capital. We retired almost $2.9 million FleetCor shares in 2017 and refinanced our credit facility to give us a bit more liquidity. So look, all in all a pretty good year greater than 20% revenue of profit growth, record sales, good retention, material acquisition, some accretive capital allocation and a pretty strong finish.

Okay. Let me transition over to our plans for 2018. First, I’ll lay out our 2018 guidance and then speak a bit to the bridge. So for a full year 2018, our guidance is as follows. Revenue of $2 billion, $520 million at the midpoint. That’s up 12% or $270 million and cash EPS of $10.20 at the midpoint, that’s up approximately about 20%. So if you think about the revenue bridge, it goes something like this. The net impact of the new acquisitions versus the divestitures in 2017 gives us about a 3% lift in 2018. We’re expecting the macro feel on FX to help us about 2% in 2018 and we’re planning normalized organic growth to be between 8% and 10%.

Inside of that though we do expect a one-time grow overs related to Chevron, FEMA and GFN to press normalize growth about 2%. So if you add those four up that should be the 12% our planned revenue increase. We have included a bridge in our earnings supplement for this call to help walk through this. Inside of the overall 12% revenue growth, we’re expecting our fuel card business to grow 6% to 8%, our gift in all other buckets to be fundamentally flat and then the rest of our non-fuel card business is to grow quite nicely in the mid-teens. If you recall we have grown revenues organically about 9% in 2016 and 2017. So we’re planning the same range 8% to 10% this year 2018 on a normalized basis. Our sales and retention trends as I mentioned earlier are quite good, which gives us some confidence in the 8% to 10% target.

So in terms of cash EPS, the bridge goes something like this, we’ve reported $854 in cash EPS for 2017 and in a constant tax world we’re expecting cash EPS to grow about 15% at the midpoint. But as a result of the tax reform, we’re estimating today about 5% 2018 ETR around 23% versus close to 28% in 2017. That lower tax rate results in about $0.64 of tax savings. Our plan this year is to invest about 1/3 of that those tax savings back into the business and that takes us to our $10.20 cash EPS guidance at the midpoint.

In terms of the initial thoughts for the tax savings reinvestment considering of three areas, so first, employees returning some of our tax savings to our employees who obviously make FleetCor go. We’re looking at improving certain benefits in the company like 401K and considering higher minimum wages. The second area for reinvestment is in growth specifically to hire some additional sales teams, were things are working in as some additional IT resources to accelerate growth of the mid-term.

And then the third area is really transformation. We’ve got a couple of big transformational initiatives to simplify and standardize our systems and really improve quality and the overall customer experience. So that sort of the double down there. In terms of our plan, yes, we do think that could be some upside potentially to the $10.20. We do have some active partner prospects and some active acquisitions that obviously we’ll progress this year.

Okay. So last up is the mid-term, so let me relay our thinking as it relates to the midterm prospects, so beyond 2018. S at the highest level, we think of our company is participating in four major spend categories, fuel, toll, lodging and corporate pay. Each of these categories are multi-billion dollar market opportunities and we’re fortunate to have advantage positions in each one of them. We did enjoy 20% plus revenue growth in the three non-fuel lines of business in Q4, excluding Cambridge and we do expect fuel to recover to the 8% to 10% mark, once we lap the one-time items this year.

I do want to speak a bit about some of the innovative product and distribution IT areas that years that we’re working, they could have some lift, some impact to our midterm prospects. So in the fuel card category, we have spoken about this fuel first initiative in Brazil. We’re quite excited about that expanding the market there too non-toll users. So that’s a progress. We also like this beyond fuel ID here in the U.S., and the UK getting our existing fuel card clients to spend moneys on other purchase categories other than fuel.

In lodging, we’re underway with our couple new ways for our clients to book historically our CLC clients either walked into hotels or called and reserve rooms themselves. We’ve now offered a digital option, which people obviously have come to expect, along with an old fashion kind of reservation option, which provides what we call more ways to book. And we’re already seeing some volume lift early on.

In the toll business, at STP, we’ve launched three or four new sales channel, approaches including using the third-party retailers, pushing hard at the digital, the web and even testing, sending machines to sell tags in 2017. The success has been pretty good and we’re actually planning 30% of all new STP sales in 2018 to come from these new channels. We also are looking at three or four new toll roads in Brazil that come on line, starting this spring. So we should get a bit of a lift from that.

And lastly on corporate payments, we’ve spoken about this full AP solution that we’re working on and which we’d offer smaller clients a combination of virtual card, ACH and even paid per cheques. So that they could get a complete payables outsourcing solution. So quite excited about pushing that forward and clearly with Cambridge now on the fold, we have some opportunities to bundle and cross sell international FX, so couple of upsides there.

Hey, so lastly, we feel quite clear on what we’re trying to do to grow the business. As a reminder, three things, so one, we’re simply trying to add more clients by selling more and offering innovative products. Two, we’re trying to capture more spend from clients offering new spend categories to them. And then lastly, we’re working to widen or expand the geography in which we do everything that we do. So anyway, we do like our mid-term prospects and hope that you do too.

So with that, let me turn the call over to Eric. He’ll cover few more details on the quarter and on 2018. Eric?

