Aug 3, 2017
Executives
Eric Richard Dey - FleetCor Technologies, Inc. Ronald F.
Clarke - FleetCor Technologies, Inc.
Analysts
Ramsey El-Assal - Jefferies LLC David Mark Togut - Evercore ISI Ashish Sabadra - Deutsche Bank Securities, Inc. Danyal Hussain - Morgan Stanley & Co.
LLC Robert Paul Napoli - William Blair & Co. LLC Tien-Tsin Huang - JPMorgan Securities LLC James Schneider - Goldman Sachs & Co.
LLC
Operator
Greetings and welcome to the FleetCor Technologies, Incorporated Second Quarter 2017 Earnings Conference Call. As a reminder, this conference is being recorded.
I would like to turn the conference over to our host, Mr. Eric Dey, Chief Financial Officer for FleetCor Technologies.
Thank you, you may begin.
Eric Richard Dey - FleetCor Technologies, Inc.
Good afternoon, everyone, and thank you for joining us today. By now everyone should have access to our second quarter press release.
It can be found at www.fleetcor.com under the Investor Relations section. Throughout this conference call, we will be presenting non-GAAP financial information, including adjusted revenues, adjusted net income, and 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 2017 guidance on both a GAAP and non-GAAP basis, with a 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 2017 guidance, new products and fee initiatives, and expectations regarding business development and timing of acquisitions and dispositions. 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 in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission.
Others are described in our Annual Report on Form 10-K. 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.
Ronald F. Clarke - FleetCor Technologies, Inc.
Okay, Eric. Thanks.
Hi, everyone, and thanks for joining the call this afternoon. Upfront here, I'll plan to cover two subjects.
First, I'll comment on our Q2 results and rest of year outlook, and second, I'll provide an update on some recent developments. Okay.
So, on to the quarter. We reported very good Q2 results, generally consistent with our internal expectations.
We reported revenue of $541 million, up 30%, and cash EPS of $199 million, up 26%. That's back-to-back quarters of profit growth above 25%.
The macro overall was a nonfactor in our Q2 earnings. Fuel price and fuel spreads were a bit favorable, but FX interest rates and our tax rate were unfavorable versus the prior year.
So, again, overall neutral macro against profits. Organic growth 9%, in Q2 with Fuel Card revenue growth of 8%.
Revenue growth in our other four major product lines was double-digit; that excludes our All Other category. Same-store sales finally strengthened in Q2 to plus 1%.
We had particular strength in lodging and corporate payments. Q2 sales grew 7% versus prior year, with two of our smaller international markets, Mexico and Russia, grew sales a 100% versus last year.
Q2 cash flow expanded to $125 million, up 40% versus last year and up $70 million sequentially versus Q1 2017. Q2 global customer revenue retention was 91.5%, that's nine consecutive quarters of 90%-plus retention.
So in terms of drivers for Q2, basically three things. One, STP made a big contribution, we didn't own that last year.
It grew 14% on a pro forma basis, again 9% organic growth, about $40 million flowed through into earnings. And lastly, we had about 1 million fewer shares outstanding.
I do want to point out that a few things did not go as well as we planned in Q2. The Comdata MasterCard portfolio that we converted in Q1 suffered some one-time losses in Q2 due to a bumpy IT conversion.
Fortunately, the U.S. MasterCard portfolio that we didn't convert to a new platform continued to grow quite well, up 34% in the quarter.
So the one we converted, not so good; the ones that we didn't convert still growing nicely. Our Comdata trucking money movement products, eCash and Comchek, quite soft in the quarter.
We're moving to replace both of those with new, fresher versions. And STP was just a bit delayed in some of its pricing actions as we chose to test our way in a bit more slowly.
But look, all in all a good solid quarter, good profit growth, and really kind of a good first half of 2017. Okay, let me transition over to the outlook for the rest of the year.
Starting with the macro, so basically outlooking a neutral macro for the second half; FX will be better, interest rates will be worse, but on an overall basis neutral for rest of the year. Operating performance should be quite similar to Q2.
Things that are going well will continue to go well. The couple of soft spots, the Comdata MasterCard portfolio that we converted and the Comdata money movement products probably soft still for the second half.
But expected acceleration in our corporate payments business, they brought on a lot of new business that will get implemented in the second half that's been previously sold. And STP will gain on some of the pricing initiatives and some of the new channels, new sales channel initiatives in the second half.
Speedway should be fully ramped by September heading into Q4, and we continue to roll out these PAC Pride extended network cards. So this set of positives should absorb a couple of the weaker spots that we mentioned.
And then finally, we're expecting a rebalancing of our portfolio here in the second half, replacing our telematics business, NexTraq, with our international payments business, Cambridge. So obviously that trade should result in faster revenue growth next year.
So these expectations result in the following 2017 guidance adjustment. We'll raise full-year 2017 cash EPS guidance $0.03 from $8.31 to $8.34 at the midpoint.
So that reflects the $0.03 beat here in Q2, effectively leaving our rest of year guidance unchanged. This guidance assumes the portfolio rebalancing I mentioned, NexTraq out, Cambridge in; that will be about $0.03 unfavorable in the second half, but that will be offset by the ASR, which will be $0.03 favorable in the second half.
