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FleetCor Technologies Inc (CPAY -0.06%)
Q3Â 2020 Earnings Call
Nov 5, 2020, 5:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Greetings and welcome to the FLEETCOR Technologies Third Quarter 2020 Earnings Conference Call. [Operator Instructions]
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.
James P. Eglseder -- Head of Investor Relations
Good afternoon, everyone, and thank you for joining us today for our third quarter 2020 earnings call. With me today are Ron Clarke, our Chairman and CEO; and Charles Freund, our CFO. [Operator Instructions] 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 may include forward-looking statements. This includes statements about our recovery and outlook, new products and fee initiatives and expectations regarding business development and acquisitions, among others.
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?
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Okay, Jim. Thanks. Hi, everyone, and thanks for joining our third quarter earnings call. Upfront here, I plan to cover four subjects, so first, provide my perspective on Q3 and our Q4 outlook; second, provide an update on our AFEX cross-border acquisition; third, I'll discuss our plans for pivoting the work of the company in getting back on offense; and then finally, I'll close with some preliminary thoughts on next year. Okay. So let's start with our Q3 results. So earlier, we reported Q3 revenue of $585 million, that's down 14%, and cash EPS at $2.80, that's down 10% versus last year.
We did manage operating expenses down 9% in Q3 versus last year, obviously, to minimize the impact on our bottom line. The macro, not helpful in the quarter, primarily weaker Brazilian FX, we estimate that it depressed our Q3 print revenue by approximately $33 million. Organic revenue growth, overall in the quarter, down 12% versus last year, but that is a sequential improvement of 5% from Q2. Corporate pay also improved sequentially their revenue, down 11% in Q3 versus was down 17% in Q2.
We did see a step rate improvement in what we call same-store-sales or client softness between Q2 and Q3. So softness improved due minus 8% in the quarter versus minus 17% in Q2. So that's a pretty significant softness recovery point-to-point, or said another way, increased client usage. Good news on the client retention front, we improved a point there to 92%, highlights to us again that all of the weakness is attributable to client softness. Sales recovering further here in Q3, finishing at 80% of the prior year.
That's up from 54% of the prior year in Q2. Inside of that, our corporate pay sales in the quarter finished at 100% of the prior year, so nice rebound there. Credit performance, nothing short of outstanding. Our Q3 credit losses finishing lower than last year, and even $8 million better sequentially than Q2. So look, in summary, Q3 clearly a better quarter for us than Q2. Volumes of step rate recovery, client softness, rebounded client retention, even in these wacky times ticking up a point sales starting to get back to normal, recovering to 80% of last year.
We are managing expenses down. And our credit performance, again, really strong. Really pleased with credit. So all in all, an improving performance. So in terms of transitioning to expectations for Q4, really just share a couple of thoughts. Historically, FLEETCOR's Q3 and Q4 performance has been pretty similar in terms of revenue and earnings because weakness from seasonality or fewer business days is generally offset by the business growth that comes online throughout the year.
But this quarter, I mean, we're really not sure what to expect, whether volumes will further recover or whether they'll just flatten and plateau where they are. So we are planning a couple of things. We're going to manage operating expenses down about 10% to 12% below last year. And we are forecasting sales to further strengthen, hopefully coming in more than 90% of the prior year.
So it's a bit of a wait and see. Okay. Let me make the turn to AFEX, the B2B cross-border payment company that we signed up and announced in September. So it's a bit of a Cambridge look-alike. About 2/3 the size of Cambridge in revenue, although far less profitable, was a grower, growing preteens pre-COVID, and it's outlook in 2020 performance to be about flat with 2019. The rationale for the deal, really pretty straightforward. It's a business that we know and like. It's a business growing on its own, with obviously a big TAM.
And as we mentioned in the press release, a business that's quite complementary to ours as it strengthens our position in Europe and Asia. So our conviction in the AFEX synergy plan is quite high, having just run this drill a few years ago with Cambridge. And so once closed, integrated and really fully run-rated, we're expecting accretion in the $0.25 to $0.50 cash EPS range, so we think, a good contributor. So in terms of timing, we're still tracking to a Q1 2021 close, obviously subject to customary regulatory and antitrust approvals. Okay. My next up subject is kind of pivoting the work of the company and getting back on offense.
So like lots of companies, we've been quite consumed with our COVID response work, lots of energy against that, and feeling we're coming out the other side, and now we can kind of redirect our energies to certain things. And so those certain things are: one, sales. Super focused on getting sales back, and you see a bit of the recovery, kind of 50% sales production versus last year in Q2, 80% this quarter, Q3, and hopefully getting to above 90%. So some evidence that sales performance is returning to normalized levels. We are making investments now in anticipation of next year, adding salespeople and making some select digital investments.
And we have, since we talked last, reopened credits to pre-COVID levels across a lot of our businesses in an effort to improve our approval rates. We're back on the tech front. We've stepped back up investments in tech, particularly around digital tech investments. So we've developed and launched a new client UI, getting very favorable user experience scores back. It's a mobile-centric platform. So really, a big improvement in the client-facing front end.
We're getting better at using API layers to speed interfaces and connections to partners and accounting systems, which helps us with our ERP integrations that contributes a lot of leads in our corporate payments business. So tech, back on. Interestingly, we've begun to embrace electric vehicle recharging in Europe. We've actually added EV networks in the U.K., the Netherlands and Germany. And these EV networks basically complement the traditional fueling networks, because the clients are keen to have their program, their total purchases consolidated across their mixed fleet, and they want that data all in one place. So surprisingly, the economics are kind of OK of EV.
