Greetings and 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. Thank you. You may begin.

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 the earlier press release, will be taking over for Eric as of September 1. Please note, our earnings release and supplement can be found in 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. So all of us will miss you, Eric. At the same time, I do want to welcome my other longtime partner, Chuck Freund, also with us from the very beginning, as he transitions into the new role of CFO. So Chuck's 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. So I can assure you, he'll be a terrific CFO. Okay. So back to my prepared remarks, in which I'll cover 4 subjects. So 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. And then lastly, I'll provide our perspective on Fleet's long-term prospects in a post-COVID world. Okay. So let me begin by summarizing the progress against the COVID response plan that we put into motion in Q2. It was focused against 6 areas. So first was safety. So 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, so very, very happy with that. Two, on 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 and receivables aging continues to look quite good. So 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. So today, liquidity is quite good, $1.9 billion, and our leverage ratio, 2.6x. 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, so that cushioned our Q2 profits. And then last is selling. We knew in this new remote world, we'd have to sell differently so 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, so really a revamped selling model that started to rebound. So 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. So IT, HR, credit, sales management, really good performance. Okay. Let me make the turn over to our Q2 results. So we reported Q2 revenue of $525 million, which is down 19% and cash EPS of $2.28, which is down 20% versus prior year. So 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 minus 16% so about line average. Corporate pay at minus 17%. Lodging in total at minus 37% but the workforce portion, somewhere in the high 20s. And toll in the plus column, plus 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 remains 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. So it's pretty hard to reflect on a quarter like this but kind of here is my conclusion. It's -- for us, it's really a story, Q2, of client softness. And client softness being way down as a result of COVID because 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 was about on plan. We flexed expenses down to keep profits kind of in line with revenue, right-sized the company. And we generated $200 million of free cash flow in the quarter. So 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. So we've included in the earnings supplement a line of business volume chart that runs through the last few months, including July. And 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, so all clients are kind of moving back up, adding volume. So just a couple of callouts. You can see international fuel recovering very nicely as Europe out ahead of us on the COVID thing. And our high-growth businesses, full AP, tolls, Russia, simply just powering through their client softness because of lots of new business. So clearly, things getting better. In terms of rest of year, we do expect continued improvement but we will still have challenges here short term. So 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. And then lastly, expenses, we plan to continue to manage expenses down here in the second half, targeting about 10% lower expense levels than prior year. So in conclusion, Q3 and Q4 will be better than Q2 but again still challenging. So last, let me transition here over to kind of a long-term view of FLEETCOR and how all of this impacts the company. I mean at the headline level, we think the new behaviors coming out of COVID will be a mixed bag. There's puts and takes. But 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. So 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 will dampen our T&E card business and our airline crew lodging business. And then 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, outsourcing of everything generally. So that will lift our payables business, we think, our virtual card and our full AP prospects. And 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 electric tolls versus cash booths; payroll cards that are reloadable versus payroll checks; virtual cards instead of printing AP checks. So 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. So what do we do? 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. Namely, that's to advance the 3 main priorities, primary priorities of the company. So one is portfolio. We're continuing to look at things to reposition our portfolio, create fewer, bigger businesses, add more nonfuel businesses, add more faster-growing businesses and likely more adjacencies. Second, penetration of our big 4 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. So for example, urban city dwellers in Brazil versus highway toll users or airline crew lodging versus only workforce people. And then lastly, we're working on strengthening the base capabilities of the company, a particular emphasis on tech, on technology. So 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 DIs for clients. We'll continue to advance our cybersecurity protection, so we'll continue to get better at IT. So from our perspective, if we keep progressing these 3 priorities, portfolio, business penetration and our capabilities, it supports our ambition for a 15% to 20% profit growth company. So 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. But I think most importantly, longer term, the message from us today is that 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. So with that, let me turn the call one more time back over to Eric to provide some additional details on the quarter.

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. And 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. 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, 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. And 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, and although we cannot precisely calculate the impact of these changes, we believe it unfavorably impacted revenue by approximately $13 million in the quarter. And 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 negative 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. And although volumes seem to be 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 health care verticals. We are seeing some recovery in verticals other than travel and 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 had 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 Red Cross. This business was down 29% organically in the second quarter. And 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. However, 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 and is linked to the recovery of the airline industry. Now 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 7 basis points compared to $18 million or 7 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 negative 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, with 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. Now 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 30, 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. And we have approximately $294 million in repurchase capacity remaining under our current authorization. As of June 30, 2020, our leverage ratio was 2.62x EBITDA, which is well below our covenant level of 4x 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. And 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, and 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. And with that said, operator, we'll open it up for questions.