Our second half organic growth overall should pencil out at around 8% or 9%, with slower fuel card growth in the second half, again due to that bumpy MasterCard conversion. Okay, let me shift gears and talk about some recent developments.
So first up on the capital allocation front, we announced we just refinanced our term debt facility, increasing our liquidity and extending our maturity, so we raised another $700 million in term debt – favorable rates, the term A and revolver staying put at L175, the term B rate improving 25 bps to L plus 200, term A revolver maturity extended five years and the B seven years. And that raise was oversubscribed.
We also completed our telematics NexTraq sale to Michelin for $320 million in July, so we now have that cash. So basically this new raise and sale gives us the available liquidity to close and fund Cambridge, fund a $250 million ASR, potentially do more open-market share buybacks or acquisitions going forward.
And looks like it will leave our pro forma leverage ratio at year-end at under three times our target. On the partner relationship front, some good progress this quarter.
We're delighted to announce that Uber has extended their relationship with us. So, happy to continue to grow that program with them.
Speedway, we progressed the implementation quite nicely, now 75% complete, expected to finish in September. That will lift revenues in Q4 and into next year, so that conversion going well.
And we've also gotten closer to some decisions on some new international partner opportunities, so hopeful that a couple of things there will come to conclusion. On the acquisition front, Cambridge, expect to close Cambridge by September 1.
We've now received regulatory clearance. We've received approvals and waivers/or for all the necessary state money transmitter licenses.
We finalized our Year One transformation integration plan and appointed one of our executives to lead the transformation effort. Cambridge is out looking 20% plus revenue growth in calendar 2017.
You may have seen the SVS announcement, we have decided mutually with First Data to terminate our gift card JV. The, challenge timeline and cost associated with the regulatory process is what led us to reconsider the decision and move forward independently, retaining SVS.
We're in the process now of reworking our growth plan for SVS and we'll revert with those thoughts and ideas later this year. STP, hard to believe, but coming up on our one-year anniversary of that acquisition, business performing well.
Low teens revenue growth in the first half, many of our transformational initiatives now taking hold, some pricing, lower credit losses, traction on some new sales channels, and testing of a new revamped IT system. So, quite pleased so far with STP and its prospects.
In terms of pipeline, we are still active, working some new potential acquisitions, specifically a couple attractive tuck-ins, so we'll keep you posted as we get closer there. Let me give you an update on system conversion or migrations, we've worked on three IT conversions in the first half of 2017.
Two have gone well or very well, and one has gone not so well. So on the good news front, we did convert our Comdata processing mainframe infrastructure from running in the Comdata office building to running on the IBM Cloud.
This is good, it's – it helps in terms of processing speeds, it'll lower our IT costs going forward and it gives us better disaster recovery if we should ever need it. Second conversion, I mentioned earlier Speedway, we've converted 75% of that portfolio to FleetCor systems.
The conversion has gone well, quite well, and again, expect to wrap that up in Q3. On the not so good front, we converted a portion, one of our direct MasterCard portfolios off of the Comdata mainframe in Q1.
We had problems converting the history or client balances. That led to several weeks of delays in billing, some errors in billing, unfortunately long wait times in customer service.
And as a result, we've seen a number of clients leave the program in Q2 because of those bumpy IT issues. Fortunately, we've now corrected those conversion issues, the service is running normally again, and client attrition seems to have plateaued, so we're back at trying to rebuild that portfolio.
So, look, in conclusion again a good Q2, good growth, 26% profit growth, back-to-back quarters of 25%-plus profit growth. Basically, a neutral macro environment here in Q2 and previously in Q1.
And overall, we're outlooking basically a neutral environment rest of the year, so glad to be off that subject. Our second half outlook is up sequentially, expecting 20% profit growth for full-year 2017.
We're rebalancing the portfolio to faster growth businesses; NexTraq out, Cambridge in; we're strengthening our capital base, returning capital to shareholders, still increasing our liquidity and still maintaining a less-than-three-times leverage ratio. Still on the hunt for some new partner deals, and have extended our relationship with Uber, and we feel like we're past the distractions of the first half and getting back to work, back to business.
So net-net we feel pretty well positioned to finish the rest of 2017 strong and take some of that momentum into 2018. So with that, let me turn the call back over to Eric.
Eric?
Eric Richard Dey - FleetCor Technologies, Inc.
Thank you, Ron. For the second quarter of 2017, we reported revenue of $541.2 million, up 29.5% compared to $417.9 million in the second quarter of 2016.
The revenue from our North American segment increased 14% to $343 million from $301.1 million in the second quarter of 2016. Revenue from our international segment increased 70% to $198.2 million from $116.8 million in the second quarter of 2016.
For the second quarter of 2017, GAAP net income increased 12.7% to $131 million or $1.39 per diluted share, from $116.3 million or $1.22 per diluted share in the second quarter of 2016. The other 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 second quarter of 2017 were $510.6 million, up 29.1% compared to $395.6 million in the second quarter of 2016. Adjusted net income for the second quarter of 2017 increased 24.7% to $187 million or $1.99 per diluted share, compared to $150 million or $1.57 per diluted share in the second quarter of 2016.
As a reminder, 2016 adjusted net income per diluted share reflected the impact of adoption of the new accounting rules for stock option-based compensation. Second quarter results reflect the impact of the macroeconomic environment.