And mixed fleets, it's literally almost neutral to us. We continue to get card fees for the electric vehicles. We get higher MDR rates when they're in the charging network. And we even get subscription fees to monitor and report on at-home and at-work charging. So, look, at least initially here, we seem advantaged as an integrator or consolidator as clients transition their fleets to EV. And then in terms of acquisitions, we're back pretty aggressively on the acquisitions front. So in addition to AFEX, we are chasing a couple new deals that are in and around our corporate payment space.
And so comfortable with our liquidity and management capacity to get after those. Okay. So last up today is really us looking into next year into 2021. So I do want to point out a few signs of optimism for us in the setup. So one, we obviously had a big impact from COVID on client softness. So we do expect further COVID recovery of volumes and revenue from existing clients, and that's incremental to what we've -- the recovery that we've already seen. Two, again, sales, we do expect those to be up significantly. Already seeing some of that, and that will contribute way more in-year revenue from new business.
Third, we're back resuming our Beyond initiatives, which are cross-sell efforts really to get additional revenues out of existing clients. So we expect, again, incremental contribution from that. Fourth, our trends, particularly client retention and credit, roll forward into next year. So super, super helpful as we outlook '21 performance. And then lastly, on the deal front, we will -- we do expect to close the AFEX acquisition and, as I mentioned, maybe even a couple of more. So some new deals maybe in the mix in 2021. So look, all in all, some -- we think, some positive factors in our setup for next year.
So with that, let me turn the call back over to Chuck to provide some additional detail on the quarter. Chuck?
Charles Freund -- Chief Financial Officer
Thank you, Ron. I'm happy to be here on my first earnings call as CFO. I'd like to note that in an effort to streamline my prepared remarks, all of my rates of change are on a year-over-year basis, unless otherwise noted. So let's get into it. The third quarter of 2020 was affected by COVID-related business slowdowns, but to a lesser degree than what we experienced last quarter. As such, we reported revenue of $585 million, down 14%. GAAP net income decreased 16% to $189 million, and GAAP net income per diluted share decreased 12% to $2.19.
As usual, we will be discussing certain non-GAAP financial metrics, such as adjusted net income and adjusted net income per diluted share, and a reconciliation to GAAP numbers is provided in Exhibit one of our press release. Adjusted net income for the third quarter of 2020 decreased 14% to $242 million. And adjusted net income per diluted share decreased 10% to $2.80. We're well-positioned to bring business back in conjunction with economic recoveries. I'm pleased with our ability to effectively manage expenses and minimize the negative impacts on our bottom line.
From a macro perspective, third quarter of 2020 results reflect the negative year-over-year impact of approximately $33 million in revenue. The macro was driven mostly by lower foreign exchange rates, primarily the Brazilian real, which we believe had a negative impact of approximately $28 million. Fuel prices were also down year-over-year for the quarter, which we estimate had a negative impact on revenue of approximately $9 million, while fuel spreads had an estimated $4 million favorable impact. Organic revenue in the quarter was down 12% overall, primarily due to same-store sales being down 8%.
Our fuel category was down organically about 11%, net of the impact of the unfavorable macro. There are a lot of moving parts in our fuel businesses around the world, but as you can see on page eight of the supplement, volumes in our international businesses have recovered more than volumes in the U.S. fuel businesses generally, as the international economies had reopened to a greater degree than here in the U.S. The corporate payments category was down approximately 11% in the third quarter.
Approximately eight points of the decline was driven by significant softness in a small portion of our over 9,000 customers. These 100 customers exhibited the highest percentage year-over-year decline in revenue during the COVID pandemic. Lower spending on our T&E product drove the other three points of the organic drag. You'll notice in the earnings supplement that we've included a new slide on page nine to clearly illustrate this point. And that aside from those 100 customers and T&E card activity that have been overly affected by COVID, our corporate payments business is actually flat to last year, so holding up quite well.
Now looking at the corporate payments category by the nature of our offerings, virtual card volumes were flat for the quarter, which was an improvement from down 12% last quarter as political spend and the benefit of new customers offset the drag from the highly affected customers. Cross-border or FX-related volumes were still down in the mid-single-digit range as payment volumes are still being affected by lower invoice levels, specifically in manufacturing and wholesale trade. It's important to note here that our cross-border business is very different from that of Visa and MasterCard, which is mostly focused on consumers who are traveling between countries.
Our cross-border business is facilitating payment for international trade and not dependent on a recovery in travel. Full AP continued to perform very well, with volume up 20%. New sales of full AP were very strong as we sold more than three times compared with last year, due to both direct and reseller wins. Now moving to tolls, which continues to be our most resilient business, and grew organically at 3% in the third quarter, stable with last quarter, as the subscription-based revenue model has not been significantly impacted by the COVID-driven slowdown in the Brazilian economy.
Active toll tags were up 5% in the quarter, as our new approaches to tag sales, including selling at the toll plazas again and the introduction of our low frequency plans, are offsetting the lower sales in the malls and stores. Parking volumes have declined due to work-from-home, but fuel and drive-through volumes have begun to recover as residents have started to resume normal activities. The lodging category was down 32% organically in the third quarter, with nine points of the drag caused by the inclusion of the acquired airline lodging business in the year ago period.
Our workforce business has outperformed our airline business as we expect workforce to see continued improvement as business activity recovers. We did see lower margins in the quarter as the large enterprise accounts with lower rates recovered faster than small business accounts. Additionally, we saw some rate compression as hotels cut prices due to slow business and low occupancy levels, which also affected revenues. As for the airline lodging business, that recovery will likely be slower, and is linked to the recovery of the airline industry.
Now moving down the income statement. Total operating expenses were down 9% for the third quarter of 2020 to $321 million. Our target was to reduce expenses in the high single-digit range year-over-year, which is exactly what we delivered. The decrease was primarily due to lower volume-related costs, lower employee-related costs, from reduced headcount, lower sales commissions and lower T&E expenses in addition to the impact of foreign exchange rates. As a percentage of total revenues, operating expenses were approximately 54.8%, a roughly 470 basis point improvement from last quarter.