[Operator Instructions] And our first question comes from Tien-Tsin Huang of JPMorgan.

Eric, let me add my thanks as well, it's been a fun ride. I can't believe it's been that long, so hopefully we can meet soon. My question -- I think my first question is just thinking about, Ron, your comments and the 3 priorities. And 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? Just trying to think about how far you might go when you think about adjacencies.

Yes. Tien-Tsin, sitting here next to Mr. Sentimental, so I share your sentiment. I can't believe how long you've been with us. All good things come to an end. Yes. So the adjacency thing I mentioned, I guess, in the last call, so it came out of this idea of looking at the clients, kind of what they do before or after the payment. And so I gave the example last time in corporate pay and the payables business, all the front end of invoice, prep, and workflow and approvals and all that stuff before we press the pay button. So we continue to look kind of at the front end of those things to see if we can be more helpful again to clients. And another example would be kind of in the core fuel card business. And particularly with SMBs, there are other kinds of software, a little bit what the acquirers have done, First Data and Global are the software that nests around what our small business guys do. And an old example of work rate is telematics. So we were trying to figure out if there was another service, another software service close to fuel cards that dealt with steel SMB people. So we have a couple of things that we're looking at there, where there's some software that's in the categories, in the verticals that we're in. So 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, that those adjacencies bring books of clients that we could cross-sell to so it may help us sell as well. So those would be a couple of examples. So in each one of the areas, we decided 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, these 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 just sort of the quality of the sales that you see as we -- as you get beyond the summer?

Tien-Tsin, you broke out just a little. Can you -- if you can hear us well, can you repeat the question?

Yes, sorry. I know my cell signal's bad. I have no power on that. Just the new sales outlook and visibility and your confidence in replenishing that as you exit the year, any additional color there?

Yes. I think that -- I heard that now. I think it's a great question. So first thing is it's better already, right? So I think I reported that it was around half for the quarter, so it was a little better than June and we're starting to peak at the July numbers. So the first headline is it's better already. And I think second is we've kind of figured out the new things which took us some time in Q2, right? You've got to pitch different people. You got to find leads in different ways. You're not going to trade shows. So you're still making right in not calling face-to-face. So I think the toolkit for people and the cadence and the way of selling is starting to pay some returns early. And 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. So, I mean I got to tell you, we're delighted, honestly, that we found a way to engage people enclosed in this world. I mean, there was a point there where we weren't super sure. So now it's really just a question of whether we 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. So some businesses are more sell and go live, and other businesses are sell and go live a different day. So the key to it is to fill the end of the year, so that, that can forward to 2021.

Got you. Understood. And Eric, I promise, I won't ask you how to calculate the fuel spread in your retirement then.

And we'll go next to Ramsey El-Assal with Barclays.

And Eric, also wish you the very best. I appreciate all your help over the years. I wanted to follow up on Tien-Tsin's question on M&A first. And 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 your tech assets are 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.

Yes. It's a good question. So I guess I'd categorize the pipeline kind of into 3 buckets. So one is we continue to look at deals, right, in our big 4 categories, so there's other providers that do the same things. And so obviously, we're in conversations with other players that are in those spaces. And two, I think I mentioned the last time, there's a handful of kind of coveted assets that sit inside some distressed companies, so 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. And then 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, 4 or 5 months ago, we weren't. So we're kind of, I guess, working, if you will, chasing stuff in kind of 2 new buckets versus, call it, 6 months ago. Yes. I agree on the valuation question. We're talking about it in a review earlier this week that I guess when this happened 3 or 4 months ago, we thought valuations would be better. And I think many of them have come a lot of the way back. So 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. So we continue to work that same angle of having a clearer way that we can improve profits to be able to pay full prices.

Okay, that's helpful. And the other question I wanted to ask you was on just the credit performance in the quarter, which I thought was pretty outstanding. And I just want to get your impression about expectations in terms of how you -- how we should think about that metric kind of in the back half of the year. And also sort of when do you -- 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? But what to expect? And then sort of how do you approach opening up credit again and the questions?

