Greetings, welcome to the FleetCor Technologies second quarter 2020 earnings conference call. As a reminder, this conference call is being recorded. I would like to turn the conference over to our host, Mr. Jim Eglseder, Head of Investor Relations for FleetCor Technologies.
Good afternoon, everyone, and thank you for joining us today for our second quarter 2020 earnings conference call. With me today are Ron Clarke, our Chairman and CEO, Eric Dey, our longtime CFO, and Charles Freund, who as you saw in your earlier press release, will be taking over for Eric as of September 1st. Following the prepared comments today, the operator will then announce your opportunity to get into the queue for the Q&A session. It is only then that the queue will open for questions. Please note, our earnings release and supplement can be found under the Investor Relations section on our website at fleetcor.com. Throughout this 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 non-GAAP information at other companies.
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. Now 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 outlook, new products and fee initiatives, and expectations regarding business development, acquisitions, and future performance. They are not guarantees of said future performance, and therefore, you should not put undue reliance upon 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 and at sec.gov.
With that out of the way, I would like to turn the call over to Ron Clarke, our Chairman and CEO. Ron?
Okay, good afternoon, everyone, and thanks for joining our second quarter earnings call. Before I begin my opening remarks, I do want to say a big thank you to my pal, Eric Dey, for making the FleetCor journey with me almost from the beginning. I think we've had a pretty good time together and enjoyed some success along the way. All of us will miss you, Eric. At the same time, I do want to welcome my other longtime partner, Charles Freund, also with us from the very beginning, as he transitions into the new role of CFO. Charles been involved in literally every aspect of the company. He's run some of our businesses. He's bought businesses. He's helped us plot the future. I can assure you he'll be a terrific CFO. Okay. Back to my prepared remarks, in which I'll cover four subjects.
First, I'll report on the progress against the initial COVID response plan that we undertook. Second, I'll provide my perspective on Q2 results. Third, I'll speak to the trends, the line of business trends that we're seeing here in July, along with thoughts on rest of the year. Lastly, I'll provide our perspective on Fleet's long-term prospects in a post-COVID world. Okay. Let me begin by summarizing the progress against the COVID response plan that we put into motion in Q2. It was focused against six areas. First was safety. Very pleased to report today we've had very few positive virus cases among our 8,000 global employees. And fortunately, no one seriously ill. Very happy with that. Two, business continuity.
We've been able to deliver our services in this new remote environment, and we can report again in Q2 that our systems performance and uptime were very good. Three, credit. We're delighted, honestly, with our Q2 credit results. Came in at, I think, $21 million, which was about our original loss plan. Receivables aging continues to look quite good. A real bright spot so far. Fourth, liquidity. We quickly tried to strengthen our liquidity back at the beginning of the quarter. We stepped up collections intensity. We repatriated cash. We even secured a bridge loan. Today, liquidity is quite good, $1.9 billion, and our leverage ratio 2.6 x. Expenses. We anticipated, obviously, weakness in Q2, so we trimmed expenses. We actually managed our expenses $50 million lower, which is 20% lower than the original plan that we built. That cushioned our Q2 profits.
Last is selling. We knew, we have to sell differently. Lots of progress around targeting different kinds of companies, new ways to get leads, providing new tools for our salespeople to work at home, new monitoring approaches. Really a revamped selling model that started to rebound. I do want to give a shout-out really to all the FleetCor employees who jumped on these set of things. It was quite urgent to get at these things. IT, HR, credit, sales management, really good performance. Okay. Let me make the turn over to our Q2 results. We reported Q2 revenue of $525 million, which is down 19%, and cash EPS of $2.28, which is down 20% versus prior year. Our expense reduction actions helped narrow our profit decline.
In terms of organic revenue for the quarter, finishing down 17% behind the prior year overall. Fuel coming in at -16%, so about line average. Corporate Payments at -17%. Lodging in total at -37%. The workforce portion somewhere in the high 20s%. Toll in the plus column, +3% for the quarter, driven by its subscription model. In terms of trends in Q2, obviously affected by COVID. Same-store sales, the big one, declined 17%, so about the same as our organic revenue growth as we saw client softness really across every business. Thankfully, client retention remained stable at 91%, and new sales weren't great, about half of last year's level for the quarter, but clearly rebounding as we move through the quarter. It's pretty hard to reflect on a quarter like this, but kind of here's my conclusion.
For us, it's really a story, Q2, of client softness, and client softness being way down as a result of COVID. If you look at other aspects of our business, they were generally kind of okay. Retention stable at 91. Feeling good about finding a new way to sell in this environment and confirm that we can keep selling our services in this environment. Credit didn't bite us. Loss is about on plan. We flexed expenses down to keep profits kind of in line with revenue, rightsize the company. We generated $200 million of free cash flow in the quarter. A few bright spots. Okay. Let me transition to the trends that we're seeing in July and how we're thinking about the rest of the year.
We've included in the earnings supplement a line of business volume chart that runs through the last few months, including July. You'll see there that really every business we have has at least bottomed out, and many of the businesses are recovering, and recovering a bit more quickly in July. They're affected really by the entire client distribution, so clients that are down a little bit, clients that are down a medium amount, clients that are down a super lot. When we look at those distributions, they're all moving up. All clients are kind of moving back up, adding volume. Just a couple of call-outs. You can see international fuel recovering very nicely as Europe out ahead of us on the COVID thing. Our high growth businesses, Full AP, tolls, Russia, simply just powering through their client softness because of lots of new business.