Changes in foreign exchange rates from the second quarter of 2016 were primarily negative, and overall, we believe negatively impacted revenue during the quarter by approximately $5 million. Fuel prices were mostly favorable during the quarter, and although we cannot precisely calculate the impact of these changes, we believe positively impacted revenues by approximately $5 million.
And finally, spreads were favorable as fuel prices dropped during the quarter, which increased market spread margins. As a result, we believe spreads positively impacted our results by approximately $15 million.
So in total, the impact of those changes positively impacted our second quarter revenues by approximately $15 million, and adjusted net income per diluted share by approximately $0.05. Organic growth was approximately 13% for the second quarter of 2017, or 9% when excluding the impact of the macroeconomic environment.
Now let's shift over and discuss other drivers of our second quarter performance. All of our major product lines performed well during the quarter.
Our fuel card business grew 13% during the quarter and 8% on a macro neutral basis. The fuel cards business was impacted by the MasterCard conversion in the first quarter, as Ron mentioned earlier, which impacted volumes and revenue for the portion of that MasterCard portfolio that was converted.
However, the U.S. MasterCard portfolios that we did not convert continued with their fast growth, and were up over 30% in the quarter.
Although the conversion issues have been mostly resolved, we do expect that volumes in the converted portfolio will continue to lag the rest of the year. Our corporate payments business continues to grow well and was up 12% during the quarter.
Our total business was up 13%, lodging was up 16%, and the gift business up 11%. So all in all, another solid quarter for our businesses.
Now moving down the income statement, total operating expenses for the second quarter were $325.2 million compared to $246.7 million in the second quarter of 2016, an increase of 31.8%. As a percentage of total revenues, operating expenses increased to approximately 60% of revenue, compared to 59% in the second 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. Included in the second quarter of 2017 operating expense were ongoing expenses related to the acquisitions closed in 2016.
Also, stock-based compensation expense in the second quarter of 2017 was $21.2 million, compared to $17.6 million in the second quarter of 2016. And deal related expenses were approximately $1.2 million in the second quarter of 2017, versus approximately $300,000 in the second quarter of 2016.
Credit losses were $14.7 million for the second quarter, 9 basis points, compared to $6.9 million or 5 basis points in the second quarter of 2016. The increase in bad debt was primarily due to bad debt inherent in the acquired STP business, and the addition of new euroShell locations, and to a lesser degree, normal quarterly fluctuations of certain businesses.
Depreciation and amortization expense increased 33.6% to $64.7 million in the second quarter of 2017, from $48.4 million in the second quarter of 2016. The increase was primarily due to the STP acquisition.
Interest expense increased 50% to $23.9 million, compared to $15.9 million in the second quarter of 2016. The increase in interest expense was due primarily to the impact of additional borrowing for the STP and Travelcard acquisitions, and increases in LIBOR.
Our effective tax rate for the second quarter of 2017 was 31.2%, compared to 28.4% for the second quarter of 2016. The 2016 tax rate was favorably impacted by a one-time recovery of purchase price from our equity method investment that favorably impacted pre-tax earnings, but was not subject to income taxes.
The 2016 rate was also favorably impacted by higher excess tax benefits on share-based compensation in the second quarter of 2016 versus the second quarter of 2017. As a reminder, a change in the accounting for stock based compensation for tax purposes went into effect January 1, 2017, which results in the excess tax benefit on share-based compensation to be part of the effective tax rate.
This standard also requires the recasting of prior-year results for comparability. Now, turning to the balance sheet.
We ended the quarter with $765.6 million in total cash. $201 million is restricted and consists of primarily customer deposits.
As of June 30, we had $2.3 billion outstanding on our term A loan, $244 million outstanding on our term B loan, and $506 million drawn in our revolver, leaving $529 million of undrawn availability. We had $741 million borrowed on our securitization facility at the end of the quarter.
On July 17, we closed the sale of the NexTraq business for $320 million in cash, or about $255 million after tax. Today, we announced the successful upsizing of our senior credit facility by $709 million, and extended the facility to new five-year and seven-year terms on the term A and term B facilities respectively.
The lenders have agreed to an amendment that increases the term A loan to $2.690 billion, increases the revolver loan to $1.285 billion, and increases the term loan B to $350 million. The term loan A and revolving pricing remains the same, currently LIBOR plus 175 basis points, and the term B pricing was reduced by 25 basis points to LIBOR plus 200 basis points.
We intend to use this new facility to help finance the Cambridge acquisition and provide liquidity for future share buybacks and M&A. Today, we also announced that the Board of Directors has authorized an increase in the previously announced share repurchase plan, from $500 million up to $750 million, and extended the share repurchase plan by 18 months.
We also announced that it has entered into a $250 million accelerated share repurchase program, under which we will repurchase $250 million of our common stock. This ASR is part of the $750 million authorized amount.
We plan to use the proceeds from the NexTraq sale to finance the ASR. The company had previously spent approximately $240 million under this plan, and has repurchased approximately 1,670,000 shares at an average price of approximately $144 per share.
As of June 30, 2017, our leverage ratio was 2.64 times EBITDA, which is well below our covenant level of 3.75 times EBITDA as calculated under our credit agreement. We intend to use our future excess cash flow to temporarily pay down the balance on our revolving credit facility and securitization facility, and maintain liquidity for acquisitions and other corporate purposes.