Bad debt expense in the third quarter of 2020 was $13.5 million or six basis points compared to $14.6 million or five basis points in the third quarter of 2019. Bad debt levels continued to be good and our aging roll rates are very favorable. That said, the uncertainty around the timing and level of government stimulus and various responses to increasing COVID cases around the world is still a consideration.
Interest expense decreased 14% to $31.4 million, driven by decreases in LIBOR related to the unhedged portion of our debt and lower borrowings on our securitization facility as a result of both lower volumes and lower fuel prices in the third quarter. This was partially offset by the impact of additional borrowings for share buybacks. Our effective tax rate for the third quarter of 2020 was 19.8%, with a reduction from last year, driven primarily by incremental excess tax benefit on stock option exercises.
Now turning to the balance sheet. We ended the quarter with $1.37 billion in total cash, of which approximately $582 million is restricted and consists primarily of customer deposits. As of September 30, 2020, we had $3.8 billion outstanding on our credit facilities, and $688 million borrowed in our securitization facility. I would note that in the quarter, we received a commitment to extend our $1 billion securitization facility for another year upon expiration in November. So we have plenty of capacity to support future growth.
In total, we have approximately $1.6 billion of total liquidity, consisting of available cash on the balance sheet and our undrawn revolver at quarter end. The primary change in liquidity from last quarter was the termination of the short-term $250 million bridge loan we had put in place, which we terminated due to lack of need for the incremental liquidity at this time. We remain committed to a consistent program of capital allocation using our free cash flow for acquisitions and buybacks. In the quarter, we repurchased one million shares at an average price of $238, which essentially used the free cash flow we generated in the quarter.
We also announced the acquisition of AFEX for $450 million that Ron discussed earlier. Some of you may have thought we forgot how to do M&A the FLEETCOR way. Clearly, that is not the case. We view this as a classic FLEETCOR deal that you've come to expect from us. We're disciplined, so deals will remain lumpy. As we've shown, we believe that we have ample liquidity to pursue any near-term M&A opportunities, while still opportunistically buying back shares when it makes sense, like we did this quarter.
I would also note that in October, our Board of Directors increased our share repurchase authorization by $1 billion. And lastly, we had approximately $18.1 million of capex in the quarter, and finished with a leverage ratio of 2.77 times trailing 12-month EBITDA as of September 30. Finally, I want to remind everyone that our businesses are very resilient.
They have all declined due to the COVID pandemic, and they've also recovered substantially from their low points. But due to the uncertainty we're seeing currently around reopenings versus shutdowns globally, we are still not in a position to provide guidance at this point. We do expect to manage expenses 10% to 12% below the fourth quarter of last year in order to balance current profitability with investment for future growth.
Operator, we'll now open it up for questions.
Questions and Answers:
Operator
[Operator Instructions] And our first question is from the line of Ramsey Ramsey El-Assal from Barclays.
Ramsey Ramsey El-Assal -- Barclays -- Analyst
Could you provide some inter-quarter -- common intra-quarter trend commentary kind of what you're seeing in the business right now relative to Q3 levels?
Charles Freund -- Chief Financial Officer
Ramsey, this is Charles. Pleasure speaking with you this evening. So what we've seen inter-quarter is a bit lumpy. So we've got some stuff that's moving up, some stuff that's moving down. Hard to say kind of consistently what's going to go on here. So Q3, I'd say, it was a good step up versus Q2. So pleased with that result, and quite frankly, did a bit better than what we initially had thought back in Q2. But in terms of inter-quarter trends, hard to really put a measure on it, there.
Ramsey Ramsey El-Assal -- Barclays -- Analyst
Okay. Fair enough. Could you also give us some kind of updated commentary on what you're seeing in terms of rates of recovery and your kind of larger versus smaller customers? I know that, that differential in rates of recovery was having an impact on kind of revenue yields. But I'm just curious what you're seeing in your business now in terms of those smaller customers potentially starting to come back a little stronger or what have you?
Charles Freund -- Chief Financial Officer
Yes. It depends on the line of business. In our fuel business, we have seen a bit more recovery, particularly in trucking in the small fleet segment. Keeping in mind that the small fleets dipped down quite a bit more than the large fleets, so they've been coming back faster, but they're still not at the level of recovery of the large fleets. In our lodging space here in the U.S., we are still seeing that phenomenon, though, but the small customers are lagging the large customer recovery pretty significantly.
Operator
And our next question is from the line of David Togut with Evercore ISI.
David Togut -- Evercore ISI -- Analyst
Good to see the corporate payments bookings reached 100% of year-ago levels. Can you frame for us whether this business might get back to meaningful growth in 2021? This historically has been your best growth engine, yet you called out the bookings performance and yet about 100 clients or so are still quite weak. So can you help us think about the year ahead and where you might land in this business?
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Yes, David, it's Ron. I think it hinges totally on the kind of sick client group that we laid out in the supplement. So the sickest client in the T&E business way, way down, which is having that thing penciled out at minus 11% for the quarter, kind of flat without those. So clearly, the non-T&E, non-sick people will be a growing business in 2021 as we look at the plans. The wildcard is, how much of that softness that we're seeing still here in Q3 will come back.
So that's the debate we're having, and we're obviously watching it closely. To Chuck's point, we saw a little encouraging sign intra-quarter there in virtual cars. It looked like it was getting a little bit healthier. So I'd say it's not a super answer, but I'd say, if you park the two sick portions for sure, you will see, again, mid- to high-teens growth for the rest of that business. To your point, based on the sales and the forecast we have for Q4 is another good one. So the sales are clearly there to grow that business.
