Q4 2023 Verra Mobility Corp Earnings Call
Operator: Good afternoon, ladies and gentlemen, and welcome to the Verra Mobility 4th Quarter 2023 Earnings Conference. At this time, I will only listen.
Good afternoon, ladies and gentlemen, and welcome to the Verra mobility fourth quarter 2020 earnings conference call. At this time all lines are in a listen only mode. Following the presentation. We will conduct a question and answer session. If at any time during this call you require.
Operator: Following the presentation, we will conduct a question and answer session. If at any time during this call, you require immediate assistance, please call 1-866-433-7483. Press star 0 for the operator. This call is being recorded on Thursday, February 29, 2024. And I would now like to turn the conference over to Mr. Mark Zindler, Vice President. Thank you.
Immediate assistance. Please press star zero for operator. This call is being recorded on Thursday February 29, 2024, and I would now like to turn the conference over to Mr. Mark Sadler Vice President of Investor Relations. Thank you. Please go ahead.
Mark Zindler: Good afternoon, and welcome to Verra Mobility's fourth quarter 2023 earnings call. Today we'll be discussing the results announced in our press release issued after the market closed, along with our earnings presentation, which is available on the investor relations section of our website at ir.verramobility.com. With me on the call are David Roberts, Verra Mobility's Chief Executive Officer, and Craig Conti, our Chief Financial Officer. David will begin with prepared remarks, followed by Craig, and then we'll open up the call for Q&A.
Mark Sadler: Thank you good afternoon, and welcome to Verra mobility is fourth quarter 2023 earnings call today, we'll be discussing the results announced in our press release issued after the market closed along with our earnings presentation, which is available on the Investor Relations section of our website at IR Dot verra mobility Dot com.
Mark Sadler: With me on the call are David Roberts, Verra mobility, as Chief Executive Officer, and Craig <unk>, Our Chief Financial Officer, David will begin with prepared remarks, followed by Craig and then we'll open up the call for Q&A.
Mark Zindler: Management may make forward-looking statements during the call regarding future events, anticipated future trends, and the anticipated future performance of the company. However, we caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors.
Mark Sadler: Management may make forward looking statements during the call regarding future events anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict.
Mark Sadler: Actual results may differ materially from those projected in the forward looking statements due to a variety of factors. These factors are described in our SEC filings.
Mark Zindler: These factors are described in our SEC file. Please refer to our earnings press release for Verra Mobility's complete forward-looking statement disclosure. Finally, during today's call, we'll refer to certain non-GAAP financial... A reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is included in our earnings release, which can be found on our website at ir.verramobility.com and on the SEC's website at sec.gov. With that, I'll turn the call over to David.
Mark Sadler: Please refer to our earnings press release for Bear mobility is complete forward looking statement disclosure.
Mark Sadler: We do not undertake any obligation to update forward looking statements.
Mark Sadler: Finally during today's call, we will refer to certain non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is included in our earnings release, which can be found on our website at IR Dot verra mobility dot com and on the Sec's website at SEC Gov with that I'll turn the.
David Martin Roberts: Thank you, Mark, and thanks, everyone, for joining us today. On today's call, I'm going to first provide a high-level discussion of our strong fourth-quarter results and key drivers. I'll then move on to a discussion of several key trends that are shaping the smart mobility market before closing with our strategic priorities that will influence our 2024 operating plan and build upon the foundation with a long-term outlook that we outlined at our investor day in July of 2022. We delivered fantastic results for the fourth quarter, highlighted by robust revenue and adjusted EBITDA. Fourth quarter revenue of $211 million exceeded our expectations and was primarily driven by strong U. S Adjusted EBITDA of $91 million for the fourth quarter was slightly ahead of our forecast despite an approximate $4 million one-time non-cash charge, which Craig will elaborate on in his remarks.
David Martin Roberts: All over to David.
David Martin Roberts: Thank you Mark and thanks, everyone for joining us today for today's call I'm going to first provide a high level discussion on our strong fourth quarter results and key drivers I'll then move on to a discussion of several key trends that are shaping the smart mobility market before closing with our strategic priorities that will influence our 2024 operating plan.
David Martin Roberts: And build upon the foundation for the long term outlook that we outlined at our Investor day in July of 2022.
We delivered fantastic results for the fourth quarter highlighted by robust revenue and adjusted EBITDA.
David Martin Roberts: Fourth quarter revenue of $211 million exceeded our expectations and was primarily driven by strong U S travel and bowling trends in our commercial services segment adjusted.
David Martin Roberts: Adjusted EBITDA of $91 million for the fourth quarter was slightly ahead of our forecast despite an approximate $4 million, one time noncash charge, which Craig will elaborate on his remarks.
David Martin Roberts: Our strong results are aligned with three macro trends across our operating segment. First, we're seeing strong travel demand by both consumers and businesses, particularly in the U.S. Recent commentary from the major airlines and our RAC partners suggests continued strong demand through at least the first half of 2024. The second macro trend is the continued push for safer roads and communities, which drives the need for investments in automated safety enforcement. We experienced a record year in 2023 with the passage of new automated safety enforcement legislation as lawmakers across the globe recognized the efficacy that automated safety solutions have in reducing traffic fatalities. And lastly, the complexities surrounding university and municipality parking create opportunities for customers to use our software-enabled parking management solutions.
David Martin Roberts: Our strong results are aligned with three macro trends across our operating segments first we're seeing strong travel demand by both consumers and businesses, particularly in the U S. Recent commentary from the major airlines in a rack partners suggests.
David Martin Roberts: Continued strong demand through at least the first half of 2024.
David Martin Roberts: The second macro trend is the continued push for safer roads in communities, which drives the need for investments in automated safety enforcement.
David Martin Roberts: Variance to a record year in 2023 with the passage of new automated safety enforcement legislation as lawmakers across the globe recognize the efficacy that automated safety solutions have in reducing traffic fatalities.
David Martin Roberts: And lastly, the complexities surrounding University municipality parking create opportunities for customers to use our software enabled parking management solutions now.
David Martin Roberts: Now moving on to our business unit operations, the commercial services team delivered outstanding results driven by strong and durable domestic travel trends and our continued strong performance in the fleet management business. Fourth quarter revenue of $95 million grew 16% over the prior year quarter, and adjusted EBITDA margins of 66% were up about 570 basis points over last year due to the strength in rack tolling and prior year FMC growth investment. As we disclosed in an 8K, and you'll see discussed in our earnings release in Form 10K, we entered into a business arrangement with PlusPass, which fully and finally resolved all litigation and disputes between the parties, and pursuant to which we acquired certain assets from PlusPass. We accrued $31.5 million for this matter as of December 31st, 2023, and the resulting payment will be made during the first quarter of 2024. Transitioning back to the business fundamentals, full year 2023 TSA volume was about 101% of 2019 volume and about 113% of 2022 volume. RAC tolling revenue increased 23% over the prior year quarter due to increases in adopted rental agreements, the increased adoption of all-inclusive pricing plans, and a durable trend of longer car rentals.
David Martin Roberts: Now moving onto our business unit operation the commercial services team delivered outstanding results driven by strong and durable the mass domestic travel trends and our continued strong performance in the fleet management business.
David Martin Roberts: Fourth quarter revenue of $95 million grew 16% over the year the prior year quarter and adjusted EBITDA margins of 66%, we're up about 570 basis points over last year due to the strength in rack tolling and prior year FMC growth investments.
David Martin Roberts: As we disclosed in an 8-K and Youll see discussed in our earnings release and Form 10-K, we entered into a business arrangement with plus pass, which fully and finally resolved all litigation and disputes between the parties and pursuant to which we acquired certain assets from plus pass, we accrued $31 $5 million for.