Finally, we are not a capital intensive business, spending $17.8 million on CapEx during the second quarter of 2017. Now, on to our outlook for the remainder of 2017.
First I want to update you on our latest thinking about the macroeconomic environment for the balance of the year. The good news is that in total, the macro came in mostly where we thought it would be.
The current trend is for fuel price and spread to continue to be at our prior guidance level for the balance of the year. And although foreign exchange rates are trending a little favorable to our prior guidance, higher interest rates will offset the slight macro gain.
So, about neutral when you include interest. Also, we have a lot of moving parts for our guidance this quarter, including the sale of NexTraq during the quarter, which will create a headwind for the rest of the year, but will be somewhat offset by the previously announced Cambridge acquisition, which is expected to close by September 1, and the impact of the accelerated stock repurchase program.
The good news is that on an annualized basis these events are cumulatively accretive, but they will not be for the balance of the year, purely because of timing. With that said, our financial guidance is as follows.
Total revenues to be between $2.195 billion and $2.245 billion. GAAP net income between $545 million and $565 million.
GAAP net income per diluted share to be between $5.80 and $6. Adjusted net income to be between $775 million and $795 million.
And adjusted net income per diluted share to be between $8.24 and $8.44. This guidance represents approximately a 20% 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 this guidance include the following: weighted fuel prices equal to $2.43 per gallon average for 2017 in the U.S., for those businesses sensitive to the movement in the retail price of fuel; market spreads returning closer to historical levels, no change from prior guidance; foreign exchange rates as of June 30, 2017, a slight increase from prior guidance; the SVS business is retained for 2017; interest expense of $108 million for 2017' fully diluted shares outstanding of 94 million shares, and this assumes approximately a 600,000 share impact from the ASR for the rest of the year; a full-year tax rate of 29.2%. As a reminder, a change in accounting for stock-based compensation for tax purposes went into effect January 1, 2017, which allows for the excess tax benefit on share-based compensation to be part of the effective tax rate.
As a result, the tax rate can be volatile and has impacted by the number of stock options exercised or restricted shares vested in the quarter. The company believes that the balance of the year tax rate could fluctuate between approximately 29% and 31%.
The NexTraq business was sold on July 17 and is not included in the company's rest of year guidance. The impact of removing NexTraq is approximately $0.08 in adjusted net income per diluted share for the remainder of the year, based on our prior guidance.
And the company estimates it will recognize a gain on the sale of NexTraq of approximately $90 million, or $0.95 per diluted share, and is not included in guidance. The company anticipates that the Cambridge Global Payments acquisition will close by September 1, and is therefore included in guidance.
The impact of the Cambridge acquisition on our second half guidance is approximately $0.04 to $0.05 in adjusted net income per diluted share. And no income related to acquisitions are material new partnership agreements not already disclosed.
In summary, our guidance for the full year builds as follows. Previous guidance range of $8.21 to $8.41, add the $0.03 Q2 beat of our Q2 guidance, remove the sale of NexTraq for the remainder of the year of approximately $0.08 in adjusted net income per diluted share, add the impact of the Cambridge acquisition of approximately $0.04 to $0.05 in adjusted net income per diluted share net of deal-related expenses, add the impact of $250 million ASR on the balance of the year of approximately $0.03 in adjusted net income per diluted share, which equals our revised full-year guidance range of $8.24 to $8.44.
In terms of guidance for the third and fourth quarters, I want to remind everyone that the company's revenues and profits normally build sequentially throughout the year, resulting in higher revenue in profit in the third and fourth quarters. Also, the above mentioned items will impact revenue and profit in the third and fourth quarters.
As a result, we believe our revenue and profit in the third quarter will be higher than the second quarter, and our revenue and profit in the fourth quarter will be higher than the third quarter, driven by the timing of the above items. For the third quarter, we are expecting adjusted net income per diluted share to be in the range of $2.09 to $2.16.
With that said, operator, we'll open it up for questions.
Operator
Our first question comes from the line of Ramsey El-Assal from Jefferies. Please go ahead with your questions.
Ramsey El-Assal - Jefferies LLC
Hi, guys. Thanks for taking my question.
I was wondering if you could talk about your organic growth trajectory, kind of moving through Q4 and into early 2018? I know you've called out a lot of puts and takes and some factors that might point to some acceleration.
I was just wondering if you can help us think through what that rate will be into 2018?
Eric Richard Dey - FleetCor Technologies, Inc.
Hey, Ramsey. This is Eric.
I would say our range is pretty consistent with where we've been in the past. I mean, to kind of give a range, I would say we're kind of in the 8% to the 10%, 11% range is where we 'd think about where we're going to be next year, give or take.
We have – obviously haven't spent a lot of time building our 2018 budget at this point, but that would be our expectation, if I had to say right now.
Ramsey El-Assal - Jefferies LLC
And then I guess, on a related note, now that STP is going to cycle soon, I mean, what's the growth rate in that asset, in that business, that you're anticipating going forward? Are we – should we – I'm assuming we're expecting to see some acceleration there as some of your programs kind of take – gain a little more traction.
Is that a fair assumption? And if so, could you help us kind of quantify what that rate might be?
Ronald F. Clarke - FleetCor Technologies, Inc.
Yeah, Ramsey. It's Ron.