[Eric Dey, Chief Financial Officer]

Thank you, Ron. For the fourth quarter of 2017, we reported revenue of $610 million, up 18.5% compared to $515 million in the fourth quarter of 2016. The revenue from our North America segment increased 18% to $387.8 million from $328.6 million in the fourth quarter of 2016. Revenue from our international segment increased 19.2% to $222.2 million from $186.4 million in the fourth quarter of 2016.

For the fourth quarter of 2017, GAAP net income increased 196.3% to $282.7 million or $3.05 per diluted share, from $95.4 million or $1 per diluted share in the fourth quarter of 2016. Included in the fourth quarter of 2017 net income was an estimated favorable impact of adoption of the Tax Reform Act of $127.5 million.

Non-GAAP financial metrics that we routinely use are adjusted revenues and adjusted net income, which we sometimes also refer to as cash net income or cash EPS. Adjusted revenues equal our GAAP revenues less merchant commissions. A reconciliation of adjusted revenues and adjusted net income to GAAP numbers are provided in Exhibit 1 of our press release.

Adjusted revenues in the fourth quarter of 2017 were $579.5 million, up 18.4%, compared to $489.4 million in the fourth quarter of 2016. Adjusted net income for the fourth quarter of 2017 increased 24.1% to $224.1 million compared to $180.5 million, and adjusted net income per diluted share increased 27.6% to $2.42 compared to $1.90 per diluted share in the fourth quarter of 2016.

Fourth quarter results reflect the impact of a positive macroeconomic environment. Changes in foreign exchange rates from the fourth quarter of 2016 were primarily positive, and we believe positively impacted revenue during the quarter by approximately $9 million. Fuel prices were also mostly favorable during the quarter, and although we cannot precisely calculate the impact of these changes, we believe positively impacted revenues by approximately $8 million. And finally, fuel spreads had no meaning impact versus the fourth quarter of 2016.

So in total, the impact of those changes positively impacted our fourth quarter revenues by approximately $17 million and adjusted net income per diluted share by approximately $0.11 versus the fourth quarter of 2016. Organic revenue even after adjusting out the positive impact of the macroeconomic environment was approximately 10% for the fourth quarter of 2017.

Now, let’s shift over and discuss other drivers of our fourth quarter performance. Most of our major product categories performed well during the quarter. Our fuel card business reported 5% organic growth in the quarter. However, we believe the organic growth would have been approximately 8% or 9% after adjusting for the MasterCard conversion issue in the first quarter. We expect that organic growth in the category will continue to be impacted until we lap the conversion issue at the end of the second quarter of 2018.

The corporate payments category continues to grow well and was up 16% organically during the quarter, as we saw very good growth from our new customer acquisitions over the last few years. Our toll business was up 24% organically, due primarily to implementation of a number of our growth initiatives implemented throughout the year at STP.

Our lodging business was up 31% driven primarily by higher sales, an increase in room nights due to improvement in the energy sector and continued FEMA rooms due to the impact of hurricanes in 2017. The gift business was up 6% organically, due primarily to the timing of card sales. So all in all, another solid quarter for our businesses.

Now, moving down the income statement. Total operating expenses for the fourth quarter were $370 million compared to $299 million in the fourth quarter of 2016, an increase of 23.7%. As a percentage of total revenues, operating expenses increased to 60.7% of revenue compared to 58.1% in the fourth quarter of 2016. Included in operating expenses are merchant commissions, processing expenses, bad debt, selling and general and administrative expense, depreciation and amortization expense, and other operating net.

The increase in operating expenses, were primarily due to acquisitions completed in 2017, which has lower than average EBITDA margins, an increase in stock-based compensation to $24.6 million compared to $14 million in the fourth quarter of 2016 and additional legal and settlement expenses book in the fourth quarter.

Credit losses were $8.9 million for the fourth quarter or 5 basis points, compared to $11.4 million or 7 basis points in the fourth quarter of 2016. Depreciation and amortization expense increased 7.2% to $65.8 million in the fourth quarter of 2017, from $61.4 million in the fourth quarter of 2016. The increase was primarily due to acquisitions completed in 2017.

Interest expense increased 40.2% to $30.8 million compared to $22 million in the fourth quarter of 2016. The increase in interest expense was due primarily to the impact of additional borrowing for the Cambridge acquisition, share buybacks, and increases in LIBOR.

Equity investment loss decreased to $667,000 in the fourth quarter of 2017 versus a loss of $38.6 million in the fourth quarter of 2016. The year-over-year change was primarily due to a $36 million impairment charge booked in the fourth quarter of 2016, and 2017 change is associated with our investment arrangement with the majority partner.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act. The Tax Act makes broad and complex changes to the U.S. tax code, including but not limited to reducing the US federal corporate tax rate from 35% to 21% and requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries. The transition tax can be paid over eight years.

Also the SEC staff issued Staff Accounting Bulletin 118, which provided guidance on accounting for the tax effects of the Tax Act. In accordance with SAB 118, we have a one year measurement period in which to complete our accounting for the Tax Act. We have made an estimate of the effects on our existing deferred tax balances and the one time transition tax, which resulted in a provisional net tax benefit of $127.5 million, which is included as a component of income tax expense from continuing operations.