Clearly things getting better. In terms of rest of year, we do expect continued improvement, but we will still have challenges here short-term. Volume we think will continue to recover, but unclear as to how quickly. Our second half revenues will recover more slowly than volume, and that's mostly because of mix. We're seeing larger enterprise clients with lower rates recover faster than our small business portfolio. We expect the macro, particularly FX, to continue to weigh on our second half year versus prior year. We do expect sales to continue to recover, to get better. We're hopeful of getting back to 90% of prior year as we exit 2020. Lastly, expenses. We plan to continue to manage expenses down here in the second half, targeting about 10% lower expense levels than prior year.
In conclusion, Q3 and Q4 will be better than Q2, but again, still challenging. Lastly, let me transition here over to kind of a long-term view of FleetCor and how all of this impacts the company. At the headline level, we think the new behaviors coming out of COVID will be a mixed bag. There's puts and takes. The main point is we think that those new behaviors will impact us kind of at the margins, if you will, of our business, and at the core because it's essential workers that keep powering on, that the core of our business will hold up quite well. Negative impacts that we expect long term is probably less white-collar commuting long term, which again, will impact our European fuel card businesses a bit at the edges because some have white-collar fuel cards.
Likely less business travel at least over the midterm, so that'll dampen our T&E card business and our airline crew lodging business. The accelerated shift to digital and digital purchasing and away from face-to-face shopping will create pressure on our gift card business. On the positive front, the whole work from home remote working model certainly will drive demand for outsourcing of everything generally. So that'll lift our payables business, we think our virtual card and our Full AP prospects. The preference for touchless and avoidance of attendance, we think will lift demand for really almost all of our card businesses. So fuel cards pay at the pump versus in-store. Brazil nonstop electronic tolls versus cash booths. Payroll cards that are reloadable versus payroll checks. Virtual cards instead of printing AP checks.
Look, again, the headline is that our view is that these impacts, we think, are at the margin and at the core of what we do is serve clients with essential workers and that there'll be continuing demand for good payment solutions for that group of clients. What do we do while we wait for our clients and the world to recover here? We're going to stay focused on what we can control and what we can do, and namely, that's to advance the three main priorities, primary priorities of the company. One is portfolio. We're continuing to look at things to reposition our portfolio, create fewer, bigger businesses, add more non-fuel businesses, add more faster-growing businesses, and likely more adjacencies. Second, penetration of our big four businesses. We're working again to enhance our products, create more sales pressure, strengthen our cross-sell channels back to our clients.
We're also pushing our Beyond strategy, which transforms our businesses and their TAM both through broadening what each business offers, but more importantly, maybe the segments that each of our businesses can target. For example, urban city dwellers in Brazil versus highway toll users or airline crew lodging versus only workforce people. Lastly, we're working on strengthening the base capabilities of the company, a particular emphasis on technology. You'll see us invest more in IT, more in IT transformation. We'll move more applications to the cloud. We'll improve digital UIs and BIs for clients. We'll continue to advance our cybersecurity protection. We'll continue to get better at IT. From our perspective, if we keep progressing these three priorities, portfolio, business penetration, and our capabilities it supports our ambition of a 15%-20% profit growth company.
Look, in closing Q2, our Q2 performance, again, really a story of same-store sales, client softness as a result of COVID. Again, with other aspects of our business, particularly retention and credit holding up nicely. Second half for sure better than Q2, but again, still challenging, we think, over the short term. I think most importantly, longer term, the message from us today is at the core, the main thing that we do around the world, which is to serve clients essential services, payments needs. We think that that remains quite good, quite robust, and that we see puts and takes again around the margins of our business as it relates to COVID. With that, let me turn the call one more time back over to Eric to provide some additional details on the quarter. Eric?
Thank you, Ron. For the second quarter of 2020, we reported revenue of $525.1 million, down 19% compared to $647.1 million in the second quarter of 2019. GAAP net income decreased 39% to $158.5 million from $261.7 million. GAAP net income per diluted share decreased 37% to $1.83 from $2.90 in the second quarter of 2019. However, there were a couple of unusual items in the quarter that I want to call out. The second quarter of 2020 was impacted by a $9.8 million discrete tax item related to a prior tax position and a gain on the company's investment in Bill.com of approximately $34 million. In the second quarter of 2019 was a tax benefit of approximately $65 million related to the sale of the company's investment in Masternaut. Excluding these discrete items, net income decreased 28%, and net income per diluted share decreased 25%.
Non-GAAP financial metrics that we will be discussing are adjusted net income and adjusted net income per diluted share. The reconciliation to GAAP numbers is provided in Exhibit 1 of our press release. Adjusted net income for the second quarter of 2020 decreased 23% to $197.4 million, compared to $256.7 million in the same period last year. Adjusted net income per diluted share decreased 20% to $2.28, compared to $2.85 in adjusted net income per diluted share in the second quarter of 2019. Second quarter of 2020 results reflect a negative year-over-year impact from the macroeconomic environment of approximately $22 million in revenue. The negative macro was driven mostly by lower foreign exchange rates, primarily in Brazil when compared with the second quarter of 2019. We believe FX negatively impacted revenue by approximately $35 million.