Yes. That's another, I think, great question. So I'd say, if anything, maybe we kind of overreacted initially. So when this thing happened and you looked at our balance sheet and the receivables we had to collect, I think we had 20 meetings literally over the course of the month tightening terms, cutting lines, doing things which frankly did impact our revenue and growth in Q2, but it was a risk I was willing to take. And so we're like along the way happy with the credit with some of the banks have turned in, the reserves they put in. And effectively, we've come in on our credit loss plan. And 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 dues in Europe. So 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. So they basically need to pay us to kind of keep doing what they're doing. So 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. So that's part 2. And then part 3 is we're testing our way into it. So now that we've seen these results and the clients are able to repay us, we've started loosening up. So 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've locked it for new accounts and now we kind of reopened it for existing accounts but not yet for new accounts. So we're effectively kind of stepping our way into looser policies and making sure that we can see repayment happening.

Best of luck, Eric.

Thanks, Ramsey.

And our next question comes from Ashish Sabadra of Deutsche Bank.

Eric, best wishes to you, and Charles, congrats to you. Question on corporate payment. The revenue growth there was softer than what we were expecting. And I -- my guess is most of the softness was in the FX, particularly in May and June, but we see that rebound pretty well in July. I was wondering if you could just provide some color on that front. It looks like it had started to improve by the end of April and then softened in May and June. So just what happened there and how should we think about it going forward?

Ashish, it's Ron. So I'd say a few things, corporate pay in Q2. So the first one is, it's a function of our clients. So the reason, again, the business was softer was in sales, that line of business was actually 85% of plan in terms of its sales in the quarter, so we found a way to sell. There's still demand, actually quite robust demand. So it was having pockets of clients like retail clients and travel clients that were just way, way down, 70%, 80% down, and then other clients in that book that were either off or only down a little bit. So 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 pay 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 midsized accounts. And then lastly, about 10% or 15% of our overall corporate pay business is really T&E cards, walk-around plastic, which are not all white collar. There's supplies for construction and other kinds of stuff. But that thing was just way down because travel went effectively to 0. So 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 things recover. I don't know if you had a chance to look, but we put out a supplement. I think, Eric, was it Page 9? Page 9. Page 9, Ashish, in there kind of shows the core virtual card thing kind of came back almost flat in July. So it's come back, really, a tremendous amount just the last 60 days. So 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.

That's great. That's good color, Ron. And maybe just a follow-up question on fuel cards. So 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. And then also, there are a few states where we've seen a resurgence of virus. Have you seen any impact in those states where there has been an -- any impact in those states? Some of those states have -- kind of economic recovery has slowed down.

Resurgence of what? Ashish, can you repeat that again?

Yes. So 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.

Yes, Ashish. So 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 an on-the-go product, right, a mobility product, were down kind of line average, were soft at the same kind of level as the rest of the business. And I think what that points to again is that it's an essential blue collar, people try it around -- that are around people. So what we see when we look at it is a similar comment from the payables business of a huge mix. So 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. So 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%. And so when we look at the clients that are at the bottom and the biggest decline, they're in just what you'd expect these kind of impacted industries, even parts of construction, where those projects fell away, where other parts of construction were still at the top. And so it's just a complete mixed bag of what the clients we have do and how much their business was impacted. But the good news is we've seen the whole curve kind of move up, so not just the people down 5% or 10% getting a little bit healthier, but the people down 50% or the people down 75% all seem to be moving up over the last month. So that suggests to us the detail -- what will break is smaller. So -- that we expect, hopefully, as the plot turns, you're to get more of that business back.

And we'll go next to Matt O'Neill with Goldman Sachs.

And again, my congrats to Eric and Charles on your respective moves. I was hoping I 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. So 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? And 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.

Matt, this is Eric. Yes, I mean, the good news is we're -- obviously, we're very pleased with the performance of bad debt, as Ron indicated earlier. Our agings look mostly kind of normal. And well, we do have some bad debt, that's unusual, it was mostly kind of one-off bankruptcies. As we get to the second half of the year, to answer your kind of 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. So 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. And obviously, when we see that, we treat those customers accordingly. And again, I think the good news is it just -- we're not seeing a whole lot. And so customers are beginning to pay us. From a stimulus perspective, again, I'm sure that it's 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. But I would say we are keeping a very, very close watch on those that can be accounted, particularly in certain, more impacted industries.