The one time transition tax is based on our total post 1986 earnings and profits that we previously deferred from U.S. income taxes. In the fourth quarter, we recorded a provisional amount for the one time transition tax expense of $82.5 million. We also remeasured certain deferred tax asset and liabilities after considering the U.S. federal income tax rate reduction to 21%. The provisional tax benefit recorded related to the remeasurement of our net deferred tax liability was $210 million.

As stated earlier, we are still analyzing certain aspects of the Tax Act and refining our calculations, which could potentially affect the measurement of these balances. In the fourth quarter of 2017, after the impact of the Tax Act as I just discussed, we recorded a tax benefit of $74.4 million compared to a tax expense of $58 million for the fourth quarter of 2016.

Excluding the impact of the Tax Act, our GAAP taxes would have been $53.1 million or 25.5% compared to 37.8% in the fourth quarter of 2016. The fourth quarter of 2016 tax rate was unfavorably impacted by the non-cash impairment charge, which resulted in a reduction in basis and a minority investment for book purposes, but not tax purposes. Excluding this non-cash item, our tax rate in the fourth quarter of 2016 would have been 30.2%.

The fourth quarter of 2017 tax rate was favorably impacted by a tax project completed in the fourth quarter, which lowered our fourth quarter tax rate by approximately 2.8%. And we’ll also benefit future periods by approximately the same amount. In addition, a one-time true up of prior year taxes reduced our fourth quarter tax rate by approximately 1.3%. Our normalized tax rate for the quarter was approximately 27%.

Now, turning to the balance sheet. We ended the quarter with $1,131 million in total cash. Approximately $190 million is restricted and consists primarily of customer deposits. As of December 31, 2017, we had $2,656 million outstanding on our term A loan, $349 million outstanding on our term B loan and $670 million drawn on our revolver, leaving approximately $615 million of undrawn availability. We had $811 million borrowed in our securitization facility at the end of the quarter.

We did not repurchase any shares of common stock in the fourth quarter. And in total for 2017, we purchased 2,850,000 shares, we have approximately $510 million in repurchase capacity remaining under our current authorization.

As of December 31, 2017, our leverage ratio was 2.42 times EBITDA, which is well below our covenant level of 4 times EBITDA, as calculated under our new credit agreement. We intend to use our future excess cash flow to temporarily pay down the balance on our evolving credit facility and securitization facility, and maintain liquidity for acquisitions and other corporate purposes. Finally, we are not a capital intensive business, spending approximately $21 million on CapEx during the fourth quarter of 2017.

Now, onto our outlook for 2018. Before I walk you through our 2018 outlook, there are a number of puts and takes I want to make sure you have considered as you model the walk from 2017 actuals to our 2018 guidance. First, the net effect of 2017 acquisitions and divestitures on 2018, such as a full year of Cambridge, CLS and a new partner deal in Russia and the disposition of next track will result in approximately $70 million of additional pro forma annualized revenue in 2018 versus what was reported in 2017.

Partially offsetting these items is the impact of a deconversion of a major oil partner, which we are estimating to not have in the second half of the year. The residual impact in the first half of 2018, the portfolio conversion issue from early in 2017 and the favorable benefit of the FEMA contract in our lodging business, we will not recur in 2018. All in, this amounts to an estimated $40 million reduction to your starting point for 2018 revenues.

Secondly I want to update you on our latest thinking about the macroeconomic environment. For 2018, we are again expecting the macro to have a favorable impact on our results. We are estimating that the absolute price of fuel will be higher than the 2017 average and positively impact revenue in 2018. Foreign exchange rates to continue to be favorable and spreads will be approximately neutral to 2017.

In total, we believe these items will create an estimated $40 million revenue tailwind and positively impact cash EPS by approximately $0.15 per share. However, we estimate that higher interest rates will negatively impact 2018 EPS by an estimated $0.15 per share, effectively offsetting the favorable revenue macro.

Third, we are planning for another 8% to 10% organic growth rate year after adjusting out the favorable macro and the organic scope changes outlined earlier. Helping to drive the 8% to 10% organic growth rate in 2018, our fuel cards, which are expected to grow organically in 8% to 10% range after adjusting for the deconversion of an oil partner and MasterCard conversion impact that will continue to the second quarter of 2018 or approximately 6% to 8% on a print basis. We expect the corporate payments toll and lodging businesses to grow mid-teens in 2018, and gift another to be approximately flat.

And lastly, while we are still evaluating recently released interpretations of a new Tax Act, we estimate an effective tax rate for 2018 of approximately 22% to 24%. The estimated benefit from the change is expected to be approximately $0.65 in adjusted net income per share. And as Ron mentioned earlier, we expect to invest roughly a third of this benefit back into the business in 2018. Also please refer to our fourth quarter earnings call supplement for additional information.

So with that out of the way, our guidance is as follows; total revenues to be between $2,490 million and $2,550 million; adjusted revenues to be between $2,370 million and $2,430 million; GAAP net income to be between $690 million and $720 million; GAAP net income per diluted share to be between $7.40 and $7.70; adjusted net income to be between $935 million and $965 million; and adjusted net income per diluted share to be between $10.05 and $10.35. This guidance represents approximately a 12% growth in revenue and 20% growth in adjusted net income per diluted share for the year at the midpoint of the range.