David Martin Roberts: This matter at December 31, 2023, and the resulting payment will be made during the first quarter of 2024.
David Martin Roberts: Transitioning back to the business fundamentals full year 2023, TSA volume was about 101% of 2019 volume and about 113% of 2022 volume.
David Martin Roberts: Rack tolling revenue increased 23% over the prior year quarter due to increases in adopted rental agreements increased adoption of all inclusive pricing plans and a durable trend of longer car rentals. Additionally, our FMC business generated 24% growth over the prior year quarter, primarily driven by enrollments of new vehicles and tolling.
David Martin Roberts: Additionally, our FMC business generated 24% growth over the prior year quarter, primarily driven by enrollment of new vehicles and tolling growth from existing customers. The FMC business delivered $63 million of revenue in 2023, representing double-digit year-over-year growth and outstanding accomplishments. I'm incredibly proud of our team's execution efforts.
David Martin Roberts: Growth from existing customers.
FMC business delivered $63 million of revenue in 2023, representing double digit year over year growth an outstanding accomplishment I'm incredibly.
Speaker Change: Really proud of our team's execution efforts looking ahead as I've discussed previously we expect FMC revenue growth to slow to mid to high single digits, primarily as a result of tougher comps in 2024.
David Martin Roberts: Looking ahead, as I've discussed previously, we expect FMC revenue growth to slow to mid to high single digits, primarily as a result of tougher comps in 2024. I'm also pleased to report the launch of Hertz Italy in the fourth quarter of 2023. We're excited to support our partner in the rollout of their tolling program in Italy, in a market with strong and growing cashless tolling trends. Lastly, the secular trends underpinning these business drivers continue to convert to cashless tolling and new toll roads continue to positively impact our business. Cashless or all electronic toll roads reached approximately 67% penetration this year, and nine U.S. toll roads were completed in 2023 as well, including in the metropolitan Washington, D.C. area, Denver, Colorado, and Orange County, California.
Speaker Change: I'm also pleased to report the launch of Hertz, Italy in the fourth quarter of 2023, we're excited to support our partner in the rollout of their tolling program in Italy.
Speaker Change: Market was strong and growing cash flows totaling trends.
Speaker Change: Lastly, the secular trends underpinning these business drivers continued conversion to cashless tolling and new toll roads continued to positively impact our business cashless or all electronic toll roads reached approximately 67% penetration. This year. This past year and nine U S. Toll roads were completed in 2023 as well.
Speaker Change: Including in the Metropolitan Washington, D C area, Denver, Colorado in Orange County, California.
David Martin Roberts: As we look forward, CS's position as a high single-digit grower is driven by strong and durable travel trends, continued growth in cashless tolling and new toll roads, the transition to all-inclusive pricing plans, segment expansion, and a nascent but attractive connected vehicle opportunity. Moving on to government solutions, recurring service revenue, which reflects 97% of total revenue for the quarter, grew 10% over the same period last year The recurring service revenue growth was driven by program expansion from existing customers and new cities implementing photo enforcement efforts to improve road safety. To this point, outside of New York City, we drove strong revenue growth due to our existing customers' demand to expand their programs. From a profitability standpoint, government solutions adjusted EBITDA declined 22% compared to the prior due to a non-cash charge I mentioned earlier and the platform investments that we're making in the business. Looking forward, in addition to the new legislation passed in Florida, Connecticut, Colorado, Washington State, and California, Pennsylvania signed new automated enforcement legislation into law in the fourth quarter.
Speaker Change: As we look forward <unk> is positioned as a high single digit grower driven by strong and durable travel trends continued growth in cashless tolling and new toll roads the transition to all inclusive pricing plans segment expansion in a nascent but attractive connected vehicle opportunity.
Speaker Change: Moving onto government solutions recurring service revenue, which reflects 97% of total revenue for the quarter grew 10% over the same period last year.
Speaker Change: The recurring service revenue growth was driven by program expansion from existing customers and new cities implementing photo enforcement efforts to improve road safety.
Speaker Change: At this point outside of New York City, we drove strong revenue growth due to our existing customers demand to expand their programs from.
Speaker Change: From a profitability standpoint government solutions, adjusted EBIT declined 22% compared to the prior year due to a noncash charge I mentioned earlier and the platform investments that we're making in the business.
Speaker Change: Looking forward in addition to the new legislation passed in the Florida, Connecticut, Colorado, Washington State in California.
Speaker Change: Sylvain you signed new automated enforcement legislation into law in the fourth quarter. The legislation enables new use cases in select cities, including schools on speed management and school bus stop arm safety and also extends and expands existing use cases for works on speed manager and highway speed management.
David Martin Roberts: The legislation enables new use cases in select cities, including school zone speed management and school bus stop arm safety. It also extends and expands existing use cases for work zone speed management and highway speed management. The passage of this new legislation resulted in a significant TAM expansion, which we currently estimate at about $50 million and potentially growing to approximately $150 million annually within the next few years, if the legislation allows it. Moving forward, we're now focused on the next steps in the procurement process. In Florida, procurement processes are ramping up, and in California, we may see RFPs as early as the second quarter, continuing into the second half of the year.
Speaker Change: Passage of this new legislation resulted in a significant Tam expansion in which we currently estimate at about $50 million of potentially growing to approximately $150 million annually within the next few years.
Speaker Change: If the legislation allows.
Speaker Change: Moving forward, we are now focused on the next steps in the procurement process in Florida procurement processes are ramping up and in California, We may see rfps as early as the second quarter continuing into the second half of the year.
David Martin Roberts: In Colorado and Washington State, we have had success expanding existing programs enabled by new legislation, and we have won several new procurements. Additionally, on the international side of the business, we are experiencing attractive award activity in our expansion efforts in New Zealand, as well as expansion and new business awards across several provinces in Canada. In New York City, we are awaiting the issuance of the RFP for the city's automated enforcement renewal contract.
Speaker Change: In Colorado, and Washington State.
Speaker Change: <unk> had success expanding existing programs enabled by the new legislation and we have and we have won several new procurements.
Additionally, in the international side of the business, we are experiencing attractive award activity and our expansion efforts in New Zealand as well as expansion in new business awards across several provinces in Canada.
Speaker Change: In New York City, we are awaiting the issuance of the RFP for the city's automated enforcement renewal contract the timing of the RFP is uncertain, but we are working hard to position ourselves for a successful outcome.
David Martin Roberts: The timing of the RFP is uncertain, but we are working hard to position ourselves for a successful outcome. More to come as this process moves forward. Now, stepping back and looking at the big picture, GS is currently positioned as a mid-single-digit growther on the basis of our existing portfolio and proven net retention rates. We are operating in a very favorable environment as states continue to demonstrate confidence and optimism in enabling various use cases to automate traffic safety and make mobility safer and easier.
Speaker Change: When it comes this process moves forward.
Now stepping back and looking at the Big picture <unk> is currently positioned at the mid single digit grower of the base on the basis of our existing portfolio improvement net retention rates. We are operating in a very favorable environment to states continued to demonstrate confidence and optimism, enabling various use cases to automate traffic safety mobility safer earnings.
Speaker Change: Year.
David Martin Roberts: Moving on to T2 Systems, fourth quarter total revenue increased 13% over the prior year quarter, driven by strength in software services revenue. Adjusted EBITDA was $5 million, which is in line with our expectations and reflects year-over-year SAS and services revenue growth. We expect T2's growth rate to moderate to mid-single digits in 2024, but over the long term, we continue to see T2 growing at a high single digit rate, driven by the strength and focus on SaaS and the introduction of transactional revenue pricing opportunities. Additionally, hardware, particularly paystations, will likely become a smaller percentage of revenue as the market transitions away from hardware and continues to move towards software and mobile solutions.