Fuel prices were down year-over-year for the full quarter, although we cannot precisely calculate the impact of these changes, we believe it unfavorably impacted revenue by approximately $13 million in the quarter. Finally, fuel spreads were quite favorable for most of the quarter and had about a $26 million favorable impact in the quarter. Organic revenue in the quarter was a - 17% overall, driven primarily by same-store sales softness of 17%. All of our major product categories were impacted by the COVID pandemic in the quarter, some more than others. Our fuel category was down organically about 16%. There are a lot of moving parts to our fuel businesses around the world. Our fuel volumes in our international business were impacted more than the U.S. fuel businesses. Both geographies volumes bottomed out in April, and we have been recovering in May, June, and into July.
Volumes should continue to improve over the remainder of the year, barring any setbacks in the reopening of the economy. Although volumes seem to recovering, revenues are recovering at a slower rate in the fuel category as large enterprise account volumes with lower rates are improving faster than our SMB accounts, which have higher revenue per gallon. The Corporate Payments category was down organically approximately 17% in the second quarter. As a reminder, our Corporate Payments business is made up of virtual cards, cross-border payments, full-service AP accounts, and physical T&E plastic cross-sold mostly to our virtual card customers. The same-store sales softness in Corporate Payments came mostly from accounts in the travel, oil and gas, retail, and elective healthcare verticals. We are seeing some recovery in verticals other than travel and the retail verticals, which we expect will recover at a slower rate.
Our full-service AP business continues to perform well and is growing in the mid to high double-digit range. Our toll category has proven to be our most resilient business and grew organically at 3% in the second quarter. Most of the revenue in this category is subscription-based and has not been significantly impacted by the slowdown in the Brazilian economy due to COVID. The products that have been impacted are mostly the beyond toll products where we earn interchange, like parking, fuel, and fast food, where volumes have decreased significantly. Our expectation is for these revenues to recover as the Brazilian economy starts to reopen and recover. The lodging category is made up of our legacy lodging business, which provides lodging accommodation services to workforce travelers and emergency service organizations such as FEMA and the American Red Cross. This business was down 29% organically in the second quarter.
Our airline lodging business, which provides lodging accommodation services primarily to the airline crew and distressed passenger segments, was down 68% in the quarter. Our expectation is for our workforce lodging business to see continued improvement as this business mostly provides lodging for blue-collar workers who generally drive vehicles to the hotel. This business has been impacted much less than other travel-related businesses. We do expect revenue in the category to recover slower as large enterprise accounts with lower rates are recovering faster than our SMB accounts. We expect our airline lodging business recovery to be slower as it is linked to the recovery of the airline industry. Moving down the income statement. Total operating expenses were down 11% for the second quarter of 2020 to $312.3 million, compared with $349.8 million in the second quarter of 2019.
The decrease was primarily due to a decrease in costs related to decreases in volume, cost-cutting initiatives implemented in the second quarter, and the impact of foreign exchange rates. As a percentage of total revenues, operating expenses were approximately 59.5% compared to 54.1% in the second quarter of 2019. Bad debt expense in the second quarter of 2020 was $21.3 million or seven basis points. Compared to $18 million or seven basis points in the second quarter of 2019. Bad debt has been one of the more surprising bright spots as our agings are mostly normal, particularly given the environment we are in today. Any increase in bad debt has been driven mostly by one-off bankruptcies versus increases in aging categories. Depreciation and amortization expense decreased 12% to $62.2 million in the second quarter of 2020 from $70.9 million in the second quarter of 2019.
The decrease was primarily due to the impact of foreign exchange rates. Interest expense decreased 18% to $32.4 million, compared to $39.5 million in the second quarter of 2019. The decrease in interest expense was due primarily to decreases in LIBOR related to the unhedged portion of our debt, partially offset by the impact of additional borrowing for share buybacks and lower borrowings on our securitization facility due to lower volumes in the second quarter. Our effective tax rate for the second quarter of 2020 was 25.1%, compared to a - 1.7% for the second quarter of 2019. The second quarter of 2020 was impacted by a $9.8 million increase in the reserve for uncertain tax positions related to prior years. Also in the second quarter of 2019 was a tax benefit of approximately $65 million related to the sale of the company's investment in Masternaut.
Excluding these discrete items, our tax rate would have been 20.4% in the second quarter of 2020, and the tax rate in the second quarter of 2019 would have been 23.6%. The decrease in the tax rate was due primarily to excess tax benefit on stock option exercises. Turning to the balance sheet. We ended the quarter with $1.19 billion in total cash. Approximately $426 million is restricted and consists primarily of customer deposits. As of June 30th, 2020, we had $3.8 billion outstanding on our credit facilities and $654 million borrowed in our securitization facility. We believe that we have ample liquidity to weather any COVID scenario and to pursue any near-term M&A opportunities. In total, we have approximately $1.9 billion in total liquidity consisting of cash on the balance sheet, undrawn revolver, and the undrawn bridge loan.