So kind of first half, I think I said low teens, I think the second half will be closer to high teens to 20%, and I'd say we would stay at that level probably at least the first six months of next year, and then probably mid-to-high-teens.
Ramsey El-Assal - Jefferies LLC
Okay. And then lastly, I wanted to ask you about the Uber deal, which sounds very interesting.
As I recall, before that was really fast growing contract. What is the nature of the extension?
Are you rolling this out to a much broader group of drivers, is it a broader geography or just more of, different types of drivers in the U.S.? And then could you kind of help us think through the model there that you're evolving into, and then also potentially what the impact might be to numbers?
Ronald F. Clarke - FleetCor Technologies, Inc.
Yeah. So the short answer is, it's just more term.
They're happy, we're happy, so they added more term to the existing deal. We're still trying to figure out how to take the program internationally, so that's still a work in process.
Ramsey El-Assal - Jefferies LLC
Okay. That's all for me.
Thanks so much.
Ronald F. Clarke - FleetCor Technologies, Inc.
Thanks.
Operator
Our next question comes from the line of David Togut with Evercore ISI. Please go ahead with your question.
David Mark Togut - Evercore ISI
Thanks. Good afternoon.
Ronald F. Clarke - FleetCor Technologies, Inc.
Hey, David.
David Mark Togut - Evercore ISI
What was the growth rate in the direct MasterCard product in the second quarter, and how would you expect that to look in Q3 and Q4?
Ronald F. Clarke - FleetCor Technologies, Inc.
Which is the direct, you're saying direct MasterCard?
David Mark Togut - Evercore ISI
Right. So, the interchange-centric product that you called out some issues with portfolio conversions.
Historically you've given overall growth – revenue growth number for that business, sometimes unit, sometimes revenue as well?
Ronald F. Clarke - FleetCor Technologies, Inc.
Yeah, I don't have it handy. I think what we quoted is our collective set of U.S.
MasterCard products. I think it was a combo of the one we converted, which went a bit into the ditch, and the ones we didn't grew 34%.
I think the combination of all of those was plus 17%, the happy stuff that didn't convert and the sad stuff that converted, I think the consolidated number was 17%.
David Mark Togut - Evercore ISI
And how would you expect that to trend in the back half of this year?
Ronald F. Clarke - FleetCor Technologies, Inc.
Well again, I would say, per my comments, likely down, right? I tried to be as transparent as possible that we took a bit of a divot in this conversion.
We did the conversion and it took a while to get a read on it, and basically the read of what we converted was not great. So we'll see obviously more of that as we go into kind of Q3 and Q4.
So that particular portfolio will probably be flat over the next couple of quarters, and the other five or six MasterCard portfolios we would expect will continue growing at a pretty – at a 20-percent-plus rate. So that's – so I'd say, it's still unclear David, what the shape of that particular file that we converted, but we forecasted it to be kind of flat, the next couple of quarters.
David Mark Togut - Evercore ISI
Understood. And then you called out a 1% growth in same-store sales, which is a nice improvement.
Could you sort of drill down into the drivers of that? Perhaps by geography?
I mean just, where do you see the biggest changes in same-store sales?
Ronald F. Clarke - FleetCor Technologies, Inc.
Yeah. Again, as you know, it's across of a lot of places, but I'd say the Brazil thing got better, the employment piece – at least the line of business we're in, the transport piece, got significantly better.
The lodging piece, which I think we had on our to-do sheet (39:13) a year or so ago is in the rear-view mirror, those things are now back to positive. The corporate payments business was quite healthy, the base.
So I think it's, again, when we did this consolidated number. I think it was a point or point and half negative.
It's four or five pieces, David, moving in the right direction that brings kind of the total from minus one to plus one. So it's not one thing.
It's literally probably four or five things that went a bit our way this quarter.
David Mark Togut - Evercore ISI
Understood. And then, could you update us on the growth rate in the large fleet market?
You had the big sales force expansion there with Comdata, post that acquisition, been running up I think double-digits previous quarters. What were we seeing in Q2?
Ronald F. Clarke - FleetCor Technologies, Inc.
When you say the large, clarify the question that – when you say the large?
David Mark Togut - Evercore ISI
Well, looking at the acquired fleet business from Comdata ,where you had the big sales force head count expansion, and you got that up to double digits in previous quarters? I'm just wondering what the growth rate was in Q2, revenue-wise?
Ronald F. Clarke - FleetCor Technologies, Inc.
Yeah. Let me look; I've got the sales number, I think, handy here.
Hold one second. I don't have the revenue number, but I do have the sales number handy.
Sales were up about 20% combined, for the old Comdata business, fleet business, over the prior year.
David Mark Togut - Evercore ISI
Okay.
Ronald F. Clarke - FleetCor Technologies, Inc.
That's up 100% basically over two years ago, when we started the expansion of people. So that productivity is obviously getting healthy now, and obviously way up from when we bought the thing.
David Mark Togut - Evercore ISI
Got it. Quick final question from me.
You mentioned an internal and external investigation that you launched a few months ago. What's the update, in terms of any findings by both the internal and external teams?
Eric Richard Dey - FleetCor Technologies, Inc.
Hey, Dave. This is Eric.