Speaker Change: Moving on to <unk> systems fourth quarter total revenue increased 13% over the prior year quarter driven by strength in software services.
Speaker Change: Software services revenue adjusted EBITDA $5 million was in line with our expectations and reflects year over year, SaaS and services revenue growth.
Speaker Change: We expect <unk> growth rate to moderate to mid single digit in 2024, but over the long term, we continue to see <unk> growing at a high single digits, driven by the strength and focus on SaaS and the introduction of transactional revenue pricing opportunities.
Speaker Change: Hardware, particularly pay station will likely become a smaller percentage of revenue as the market transitions away from hardware and continues to move towards software and mobile solutions.
David Martin Roberts: Turning to the balance sheet and capital allocation over the course of 2023, we fully despacked in our fifth year of being a publicly traded company. I am pleased to report we lowered net leverage nearly a full turn over the course of 2023, ending the year at two and a half times adjusted EBITDA. In addition, we purchased $100 million of shares over the course of 2023. And in November, as we previously reported, our board of directors authorized a new share repurchase program for $100 million.
Speaker Change: Turning to the balance sheet and capital allocation over the course of 2023, we fully dis back in our fifth year of being a publicly traded company I am pleased to report we lowered net leverage nearly a full turn it over the course of 2023 ending the year two five times adjusted EBITDA.
Speaker Change: In addition, we purchased $100 million of shares over the course of 2023 and in November as we previously reported our board of directors authorized a new share repurchase program for $100 million.
David Martin Roberts: Overall, 2023 was a record year in Verra Mobility's history, setting new all-time highs in revenue, adjusted EBITDA, and adjusted EPS. We benefited from record airline passenger traffic, with 2023 TSA volume at 101% of 2019 levels. And in government solutions, we experienced a highly favorable legislative environment, resulting in a long-term total adjustable market expansion of up to $150 million.
Speaker Change: Overall 2023 was a record year in <unk> history, setting new all time highs in revenue adjusted EBITDA and adjusted EPS, We benefited from the record airline passenger traffic with 2023 GSA volume at 101% of 2019 levels and in government solutions, we experienced highly favorable legislative environment, resulting in a <unk>.
Long term total addressable market expansion of up to $150 million.
David Martin Roberts: Next, I'm pleased to report that we recently published our inaugural Corporate Responsibility Report, which outlines how our core values, purpose, vision, and operating system form the foundation of our corporate responsibility strategy. We believe that our technology helps make the world safer and a better place and are committed to being good corporate citizens and supporting the communities in which we and our customers live and work. Now I will turn to our top strategic priorities for 2024. Over the past two years, we've implemented the Verra Mobility Operating System, or VMOS, a robust standard business system that drives growth, efficiency, and talent development.
Next I am pleased to report that we recently published our inaugural corporate responsibility report, which outlines how our core values purpose vision and operating system form the foundation of our corporate responsibility strategy. We believe that our technology helps to make the world safer and a better place and are committed to being good corporate citizens and supporting the communities in which we.
Speaker Change: Our customers live and work.
Now I will turn to our top strategic priorities in 2024 over the past two years, we have implemented to verra mobility operating system or <unk> S. A robust standard business system that drives growth efficiency and talent development.
David Martin Roberts: At the heart of BMOS are three strategic pillars that drive core business outcomes, build the Verra Mobility of the future, and create an engaging and fulfilling workplace experience. As you'll see on slide 5, in 2024, we established key objectives for each of these pillars, focusing on financial execution of the 2024 annual plan, leveraging recent investments to capitalize on and expand the TAMs and drive operating efficiencies, pursuit of creative expansion opportunities, accelerating our portfolio model adoption, and making Verra Mobility a best place to work. Through the execution of our three strategic pillars, we are poised to deliver superior long-term value creation for all states. Next, I'll drill down a layer and focus on key priorities for each of our business segments, as described in more detail on slides 6, 7, and 8, and Commercial Services, where we benefit from strong secular tailwinds, including increased adoption of cashless tolling, new toll roads, and a transition to all-inclusive pricing models. We are focused on growing the core while simultaneously capitalizing on our numerous expansion opportunities.
Speaker Change: At the heart of Bmo's, our three strategic pillars drive core business outcomes build the verra mobility of the future and create engaging in fulfilling workplace experience.
Speaker Change: As Youll see on slide five in 2024, we established key objectives for each of these pillars focusing on financial execution of the 2024 annual plan.
Speaker Change: Average recent investments capitalize on expanded Tam and drive operating efficiencies pursuit of accretive expansion opportunities accelerating our portfolio model adoption and making bear in mobility, a best place to work.
Speaker Change: Through execution of our three strategic pillars, we are poised to deliver superior long term value creation for all stakeholders.
Speaker Change: Next I'll drill down a layer and focus on key priorities for each of our business segments as described in more detail on slide six seven and eight.
Speaker Change: And commercial services, where we benefit from strong secular tailwind, including increased adoption of cashless tolling, new toll roads and a transition to all inclusive pricing models. We are focused on growing the core while simultaneously capitalizing our numerous numerous expansion opportunities. Our top priorities include execute the core business, while investing in growth continue.
David Martin Roberts: Our top priorities include executing the core business while investing in growth, continued segment expansion of fleet management and European tolling enforcement and violations, and laying the foundation to capitalize on next-generation connected vehicle opportunities. In government solutions, where we benefit from an expanding addressable market for automated enforcement, our top priorities are to win our share of new contract awards in Florida, Colorado, Washington, California, Canada, and New Zealand, position ourselves to retain New York City at contract renewal, and leverage 2023 and 2024 investments in our software platform to enhance our strategic advantages. And finally, in T2 systems, where we have a significant runway for continued growth and profitability in the university segment, as well as our focused efforts to penetrate the municipality segment, our focus is on the following priorities.
Speaker Change: <unk> segment expansion in fleet management, and European tolling enforcement and violations and laying the foundation to capitalize on next generation connected vehicle opportunities.
Speaker Change: And government solutions, where we benefit from an expanding addressable market for automated enforcement of our top priorities are to win our share of new contract Awards in Florida, Colorado, Washington, California, Canada, and New Zealand positioning ourselves to retain the New York City at contract renewal and leveraged 2023, and 2020 for investments in our software.
Platform to enhance our strategic advantages.
Speaker Change: And finally in <unk> systems, where we have significantly significant runway for continued growth and profitability in the University segment as well as our focused efforts to penetrate the municipalities segment. Our focus is on the following priorities continue to focus on growing our high margin core permits and enforcement business successfully launch new products to drive transactional revenue growth and invest.
David Martin Roberts: Continue to focus on growing our high-margin core permits and enforcement business and successfully launch new products to drive transactional revenue growth and investments in our software platform to further enhance strategic growth. These are our top priorities as we execute our strategy in 2024.
Speaker Change: <unk> and our software platform to further enhance strategic.
Speaker Change: These are our top priority as.
Speaker Change: As we execute our strategy in 2024 as I've said previously this is a great business with a bright future and I look forward to sharing updates on our progress as we execute our plan in 2020 for Greg I'll turn it over to you to guide us through our financial results in 2024 guidance. Thanks.
Craig C. Conti: As I've said previously, this is a great business with a bright future, and I look forward to sharing updates on our progress as we execute our plan in 2024. Craig, I'll turn it over to you to guide us through our financial results in 2024. Thanks, David.