During the second quarter, we repurchased approximately 127,000 shares in connection with employee stock sales for $32.2 million as employees forfeited shares to cover taxes. We have approximately $294 million in repurchase capacity remaining under our current authorization. As of June 30th, 2020, our leverage ratio was 2.62 x EBITDA, which is well below our covenant level of four times EBITDA as calculated under our credit agreement. Finally, we spent approximately $19.4 million on CapEx during the second quarter of 2020. Now turning to the outlook for the balance of the year. I want to remind everyone that although our businesses are very resilient, our businesses have all been impacted by the COVID pandemic, some more than others. Our business models are primarily recurring revenue in nature. We have very broad customer bases and diversified businesses across industries and geographies. We are not reinstating our guidance at this point.
There is simply too much uncertainty regarding the resumption of business activity around the world to accurately predict what our volumes could be the rest of the year. We do expect that second half of the year volume will continue to improve as the economy improves. However, we expect second half of the year revenues to recover more slowly than volume, because larger enterprise accounts with lower rates will likely recover faster than our SMB portfolio. We also expect that the macro will continue to be a drag on revenue due to lower expected fuel prices and foreign exchange rates when compared to last year. Finally, before I turn the call over for questions, I want to thank Ron for his kind words earlier. It has been quite a ride over the last 18 years.
I have spent some time thinking about my FleetCor journey and really cannot believe everything that we have accomplished over this period of time. I cannot think of many things I would rather have done. I have known Charles for a long time, and I can say that there is not a person better equipped to take over this challenging role. I will be around to help with the transition over the next several months and look forward to catching up with many of you before I head off into the next chapter of my life. With that said, operator, we'll open it up for questions.
Thank you. The queue is now open for your questions. If you would like to ask a question, please press star one on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one to signal for questions at this time. Our first question comes from Tien-Tsin Huang of J.P. Morgan.
Thanks so much, Eric. Let me add my thanks as well. It's been a fun ride. I can't believe it's been that long. Hopefully we can get together soon. My first question is just thinking about, Ron, your comments and the three priorities. You mentioned adjacencies as being a probable area. I was hoping maybe you could expand on that. Do you think of adjacencies similar to what you did with entering the tolling business, or is it more like entering the AP automation side of things?
Think about how far you might go when you think about adjacencies.
Hey, Tien-Tsin. I'm sitting here next to Mr. Charles Freund. I share your sentiment. I can't believe how long either. All good things come to an end. The adjacency thing I mentioned, I guess, on the last call. It came out of this idea of looking at the clients, kind of what they do before or after the payment. I gave the example last time, in Corporate Payments, in the payables business, all the front end, invoice prep and workflow and approvals and all that stuff before you press the pay button. We continue to look kind of at the front end of those things to see if we can be more helpful again to clients. Another example would be kind of in the core fuel card business, particularly with SMBs.
There are other kinds of software, a little bit what the acquirers have done. First Data and Global, these are software that nests around what our small business guys do, and an old example is in NexTraq is telematics. We were trying to figure out if there was another service, another software service close to fuel card that dealt with field SMB people. We have a couple things that we're looking at there where there's some software that's in the categories, in the verticals that we're in. Again, the thought of it is not only to be more helpful to the clients that we've got to do more for them, but also from the selling perspective, right? Those adjacencies bring books of clients that we could cross-sell to, it may help us sell as well. Those would be a couple of examples.
In each one of the areas we study kind of the front and the back around our services.
Got you. Okay. That's good to know. My follow-up real quick, and I'll get off the call. Just on the new sales visibility, obviously, this new sales were impacted this quarter. Just as we think about replenishing in the second half of the year, how much visibility do you have there, and sort of the quality of the sales that you see as we get beyond the summer?
Tien-Tsin, you broke up just a little. I don't know if you can hear us. Can you repeat the question?
Yeah, sorry. I know my cell signal's bad. I have no power where I'm at. Just the new sales outlook and visibility, and your confidence in replenishing that as you exit the year. Any additional color there?
Yeah. I've heard of that now. I think it's a great question. First thing is it's better already, right? I think I reported that it was around half for the quarter, it was clearly better in June, we're starting to peak at the July numbers. The first headline is it's better already. I think second is we've kind of figured out the new things which took us some time in Q2, right? You got to pitch different people. You got to find leads in different ways. You're not going to trade shows. You're Zooming, right? You're not calling face to face. I think the toolkit for people and the cadence and the way of selling is starting to pay some returns early.
The forecast that we've got from people, again, is getting back to call it 90% as we head towards the end of the year. I got to tell you, we're delighted, honestly, that we found a way to engage people and close in this world. There was a point there where we weren't super sure. Now it's really just a question of whether we can get sales kind of back to where they were. Again, it won't impact a ton our revenue in 2020. As you know, a number of our businesses we sell, we contract in advance of implementation. Some businesses are more sell and go live, and other businesses are sell and go live a different day. The key to it is to fill the end of the year so that that can pour into 2021.
Got you. Understood.
Thank you.
Thanks a lot. Eric, I promise I won't ask you how to calculate the fuel spread in your retirement, man. Thank you, guys.
Peace out.
We'll go next to Ramsey El-Assal with Barclays.
Hi, guys. Thanks so much for taking my question. Eric, also wish you the very best. Really appreciate all your help over the years. I wanted to follow up on Tien-Tsin's question on M&A first. Irrespective of the deals that you'd like to do, it's such a strange environment where a lot of the valuations for some of the kind of sector tech assets have really run. What is the pipeline looking like? Are there deals out there that you think are workable, or is this sort of proven not to be the time for sort of opportunistic M&A? Just curious about the broader kind of M&A environment you're seeing there, Ron.