I guess to just kind of summarize, as we've said before, we believe we're on very solid ground, and that all of our fees and billing practices are compliant with all the laws and regulations. To answer your question a little bit, we have completed the legal review, but unfortunately, in light of the recent securities lawsuits, we've been advised that we really can't comment on those reviews.
Ronald F. Clarke - FleetCor Technologies, Inc.
But we have completed them, David, they are complete. And I think we reiterated what we said before, that our view, management's view is we are in compliance with every law that regulates our business.
David Mark Togut - Evercore ISI
Got it. Thank you very much.
Ronald F. Clarke - FleetCor Technologies, Inc.
Always a pleasure.
Operator
Our next questions come from the line of Ashish Sabadra with Deutsche Bank. Please go ahead with your questions.
Ashish Sabadra - Deutsche Bank Securities, Inc.
Congrats, congrats on the solid results. Just maybe a quick follow-up on the IT issues in that portfolio.
So is there a way to quantify how much the impact was from that, or what the growth would have been excluding that hiccup?
Ronald F. Clarke - FleetCor Technologies, Inc.
2% to 3%, Ashish, in Q2.
Ashish Sabadra - Deutsche Bank Securities, Inc.
Okay, that's great. So, that would imply that the growth would have been more like 11% to 12% organic, excluding the impact of that portfolio?
Ronald F. Clarke - FleetCor Technologies, Inc.
Yeah.
Eric Richard Dey - FleetCor Technologies, Inc.
Yeah. I think it would be around the 11%, Ashish.
Ronald F. Clarke - FleetCor Technologies, Inc.
And the fuel card would have been 11% instead of 8%. So when we gave you 10% for calendar 2017, we didn't expect to have an IT divot, and it started in the second quarter, so.
Ashish Sabadra - Deutsche Bank Securities, Inc.
Okay. That color is definitely very helpful.
And just your plans for SVS, now that the – yeah, what do you plan to do with SVS? Do you plan to keep that around, or is there other optionality on that business?
Ronald F. Clarke - FleetCor Technologies, Inc.
Yeah. It's been a long saga for you guys as well, so I'd say that we obviously considered some other alternatives right, prior to entering into the deal with First Data, and B, we've gotten a bit smarter, we've now owned it, whatever, two-plus years.
So we're going to go back – the guy running that's a very good guy. We're going to go back basically and dust off some of the other options and dust off his three-year growth plan, which we reviewed a bit ago, and come back to you guys, probably next call, with some clearer view of what we're going to do.
Ashish Sabadra - Deutsche Bank Securities, Inc.
That's helpful as well. And just on the corporate payment side, you talked about some of those sales, which were – the solid traction that you've had, you'll start to see conversions into revenues going forward, which is actually growth.
But just in terms of, I was wondering if you could give any more incremental color in terms of how's the pipeline looking for growth going forward, in terms of new implementations and increasing market share with your existing client base?
Ronald F. Clarke - FleetCor Technologies, Inc.
Yeah. I mean, the business is performing great, sales in that line of business were up 35% in the quarter, and I think we told you they were up 50% the prior year, over the first year.
So, the sales are good, and that conversion time is about 12 months to 18 months, so it's relatively easy for us to plan what the second half of next year is going to look like, because we fundamentally have sold virtually all the business as of today that will hit revenue in the second half and in 2018. And so, again, that business is trending, I think, 14% – 13%, 14%, 15% this quarter, it'll step-up a bit, so it's great.
And then obviously on top of that we have the Cambridge thing that we expect to close this month, and that gives us some great cross-sale opportunity, some ripe accounts to deliver those same domestic AB (45:25) products into. So we've grown to like that business a lot.
Ashish Sabadra - Deutsche Bank Securities, Inc.
That's great. Congrats once again.
Eric Richard Dey - FleetCor Technologies, Inc.
Thanks, Ashish.
Operator
Our next questions come from the line of Danyal Hussain from Morgan Stanley. Please go ahead with your questions.
Danyal Hussain - Morgan Stanley & Co. LLC
Hi, thanks for taking the question. On the IT conversion, it sounded like attrition deteriorated over the course of the second quarter, and it's stabilized by this point, but just mathematically, I guess, the impact to the third quarter and to the back half would be greater than that 2% to 3% you called out.
Could you just – do you have an estimate for what that impact will be in the back half, and what you're baking into the 8% to 9% organic number you gave?
Eric Richard Dey - FleetCor Technologies, Inc.
Yeah. That's a good questions.
I'd say it's probably in our forecast a point more, because we didn't pick up the loss rate really until sometime in Q2, so obviously the exit rate in June was a bit higher than the average for the quarter. So I'd say it's probably in our forecast, another point of divot in 3 and 4.
Danyal Hussain - Morgan Stanley & Co. LLC
Okay, perfect. And then just on, I guess, the rest of that portfolio, it sounds like you've only done part of the conversion.
Is there more that's in the plan for this year, or are you going to hold off? What's your confidence that the rest of it should go through smoothly?
Eric Richard Dey - FleetCor Technologies, Inc.
That's a rhetorical question, but the answer is yes. We're kind of taking a pause.
I mean, I make the joke, I don't know if you're a sports guy, but you can never bat 1.000 or make 80% three pointers or whatever, and I guess in IT conversions, you can't bat 1.000 either. And so we've had a lot of success, I try to call out some to give some credit to our IT people, but this one obviously did not go great.