Greg: Thanks, David Good afternoon, and thanks to everyone for joining us on the call I'll start out today by providing an overview of our fourth quarter and full year 2023 results followed by a detailed overview of how we're thinking about 2024.
Craig C. Conti: Good afternoon, and thanks to everyone for joining us on the call. I'll start out today by providing an overview of our fourth quarter and full year 2023 results, followed by a detailed overview of how we're thinking about 2024. Let's turn to slide nine, which outlines the key financial measures for the consolidated business for the fourth quarter. Total revenue increased approximately 13% year over year to about $211 million for the quarter, driven by strong recurring service revenue growth across the company. Recurring service revenue grew 13% over the prior year quarter driven by strong travel demand in the CS business and recurring service revenue growth outside of New York City. At the segment level, commercial services revenue grew 16% year-over-year.
Greg: Let's turn to slide nine which outlines the key financial measures for the consolidated business for the fourth quarter.
Greg: Total revenue increased approximately 13% year over year to about 211 billion for the quarter driven by strong recurring service revenue growth across the company.
Greg: Recurring service revenue grew 13% over the prior year quarter, driven by strong travel demand in the CS business and recurring service revenue growth outside of New York City in the U S business.
At the segment level commercial services revenue grew 16% year over year government solutions service revenue increased by 10% over the prior year and <unk> Systems' SaaS and services revenue grew 10% over the fourth quarter of last year.
Greg: Product revenue was 9 million for the quarter about $6 million of this was from <unk> systems, while 3 million was from government solutions, the majority of which were international product sales.
Craig C. Conti: Government solutions service revenue increased by 10% over the prior year, and P2 Systems' SaaS and services revenue grew 10% over the fourth quarter of last year. Product revenue was $9 million for the quarter. About $6 million of this was from T2 systems, while $3 million was from government solutions, the majority of which were international products. From a total profit standpoint, Consolidated Adjusted EBITDA of $91 million increased by approximately 9% over last year. As David mentioned, we took a $4 million non-cash charge from the GS business for inventory ups..., largely driven by supply chain optimization. Excluding this charge, year-over-year adjusted EBITDA growth would have been 14%, and consolidated margins would have been about 45%, which is consistent with Q4 of 2022.
Greg: From a total profit standpoint, consolidated adjusted EBITDA of $91 million increased by approximately 9% over last year as David mentioned, we took a $4 million noncash charge in the GFS business for inventory obsolescence, largely driven by supply chain optimization, excluding this charge year over year adjust.
Greg: EBIT growth would have been 14% and consolidated margins would've been about 45%, which is consistent with Q4 of 2022.
Greg: We reported net income of $3 million for the quarter, including the $31 5 million plus pass accrual pursuant to a legal settlement, which is discussed in more detail in our 10-K.
Greg: Adjusted EPS, which excludes amortization stock based compensation and other nonrecurring items, including the plus past legal settlement was 24 per share for the current quarter compared to <unk> 25 per share in the fourth quarter of 2022.
Craig C. Conti: We've reported net income of $3 million for the quarter, including the $31.5 million plus pass accrual pursuant to our legal settlement, which is discussed in more detail in our 10-point. Adjusted EPS, which excludes amortization, stock-based compensation, and other non-recurring items, including the plus-pass legal system, was $0.24 per share for the current quarter, compared to $0.25 per share in the fourth quarter of 2022.
Greg: The primary driver for the reduction compared to the prior year was the $4 million pre tax inventory write down in the GFS segment in our increased share count, resulting from the exercise of warrants and the issuance of earn out shares in the second and third quarter of this year.
Greg: As David mentioned earlier, the company is fully dispatched with no remaining warrants or earn out shares.
Greg: We delivered $19 million of free cash flow for the quarter, which resulted in meeting our annual guidance of 40% full year conversion rate was below our recent quarterly run rate largely driven by timing.
Craig C. Conti: The primary driver for the reduction compared to the prior year was the $4 million pre-tax inventory write-down in the GS segment due to our increased share count, resulting from the exercise of warrants and the issuance of burnout shares in the second and third quarter of 2020. As David mentioned earlier, the company is fully de-SPAC'd with no remaining warrants or earnings. We delivered $19 million of free cash flow for the quarter, which resulted in meeting our annual guidance of a 40% full-year conversion rate but was below our recent quarterly run rate, largely driven by timing. The primary factors driving our performance were $14 million in accounts receivable we expected to collect in December, which shifted to early January, and about $4 million of incremental CapEx relative to quarterly trends. When compared to the fourth quarter of 2022, in that period, we generated a source of working capital, about $16 million higher than normal, driven by increased collections and higher accounts payable.
Greg: The primary factors driving our performance were $14 million in accounts receivable, we expected to collect in December which shifted the early January and about $4 million of incremental capex relative to quarterly trends when.
Greg: When comparing to the fourth quarter of 2022 and that period, we generated a source of working capital about $16 million higher than normal driven by increased collections and higher accounts payable balances.
Greg: Moving forward I expect to return to an approximate $40 million free cash flow run rate subject to historical seasonality in our CFS business.
Greg: Turning to slide 10, we generated about $372 million of adjusted EBITDA on approximately $817 million of revenue for the full year, representing a 45% adjusted EBIT margin.
Greg: Additionally, we generated about $149 million of free cash flow for a 40% conversion of adjusted EBITDA, representing 93 of free cash flow per share for full year 2023.
Greg: Moving to commercial services on Slide 11, we delivered revenue of about $95 million in the fourth quarter, increasing $13 million or 16% year over year.
Craig C. Conti: Moving forward, I expect to return to an approximate $40 million free cash flow run rate subject to historical seasonality in our CSP. Turning to slide 10, we generated about $372 million of adjusted EBITDA and approximately $817 million of revenue for the full year, representing a 45% adjusted EBITDA margin. Additionally, we generated about $149 million of free cash flow for a 40% conversion of adjusted EBITDA, representing $0.93 of free cash flow per share for a full year 2020. Moving to commercial services, on slide 11, we delivered revenue of about $95 million in the fourth quarter, increasing $13 million or 16% year-over-year. Ractone revenue increased 23% or about $12 million over the same period last year driven by robust travel demand and increased rental. Additionally, our FMC business grew 24% for about $3 million year-over-year as our growth initiatives continue to produce the intended.
Greg: <unk> total revenue increased 23% or about $12 million over the same period last year, driven by robust travel demand and increased rental volume.
Greg: Additionally, our FMC business grew 24% or about $3 million year over year as our growth initiatives continued to produce the intended results.
Greg: Fourth quarter, adjusted EBITDA, and commercial services was $62 million, representing 27% year over year growth.
Adjusted EBITDA margins of about 66%, a 570 basis point increase over the fourth quarter of last year were largely driven by the continued strength in rack tolling and execution of our growth initiatives.
Greg: For the full year commercial services generated $373 million of revenue a 14% growth over last year, adjusted EBITDA of $242 million, resulting in margins of about 65%, a 100 basis point improvement over prior year, driven by volume based operating leverage.
Craig C. Conti: Fourth Quarter Adjusted EBITDA in Commercial Services was $62 million, representing 27% year-over-year growth. Adjusted EBITDA margins of about 66%, a 570 basis point increase over the fourth quarter of last year, were largely driven by the continued strength in rack tolling and execution of our growth initiatives. For the full year, Commercial Services generated $373 million of revenue, a 14% growth over last year.
Greg: Let's turn to slide 12, and we'll take a look at the results of the government solutions business drip.