David Togut -- Evercore ISI -- Analyst
Got it. Appreciate that. And then just as a follow-up on capital allocation, you increased the buyback authorization by $1 billion and you're about to complete AFEX. How should we think about the year ahead in terms of share repurchase versus other meaningful M&A?
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
I'd say, probably, the philosophy, David, is the same as always. We do have a number of deals that we're working on, and I think we called it out in the press release, including a couple that are close-in, kind of late stage. So we're always balanced and right the liquidity that we need for the deals in front of us versus opportunistic on the share price. So I'd say, it's a function of those two things.
If there's a lot of deals we like, we've got conviction in, we'll spend the money on that. And if people trade our stock to a price that where buyers will buy it back. So the goal was to give us the management, the flexibility to make those calls. But I think, Chuck, our liquidity or availability is still well north of $1 billion?
Charles Freund -- Chief Financial Officer
Yes. Yes.
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
So we do have plenty to go, and obviously, the ability, David, to borrow more money. So if capital isn't, is the main question for us.
Operator
And our next question is from the line of Tien-Tsin Huang Wang with JPMorgan.
Tien-Tsin Huang Wang -- JPMorgan -- Analyst
It's good to connect to everyone. So I want to ask, Ron, on the new sales, the bookings also. Just I'm curious, do you see some pent-up demand there potentially? And I'm just curious on your confidence in being able to replenish the pipeline now that you get to some kind of new normal and new rhythm on selling in this -- during this pandemic, as you see it. What's going on in the ground there?
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Yes. I'm not sure on the sales thing. It's -- I used the word tension, but its pent-up demand. I'd say that it's two things. One, that the marketplace, the prospect universe is kind of getting back to listening again, they're less distracted. So what we do, we go in and analyze and that Google Analytics package, search volumes across all of our categories against baselines. And we see in that outside-in data the planet getting more receptive again to the kinds of things that we offer. So that's point one, which is obviously super important. And then point two, I think we finally have the rhythm of how to sell.
We all ran home and fuel people became phone people, and we remixed more money to digital. And we shrunk credit, now we've opened credit. So I think we ying-ed and yang-ed in our various channels, and now we've got kind of a sense of how to do it, how to play the game as it is now. And so this 80% number, which was pretty good in lots of places, particularly in corporate pay, I'm looking at a forecast that's over 90% for Q4. We've obviously got one of the months in the can. So I'd say of all the areas that the one where I feel like we have more control over our future. We stay in this kind of a place, the fact that we can continue to move that number up as we roll forward, so pretty confident.
Tien-Tsin Huang Wang -- JPMorgan -- Analyst
Okay. I got you. Because I know in the past, you said you can -- you're pretty -- when you're confident, you throw in dollars on the sales side and you'll get the return. I know you're talking about double-digit opex savings. But does that signal that you're not quite ready to deploy capital toward the sales and marketing point or is that a different discussion?
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Yes. We are -- the reason I don't know on the disclosures of how much detail we give you, but one of the reasons it looks like there's not a step-up in sales and marketing as the commission rolls or soft, right, because of the bad performance in Q2 and now just improving performance. But we made the call probably 60 days ago to start to step-up investments, both in people, on the recruiting front and a certain kind of new digital campaign. So no, it's -- again, it's the one -- it's the key to the company, right? When you get all done with this softer sickness thing of who is healthy and who is not, we still have a business you can plan, right?
Whatever you give me that baseline and then we lap whatever the softness or hardness is, we got a business that we can run 10% on the top. And so we're back at that game trying to build a sales plan for next year that keeps the company rolling in that fashion. I mean, what I'd say back is that's a bunch of words, but more importantly, when 90%, 50%, 80%, and we're forecasting above 90%, so there's real evidence that it's working.
Tien-Tsin Huang Wang -- JPMorgan -- Analyst
Okay. No, I'm sure that's the case. Last quick one, I'm sorry for asking a third one. Just the Cambridge playbook applied to AFEX. I mean is it very similar? I mean, you sound pretty confident in getting that level of the normal accretion with AFEX.
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Yes. I mean, we -- this is a thing called down the fairway. But number one, that playbook, which is part of our model for every deal, worked quite well. I mean, I think we reported or in one of these calls, I told you that we've more than doubled the profitability of Cambridge between '17 and '19. And so the first point is, yes, we'll reinstitute that same playbook for AFEX. But then the second one is, that there's two businesses now that look the same.
So there's this second by-the-synergies and the combinations that we didn't have, obviously, in the Cambridge deal. So that's why we gave the range. Obviously, our thinking is the two steps of thing, make sure we understand it. So we'll run them. And we started the planning for that thing to get the first phase. And then as we get smarter, for example, they've done a small business in North America in a management layer, call it, the last 10%, 15% of the Cambridge business we have. So we'll clearly assimilate things like that, and they have way stronger positions in Asia. So it sets up really well, both to grow the business and to make it way more profitable, so we like it.
Operator
And our next question is from the line of Steven Wald with Morgan Stanley.
Steven Wald -- Morgan Stanley -- Analyst
Maybe coming back to the corporate payments, I know we've asked a lot about this, but from a different angle. You guys had previously said, I think, back in September, Charles, you were talking about sort of working through some of the backlogs on previous bookings and getting those up and running at a faster clip than perhaps it would typically be done at over a sort of 12-month-plus period.
I'm curious how we're thinking with a large chunk of the business outside of T&E being back to pre-COVID levels. How are you thinking about the potential for that to hockey stick up, now having gotten back to even from the onboarding of those volumes? It seems like there's a natural beneficial mix shift away from T&E just by virtue of the fact that it's subdued in activity. So what are you thinking in terms of the next three to nine months from those faster implementations?