Some of the assumptions we have made in preparing the guidance includes the following: weighted fuel prices equal to $2.57 per gallon average in the U.S. for those businesses sensitive to the movement in the retail price of fuel. Market spreads equal to the 2017 average, foreign exchange rates equal to the seven-day average as of January 22, 2018. Interest expense of $125 million, which assumes two additional 25 basis point increases in 2018.

Fully diluted shares outstanding of approximately 93.3 million shares, a tax rate of 22% to 24%, no impact for new revenue accounting standard as we are still completing our analysis and no impact related to acquisitions or material new partnership agreements not already disclosed. And 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 quarter is the lowest in terms of both revenue and profit.

First quarter seasonality is impacted by weather, holidays in the U.S. and lower business levels in Brazil due to summer break and the Carnival celebration that occurs in the first quarter.

With that said, we are expecting our first quarter 2018 adjusted net income per share to be between $2.30 and $2.40. Additionally, our volumes should build throughout the year and our new asset initiatives should gain momentum throughout the year, resulting in higher revenue and earnings per share in the second to fourth quarters.

With that said, operator, we’ll open it up for questions.

[Operator]

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question is from Ramsey El-Assal with Jefferies. Please proceed with your question.

[Ramsey El-Assal, Jefferies]

Hi guys, thanks for taking my question. I wanted to ask about your organic guidance growth. You hit 10% this quarter, which was great and yet next year you have a little bit of deceleration. I understand there is some puts and takes sort of some potential headwinds from the conversion but what would cause your organic growth performance to trend at a lower end of the range versus the upper end of the range or do exceed.

[Ron Clarke, Chairman and Chief Executive Officer]

Ramsey hey, it’s Ron. I’d say the short answer is we’re lapping a bit of the pricing late in the year, late in 2014.

[Ramsey El-Assal, Jefferies]

Okay. And then in your presentation, you’ve mentioned that no impact for the ASC 606 and that’s something you’re still evaluating. Is there a – do you have any way to help us think about what the potential impact there could be – if it would be material, et cetera?

[Eric Dey, Chief Financial Officer]

Hey Ramsey, this is Eric. Yes. We don’t expect any material outcome certainly on our bottom line results in any way, shape or form. The only thing that we’re really discussing is whether to use the metric that we call, adjusted revenues today versus just revenue. So there is a possibility that, that would be our revenue going forward, but we’ll have an answer to that in obviously about 30 days.

[Ramsey El-Assal, Jefferies]

Okay. And just quick last one from me. Just was wondering, and this is kind of reaching back in the past a little bit. Any incremental regulatory or legal items that are worth calling out or anything – any developments on that front in the last few months?

[Eric Dey, Chief Financial Officer]

Not really, Ramsey, no. No real new – there’s no development there at all.

[Ramsey El-Assal, Jefferies]

Okay. Thanks so much. Appreciate it.

[Operator]

Our next question is from David Togut with Evercore ISI. Please proceed with your question.

[David Togut, Evercore ISI]

Yes, thanks. Good afternoon. Slight deceleration in the fuel card business in the fourth quarter, at a 5% from 6% I believe in Q3, any call outs specifically behind that?

[Ron Clarke, Chairman and Chief Executive Officer]

Yes, David. Hey, it’s Ron. Same thing, I think the GFN thing widened just a shade from our estimates in the summer. So I’d say that’s probably a point of it. So again we kind of said we think without the GFN thing we’ll probably be around 9% for the quarter for fuel.

[David Togut, Evercore ISI]

The GFN have a greater incremental negative impact in Q4 than it did in Q3?

[Ron Clarke, Chairman and Chief Executive Officer]

Yes. But more importantly, It had – I’d say a couple million more than our forecast from back in the summer.

[David Togut, Evercore ISI]

And any commentary on like client retention in that portfolio? Has the retention stabilized?

[Ron Clarke, Chairman and Chief Executive Officer]

Yes, I think obviously this is not our finest topic. But I think the good news is we’re kind of on the other side also since we’re green. We’re selling back on the platform. Sequential retention of the base that’s on it is in line with where we think. So I think it’s effectively over other than basically on the compares going forward. But we’re finally on the other side of it. All fixed, people happy, back to normal.

[David Togut, Evercore ISI]

Got it, okay. And then performance of Cambridge Global Payments acquisition versus your buy plan.

[Ron Clarke, Chairman and Chief Executive Officer]

Not super. I’d say it had a bit of a sluggish revenue in Q4 and mostly because we were working on restructuring. We exited some people. I think we told you that we’re pretty focused here on profit tools. And so that business has a very large number of small and profitable clients. So there was a lot of energy in the quarter. Repricing and exiting what we think are a set of pretty unprofitable accounts. So that’s going to result in big margin expansion for that business in 2018, and still I’d say we’re planning kind of mid-teens growth. So I’d say the plan that we have for 2018 is pretty in line with the thesis we had this summer.

[David Togut, Evercore ISI]

Understood. And then question on the cost structure and realize these are GAAP numbers, but general at admin expense at least on a GAAP basis was up 51% year-over-year. How much of that is one-time in nature versus sustainable into 2018.