It's a good question. I guess I categorize the pipeline kind of into three buckets. One is we continue to look at deals right in our big four categories. There's other providers that do the same things, obviously we're in conversations with other players that are in those spaces. Two, I think I mentioned the last time, there's a handful of kind of coveted assets that sit inside some distressed companies. We're chasing a couple of things I think I mentioned that wouldn't have been available probably a different day where it makes more sense for the companies to talk to us. Last is going back to Tien-Tsin's question, we are engaged with a handful of companies in these adjacencies, which again, up to call it four or five months ago, we weren't.
We're kind of, I guess, working, if you will, chasing stuff in kind of two new buckets versus call it six months ago. I agree on the valuation question. We were talking about it in a review earlier this week, that I guess when this happened three or four months ago, we thought valuations would be better. I think many of them have come a lot of the way back. We're back to the same playbook of finding synergies and finding ways that we can operate assets better than what we see as a way to be able to pay for them. We continue to work that same angle of having a clear way that we can improve profits to be able to pay full prices for things.
Okay. That's helpful. The other question I wanted to ask you was on just the credit performance in the quarter, which I thought was pretty outstanding. I just wanted to get your impression about expectations in terms of how we should think about that metric kind of in the back half of the year. Also sort of, this is sort of a more broader question about your sort of philosophy on credit. When do you know how to open up that kind of credit aperture again to drive growth? What to expect and then sort of how do you approach opening up credit again are the questions.
That's another, I think, great question. I'd say if anything, maybe we kind of overreacted initially. When this thing happened, and you look at our balance sheet and the receivables we had to collect, I don't know, I think we had 20 meetings literally over the course of a month, tightening terms, cutting lines, doing things which frankly did impact our revenue and growth in Q2, but it was an over risk I was willing to take. We're like a long way happy with the credit. You look at what some of the banks have turned in and the reserves they've put in, and effectively we've come in on our credit loss plan. Again, just to remind people on the call, a lot of that is structural. We're charge cards.
We have tons of short term daily, a bunch in our payables businesses, credit insurance, tons of DDs in Europe. The structure of how we collect money lends itself to kind of be able to collect it and being essential for a lot of these field services workers. They need our product, they basically need to pay us to kind of keep doing what they're doing. I think we're, again, super happy with the result. In terms of the second question, we're kind of forecasting it kind of as she goes. We don't see anything in the aging or in the payment behaviors that make us think things are going to get worse. That's part two. Then part three is we're testing our way into it. Now that we've seen these results, and the clients are able to repay us, we've started loosening up.
For example, we really clamped down on our companion card where we open up for Beyond Fuel, and saw the people that still were on that were able to pay us, and we blocked it for new accounts. Now we kind of reopened it for existing accounts, but not yet for new accounts. We're effectively kind of stepping our way into looser policies and making sure that we can see repayment happening.
Got it. Thanks again and best of luck, Eric. Take care, guys.
Thanks, Brandon.
Our next question comes from Ashish Sabadra of Deutsche Bank.
Thanks for taking my question. Eric, best wishes to you, and Charles, congrats to you. Question on Corporate Payments. The revenue growth there was softer than what we were expecting, and my guess is most of the softness was in the FX, particularly in May and June. We see that rebound pretty well in July. I was wondering if you could just provide some color on that front. Looks like it had started to improve by the end of April and then softened in May and June. Just what happened there, and how should we think about going forward? Thanks.
Hey, Ashish, it's Ron. I'd say a few things. Corporate Payments, Q2. The first one is it's a function of our clients. The reason, again, the business was softer wasn't sales. That line of business was actually 85% of plan in terms of its sales in the quarter. We found a way to sell. There was still demand, actually quite robust demand. It was having pockets of clients like retail clients and travel clients that were just way down, 70%-80% down. Other clients in that book that were either off or only down a little bit.
Point 1, it's a function of who we had as clients because we never had a screen before of, "Hey, don't sign up Corporate Payments clients that don't do good when things are at home." We never knew that that was something to be aware of. Second, I mentioned earlier we tightened credit, and we cut lines down in that business, both in our hedging product and FX and obviously in our core virtual card in terms of the terms that we offer to these mid-size accounts. Lastly, about 10% or 15% of our overall Corporate Payments business is really T&E cards, walk-around plastic, which are not all white collar, they're supplies for construction and other kinds of stuff. That thing was just way down because travel went effectively to zero. What I'd say back is it's spotty.
There are parts of it that are way down, other parts that are healthy, and we're selling a lot. The thing's recovering. I don't know if you had a chance to look, but we put out a supplement, I think, Eric, it was page nine.
Page nine.
Page nine, Ashish, in there kind of shows the core virtual card thing kind of came back almost flat in July. It's come back really a tremendous amount just in the last 60 days. Look, our outlook on the thing is that the T&E thing will likely stay in the ditch for the rest of the year, and we think the other pieces will recover.
No, that's great. That's good color, Ron. Maybe just a follow-up question on fuel cards. The volumes have rebounded pretty well. I was just wondering if you could give some more color around if there are industries which are doing better than others. Also, there are a few states where we've seen a resurgence of COVID. Have you seen any impact in those states? Thanks.