Charles Freund -- Chief Financial Officer
Yes, that's, Steven, a super, super good question. I mean, I think some of the softness this year at 2020 is not only sales, but what you said in that business implementations, because we kind of sell the year before and then implement the year after. And so a number of implementations in that business have been stalled, slowed as we certainly went through the second quarter and are starting to kind of reactivate. So the million dollar question there, just like David's earlier is, how many of those implementations will hold?
Will people stay with them if they agree to do the thing three or six months ago? And will they be away from their distractions where they could work hand and hand with us to implement the thing. So I think it's the same -- a bit of the same question, which is we've got a book of business that we can convert into revenue there, but we need cooperation of the clients that have agreed.
So to the extent that they're agreeable that, back to your point, will accelerate some of the recovery next year. And to the extent that it doesn't, that's they quit on the thing or they continue to back burner it, then that won't be helpful. So I think we're just seeing now signs in the last month or two of those implementations kind of getting back to a targeted level.
Steven Wald -- Morgan Stanley -- Analyst
Very helpful. And then just squeezing in a quick follow-up here. You mentioned at the beginning of the call, getting back to work on the Beyond initiatives. And I think it's pretty straightforward, with the fuel piece in terms of cross-selling sort of more attached to those customers. But could you just speak to the conditions on the ground you're seeing on the Brazil side for Beyond? And obviously, there's been quite the disruption from the pandemic there. I'm kind of curious what the ability is to have those conversations and get the uptake in Beyond in Brazil.
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Yes. I think the Brazil and the other ones, we did slow things down mostly around our credit paranoia back when this thing first broke. So we've obviously relaxed that, and then be just their population getting back out and about, right, driving around, refueling, going to fast food places, going back into the city, and they had a big closure like we did here in terms of their malls and stuff. But it was a real slowdown in the Beyond areas, right, of fueling, parking and fast food, that's kind of recovered. They've kind of reopened the country.
So we're seeing those transaction volumes tick back up. And we're also seeing it on new sales. I think you've heard that a big part of that initiative is to attract people that are kind of in the city that aren't toll people that want to use those things will -- obviously, when there's no need to use those things, it's not as interesting a pitch. So we're seeing it in the last month or two that gets resonating again as the activities picked up. So I wouldn't say it's all the way back to pre-levels, but it is way back from where they were in Q2.
Operator
And our next question is from the line of Ashish Sabadra with Deutsche Bank.
Ashish Sabadra -- Deutsche Bank -- Analyst
I also would like to focus on the corporate payment. But I would like to go back to the slide eight, where we have the volume trends by individual segment. My understanding was virtual card and FX were like almost 40% each, and then T&E and full AP at 10% each of that business. So when we do a bottom up, we don't see the kind of 18% volume decline or 11% revenue weakness. What could we be missing when we think about it, about that weakness there?
James P. Eglseder -- Head of Investor Relations
Yes, Ashish, we're probably going to have you back you on that and do some math. This is Jim. Happy to do that, but I'm not sure that we have the disconnect [Indecipherable]
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Say the question -- Ashish, it's Ron, just so I got it again?
Ashish Sabadra -- Deutsche Bank -- Analyst
Maybe a broader question would be just within the segment, I understand you talked about some of the weakness in the top 100 customers. But within the subsegment, were there any particular areas other than T&E, which has been relatively weak, which has been like weighing on the growth in that segment?
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Yes. You're saying the difference between the volume recovery versus the revenue? I mean, I'd say in the virtual card business, a lot of it is mix that some of our channel partners that have lower revenue to us per spend dollar have recovered more, think of the people that are investing lots in sales and marketing. And then obviously, we have, again, some series of sicker clients and the -- of course, for us, they used to pay us more. So I'd say that probably the biggest delta between that exhibit would be the mix.
There's a fair number of pretty large clients on both sides of that wheel, some clients that are going up, like healthcare, as an example, would be like a perfect example. That hit a, I don't have it in front of me, but a dramatic step up Q2 to Q3. It's kind of elective surgery and kind of normal hospital stuff kind of came back. And our margins in that healthcare business are way worse than in kind of the more traditional horizontal kind of a business. So that would be the partners, if you will, the wholesale business and the healthcare business have recovered better than some of the other businesses that pay us more.
Ashish Sabadra -- Deutsche Bank -- Analyst
That's very helpful color, Ron. And then maybe just on the fuel. One of the questions that we get a lot from investors is the difference in the growth between your fleet -- fuel business versus what WEX has been reporting in terms of gallons. I was wondering if you could just provide any color on the difference. Is it more the customer mix? Any color on that front.
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Yes, I keep saying, I mean obviously, it's a super strange time and stuff. But I think if you said what's the most surprising thing to us is how well those businesses, both our domestic and international fuel have recovered. I mean, the softness recovery, I'm not sure I have it in front of me, but literally, I think our international business existing clients, we call same-store sales, was down 25% or something literally in Q2, and recovered a ton. Again, I don't have it in front of me, but I think it is to 5%, picked up kind of 20 points or something in the improvement.
So that would be something. And then even in the U.S., I think it's improved. If it was down 15% or 20%, it's down 10% or something. So that is what I'd say is the biggest thing. Our applications are way up again because that Google outside in the world is more interested in searching again on fuel cards and fleet cards, so we're beneficiaries of that.
Although, again, I think in the new business, we're still being a bit more careful in credit with the super small accounts, which tend to be in our fuel card business, is where we have smaller accounts. So we're still concerned with fraud and stuff. So we're being -- our approval rates are still lower in that line of business. But its doing, Ashish, I think, significantly better, particularly in the third quarter on the strength of the -- really, again, the clients coming back and the forecast from our guys are even more recovery there. So it's doing well.