Matt, it's Ron. We've got a credit score with this new impacted industry overlay. So I don't know, probably 60 days ago or something, we started to layer that over. And so we're not posting yet the mission accomplished signs despite the good performance in Q2. We're keeping credit still tight, and as I mentioned earlier, testing our way into opening it up. So we do think there's some risk when the government slows the thing down. But to Eric's point, we are eyes kind of all on it and not providing particular large amounts of credit to clients that are sitting in those industries.

Got it. 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, a reluctance to spend 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.

Yes. Matt, it's Ron again. It's a good question. So again, what I'd say is we took the safety route first over the growth route to make sure that we're protecting the company and the liquidity. So we did dial back credit pretty significantly, whatever, 90 days ago. And so as I mentioned, now that we've seen the repayment performance, we've opened that back up, that Beyond Fuel for existing clients. So we had kind of frozen that, at least putting new fuel card clients on that program. So whether it was a good or bad idea, we did it with our eyes wide open. So look, let's protect the liquidity of the company. Let's get careful, and we can spring back into action in different days. So we're getting comfortable that we've seen some number of cycles now, and again, are starting to loosen things up.

And we'll go next to Trevor Williams of Jefferies.

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. And then 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?

Yes. So on the first part, you got it right. Against the prior year, expenses were, for Q2, I think, down -- Eric, 11? And I think, Trevor, I said that kind of our forecast, we're kind of planning a down 10%, high single digits kind of 8% to 10% for Q3 and Q4. And on 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. And then selectively, we slowed some projects that depend on outside parties, third parties that are distracted, doing other things. So it slowed some things where I didn't think we'd get the same kind of traction on them. And I guess we do get some help from FX. We had -- we had a bit of a headwind on the revenue side but clearly helping us on the expense side. But 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. And then just my follow-up on corporate payments. So I think you're lapping a big Cambridge quarter from the third quarter last year. So just as we look at the supplement and the line that you've got on FX revenue, you had a big month-over-month acceleration from June to July. So 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.

Yes. I think some of it is the comps or the difficult comps, but 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, and then I think they froze a bit wondering how things are going to move. So I think it froze a bit of the hedging product, which carries high margins. And then second, don't miss my credit comment. We did the same thing there in some of those products, where there's volatility and contracts to move out of the money. We -- I dialed those things back so we trimmed lines, which moves some of the share. We split share in that business across some clients. So again, I want to make sure everybody hears that there's clearly a pretty high correlation between credit openness and growth even of existing clients. And we were, again, quite cautious at the beginning. And now that we've seen kind of that good report, I want everybody 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.

And we'll go next to Bob Napoli of William Blair.

Eric, it's been great, wish you the best. On the corporate, where -- okay. So your balance sheet's in great shape, during a lot of interesting businesses. You've tightened credit. You're starting to loosen up. Where can we -- where can you go on offense and invest more? And 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 so earnings will be lower in the back half of the year? But you want to come out of this -- this will be behind us in, what, 6 months, 9 months, 12 months. But where can you go on offense? Do you come out of this in…

Yes. Bob, it's Ron. It's a good question. I think the answer is the full AP product line as we bought that business a year ago, and it is -- I mean, it's just blockbuster in front of me. It's up some crazy amount since we've owned it and up even a crazy amount in Q2. But more importantly, and in front of me, I think the sales were in the quarter -- in a quarter where we sold half, those sales were 50% or something above plan. So 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. So to your point, we're clearly going to spend more money on marketing and sales there and shift more energy. So for example, we used to sell virtual cards and then -- and also T&E cards to that same account, so we had some T&E cards in our portfolio. Well, we've 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. So we'll, for sure, step up the marketing and sales pressure against that line of business. And then second, clearly, on the transaction side. We certainly know all the assets in the space and we like the category. And I'm comfortable -- we're comfortable that we have money now. You've got, you said, $1.9 billion. And it's building, right? We generated cash flow. And I'm not so worried about the receivables and leverage is about 2.5x. So we're sitting in a place, and some of our pals that compete are not sitting as good a place, Bob. So I'd say we like where we are in terms of the pipeline there as well. So more marketing money and maybe use the balance sheet.

Okay. And then -- I mean adjacencies, are there going to be adjacencies to corporate payments? Is that really where the focus is? Or are there other portions of the bigger sectors that you're looking at adjacencies?