That resurgence of virus? Ashish, can you repeat that again?
Yeah. Just on the fuel cards, the volume has improved. Any color on different industries which are doing better than others, and also states where there may have been a resurgence in virus? Have you seen any impact, some of those states have kind of economic recovery has slowed down in?
Ashish. First of all, I think we were kind of pleased. I don't know if investors will be that fuel cards, which are a bit of a on-the-go product, a mobility product, were down kind of line average. We're soft at the same kind of level as the rest of the business. I think what that points to again is that it's an essential blue collar people driving around that aren't around people. What we see when we look at it is a similar comment from the telematics business of a huge mix. Historically, 40% or something of our fuel card clients would grow in a quarter, 20 would be down 5%, another 20 would be down 10, and then the remaining amount would be down something. What we see is the whole curve has moved down.
Now only 20% grew in the quarter, and 40% were down up to 20%, and then 10% or 15% were down 75%. When we look at the clients that are at the bottom, at the biggest decline, they're in just what you'd expect. We've got impacted industries, even parts of construction where those projects fell away, where other parts of construction were still at the top. It's just a complete mixed bag of what the clients we have do and how much their business was impacted. The good news is we've seen the whole curve kind of move up. Not just the people down 5% or 10% getting a little bit healthier, but it's the people down 50% or the people down 75% all seem to be moving up over the last month.
That suggests to us that the tail, what will break, is smaller. That we expect hopefully as the plot turns here to get more of that business back.
That's very helpful color, Ron. Thanks a lot.
We'll go next to Matt O'Neill with Goldman Sachs.
Hi. Thank you guys for taking my question. Again, my congrats to Eric and Charles on your respective moves. I was hoping to just sort of dig in a little bit and follow up on Ramsey's question around credit and also Ashish's question on the sort of end market exposure. On credit, again, very impressive sort of stability there. To what extent do you guys track and are you thinking about the sort of government stimulus and payroll protection programs, and the potential impact for a lagged effect on the SMBs? Maybe you could remind us the kind of relative exposure to the smaller businesses versus the larger ones as you're thinking through the recovery in the back half being sort of driven first by volume with revenue lagging to help sort of flesh that out a little bit more for us.
Hey, Matt, this is Eric. The good news is we're obviously very pleased with the performance of bad debt, as Ron indicated earlier. Our agings look mostly normal. When we do have some bad debt that's unusual, it was mostly one-off bankruptcies. As we get to the second half of the year, to answer your question, our SMB portfolio is recovering a little bit slower than the enterprise volume, as we've mentioned. Our SMB business as a percentage of volume is about 1/3 of our overall volume. We do expect a continued lag effect there, but we're taking a very conservative approach to that customer portfolio. We're looking at them closely. We look at the agings daily to see if there's any inherent weakness in any particular industry or category.
Obviously when we see that, we treat those customers accordingly.
Again, I think the good news is just we're not seeing a whole lot. Customers are beginning to pay us. From a stimulus perspective, again, I'm sure that has helped a certain segment of customers. It's difficult for us to kind of track who's benefiting from that or not because we can't see that. I would say we are keeping a very close watch on those that can be accounts, particularly in certain more impacted industries.
Yeah. Hey, Matt, it's Ron. We've kind of re-credit scored with this new impact and industry overlay. I don't know, probably 60 days ago or something, we started to layer that over. We're not posting yet the mission accomplished sign despite the good performance in Q2. We're keeping credit still tight and as I mentioned earlier, testing our way into opening it up. We do think there's some risk when the government slows the thing down, but to Eric's point, our eye is kind of all on it, and not providing particular large amounts of credit to clients that are sitting in those industries.
Got it. Thank you both. As a follow-up, I guess, a related basis, one of the growth drivers that I think we've collectively been getting incrementally excited about recently are some of the Beyond programs, particularly on Beyond Fuel with the pandemic now. Is there a little bit of a retrenchment, reluctance to extend incremental credit, and/or is the selling process a little bit more challenged? Or because it's typically being sold into existing clients, that can continue? Just sort of thinking through the cadence of the growth from that program particularly.
Yeah. Hey, Matt, it's Ron again. It's a good question. Again, what I'd say is we took the safety route first over the growth route and made sure that we're protecting the company and the liquidity. We did dial back credit pretty significantly, whatever, 90 days ago. As I mentioned, now that we've seen the repayment performance, we've opened that back up, that Beyond Fuel for existing clients. We had kind of frozen that, at least putting new fuel card clients on that program. Whether it was a good or bad idea, we did it with our eyes wide open and said, "Look. Let's protect the liquidity of the company. Let's get careful, and we can spring back into action a different day." We're getting comfortable that we've seen some number of cycles now, and again, are starting to loosen things up.
That's very helpful. Thanks a lot, guys.
Our next question comes from Trevor Williams of Jefferies.
Hey, guys. Good afternoon. Eric, congrats on a great run. On expenses, Ron, your comment about being down 10% year-over-year for the full year. First, I just want to make sure that I caught that correctly. Any framework for how much of the decline in that is in variable versus fixed costs coming out that could end up being more permanent?