Operator
And our next question is from the line of Matt O'Neill from Goldman Sachs.
Matt O'Neill -- Goldman Sachs -- Analyst
Ron and Chuck, I was hoping I could first ask just to clarify a little bit further on the reextension of credit. I think you mentioned in the prepared remarks that you're back to pre-COVID levels across a lot of the businesses. Was that still -- was that sort of a quarter end comment or kind of on average across the quarter? I'm just trying to think about how close we are to being back to normal?
And then as a follow-up, on the 10% to 12% expense reductions that you've discussed as far as balancing profitability this year, is there any expectation around parsing some of those that would be more permanent as we go forward versus are they predominantly transitory things? Isn't this year like T&E being down as a result of COVID, etc?
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Let me, Matt, this is Ron, take the first half on credit, and then Chuck could take the expenses. I'd say that, no, it wasn't a green light at the beginning of the quarter where we turned the thing on. It's been very segmented. So we've moved at different speeds with different businesses. We've moved at different speeds with existing clients versus new clients. And we've moved at different speeds for super small clients, like we get in the fuel card business.
So when I said in the comment that we were kind of back, I'd say, we are. We've gone back to medium and large clients, and reextended their terms, days to pay and stuff that we had shortened. We've increased some of the credit lines again, so we could get more greater share of their business. But we continue to be careful on some of the Beyond because obviously, that increases our credit exposure, our credit limits within a single client, right, which we view as a bit more risk.
And we continue to be cautious on the digital new business, because they're coming in not as well as green as if they run through our people and they're smaller. So I'd say, it happened over the last four or five months, and sitting here today, it's probably, Chuck, I don't know, 80% or 85% back to normal with this Beyond and the small digital being the couple of exceptions.
Charles Freund -- Chief Financial Officer
This is Charles. Just the other point is we've kept some verticals that we know are still quite challenged due to the pandemic. We've kept them shut for credit purposes. Things that you would think of, right off the bat, heavy, heavy travel kind of industries, we're just not focused on them at this moment.
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
But we are tradable, Matt. When we see credit losses come in the way they have the last two quarters, we look and we see roll rates and all kinds of stuff that we look at and were like, huh, I guess we, along with some other people, maybe overreacted to the credit risk. And part of it is the essential nature, again, right, of what we do to people want to get our programs because it's part of their day-to-day jobs.
And then, b, the velocity of what our receivables are, we have all kinds of stuff like daily terms, daily net client and stuff and trucking. So our terms are quite rapid. So we've been again, just super fortunate. And so we're now trying to lean back toward the growth side and saying, OK, we're open to taking a bit more credit risk now that we see it's controlled.
Charles Freund -- Chief Financial Officer
And then, Matt, your other question on the expense reductions and what's permanent or not, some of this is from volume. So as our volumes bounce back, whether it's the base coming back or enhanced sales, as Ron was saying, some of that volume-based expense will come back. Some of it is driven by FX rates. So it hurts us on revenue, but we save on expenses. And so unless we see the Brazilian real turn around, some of that's going to stick around for a while.
And we also mentioned our bad debt is running low, and the aging is also staying well below what it has been historically. And so you could see that kind of continuing to run at a low rate for some time. I'd say, going forward into next year, we're going to continue to manage expenses, but look for opportunities, as Ron has said, to shift to growth and get on offense. So we'll look to deploy some of the things that -- some of the savings that we have this year to focus more on sales and marketing and get the top line where we want it.
Operator
And our next question is from the line of Bob Napoli with William Blair.
Bob Napoli -- William Blair -- Analyst
So the corporate payments business seems to be the key long-term driver to being able to hit the targets that you've had historically. Ron, what is the key -- strategically, what do you need to add to that business? I mean, the opportunity is so large? And where are you investing? Because there's a lot of innovation going on in the corporate payment space. Where are you investing? What do you need to add? What are you looking at? M&A-wise, what is most strategically important to keep that growth to make that business multiples the size it is today over the long term?
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Bob, it's Ron. It's a good question. I think we described this business to you before. We look at it kind of like as a game board, so kind of chessboard, and it's got segments on it. So it's got kind of small, medium and large companies, and then it's got off to different verticals and stuff. And so if you look at the early days of the corporate pay or payables business, players are kind of going after certain cells. So some guy is focus on some verticals like us even, take construction, is a big part of our business. Some people, like carpal, bill.com, focused on super small clients and so on.
So the first thing I'd say to you is, we're acutely aware and focused on those, if you look at that game board, which ones were capable to be good at today. And then what capabilities would we need to be good as some of the cells were not in. So there's a few verticals that we like, that I like a lot, that we'd like to be in, where there's connections to ERPs and client references that we need, so some opportunities maybe to buy into some of those. And then the same on size, right? One of the things we've debated is do we take our full AP product that's a super good product, but target it in the mid-market and make a down-market version, so that we can chase that to the 500,000 little clients we have with it?
So I'd say that, that's -- the primary thing is widening the capabilities to play in more of those segments. And then, b, I think I told you in the prior calls, the running up the value chain, like, for example, getting good at invoice automation. So the client doesn't have to open 100 invoices and tear them open and somehow get them into their system, and then we help them pay it, but maybe be more helpful to them as they pull those invoices and digitize those invoices. So those are the two games we're going to get wider in the segments, and I'm hoping you'll hear more about that. And we'll get kind of broader in the value chain of the adjacency. So a year or two from now, you'll see us more in those two spots.
Bob Napoli -- William Blair -- Analyst
Are you building the invoice automation piece internally or is that something that you need to acquire?
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Yes. I'm not going to answer that, other than say, obviously, we always look at the made by, so we're analyzing all of those options. All I can tell you is, we'll have this, we're committed, to your point, to this space, and we're looking at the various ways to get wider in this game and we will be wider in this game.