[Ron Clarke, Chairman and Chief Executive Officer]

Yes. So there is two, let me start David and give it over to Eric. So it’s a couple things going on. One is a couple of one-time legal settlement kind of restructuring things in there. And then two, we green lighted a bit of discretionary spend. When we saw the business was tracking kind of ahead of our forecast particularly around IT and a bit around some consulting projects. I’d say ballpark probably about $20 million of the stand was one of those two flavors even legal settlement flavor or a bit of a step up in discretionary spend. And then the balance is obviously the business mix, right, the fact that we own lower margin assets for example like Cambridge in that quarter. Do you have any add Eric to that?

[Eric Dey, Chief Financial Officer]

Yes. Just add to that, I mean again just the last thing Ron said I mean don’t forget a year ago, we did not own Cambridge. We did not own CLS. We did not own the private – the small private label account in Russia. So you got the year-over–year impact of owning that business, which is actually the majority of the increase in revenue I mean in expense. And then there’s a two or three things Ron kind of tacked on to that, that kind of added some expense in the fourth quarter, but most of that stuff was one-time.

[David Togut, Evercore ISI]

Got it. Just a quick final one for me. Net cash from operations was down about $39 million year-over-year 2017 versus 2016. It looks like accounts in other receivables were up about $100 million year-over-year in terms of using cash, a call out DSO is that business mix related.

[Ron Clarke, Chairman and Chief Executive Officer]

Yes. A lot of it had to do with the acquisitions again don’t forget there. We added a lot of new business versus the prior year. We also made more tax payments this year than we did last year, which also impacted the cash flow from operations. But if I could remind you would add. Our business is very simple from a cash perspective, we bill and we collect. I mean our DSO literally runs approximately 15 days. So we collect 99.995% of all of our receivables. So what all trying –cash that there’s any variances on the operating cash flow statement, it really is just timing.

[David Togut, Evercore ISI]

Got it. Thank you very much.

[Ron Clarke, Chairman and Chief Executive Officer]

Good to talk to you.

[Operator]

Our next question is from Darrin Peller with Barclays. Please proceed with your question.

[Darrin Peller, Barclays]

Thanks a lot guys. Good trends. I just want to start off, you’re mentioning for guidance mid-teens groups in the non-fuel areas as other than gas. So corporate tolls, lodging, it seems like those we’re growing at least tolls up over 20%, lodging up over 30%. First of all how is making some lodging that’s organic without CLS, I think, right. And then why would those businesses including corporate up 16% decelerate to mid-teens, which is what it sounds like you’re trying to imply in the guide.

[Ron Clarke, Chairman and Chief Executive Officer]

Yes, Darrin. Hey, it’s Ron. So the short story on CLC is we got some Hurricane see my help in Q4. That probably gave us 10 points, 12 points of incremental growth. So that thing was still excluding the hurricane mid to high-teens grower. And then on the other two, I’d say again the comments at Ramsey its really kind of lapping some pricing, so that compare gets deeper as you get later into the year particularly in corporate pay in STP. So I would say those are the couple of reasons that something that’s in the low 20s will be in the mid-to- high teens.

[Darrin Peller, Barclays]

Okay.

[Ron Clarke, Chairman and Chief Executive Officer]

But I do want to say because it sounds this way, we’re happy. I mean we’re happy and that’s not pretty to have three lines of business that are half the company grow in mid-to-high teens. I don’t want you to miss that point we’re happy.

[Darrin Peller, Barclays]

No. Yes, we’re not missing that. Just one quick follow-up and it’s really a couple of technical questions. One of them is on the fuel price assumption. It looks if you’re using $2.57 I think the spots closer to $3 now, so just a quick comment on that. And then the gift business, you left us off last quarter thinking there could be something coming with regard to structural changes. I’m just wondering what’s the strategy there is now and thanks again, guys.

[Ron Clarke, Chairman and Chief Executive Officer]

Yes. So the fuel price, Darrin, it’s basically a mix of diesel and unleaded and obviously it mirrors the geographies and stuff that our client base is in. And so yes, sitting here at this moment, I’d say the number that we have in is a bit conservative, but as you know, that price can move obviously materially up or down. So if they stay where it is, there would be some upside in the plan.

[Eric Dey, Chief Financial Officer]

So Darrin, just to add to that, that guide is really for only those businesses that are directly sensitive in the movement in the retail price of fuel. So it’s primarily our fuel man like our MasterCard businesses as an example would not include Comdata as an example, which is obviously 95% diesel because those businesses really don’t react that much to changes in fuel price. So again it’s really those two businesses and that business has more of a 50-50 kind of mix between gas and diesel.

[Darrin Peller, Barclays]

Okay.

[Ron Clarke, Chairman and Chief Executive Officer]

What was your second part Darrin?

[Darrin Peller, Barclays]

Yes, the gift business strategy now.

[Ron Clarke, Chairman and Chief Executive Officer]

Yes, so we’re still I’d say at the play I think what we said last time is the same, just slower. So we are on our third idea for that business and still actively working on it. So no news to report today. I think I said this last time. Hoping to have some news next time we talk. So we’re still chopping wood on this idea we have.

[Darrin Peller, Barclays]

Okay. All right, guys. Well, thanks, again.

[Operator]

[Operator Instructions] Our next question is from Sanjay Sakhrani with KBW. Please proceed with your question.