On the first part, you got it right. Against the prior year, expenses were for Q2, I think, down, Eric Dey, 11. I think, Trevor Williams, I said that our forecasts were planning down 10. High single digits, 8-10 for Q3 and Q4. Of that, what you said, some fair amount of it is variable. Obviously, with volume and revenue lower, you get money back. Sales commissions, you get money back. Then selectively, we slowed some projects that depend on outside parties. There are parties that are distracted doing other things, it slowed some things where I didn't think we'd get the same kind of traction on them. I guess we did get some help from FX.
Yeah.
Obviously, that's a bit of a headwind on the revenue side, but clearly helping us on the expense side. We haven't, I think I said this before, we're trying to play the long game, so we're not carving lots of money out of client service or out of core tech or out of core sales. We're trying to protect those sets of capabilities for a different day.
Okay. Got it. That all makes sense. Just my follow-up on Corporate Payments. I think you're lapping a big Cambridge quarter from the third quarter of last year. I'm just wondering if we could even read into that as being better if not for the tougher comp, or if that number is actually just capturing the FX portion of Cambridge and not the entire piece with the cross-border element, too.
I think some of it is the comps or the difficult comps. I think also some of it is people are a bit frozen when you have volatility in currencies, which we had kind of at the beginning of the quarter. The end of the first quarter, people act, I think they froze a bit, wondering how things were going to move. I think it froze a bit of the hedging product, which carries high margins. Second, don't miss my credit comment. We did the same thing there in some of those products where there's volatility and contracts that move out of the money. I dial those things back. We trimmed lines, which moves some of the share. We split share in that business across some clients.
Again, I want to make sure everybody hears that there's clearly a pretty high R-squared between credit openness and growth even of existing clients. We were again, quite cautious at the beginning. Now that we've seen kind of that good rapport, I want everyone to hear me that we're starting to loosen. We're not going completely crazy back to where we are, but we're going to help enable basically the businesses to grab some of that share back.
All right. Got it. That all makes sense. Thank you, guys.
We'll go next to Bob Napoli of William Blair.
Thank you. Eric, it's been great. Wish you the best. On the corporate debt, your balance sheet's in great shape. You're in a lot of interesting businesses. You've tightened credit. You're starting to loosen up. Where can you go on offense and invest more? I guess it's on the M&A side, but around Corporate Payments, virtual cards, organically expanding, isn't this a good time to be putting more money on offense, understanding earnings will be lower in the back half of the year. You want to come out of this will be behind us in what, six months, nine months, 12 months. Where can you go on offense when you come out of this?
Yeah. Hey, Bob, it's Ron Clarke. It's a good question. I think the answer is the Full AP product line. We bought that business a year ago, and it is just blockbusters right on the front of me. It's up some crazy amount since we've owned it and up even a crazy amount in Q2. More importantly, I don't have it in front of me, I think the sales were in the quarter, and in a quarter where we sold half those sales were 50% or something above plan. The demand, to your point, in the marketplace to be able to remotely pay bills, I don't know if it's going to stay at an all-time high, but it's certainly top of mind for people now sitting at their houses.
To your point, we're clearly going to spend more money on marketing and sales there and shift more energy. For example, we used to sell virtual cards and also T&E cards to that same account, which is how we have some T&E cards in our portfolio. Well, we kind of reoriented those people to pitch Virtual Card and then maybe, oh, by the way virtual card and Full AP, but not T&E card. We'll for sure step up the marketing and sales pressure against that line of business. Second, clearly on the transaction side, we certainly know all the assets in the space, and we like the category and we're comfortable that we have money now. We've got, I believe you said $1.9 billion, and it's building, right? We're generating cash flow.
I'm not so worried about the receivables and our leverage is about two and a half times. We're sitting in a place and some of our pals that compete are not sitting in as good a place, Bob. I'd say we like where we are in terms of the pipeline there as well. More marketing money and maybe use the balance sheet.
Okay. Adjacencies, are they going to be adjacencies to Corporate Payments? Is that really where the focus is, or are there other portions of your sectors that you're looking at adjacencies?
Yeah, we're looking at all, right? We started this thing, as I mentioned, back kind of in the fall or winter last year, looking at our four big businesses and this whole construct of adjacencies to particularly software adjacencies that are helping the clients. We've identified, as I mentioned to Tien-Tsin earlier, adjacencies both in payables around invoicing, for example, and our other business as well. In lodging, we've got some adjacencies and as I mentioned, in companion card. I'm saying it so that people aren't surprised if you see us transacting something that is not exactly in the four, but obviously super adjacent or tied to the four businesses we're in. Yeah, we still like the other categories. I know you as someone who follows payables likes it, and we like it, but we really do like our other product lines quite a bit too.
If you look at them, I mean, our non-two lines have grown low, mid-teens for years now, Bob. We're happy with some of the other businesses too.
Thank you. Appreciate it.
We'll go next to George Mihalos of Cowen.
Hey, good afternoon, guys, and Eric, my congrats and best wishes as well. Ron, just wanted to follow up on the expense question, kind of the 8%-10% OpEx reduction that you're thinking of for third and fourth quarter. I think last quarter you were kind of thinking in the 5% range, and I'm just going to be more variable. I'm just curious, that 8-10, is there a way to think of a portion of that that may be permanently removed beyond what you're thinking for the back half of 2020?