Operator
And our next question is from the line of John Coffey with Susquehanna.
John Coffey -- Susquehanna -- Analyst
One -- sort of two questions, one of which is fairly basic. Looking at slide eight, this is a little bit differently set up than it was last quarter. So I was just wondering, in this -- again, maybe obvious, the last column of growth, is sequential growth from Q2 to Q3? I just want to make sure I understood that right, or is it some other kind of maybe, I don't know, an early October number? And then I'll just give you my second question, right off the bat is on the next slide. When I look at the declines that you see from the 100 most effective customers, would a lot of that be primarily driven by the T&E cards or would some of this be virtual cards as well?
Charles Freund -- Chief Financial Officer
John, this is Charles. So on slide eight, what you're seeing there, the volume trends Q2 year-over-year and Q3 year-over-year. That third column is really the difference between Q2 and Q3. So sequentially, right, we improved, say, as an example, in the local fuel business, from minus 17% to minus 12%, we improved 500 basis points.
And so you can see kind of the recovery that we're seeing sequentially quarter versus quarter, Q2 to Q3 this year. And then in terms of the 100 customers, in that slide, which is slide nine, we're actually explicitly removing the T&E card product and looking at that separately. So the 100 most affected customers would be those that are using our payment products, either our virtual card or our cross-border and AFEX services.
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Yes, I don't know, John, whether we're making this point clear why we put this thing in here. Again, no one understands this better than you guys of how COVID and shutdowns have helped some companies and hurt some companies and then super hurt some companies, their whole distribution. I guess, the headline we're trying to give is that partitioning of impact sits in our client base. So when we look at the business that we built, it's a function of the health of our clients.
And so just like the investments that you guys look at, we have some said in all of our businesses of super sick clients that we didn't know could get so sick, using fuel cards or corporate pay products. And so the softness and the down performance of our company is really, as we've said, mostly now just a function of the health of a narrow group of our clients because we're back selling, our retention is fine, our credit's fine. And so the other parts of our business that allow our business to go forward, fortunately, are kind of OK again. So it's really just -- the point of it is really just we have, in our 800,000 clients, ones that were massively impacted by the same, and continue to be.
Operator
And our next question comes from the line of George Mihalos with Cowen.
George Mihalos -- Cowen -- Analyst
Ron, just wanted to ask, I know its early days around sort of EV and the like, and you talked about some networks overseas. I'm just curious on your thoughts about that kind of migrating to the States. Maybe how far behind are we to that playing a bigger role? And then just secondly, it sounds like you're, at least for now, somewhat encouraged on the economics. Just your thoughts around the ability to sustain that?
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Yes. Let me start, George, with the second question first and then come back to the U.S. I'd say this is another one a bit like our credit thing. Probably all of you all lay, oh, geez, FLEETCOR's got fuel cards, and oh, my god, it's going to be electric vehicles and oh, they won't have any business or whatever. Okay. So we're like, oh, my god, I wondered when a client that's got 20 plumbing trucks, gets two or three electric vehicles, while our business go down 10% or 15%. So what I was really trying to report, now that we're in the game, is no.
That example of a mixed fleet, our business is basically flat. And I'm studying this over the last six months. I'm like -- what is going on here, guys? And the answer is that the business wants to know about their vehicles and usage and purchases and what the people are doing, frankly, across the entire 20 vehicle population in that example. And so having a card in a way that the 20 people can still all buy and get reported on one account, I guess, we didn't really realize how valuable that was to companies, and they're willing to pay.
They're still paying card fees on those three electric plumbing trucks and they're -- obviously, we're getting paid for the new networks we've established. And they even want to know when those things are getting charged because they have admin to do with their employees, right? Their employees want to kind of get reimbursed, if you will, for at-home charging, the gadgets and the electricity and stuff. And so the headline for everybody is, at least initially, while the fleets are mixed, it's not a big -- we don't view it as a big drag, which, to me, I want to tell that story, because we think it's pretty good news.
On the second question, I think it's as much a government question as anything. Look, the reason that some of the countries we're in, and Europe, are ahead in EV is the government has set it up that way, right, in terms of incentives and targets and stuff that they've set up. So maybe we'll know something tonight or tomorrow here about our government. But I think a lot of it, the pace at which the U.S. will try to catch up, I think, is going to be a function really of the incentives that are put out there.
How high a priority it is? But again, my guess is the behaviors will be probably pretty similar to what we're seeing. Networks will get billed, networks that work will get billed, and we'll probably copy the same playbook for a while. So to me, it just keeps pushing out the electric vehicle impact on our company.
George Mihalos -- Cowen -- Analyst
Okay. That's great. That's very encouraging. And then, Charles, if I could sneak one more in, just looking at the the full AP business, I think you grew 20% in the third quarter, that's good growth. But I think in July, volumes were up 27%. So I guess, you're sort of exiting the third quarter in the teens. Anything to kind of call out there and how maybe we should be thinking about that business near term?
Charles Freund -- Chief Financial Officer
Yes. So in terms of the 20% growth, I'm assuming you're referring to slide eight that is embedded volume growth the business, we are lapping some synergies that we put into place a year ago. So when we acquired the business, they had some payments that they were doing. But what we did is we basically tied that product to our vendor database, and so we could take a bunch of the payments they were making through other modalities and turn them on to our MasterCard virtual card.
And so we saw a lot of MasterCard spend suddenly come into the system. We're now lapping those synergies. And so what you're going to see basically in that business going forward is really just organic growth. It's sales pouring in. And in this case, its transaction volume overcoming COVID softness in the base, since that big sales that we keep telling you about is layering on. And so we're going to have this kind of, call it, high teens, 20% kind of growth rate in this business, provided the sales continued.