[Sanjay Sakhrani, KBW]

Thanks. Good evening. I guess, a question on – so the non-fuel businesses and the mid-teens and maybe more of the toll business. When we think about the growth rates you are anticipating? Are you assuming any benefit from beyond fuel? And if not, when can we conceivably expect any upsides kick in?

[Ron Clarke, Chairman and Chief Executive Officer]

So the first thing is the most of the beyond fuel initiative is in our fuel segment when we use that term, we’re referring to our fuel card clients, primarily here in the UK that buy only fuel opening those cards and let them buy some other things like construction supplies. But again I said the same thing earlier we’re pretty happy with mid-to-high teens for the three non-fuel card businesses and the reason its decelerating a bit is they are lapping again the exit rate of the pricing.

[Sanjay Sakhrani, KBW]

Yes. And when we think about other initiatives within toll that I think you’ve talked about in the past. Are we expecting some of those to kick off in 2018 or is it more – just more of the same in terms of organic growth?

[Ron Clarke, Chairman and Chief Executive Officer]

Yes. That’s a great question. So again the toll business, the STP business that we just reported in Q4 is 97% toll and parking related revenue. And then the third part is a little bit of fuel revenue for the people that use the toll product. So the big idea we have there is what we call fuel first, which in English means offering that same technology to consumers or businesses that don’t go on the highway. So we’re not toll users. So effectively almost like a fuel card people that go locally and go into the major branded stations would be able to avail themselves of the STP technology. So that opens up a market qualified to 10 times the size of the market that we’re in. And we’ve got a unique position to have in our STP gets it in those locations and have in those contracts. So we’ve got – I don’t have in front of me probably, circuit of $5 million to $8 million I think in our 2018 plan for that initiative. So this is a pilot and start to ramp at up year.

[Sanjay Sakhrani, KBW]

Okay. Maybe as one quick follow-up on the – that reinvestment of the tax benefits. Eric, it sounded like a third of it sort of maybe not recurring. Is that the way we should think about it, is the total reinvestment that return amount after 2018? Thanks.

[Eric Dey, Chief Financial Officer]

Yes. Again, we’re still developing some plans on exactly what we’re going to invest in. I think as Ron kind of mentioned we’re going to invest some money and some people and then hopefully more sales investment in some other things to more protect the business. We don’t have the exact number we’re going to spend. We kind of called out about 1/3, but that would be something we would consider to be at least ongoing for now. It might change next year. But for now we would expect that that number to be in the business.

[Ron Clarke, Chairman and Chief Executive Officer]

Yes. Just – Sanjay, it’s Ron. I’d say the only piece that that feels a little bit more one-time in that third is the segment we call transformation projects. So we do have a couple of big kind of one-time things we’re trying to clean up and make better. I don’t know if that’s going to run for a year a little bit more, but call it 1/3 to 40% of the third, Eric mentioned maybe kind of more one-time.

[Sanjay Sakhrani, KBW]

Yes, thanks.

[Operator]

Our next question is from Tim Willi with Wells Fargo. Please proceed with your question.

[Tim Willi, Wells Fargo]

Hi thanks and good afternoon. My first question Ron or Eric, on the M&A front, when you think about some of the areas I guess around like fleets and payments. Do you see opportunities to acquire businesses or technologies it might take you deeper into the value chain for – I guess more your larger fleet customers beyond just a transactional service that you provide? Is there something else you’re seeing a logical I guess, to deepen that relationship and helping them manage their fleets in their businesses, et cetera?

[Ron Clarke, Chairman and Chief Executive Officer]

Yes, I would say that’s probably not a primary area that we’re looking at. Again, I think our idea for deepening relationships are A, to open up the cards and allow controlled purchases in adjacent space like for big construction client as an example and then I think B, the other deepening is the cross-sell into some of our clients are corporate pay in FX kinds of solution. So I think that deepening idea is a little bit closer to kind of what we’re in and some of the divisions that we’ve got then it is some entirely new.

[Tim Willi, Wells Fargo]

Okay. And then my follow-up sort of related to that is obviously you’ve got a lot going on around work initiatives and I think it touches on the last question around investing a tax savings. Just conceptually as we think about out of the next, call it, two years, three years, as these new initiatives around expanding the categories in spend in Cambridge et cetera begin to takeoff. Is that another leg to the margin story? Or is there an investment amount in here right now this is sort of suppressing the margins otherwise that we see more clearly as those initiatives move forward?

[Ron Clarke, Chairman and Chief Executive Officer]

No, I don’t think its margin enhancement. I think it’s a revenue acceleration opportunity. So for us, we look closely at the sales and loss or retention metrics that we quote and that math is penciling out the kind of 9%, 9% and 9%, right. We said 9% organic growth 2016, 9%, 2017 and normalized kind of 8% to 10%, call it, 9% to 9%, 9%, 9%. I think what we see is if we can get from those four or five, what we call big ideas or bit initiatives to hunt. That provides potentially some revenue acceleration in those various businesses, particularly in the case of where it can be added on to a client we have. That would create a little bit of margin leverage like get an existing clients’ to buy additional things. So I’d say that it’s really more directed at revenue growth than it is margin.

[Tim Willi, Wells Fargo]

Okay, great. That’s all I had. Thanks so much.