Hey, George, Eric. Yeah, I really wouldn't look at it that way. That's certainly not what we want to do long term. We want to grow the business, we want to invest in the business. Certainly over the short term, we are looking at ways to right size the business so we can maximize profitability over the short term. We're also looking at ways to reinvest in the business so we can re-accelerate growth when we come out of this environment that we're in. I would say over the medium term, in the short term, I would say, hey, we're going to have some cost savings over the medium term. They're going to reinvest back in the business and probably get around back to where we kind of were from a margin standpoint.
Okay, that's helpful. Just a quick follow-up. Within the tolls business, I know the last couple of quarters, I think sort of the tail end of last year, there was some free tags and some promotional activity that was in there. Did that have an impact on the tolls business at all in Q2, and how are you thinking about those promotions on a go-forward basis?
Promotions in the toll business, would that have an impact on the promotions other people are seeing? Oh, are you asking about the promoting to sell new tags?
Yes, just basically some discounting as it relates to the toll business.
Yeah. It's Ron. Yeah, the short answer is when some of the competitors came into the toll business, we, the Sem Parar, our business is the gorilla, it's the top of the line and has the most coverage, the best systems, the biggest networks. It's very hard for newbies with crummier stuff, in my opinion, to sell. They went to price, we decided to match some of their kind of free starting things to make sure that we kept a dominant share of the new business. That's worked pretty well. We started it kind of at the end of the year and rolled through three and six-month kind of promotions. We've tested some other ways of signing people up. For example, hey, if you use the thing, you pay the monthly fee, and if you don't, you don't.
We've gotten creative, we're still selling a lot. The sales are still quite good in that business. More importantly, the promotional stuff is converting into paid, which we've studied quite a lot to the people that come on a free pass actually convert to paying, and they do. I'd say the approach so far so good.
All right, we'll go next to Sanjay Sakhrani of KBW.
Thank you, and congrats to Eric and Charles as well from my side. Going back to the M&A questions, I'm sorry, Ron, but when we think about valuations and adjacent areas, should we think about the IRRs being comparable to some of the deals that you've done in the past, or will the complexion look different because they are different types of businesses and the valuation backdrop is different?
Yes, that's a super good question. I think the answer is it depends. I'd say if the transaction is of any meaningful size, uses any meaningful amount of capital, we have to see our way to returns. We look at returns the way you guys do money down and what we get back. Again, from that perspective, we study our thesis of things that we can do that can create better returns there. I'd say in some of the smaller ones, we look at other effects, like the ability to sell, for example. If we added an adjacency in Corporate Payments that helped clients in the front end, do we hear back, and do we see in the sales results better win rates in the pipeline because our package is a bit more complete? Do we see that in the feedback and the RFPs?
I'd say to you, if it's a smaller kind of transactions, we would look at factors other than just the profit returns.
Okay. I guess following up on some of the questions again on the last sort of the SMB versus enterprise mix and its impact on revenues. Eric, is there a way to think through the actual quantification of the drag as we think about the second half? I mean, is there any way to dimensionalize that as we think about the recovery and the actual impact? I'm just trying to make sure I understand that part. Thanks.
Yeah. There's really a couple of businesses where we're seeing a little bit of a drag. That's obviously fuel that we called out earlier. A good percentage of our business there is SMB. We're seeing a little bit on the lodging side as well. Obviously, we got some very large enterprise accounts in that business. That's how that business was built. We've gone more down market over the years. Again, those accounts as well are seeing a little bit of lag in terms of how it's coming back. In terms of quantifying it, I think we'd have to go back and actually try to put pencil to paper to come up with a better estimate. I wouldn't want to just throw something out over the phone. If you want to get back to us, I think we may be able to come up with something.
Cool. Thank you guys, and congrats again.
Our final question will come from John Coffey of Susquehanna.
Great. Thank you very much for taking my call. My question for you is on the Corporate Payments segment, I guess I was wondering if I was looking at slide nine, I see that you have those four sub-lines for virtual card, T&E, Full AP, and FX. I was wondering if one were to look at the April, May, and June months, then you compare that to the 17% revenue decline, what would you look at to say that, okay, I see these figures on slide nine and that makes sense when I see the decline in 17? Is really looking at virtual card the best way to figure out which way the wind is blowing? Because clearly Full AP was up a lot.
I'm just trying to maybe a better way to say it is help understand the revenue contribution of each of those sub-lines a little bit better.
I think that's just the revenue contribution to me, just the four sub-lines. Yeah, we probably wouldn't share that other than I will make the point, which I think we did on page nine, that if you look at the T&E card along with a couple other things we called out, the Brazil benefits and the airline thing, collectively, those things are less than 4% or 5% of our revenue in July. The headline is the T&E thing was not a super big part of the Corporate Payments business overall. As you can see, it's down 40% volume, 50%, I think I told you, in revenue. It's not what's going to make the thing go.
We think that thing's going to kind of sit where it's at, and that the growth, the way to look at the thing is the delta between the virtual card performance, Corpay performance, and revenue in Q2 being down mid-teens and then seeing the virtual card volume recover in July almost to flat. The Corpay business is going to go as virtual card and FX goes because Full AP is rocking, and we're going to spend more money on it. The T&E thing will trade flat. The recovery in virtual card and clients getting comfortable again to make trades in FX, those will determine the pace of growth in the second half.
Great. That helps a lot. Thank you very much.