Yes. 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 4 big businesses and this whole construct of adjacency to particularly software adjacencies, their health with the clients. And so 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 fuel card. So I'm saying it so that people aren't surprised if you see us transact in something that is not exactly in the 4 but obviously, super adjacent or tied to the 4 businesses we're in. But yes, we still like the other categories. I know you, someone who follows payables, likes it and we like it. But we like -- we really do like our other product lines quite a bit, too. If you look at our money, our nonfuel lines have grown low mid-teens for years now, Bob. So we're happy with some of the other businesses, too.

And we'll go next to George Mihalos of Cowen.

Eric, my congrats and best wishes as well. Ron, just wanted to follow up on the expense question, kind of the 8% to 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 then it's going to be more variable. I'm just curious, that 8% to 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?

George, it's Eric. Yes. I mean I really wouldn't look at it that way. It's certainly not what we want to do long term. I mean we want to grow the business, so we want to invest in the business. I mean, certainly, over the short term, we are looking at ways to rightsize the business so we can maximize profitability over the short term. But we're also looking at ways to reinvest in the business so we can reaccelerate growth when we come out of this environment that we're in. So I would say over the medium term, short -- in the short term, I would say, 'Hey, we're going to have some cost savings over the medium term. We'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. And 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 were some free tags and some promotional activity that was in there. Did that have an impact on the tolls business at all in 2Q? And how are you thinking about those promotions on a go-forward basis?

[ We need to do toll business within tech companies. The promotions, other people's promotions ].

Oh, are you asking about the -- promoting to sell new tags?

Yes, just basically some discounting as it relates to the toll business.

Yes. So it's Ron. So yes, the short answer is when some of the competitors came into the toll business, we -- the time for our business is the gorilla is the -- it's the top of the line and has the most coverage, the best systems, the biggest network. So it was very hard for newbies with premier stuff, in my opinion, to sell, so they went to price. And so 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. So that's worked pretty well. We started to -- kind of at the end of the year and roll through 3 and 6 months kind of promotions. We 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, we know.' So we've gotten creative. And so we're still selling a lot. The sales are still quite good in that business. And more importantly, the promotional stuff is converting into pay, which we studied quite a lot to the people that come on a free pass, actually convert to paying, and they do. So I'd say the approach, so far, so good.

All right. And we'll go next to Sanjay Sakhrani of KBW.

Congrats to Eric and Charles as well from my side. Going back to the M&A question, I'm sorry, Ron. But when we think about valuation 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. So that's a super good question. I think the answer is it depends. I mean 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. So we look at returns the way you guys do money now and what we get back. And again, from that perspective, we study our thesis of things that we can do that can create better returns there. But I'd say in some of the smaller ones, we look at other effects like the ability to sell, for example. So if we added an adjacency in payables that help 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? And so I'd say to you, if it's a smaller kind of transaction, we would look at factors other than just the profit returns.

Okay. And 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.

Yes, 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, and we're seeing a little bit on the lodging side as well. Actually, we got some very large enterprise accounts in that business. That's how that business was built. And we've got more down market over the years. So those -- 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. So if you want to get back to us, I think we may be able to come up with something.

Congrats again.

And our final question will come from John Coffey with Susquehanna.

My question for you is on the corporate payments segment. And I guess I was wondering -- I was looking at Slide 19, and I see that you have those 4 sublines: virtual card, T&E, full AP, and FX. I was wondering if one were to look at the April, May, and June months, and then you compare that to the 17% revenue decline, what would you be able -- what would you look at to say like, 'Okay, I see these figures on Slide 9 and that makes sense when I see the decline of 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. So I'm just trying to -- maybe the better way to say this, help understand the revenue contribution of each of those sublines a little bit better.

That's just the revenue contribution, it'd be just these 4 top lines.

Yes. We probably wouldn't share that other than I will make the point, which I think we did on Page 9 that if you look at the T&E card, along with a couple of other things, we called about the Brazil benefits and the airline thing, but collectively, those things are less than 4% or 5% of our revenue in July. So the headline is the T&E thing was not a super big part of the corporate payments business overall. And as you can see, it's down 40% volume, 50%, I think I told you, in revenue. And so 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, corporate pay performance, and revenue in Q2 being down mid-teens and then seeing the virtual card volume recover in July, almost to flat. And so the corporate pay 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. So the recovery in virtual cards and clients getting comfortable again to make trades and FX, those will determine the pace of growth in the second half.

And we have reached the end of our allotted time, so this will conclude today's conference. We appreciate everyone's participation, and you may now disconnect.