[Operator]

Our next question is from James Schneider with Goldman Sachs. Please proceed with your question.

[James Schneider, Goldman Sachs]

Good afternoon. Thanks for taking my question. Good to see the same-store sales stabilize at 2% same as last quarter. Based on what you’re hearing from your clients right now, I mean, do you think that could improve a lot or at all throughout the year from – especially from some of the industrials clients and maybe just kind of comment on whether your guidance just assumes that the same-store sales level continues as is now?

[Ron Clarke, Chairman and Chief Executive Officer]

Jim, hey, it’s Ron. So let me take the second part first. So our guidance, our plan for 2018 is used in roughly the average of 2017. I don’t have it in front of me, but that would pencil out to be somewhere between 1% and 2%. And again that consolidated number that we quote is made up of lots of product lines and lots of geographies. And so mostly what affects it is when pockets that may have been weak like Brazil or Russia start to strengthen or an industry type like rail in our hotel business tends to strengthen. And I’d say those things seem to have more impact on the total number than call it the normal accounts that we would have in fuel or somewhere else. So we’re planning to kind of consistent with the prior year but who knows, again it’s a macro assumption sitting out there.

[James Schneider, Goldman Sachs]

That’s helpful, thanks. And maybe just as a follow-up quickly on the MasterCard universal product, I know you restarted the sales there. Can you maybe give us a sense as to at what point you can be back to the prior kind of like 8% to 10% growth rate? Is that some time by Q2, Q3? How should we think about how we get back to that previous growth rate?

[Ron Clarke, Chairman and Chief Executive Officer]

Yes. I think if you look at our plan I think as we lap the Q1, Q2 issue it’s double-digit starting in Q3 and Q4. So again getting someone after earlier, getting the salespeople’s confidence back on the product and that we’re going to deliver it in a quality way, that builds a bit with time. But yes, the plan is to keep investing behind that product and I think I mentioned that same product functionality running on the mainframe has continued to grow really nicely throughout the whole time, which reminds us that the product that we’ve got is good and is in demand and so we just have to make sure we deliver it in a quality way.

[James Schneider, Goldman Sachs]

Thank you.

[Operator]

Our next question is from Tien-tsin Huang from JP Morgan. Please proceed with your question.

[Tien-tsin Huang, JP Morgan]

Great, thanks. Thanks for the presentation, it’s helpful. Just the bookings, what sold well, guys if you don’t mind sharing maybe by segment just any other detail there. And I’m curious given sort of the pipeline for potential sold business this year, you think you can do better, worse, same as the 2018 as a posted in 2017.

[Ron Clarke, Chairman and Chief Executive Officer]

Hey, Tien-tsin, it’s Ron. It’s a great question. I’d say sitting in our kind of close of the year staff meeting in December, we remarked that call it at 12 or 14 sales lines that we report and look at I think all but one of them was up pretty significantly. So this is the first year that I can recall that kind of almost everything we have in the company and almost every place sold a bunch more than the prior year. And then second, which I mentioned earlier is the sales levels are accelerating, we did a lot better getting away from the distractions at the first half of the year. And so we plan sales a bit more conservatively for 2018, but we like how things are rolling into the front of the year.

[Tien-tsin Huang, JP Morgan]

Hi, great. Thank you.

[Operator]

Our next question is Danyal Hussain with Morgan Stanley. Please proceed.

[Danyal Hussain, Morgan Stanley]

Hi, just a couple of quick ones, thank you. Just on the Chevron contract. Does your guidance assume deconversion begins would offend anyone in Q3? And then those that come off gradually or all at once and you expect there will be any cost off during the year. Thanks.

[Ron Clarke, Chairman and Chief Executive Officer]

Yes, again it’s Ron. I think we comment that specifically on a given partner, but I’d say it will be kind of okay for you guys to plan that we retain that thing for quite at least the first half of the year. I mean, practically all conversions have a beginning and end. So to your point to actually stream over some period of time usually four to six months. So that’s what the shape of the thing will look like.

[Danyal Hussain, Morgan Stanley]

Okay, great. And then just a quick one on I guess, on M&A pipeline. You had suggested, there might be a couple of tuck-ins that are imminent and then maybe just start exposing that against appetite for buybacks I think just given where the market is now.

[Ron Clarke, Chairman and Chief Executive Officer]

I guess add that today as the more – even a more relevant question. Yes, on the first part I did mention that we got three or four active acquisition things that we’re working on. I would – I guess, I characterized it as kind of mid-size there, not super small, they’re not super big, call it a $100 million to $300 million or $400 million or $500 million kind of in size. So my guess is that we will work some of those through the pipeline before we get to the turn.

And yes, on the question of buyback, I think we’ve shown that we’ll buyback FLT, we bought back, whatever we said 2.9 million shares last year. And so like always it’s a function of relative price, so when we see the price of our stock vis-à-vis it’s comps and we look at our deal pipeline and we look at our liquidity, which are all good, our leverage ratio I think was 2.4 at the close. And so, yes, I would say at these kinds of prices we are certainly buyers of our stock.

[Danyal Hussain, Morgan Stanley]

Perfect, thank you.

[Operator]

Our next question is from Oscar Turner with SunTrust Robinson Humphrey. Please proceed.