So we are doing the postmortem and making sure that this never happens again, so we'll stage it different, we'll have different people reviewing it. So I'd say that we're going to be super duper sure the next time, so it probably won't be any time this year.
Danyal Hussain - Morgan Stanley & Co. LLC
Got it, perfect. And just a quick one, just on cash taxes, Eric, it looks like they picked up this quarter.
Just talk about how you expect cash taxes to look going forward versus GAAP? Thanks.
Eric Richard Dey - FleetCor Technologies, Inc.
I think what I guided to is 29.5% for the balance of the year. As I stated in my script, there's a lot of moving parts, with the change in the accounting convention for stock-based compensation, it can actually move the number around a little bit.
If you recall, we had a 26% tax rate in Q1, it was because we had more than anticipated shares that were exercised in the quarter, and in the second quarter we had fewer than we'd anticipated, which caused the tax rate to go up a little bit. But I would say in the back half of the year, we're still anticipating around a 29.5% tax rate.
Danyal Hussain - Morgan Stanley & Co. LLC
Thanks.
Operator
Our next questions come from the line of Bob Napoli with William Blair. Please go ahead with your questions.
Robert Paul Napoli - William Blair & Co. LLC
Thank you. Good afternoon.
The STP business, Ron, I think your goal was to get that revenue growth rate up to 20%. You're in the low teens, but the transaction growth is nominal, you're getting very good revenue per transaction.
What is the strategy, do you still think 20% is a reasonable place to get that? And what is the game plan from the mix of transactions?
I know that business was mispriced and you have pretty broad game plan with that business.
Ronald F. Clarke - FleetCor Technologies, Inc.
Yeah. So, I'd say, Bob, the goal is still in fact, in our forecast, it's either high teens or actually hitting 20% as we exit.
So to your point, we're resegmenting the higher value people, and then we've got some different sales channels that will also bring in some higher value people, and then we've got a longer range plan where some of those new toll roads are expected to come on line. And so the business is fighting just a general malaise in the economy, and particularly in the trucking sector, which is a big part of the transaction.
So that's one of the places that same-store sales are still quite soft, which is bringing the tran count down. But again, we don't – today the company doesn't get paid very much from that group, so it's not as big an impact on revenue.
But I'd say that we're well along on a bunch of these plans, the repricing plans, the new sales channel, the IT stuff to enable some of it, the toll road thing is legislated, so I'd say our confidence is still quite high that that's close to 20% business in the mid-term.
Robert Paul Napoli - William Blair & Co. LLC
Okay. Thank you.
And then just on the fuel card business, I mean your competitors had some issues with fraud, that they seem to be pretty confident is an industry-wide issue with fraudsters going after the gas pumps, because there hasn't been – they're not EMB compliant and – but it doesn't seem like you're seeing any of that at all in your business?
Ronald F. Clarke - FleetCor Technologies, Inc.
Yeah. Our – we keep track of both credit losses in total and fraud as a piece of our credit losses, and fraud has declined 2016 over 2015, and this year year-to-date versus the per year.
So our fraud is down. But we've gone crazy, Bob, in terms of what we call dragnet authorization, controls basically to find, identify and shut off fraudulent stuff, because we had our own share of problems four and five years ago.
So I'd say that we've worked that pretty hard, and year-to-date, I think our total fraud losses are in the $4 million, $5 million range, so it seems pretty low.
Eric Richard Dey - FleetCor Technologies, Inc.
It's about $2.5 million year-to-date.
Ronald F. Clarke - FleetCor Technologies, Inc.
Oh, year-to-date – annualized, call it $5 million.
Robert Paul Napoli - William Blair & Co. LLC
Okay. Okay, thank you.
And then...
Ronald F. Clarke - FleetCor Technologies, Inc.
Not a big issue for us.
Robert Paul Napoli - William Blair & Co. LLC
I've seen it. So I guess it was good to have problems few years ago?
Ronald F. Clarke - FleetCor Technologies, Inc.
Yeah. You can only work on so many things, so that's one we worked on, yes.
Robert Paul Napoli - William Blair & Co. LLC
Then last question, and I'll turn it over. I mean great job on – I really appreciate the laying out the changes in the EPS guidance.
So just the changes in the revenue guidance from keeping SVS, selling NexTraq and buying Cambridge, what was the net effect on revenues – the revenue guidance?
Eric Richard Dey - FleetCor Technologies, Inc.
Oh, god, I have to go back and look at that, Bob, sorry. I have to get back to you on that, I just don't have in hand and I have to add it up.
Robert Paul Napoli - William Blair & Co. LLC
Okay.
Ronald F. Clarke - FleetCor Technologies, Inc.
I have it – I have it here in front of me. It's kind of...
Eric Richard Dey - FleetCor Technologies, Inc.
Net favorable.
Ronald F. Clarke - FleetCor Technologies, Inc.
Yeah, $5 million to $10 million favorable in the second half.
Robert Paul Napoli - William Blair & Co. LLC
Great. Thank you.
Operator
Our next questions come from the line of Tien-Tsin Huang with JPMorgan. Please go ahead with your questions.
Tien-Tsin Huang - JPMorgan Securities LLC
Hey, Ron and Eric.
Ronald F. Clarke - FleetCor Technologies, Inc.
Hey, Tien-Tsin.