Greg: Driven primarily by growth outside of our largest customer in New York City service revenue increased by $8 million or 10% over the same period last year to $91 million for the quarter.
Greg: Product revenue was about $3 billion for the quarter and this driven by internationally primarily.
Greg: Driven by international progress.
Greg: Adjusted EBITDA was $24 million for the quarter representing margins of 26%.
Greg: The reduction in margins versus the prior year is due to the $4 million inventory obsolescence write down of previously discussed and increased spending on platform investments and business development efforts.
Craig C. Conti: Adjusted EBITDA of $242 million resulted in margins of about 65%, a 100 basis point improvement over the prior year driven by volume-based operating leverage. Now, turn to slide 12, and we'll take a look at the results of the Government Solutions Bill. Driven primarily by growth outside of our largest customer, New York City, service revenue increased by $8 million, or 10% over the same period last year, to $91 million for the quarter. Product revenue was about $3 million for the quarter, and it was primarily driven by international programs. Adjusted EBITDA was $24 million for the quarter, representing margins of 26%.
Greg: For the full year government solutions generated $358 million of total revenues, a 6% increase over 2022, and adjusted EBITDA was $114 million for the year effectively flat with the prior year.
Greg: Let's turn to slide 13, and take a view of the results of <unk> systems, which is our parking solutions business segment.
Greg: Revenue of $23 million and adjusted EBITDA of approximately $5 million were in line with expectations for the quarter <unk>.
Greg: Software and services sales increased 10% over the prior year quarter and product revenue increased to 6 million for the quarter. This sequential increase is consistent with historical seasonal trends for.
Greg: For the full year <unk> delivered revenue of $86 million or approximately 9% growth over last year and adjusted EBITDA of $15 million.
Craig C. Conti: The reduction in margins versus the prior year is due to the $4 million inventory obsolescence rate data previously discussed and increased spending on platform investments in business development. For the full year, Government Solutions generated $358 million of total revenue, a 6% increase over 2022, and adjusted EBITDA was $114 million for the year, effectively flat for the prior year. Let's turn to slide 13 and take a view of the results of T2Systems, which is our parking solutions business. Revenue of $23 million and adjusted EBIT of approximately $5 million were in line with expectations for the quarter. Software and services sales increased 10% over the prior year quarter, and product revenue increased to $6 million for the quarter.
Speaker Change: Okay, let's turn to slide 14, and discuss the balance sheet and take a closer look at leverage.
Speaker Change: As you can see we ended the year with a net debt balance of $918 million, resulting in net leverage of two five times at year end as well as significant liquidity with our Undrawn credit revolver.
Speaker Change: The primary drivers of the reduced leverage for strong free cash flow and the exercise of warrants, which yielded approximately $160 million in cash proceeds during the second and third quarter of 2023.
Through year end, we paid down approximately $180 million floating rate term loan debt our gross debt balance at year end stands at about $1 1 billion of which approximately $700 million is floating rate debt.
Craig C. Conti: This sequential increase is consistent with historical seasonality. For the full year, T2 delivered revenue of $86 million, or approximately 9% growth over last year, and adjusted EBITDA of $15 million. Okay, let's turn to slide 14 and discuss the balance sheet and take a closer look at leverage. As you can see, we ended the year with a net debt balance of $918 million, resulting in net leverage of 2.5 times year-end, as well as significant liquidity with our undrawn credit rate. The primary drivers of the reduced leverage were strong free cash flow and the exercise of warrants, which yielded approximately $160 million in cash proceeds during the second and third quarters of 2021. Additionally, through year end, we paid down approximately $180 million of floaty rate term loans.
Speaker Change: With a notional hedge of approximately $675 million, we have hedged about 95% of our current floating debt total with a float for fixed rate swap. This.
Speaker Change: This hedging instrument fixes the sofa portion of our term loan b at a rate of five 2% for two more years with a monthly option to cancel that began in December of 2023 that we can execute in the event that interest rates move in our favor.
Speaker Change: In addition, subsequent to the end of the fourth quarter, we completed a successful repricing of our $700 million term loan b, our offering was materially oversubscribed and we achieved a 50 basis point reduction in the coupon rate and also eliminated a historical 12 basis point credit spread credit spread adjustment to currently.
Speaker Change: The transaction yields about $16 million in cash savings net of fees over the remaining life of the debt on.
Craig C. Conti: Our gross debt balance at year-end stands at about $1.1 billion, of which approximately $700 million is floating right now. With a notional hedge of approximately $675 million, we have hedged about 95% of our current floating debt total with a float-for-fix rate. This hedging instrument fixes the SOFR portion of our term loan B at a rate of 5.2% for two more years with a monthly option to cancel that begins in December of 2023 that we can execute in the event that interest rates move in our favor. In addition, subsequent to the end of the fourth quarter, we completed a successful repricing of our $700 million term loan.
Speaker Change: On our total debt stack this lowers our weighted average cost of debt to about 7%.
Speaker Change: The fourth quarter marks our second closing period in first year and under our new engagement with Deloitte as our independent accounting firm. The partnership has been excellent and our audit while compressed from a timeline perspective was thorough and well executed.
Speaker Change: In our 10-K, you will note that we have disclosed several deficiencies regarding it general control gaps, which aggregate to a material weakness for 2023 it.
Speaker Change: It is important to note there were no errors in our current or past financial results. As a result of these controls signings. We've already identified a detailed path to correct. These gaps and remediate the material weakness in 2024, and we will update you regularly on our progress.
Craig C. Conti: Our offering was materially oversubscribed, and we achieved a 50-basis point reduction in the coupon rate and also eliminated a historical 12-basis point credit spread adjustment concurrently. The transaction yields about $16 million in cash savings, net of fees, over the remaining life of the bonds. On our total debt stack, this lowers our weighted average cost of debt to about $7.5 billion.
Speaker Change: Now, let's turn to slide 15 for a discussion on 2024, which we expect will be another strong year for the company.
Speaker Change: We expect total revenue in the range of $865 million to $880 million.
Speaker Change: Representing approximately 6% to 8% growth over 2023, consistent with our long term outlook, we shared at our Investor Day in July 2022.
Craig C. Conti: The fourth quarter marks our second closing period and first year end under our new engagement with Deloitte as our independent accounting firm. The partnership has been excellent, and our audit, while compressed from a timeline perspective, was thorough and well executed. In our 10k, you will note that we have disclosed several deficiencies regarding IT general control gaps, which aggravate to a material weakness for 2020. It is important to note there were no errors in our current or past financial results as a result of these control findings.
Speaker Change: We expect adjusted EBITDA in the range of $395 million to $405 million, representing approximately 8% growth at the midpoint over 2023.
Speaker Change: This represents an adjusted EBITDA margin of about 46% or about 50 basis points of margin expansion year over year.
Speaker Change: In commercial and commercial services, we expect high single digit revenue growth driven by increased TSA volume and product adoption. In addition, we are expecting increased FMC revenue at a growth rate in line with the overall <unk> business.
Craig C. Conti: We've already identified a detailed path to correct these gaps and remediate this material weakness in 2024, and we will update you regularly on it. Now, let's turn to slide 15 for a discussion on 2024, which we expect will be another strong year for the company. We expect total revenue in the range of $865 to $880 million, representing approximately 6% to 8% growth over 2023, consistent with the long-term outlook we shared at our Investor Day in July of 2022. We expect adjusted EBITDA in the range of $395 to $405 million, representing approximately 8% growth at the midpoint over 2023. This represents an adjusted EBITDA margin of about 46%, or about 50 basis points of margin expansion year-over-year.