Operator
And our next question comes from the line of Trevor Williams from Jefferies.
Trevor Williams -- Jefferies -- Analyst
And I just wanted to follow up, Charles, with you just a little bit on the expense comments you made to Matt's question earlier. I mean, it sounds like you guys are going to start pouring some more fuel on the fire when you start to get more of a reacceleration on the top line. With that kind of framework, I mean, should we be thinking that maybe your incremental margins run a bit lower than the 70% level that we've historically thought about when revenues start to come back on the upswing?
Charles Freund -- Chief Financial Officer
No, I'd say, we're pretty disciplined and balanced. So it's not -- when you say pouring fuel on the fire, everything we do is going to be incremental. It will be balanced. But what we try to do as a company is shift what we call calories. So I can make certain investments in back office stuff, I can make investments in sales and marketing. I much prefer the latter versus the former.
And so we're very, very disciplined in cost control in all of our operations. And that way, we can put some disproportionate investment in sales and marketing, while still managing the bottom line effectively. So I would not anticipate any kind of dramatic changes in that regard. It's more of a shift in spending versus big incremental investment.
Trevor Williams -- Jefferies -- Analyst
Okay. Got it. That's very helpful. And just one other clarification question for me. Ron, I mean you -- when you're talking about the fourth quarter, you're hoping to get sales up to 90% of last year's level. I just want to make sure I'm understanding that comment correctly. Is that new sales you're referencing or is that -- you're talking about revenue growth being down 10% or hopefully a little bit better for the fourth quarter?
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Yes, that's new sales, Trevor. So we keep track of what we call annualized new business. We sign up 30,000 clients in the quarter, how much revenue will they create. And so we have a system that measures that. So, yes. So I say, hey, we were 50% of new business. Now, Q3, we're at 80%, and we hope to be at 90% or 90%-plus, that's comparing new business we got in Q3 this year to the amount of new business we got in Q3 last year.
Trevor Williams -- Jefferies -- Analyst
Got it. Okay. That makes sense. That's why I asked. Appreciate it.
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
I mean, let me go back to what I said earlier that Togut asked, which is, once you normalize this day softness or wherever it is, this is -- I want to make sure everyone gets it, this is the game. If you could get sales, right, to be more than attrition, and we said retention ticked up a point, it is the key to planning this machine running forward. So we will lap the softness, even though we're recovering some. So I don't want people to miss how important this metric is to us and to the revenue growth going forward.
Operator
And our final question comes from the line of Mihir Bhatia with Bank of America.
Mihir Bhatia -- Bank of America -- Analyst
I just had one quick one, hopefully, on fuel card -- on the fuel card segment. Thanks for the incremental disclosure on the corporate payment side. I was wondering if you could do something similar for us, like just at a high-level, maybe on the fuel card side. Are there particular customers or segments that are just not recovering while everything else is getting better? And then just relatedly, I was curious about your views just in terms of -- with parts of Europe and, I guess, the U.K. is talking about shutting down again or at least putting some kinds of movement restrictions in place. How should we be thinking about the headwinds from that for you next quarter?
Charles Freund -- Chief Financial Officer
So on the fuel card business, Mihir, we are still seeing some of that softness still in the small businesses, as we mentioned earlier, so that's -- still waiting for that to come back. In terms of some of the industries, manufacturing has been a bit slow. Obviously, transportation as such, public transporting, things of that nature has been a little slow in our local fuel business.
The Europe stuff had bounced back more, as shown in our volume exhibits. To your point, we're watching the lockdowns. I think in terms of the nature of those lockdowns, they don't seem quite as severe, at least is what I've read in the press regarding how far they're going to shut down. So we're still waiting to see what that impact will look like. So I'd say, to be determined.
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Yes. Let me just add to what Chuck said. The answer is yes to their super sick clients like we show in corporate pay. We run the distributions of the clients. So let's say we had 100,000 clients, we basically put them in layers, call it, five or six layers, hey, 25,000 of the 100,000 have grown, hey, 25,000 are down like 5% or 10%, hey, 25,000 are down 20% to 30%, and then 6,000 are down 80% or more. So we see the whole distribution of super impacted industries versus industries that were nicked by, we're going to have one less plumber because some homes won't accept them.
So it's not quite as stark as it is in the corporate pay business. And again, it's why we've seen actually more recovery, if you will, of our same-store sales in the fuel business than in the corporate pay, because we have retailers and maritime payroll and hotels, things that don't move that have been shuttered that are in our corporate pay business. So we were just dealt a more impacted set of clients, effectively sitting in that business.
Operator
And there are no further questions in the queue at this time. I will now turn the call back over for closing remarks.
Charles Freund -- Chief Financial Officer
Nothing further on our end, guys. Let me know if you need anything else, I'm always available. So have a good evening.
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Thanks, everybody.
Operator
[Operator Closing Remarks]
Duration: 70 minutes
Call participants:
James P. Eglseder -- Head of Investor Relations
Ron Clarke -- Chief Executive Officer and Chairman of the Board of Directors
Charles Freund -- Chief Financial Officer
Ramsey Ramsey El-Assal -- Barclays -- Analyst
David Togut -- Evercore ISI -- Analyst
Tien-Tsin Huang Wang -- JPMorgan -- Analyst
Steven Wald -- Morgan Stanley -- Analyst
Ashish Sabadra -- Deutsche Bank -- Analyst
Matt O'Neill -- Goldman Sachs -- Analyst
Bob Napoli -- William Blair -- Analyst
John Coffey -- Susquehanna -- Analyst
George Mihalos -- Cowen -- Analyst
Trevor Williams -- Jefferies -- Analyst
Mihir Bhatia -- Bank of America -- Analyst