[Oscar Turner, SunTrust Robinson Humphrey]

Good afternoon. Thanks for squeezing me in here. I guess, one more follow-up on the 2018 outlook. With regards to your non-fuel segments, can you provide a detailed growth outlook for those three? I think its tolls, corporate payments and lodging, just given that those are other revenue growth engine.

[Ron Clarke, Chairman and Chief Executive Officer]

Yes, we did. I did provide some guidance on that. All of them are projected to grow kind of in that kind of mid-to upper teens rate in 2018. We didn’t talk about it specifically by product, we have to go back and look at it but I would expect all of those the tolls, the lodging, the corporate pay businesses to be in the kind of the mid-to upper teens.

[Oscar Turner, SunTrust Robinson Humphrey]

Okay. And then I appreciate the color on the mid-term growth initiatives, I guess, my questions – my follow-ups particularly on the beyond fuel, can you provide color on the timeline for broader rollout of beyond fuel? And then I think you mentioned testing that with some of your domestic customers, and how much revenue from that initiatives in your 2018 guidance?

[Ron Clarke, Chairman and Chief Executive Officer]

Yes, Oscar, it’s Ron. It’s a really good question. And so what I’d say is that we’ve done the iceberg work here in the U.S. and the UK, so we now have lots of our fuel card clients on platforms that we can open up and an offer non-fuel things to them, point one. Point two is, we tested pretty hard for about 1.5 year in one vertical, the construction vertical and had a lot of success with it. About half of the purchases of these new construction clients, who are construction supplies and the other half are fuels, so we’ve got good demonstration that this beyond fuel idea works, at least in some places.

So what we’re doing now is in kind of our plans for 2018 is widening that and looking at other verticals, looking at our customer base to upgrade. So I’d say a lot of the work now is around targeting, marketing, credit analysis because it would increase obviously the credit for the account. So I would think that probably a fair amount of this year will be getting some other areas including the client base and other verticals fine-tuned, so that it can be a much more material number next year. But it is working, where we tried it, it is working.

[Oscar Turner, SunTrust Robinson Humphrey]

Okay. Thanks.

[Operator]

And our final question will be from Bob Napoli with William Blair. Please proceed with your question.

[Bob Napoli, William Blair]

Thank you. Thanks for the outlook, the detailed out. But as we look at the numbers, mid-teens, I agree are very healthy growth rates for those three segments. Where do you see the biggest risks to that outlook? Which businesses or which segments are you most confident in achieving those numbers? So where could there be outside and where do you see – if you missed these numbers next year where would they – which segment would it come from? Where is the execution risk the highest?

[Ron Clarke, Chairman and Chief Executive Officer]

Hey, Bob it’s Ron again. It’s a good question. I’d say that I’m not particularly worried about any of them, because we build plans again, I think I tell you guys that we think we can make. But I’d say that because of the model corporate payments I would have higher confidence because of the implementation cycle. So I’d say sitting here today, that book is sold already to make the plan. So the risk there is really implementation, not selling. But in the case of tolls and even lodging, those things have to be sold. We have to sell more in 2018, but obviously, we sold a lot in 2017.

So I’d say if you made me order them, I’d have the most confidence probably in corporate pay, probably second in lodging, because this revamp of the product is just crazy good. We’ve taken a product that was not super easy to use or super easy to book rooms, low cost rooms and we’ve made it like super easy now and looking at January, we’re getting lift. So I feel, I’d say super good there. So I’d say the one that’s just more approved to do that’s got a pretty good number would be the tolls business would be my order.

[Bob Napoli, William Blair]

Okay. And which of those do you see the most likely to have upside potential, I guess would be same order?

[Ron Clarke, Chairman and Chief Executive Officer]

I’d say probably for the same reason, because beta flex is down and beta flexis up. I probably say the same thing. I was look at the report this morning of the new tolls. I think I mentioned that in the upfront remarks, there’s four I think new toll roads expected to come online starting actually in Q2. So we built some kind of forecast of the lift, which is, starts to be pretty meaningful as we exit the year.

So I’d say that and the common someone – a question someone answered earlier about fuel first, I’d say the same thing, that thing it’s kind of ready to go, we’re testing, we put a little bit in the plan but from the research and the reaction, that something that could roll way faster. So I’d say, although, it has to all be sold in the year, which could create some risks, I think its also got some flex where it could do a lot better.

[Bob Napoli, William Blair]

Thanks. And last, didn’t have to ask about Europe and fuel card outsourcing by the major oil switch, we’ve talked about per years and you mentioned some potential major partnerships that could affect the numbers this year.

[Ron Clarke, Chairman and Chief Executive Officer]

Yes, I’m always wrong. I feel like when I try to answer this question. So you guys maybe a bit cautious. But it’s a bit of a broken record. Yes, I’m looking at some partner pipeline and there are three or four things in Europe that we’re in conversations but where and when those things will land, I don’t know. But it continues to be something of great interest. I got an e-mail from one of my guys, we had a great meeting yesterday [indiscernible] so it continues to be of interest, but it always seems to bit harder to actually get it over the goal line.

[Bob Napoli, William Blair]

Great. Thank you, appreciate it.

[Operator]

Thank you. This concludes today’s conference. You may disconnect your lines at this time and thank you for your participation.