Speaker Change: Consistent with historical trends first quarter is forecast to be our lowest revenue generating quarter, followed by a sequential followed by sequential revenue increases in the second and third quarters, followed then by a decline in the fourth quarter as the summer driving season comes to a close.
Speaker Change: As a reminder, all revenue in this segment service revenue.
Speaker Change: Government solutions is expected to generate the high end of mid single digit total revenue growth driven by the expansion of camera installations with existing customers and new customers awarded in fiscal year 2023.
Speaker Change: We expect annual product revenue in the PFS segment to be comparable to 2023 levels.
Craig C. Conti: In commercial services, we expect high single-digit revenue growth driven by increased TSA volume and product. In addition, we are expecting increased FMC revenue at a growth rate in line with the overall CSR. Consistent with historical trends, the first quarter is forecast to be our lowest revenue-generating quarter, followed by sequential revenue increases in the second and third quarters, followed then by a decline in the fourth quarter as the summer driving season comes to a close. As a reminder, all revenue in this segment is service revenue. Government Solutions is expected to generate the high-end of mid-single-digit total revenue growth, driven by the expansion of camera installations with existing customers and new customers awarded in fiscal year 2020. We expect annual product revenue in the GS segment to be comparable to 2023 levels.
Speaker Change: As we previously discussed we are anticipating a planned increase in capex to support <unk> long term growth, which I will elaborate on shortly.
Speaker Change: Lastly.
Speaker Change: Sparkling solutions revenue is expected to deliver mid single digit total revenue growth the temporary reduction in revenue growth. This temporary reduction in revenue growth is driven by strong demand in SaaS and services growth offset by a reduction in one time product sales as the industry transitions to a focus on software and mobile solutions.
Speaker Change: As David mentioned over the long term, we expect parking to return to high single digit growth as we execute our SaaS transactional revenue growth strategies.
Speaker Change: For the company as a whole we are guiding to a 2024 non-GAAP adjusted EPS range of $1 15.
Speaker Change: To $1 20 per share adjusted free cash flow is expected to be in the range of $155 million to $165 million, representing a conversion rate of about 40% of adjusted EBITDA.
Craig C. Conti: As we previously discussed, we are anticipating a planned increase in CapEx to support GS's long-term growth, which I will elaborate on shortly. Lastly, Parking Solutions revenue is expected to deliver mid-single-digit total revenue. The Temporary Reduction in Revenue Growth is driven by strong demand for SaaS and services growth offset by a reduction in one-time product sales as the industry transitions to a focus on software and mobile.
Speaker Change: Adjusted free cash flow excludes the after tax plus past legal settlement, which was accrued in 2023 and will be paid in 2024.
But 40% free cash flow conversion rate is below our long term guide due to our plan to spend an incremental 30% to $35 million in 2020 for Capex. The vast majority of the Capex will be spent in government solutions to enhance and consolidate our software platform and for revenue generating cameras contingent on winning procurements during the year.
Craig C. Conti: As David mentioned, over the long term, we expect parking to return to high single-digit growth as we execute our SaaS and transactional revenue growth. For the company as a whole, we are guiding to a 2024 non-gap adjusted EPS range of $1.15 to $1.20 per share. Adjusted free cash flow is expected to be in the range of $155 to $165 million, representing a conversion rate of about 40% of adjusted EPS. Adjusted free cash flow excludes the after-tax plus past legal settlement, which was accrued in 2023 and will be paid in 2024.
Speaker Change: Yeah.
Speaker Change: We also anticipate spending about $4 million in corporate Capex to upgrade our current ERP.
Speaker Change: Lastly, based on the adjusted EBITDA and free cash flow guidance and excluding capital allocation investments, we expect to reduce net leverage to about two times by year end 2024.
Speaker Change: Other key assumptions supporting our adjusted EPS and adjusted free cash flow outlook can be found on slide 16.
Craig C. Conti: The 40% free cash flow conversion rate is below our long-term guide due to our plan to spend an incremental $30 to $35 million in 2024. The vast majority of the capex will be spent on government solutions to enhance and consolidate our software platform and for revenue-generating cameras contingent on winning procurements during the year. We also anticipate spending about $4 million in corporate CapEx to upgrade our current ERP system.
Speaker Change: In summary, we generated strong fourth quarter and full year results and are confident in our ability to deliver on our 2024 outlook. We're operating in attractive end markets with strong secular tailwind and I believe we're making the right investments to continue to drive growth and margin expansion throughout the company.
This concludes our prepared remarks. Thank you for your time and attention today at this time I would like to invite Ina open the line for any questions over to you Lena.
Ina: Thank you ladies and gentlemen, we will now begin the question and answer session. So you have a question. Please press the star followed by the one on your telephone keypad.
Operator: Lastly, based on the adjusted EBITDA on free cash flow guidance and excluding capital allocation investments, we expect to reduce net leverage to about two times by year-end 2020. Other key assumptions supporting our Adjusted EPS and Adjusted Free Cash Flow Outlook can be found on Slide 6. In summary, we generated strong fourth-quarter and full-year results, and I'm confident in our ability to deliver on our 2024 outlook. We're operating in attractive end markets with strong secular tailwinds, and I believe we're making the right investments to continue to drive growth and margin expansion throughout the company. This concludes our prepared remarks. Thank you for your time and attention today. At this time, I'd like to invite Ina to open the line for any questions. Over to you, Ina. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press the star followed by the number on your telephone. Did you wish to cancel your request?
Ina: We wish to cancel your request. Please press star followed by the team.
Ina: We are using a speaker phone please lift the handset before pressing Amy Keith once again that is star one to ask a question.
Ina: And your first question comes from the line of Keith <unk> from Northcoast Research. Please go ahead.
Keith: Good afternoon, gentlemen, thanks for your appetite for questions here.
Keith: David.
Keith: Obviously as you guys pointed out last year was a great year for positive legislation movements, our traffic enforcement cameras and I think last week, you guys announced the ton of daily win but are there any other big wins are significant wins in perhaps a point or two to get us analytic more excited about next year.
Speaker Change: Yes, I mean, I think David is a great sign of things to come there are several large ones that are going to be RFP here, probably keeping the next I'd call. It three to six months.
Speaker Change: We are positioned very very well.
Operator: and many more. Thank you for watching. I'm your host, Farzana Dermot. And I'll see you in the next video. If you are using a speakerphone, please leave the handset before... Once again, that is a star question and one to ask.
Speaker Change: In terms of.
Speaker Change: Our.
Speaker Change: All of our current customers will be doing some of these rfps as well as potential new customers.
Keith Michael Housum: And your first question comes from the line. From North Coast Research, please go ahead. Good afternoon, gentlemen.
Speaker Change: So the thing to remember that these things take a little post legislation they tend to take a while to activate <unk>.
Speaker Change: <unk> heard some in different press releases and things like that those are sometimes much smaller deals that we may not even bid on.
David Martin Roberts: Thanks for the opportunity to ask some questions here. You know, David, obviously, as you guys pointed out, last year was a great year for positive legislative movements for traffic enforcement cameras. And I think last week you guys announced the town of Davie win. But, you know, are there any other big wins or significant wins that you can perhaps point us to to get us a little bit more excited about next year? Yeah, I mean, I think David is a great sign of things to come.
Speaker Change: But we're really excited about the ones that are going to be coming out probably here again in the next three to five months.
Speaker Change: Great I appreciate it and then I noticed there is some movement in the board of directors here over the past few weeks. Thanks, Derek barrel rolled off and I know Raj joined the board I guess help me understand a little bit more what Raj brings the board kind of complements what you guys are doing.