Tien-Tsin Huang - JPMorgan Securities LLC
Hi. Just wanted to, I guess want to keep coming back to these soft spots you guys called out, just want to make sure the second half organic growth rate, if we were to strip those two issues out, it would be closer to 11% to 13% for the second-half run rate, of organic growth?
11% to 13%?
Eric Richard Dey - FleetCor Technologies, Inc.
Yeah, we gave 10%, Tien-Tsin, right, in guidance, we did I think 10% in the first quarter. We reported 9%.
I think, I said 8% to 9% in Q3 and Q4. And that for the question earlier had, call it, 2 to 3 points this quarter and maybe 3 to 4 points in the next quarter.
So, it would have been call it 11%-ish, fuel cards being 50% of the business, call 11% without it.
Tien-Tsin Huang - JPMorgan Securities LLC
Got it. Okay, yeah.
So that you would have the acceleration, if you were not for that. So – just, I know, I get there's no quick fix, it's happened, you said it plateaued, but sounds like you want to get that back up.
Is there a plan in place, you're going to put more sales effort to trying to get that portfolio back up?
Eric Richard Dey - FleetCor Technologies, Inc.
Yes. I mean, obviously, it's a great product when you don't goof up the history on clients.
So the product is a good product, which we've obviously sold a lot of, until the thing had good satisfaction. So, yeah, we just – we want to really make sure all is good, like everything is good.
I want to see a little bit more of the tail here before we redirect a bunch of resources back at it. So I'd say we're still a little bit in pause, maybe another month or two, I want to see a little bit more data.
But it's our clearly our best U.S. fuel card product, so we will be back selling it.
The question is, is it one month or two months or three months from now.
Tien-Tsin Huang - JPMorgan Securities LLC
Okay. This is my final question.
Just thinking about new sales, it sounds like retention's been stable, but – so your expectation, given what you've heard – what we've learned today around new sales for the year, and then retention for the year, not just 2Q, has that changed, Ron?
Ronald F. Clarke - FleetCor Technologies, Inc.
I'd say in our forecast, we reported 7% global sales growth over the prior year. I would say 10% to 12% would be the number if we hadn't gotten distracted, right, calling customers back for this thing.
So I would assume that that will rebound, will be double-digit growth of sales in the second half. And we haven't done all the math yet, there will be some flow-through from this one-time attrition, so one portfolio, which I think, Eric, was 3% to 4% of the global company was the file we converted?
So, anyway whatever that one-time loss is, we'll see some of that trickle into Q3 and Q4, that 91.5%. But again, that's in our – kind of in the numbers, which I don't want to make this a depressing call talking about IT, but just to remind everybody, it clearly suggests rest of world, rest of three quarters, doing good to be able to continue to kind of beat what we set out and beat the profit number.
It means kind of all the things we didn't convert are doing well.
Tien-Tsin Huang - JPMorgan Securities LLC
Yep. Got it.
I know conversions are hard. Thanks for the update, guys.
I appreciate it.
Eric Richard Dey - FleetCor Technologies, Inc.
Good talking to you.
Operator
Our next questions come from the line of James Schneider with Goldman Sachs. Please go ahead with your question.
James Schneider - Goldman Sachs & Co. LLC
Good afternoon. Thanks for taking my question.
I was wondering if you could maybe say a little bit more about the European partner opportunities you touched on in the call earlier, Ron. Do you – what's your confidence interval that one or both of those opportunities will convert before year-end, and how do you like your chances?
Ronald F. Clarke - FleetCor Technologies, Inc.
Well, Jim, always – I've been wrong enough on this that it's hard to handicap again, but the update I try to provide is that the timeline to a decision that gets reported back to us has narrowed considerably. So, we expect in both cases to hear something imminently.
And I'd say, like always, we're optimists, we like our chances. So we continue to tell you that we're in the hunt for things or people looking at them, people studying them, and people telling us they're going to decide, and so we're kind of reporting back that we expect to hear something soon.
James Schneider - Goldman Sachs & Co. LLC
That's helpful. And then, I apologize if I missed this before, but obviously same-store sales started to improve a little bit, and that's a good thing.
Do you feel like that was markets, especially transport energy and the like, are in a position where they can actually continue to improve from here, or do you feel like that's just too tough a call based on what you see today?
Ronald F. Clarke - FleetCor Technologies, Inc.
Yeah. I think the visibility we have is limited, right?
We would have called out that we see the thing turning. What I would say is the few industries that are clear, right?
We've grown over the oil and gas thing, same thing on the transport, lodging, business, the railroad thing, we're on the other side of that. It looks like again the Brazil thing is stable to move a bit.
So I'd say that it feels like a few of the pieces that were on the wrong side of this thing have moved to the correct side. But with as many different places and things we're in, and I can't say that we have a great forward view of it.
We kind of planned it flat, is kind of what's in our forecast for the second half.
James Schneider - Goldman Sachs & Co. LLC
That's helpful color. Thanks so much.
Operator
Thank you. This concludes our question-and-answer session.
I would like to turn the floor back over to management for closing comments.
Eric Richard Dey - FleetCor Technologies, Inc.
I want to thank everybody for participating in the call today and we look forward to further dialogue. Thank you very much.
Ronald F. Clarke - FleetCor Technologies, Inc.
Thanks, guys. Appreciate it.
Operator
This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.