Speaker Change: Yes, I mean, firstly I got it. Thanks, Sarah She was outstanding Board member and Investor really wish for the Grace of success in what she is going to be doing.
Craig C. Conti: There are several large ones that are going to be RFP'd here probably in the next three to six months. We are positioned very, very well in terms of our existing customers will be doing some of these RFP's as well as some potential new customers. So, the thing to remember is that these things take a little time after legislation; they tend to take a while to activate. I know you've heard some in different press releases and things like that.
For for Raj as you know we've for a long time, we've been moving our business toward a portfolio company model and the and the likes of some of the greats like the Danaher and the borders of the World, which means we have a great businesses great businesses connected by a common business system and M&A is one of our capital deployment strategy to create value for.
Speaker Change: Shareholders.
Speaker Change: Raj with his background in particular as a leading M&A in places like Florida have worked at Danaher as well as the Dupont just brings a real high level of expertise and insight into how we can think about that as we continue to grow our business and we are so excited to have him because we certainly see M&A as a part of our future and we think he is going to bring a lot to.
David Martin Roberts: Those are sometimes much smaller deals that we may not even bid on. But we're really excited about the ones that are going to be coming out here again in the next three to five months. Great; I appreciate it. And then, you know, I noticed there was some movement on the board of directors here over the past few weeks. I think Sarah Ferrer rolled off the board, and I know Raj Rajkar joined the board. I guess, help me understand a little bit more of what Raj brings to the board and how it complements, you know, what you guys are doing. Yeah, I mean, first, I got to thank Sarah. She was an outstanding board member and investor. I really wish her the greatest success in what she's going to be doing.
Speaker Change: The table.
Great I appreciate it if I can just squeeze one more in here, obviously the efforts, Italy, Italy.
Speaker Change: Italy announcements a nice win for you guys. There I guess any I know the European tolling is a slow roll for me, perhaps any of our development you can point to that might guess again I'm more excited about what's happening in Europe.
Speaker Change: Yes, I mean, I think Italy is actually the point of excitement I don't we don't have a sense yet they probably haven't even installed as the transponders that a vehicle and yet so we will get a sense of what.
Craig C. Conti: You know, Raj, as you know, we've, for a long time, been moving our business toward a portfolio company model and the likes of some of the greats like the Danahers and the Borders of the World, which means we have great businesses, great businesses connected by a common business system. And we, M&A is one of our capital deployment strategies to create value for shareholders. Raj, with his background in particular, as a leading M&A at places like Ford, working at Danaher as well as at DuPont, just brings a real high level of expertise and insight into how we can think about that as we continue to grow our business. So we're, we are so excited to have him, because we certainly see M&A as a part of our future, and we think he's going to bring a lot Craig, I appreciate it.
But the volume is going to be but Italy is as we mentioned this all sort of hinges on going into a cashless environment.
Speaker Change: Italy in places like France, we're very barrier base and they are starting to make that transition plus <unk>.
Speaker Change: Our relationship with <unk>. So I think this is a good harbinger of things to come probably don't have any specific insights on what that does the acceleration just yet, but I suspect we'll have something by mid year to give you some more insight.
Speaker Change: Great. Thank you good luck.
Speaker Change: Thank you.
Speaker Change: Thank you and your next question comes from the line of Faiza <unk> from Deutsche Bank. Please go ahead.
David Martin Roberts: If I could just squeeze one more in here, obviously, the Hertz Italy announcement's a nice win for you guys there. I know European tolling is a slow process, but perhaps any other developments you can point to that might get us, again, more excited about what's happening in Europe. Yeah, I mean, I think Italy is actually the point of excitement.
Faiza: Hi, Thank you so much.
Faiza: Firstly I wanted to actually pick up on the M&A comments, you just made it sounds like that's a big focus for the company.
Faiza: And certainly you have some flexibility now.
Can you just refresh us on how you're thinking about M&A, what we should expect in terms of the type of businesses that might sedan.
Craig C. Conti: I don't, we don't have a sense yet. They probably haven't even installed the transponders in a vehicle yet. So we'll get a sense of what the volume is going to be. But, you know, Italy is, as we mentioned, this all sort of hinges on going into a cashless environment. And Italy and places like France were very barrier-based, and they're starting to make that transition.
Faiza: Darryl mobility, just sort of what the vision is there.
Darryl: Yes of course, and thanks for the question. So I mean as we've always said, we look at first and foremost we grow our business in the core businesses. So we have businesses that win.
Darryl: When and serve our customers there where it is then going to be looking from an M&A perspective, we can attach to that looking at adjacent opportunities so whether thats a <unk>.
Similar product to a similar customer sometimes thats geographic expansion, sometimes thats.
Keith Michael Housum: Plus, our relationship with telepaths. So I think this is a good harbinger of things to come. Probably don't have any specific insights on what that does for acceleration just yet, but I suspect we'll have something by mid year to give you some more insight. Great. Thank you. Good luck. Thank you.
Darryl: Buying a competitor potentially and then we look for platforms. So the reality is it could be either of those two but ultimately we are as we've always said we are.
Darryl: Our cash flow buyer.
Darryl: We're not taking bets or risks on non cash flow generating activities our businesses rather.
Darryl: And so I would say that you would see them as you go back to Investor day, we sort of articulated. These two segments. One was connected vehicle as well as urban mobility and so that's a really broad and exciting category are two categories, rather of where we can look in all the markets within there. So we have a great team that's doing a lot of market work. So we can understand what.
Faiza Alwy: Yes, hi, thank you so much. First, I wanted to actually pick up on the M&A comments that you just made. You know, it sounds like that's a big focus for the company. And thirdly, you have some flexibility now, so just refresh us on how you're thinking about M&A, what we should expect in terms of the type of businesses that might fit in with Verra Mobility, and just sort of what the vision is. Yeah, of course. And thanks for the question. So, I mean, as we've always said, we look at, you know, first and foremost, we grow our business in the core businesses. So we have businesses that win and serve our customers there.
Darryl: Markets are best for us to operate in certainly the activity. This year has picked up significantly from the tail end of last year.
Darryl: And so we're super excited about what that can bring to us, but we're going to continue to maintain a very strict discipline in how we think about businesses that we want to add to the portfolio and I would just add to that I would say that.
David Martin Roberts: We're then going to be looking from an M&A perspective; we can attach to that looking at adjacent opportunities. So whether that's a similar product to a similar customer, sometimes that's geographic expansion, sometimes that's, you know, buying a competitor, potentially. And then we look for platforms. So the reality is, it could be either of those two.
Darryl: The only thing that's really changed on that is that the environment seems to be opening up.
Darryl: And again, I don't think <unk> verra mobility specific comment.
Darryl: But our capital allocation framework that we've talked about in the past is unchanged right. So that next dollar out the door has to have the highest yield to shareholders against paying down debt buying back shares potentially adding.
David Martin Roberts: But ultimately, we are, as we've always said, we are a cash flow buyer; we are not taking bets or risks on non-cash flow generating activities or businesses. Rather, and so I would say that you would see them, as you go back to Investor Day. We sort of articulated these two segments, one was the connected vehicle, as well as urban mobility. And so we, you know, that's a really broad and exciting category, or two categories, rather, of where we can look and all the markets within there.
Darryl: Adding to the portfolio I, just think that where we're going to be operating a different environment in 2024 than we've seen in the recent past.
Speaker Change: Understood. Thank you and then wanted to talk about government services. The revenue you mentioned some of the Rfps, including the New York City RFP. So just curious about like what's embedded in the mid single digit growth guide.
Speaker Change: And if you can talk about the quarterly cadence.
David Martin Roberts: So we have a great team that's doing a lot of market work, so we can understand what markets are best for us to operate in. Certainly, the activity this year has picked up significantly from the tail end of last year. And so we're super excited about what that can bring us. But we're going to continue to maintain a very strict discipline in how we think about the businesses that we want to add to the portfolio. And I just add to that. I'd say that the only thing that's really changed on that is that the environment seems to be opening up, right? And again, I don't think I said that was a very mobility-specific comment. But our capital allocation framework that we've talked about in the past is unchanged, right? So that next dollar out the door has to have the highest yield to shareholders against paying down debt, buying back shares, and potentially adding to the portfolio.
Speaker Change: What you're expecting there.
Speaker Change: And maybe if I can just throw this one just give us a bit more context on the charge that you talk.
Speaker Change: Sure.
Speaker Change: Sure.
Yeah sure. So let me let me start with the first one so the and I think I'm going to repeat these pfizer to make sure I've got it straight here. So the first one is what do we think about what's embedded in the mid single digit growth guide for our government solutions and it's the very high end of mid single digits and I will tell you if I bifurcate that into services and.
Speaker Change: I, usually I don't I don't guide on these specifically, but I think this warrants this level of detail.
Speaker Change: I think products are going to be flat at best it could be a little bit in either direction given that while the service revenue was probably at the very low end of the high single digit when I combine those two together I get the high end of mid single digit for the overall business. Okay. So.
Craig C. Conti: I just think that we're going to be operating in a different environment in 2024 than we've seen in the recent past. Okay. Thank you. And then I wanted to talk about, you know, government services and revenue. You mentioned some of the RFPs, including the New York City RFP.
Speaker Change: If you look at the exit rate of growth on services in the fourth quarter for government solutions I expect the rest of the year to look something like that so the business is certainly not slowing down if anything it's speeding up.
Craig C. Conti: So just curious about, like, what's embedded in the Met Single-Digit Growth Guide? And if you can talk about the quarterly cadence of, you know, what you're expecting there. And maybe if I could just throw this one in, just give us a bit more context on the charge that you talk about. Yeah, sure. So let me start with the first one.
Speaker Change: I do expect those products to be flat at best which is bringing down the overall growth rate.
Speaker Change: That was the first one and I'll stay on government solutions I'll go to your third one. So this was a $4 million noncash charge on supply chain operate on supply chain optimization. The easiest way to think about this without mentioning names on the open call. Here is we did have a supplier who has come into the <unk>.
Craig C. Conti: So then, and I think I'm going to repeat these slides and see if I've got this straight. So the first one is, what do we think about what's embedded in the mid single-digit growth guide for government solutions? And it's the very high end of the mid single-digits. And I will tell you, if I bifurcate that into services and products, I usually don't guide on those specifically, but I think this warrants this level of detail.
Speaker Change: Attempt to be a competitor right. So some of the inventory that we've had and we've used for years isn't going to be as usable as it once was and we had to go across our global inventory stocks and make the appropriate accounting adjustment for that and that really happened here in the back half of 2023, So that's nonrecurring $4 million noncash.
Craig C. Conti: You know, I think products are going to be flat at best, or it could be a little bit in either direction given that while the service revenue is probably at the very low end of the high single digits, when I combine those two together, I get the high end of the mid single digits for the overall. Okay, so, and if you look at the exit rate of growth on services in the fourth quarter for government solutions, I expect the rest of the So the business is certainly not slowing down; if anything, it's speeding up, but I do expect those products to be flat at best, which is bringing down the overall growth. So that was the first one, and I'll stay on government solutions. I'll go to your third one.
Speaker Change: Yeah.
Speaker Change: And then the final piece is the overall cadence for the company. So let's take GFS set it aside go back to total verra mobility. If you were to take the fourth quarter Actuals 2023 for verra mobility and sequentially look at how thats going to pace out by quarter, it's going to look something like this the first quarter of 2024 I expect to.
Speaker Change: <unk> down mid single digits.
Speaker Change: I expect the second quarter against sequentially now from from the first for the second quarter of 2024 to be up high single digits I expect the third quarter to grow again incrementally mid single digits, and then I expect the fourth quarter to come back low single digits go down.
Craig C. Conti: So this was a $4 million non-cash charge on supply chain optimization. The easiest way to think about this without mentioning names on the open call here is that we did have a supplier who came in to attempt to be a competitor, right? So some of the inventory that we've had and that we've used for years isn't gonna be as usable as it once was, and we had to go across our global inventory stocks and make the appropriate accounting adjustment for that. And that really happened here in the back half of 2023.
Speaker Change: So it's that same trend for the company that we talked about I would say a year ago on the call. The difference is we're seeing the summer driving season in the CS business start a little earlier in the second quarter than we probably did pre COVID-19. So that's why the high single digit growth into the second quarter and then on down from there.
Speaker Change: Perfect and then just to clarify quickly are you expecting and it should we expect sort of service revenue growth in <unk>.
Craig C. Conti: So that's non-recurring $4 million in non-cash. And then the final piece is the overall cadence for the company. So let's take GS, set it aside, and go back to total Verra Mobility.
Speaker Change: Government solutions to accelerate through the course of the year.
Speaker Change: Sure.
Speaker Change: Not really not really.
Craig C. Conti: If you were to take the fourth quarter actuals for 2023 for Verra Mobility and sequentially look at how that's going to pace out by quarter, it's going to look something like this. The first quarter of 2024, I expect to be down mid single digits. I expect the second quarter, again, sequentially now from the first quarter, the second quarter of 2024 to be up high single digits. I expect the third quarter to grow again, incrementally, mid-single digits. And then I expect the fourth quarter to come back, and low single digits to go down.
Speaker Change: My comment was the exit rate that we saw in the back half of the year.
Speaker Change: It's going to be the growth rate I expect for the total year of 2024.
Speaker Change: I have it in front of me, it's a little bit variable, but it's I would say relatively even across the year, probably a little bit skewed to the back three quarters.
Speaker Change: Got it thank you so much.
Speaker Change: Net.
Speaker Change: Thank you and your next question comes from the line of Daniel Moore from CJS Securities. Please go ahead.
Craig C. Conti: So it's that same trend for the company that we talked about, I would say, a year ago on the call. The difference is we're seeing the summer driving season in the CS business start a little earlier in the second quarter than we probably did pre-COVID. So that's why the high single-digit growth into the second quarter and then on down from there. Perfect. And just to clarify quickly, like, are you expecting, and should we expect sort of service to revenue growth in government solutions to accelerate through the course of the year? Um, not really. Not really.
Daniel Joseph Moore: Substantially yes.
Daniel Joseph Moore: Can you hear me.
Net: No I'm sorry, Dan I think we lost the first part of your question. We just heard commercial services you might start again first okay.
Daniel Joseph Moore: Yes, absolutely.
Starting with comp services, obviously TSA volumes now fully recovered relative to pre pandemic, maybe just talk about.
Daniel Joseph Moore: The kind of rank order the drivers that you laid out David embedded in the high single digit growth expectation for this year between.
Dan: Toll roads miles driven shift to cashless kind of what are the biggest drivers there.
Craig C. Conti: My comment was that the exit rate that we saw in the back half of the year is going to be the growth rate I expect for the total year of 2024. So I have it in front of me. It's a little bit variable, but it's... I would say relatively even across the year, probably a little bit skewed to the back three quarters.
David Martin Roberts: Yes, sure near term.
David Martin Roberts: Yes, Dan This is Craig I'll take a shot at that one so if we want to break down that high single digit growth in 2024, I would do it in three buckets roughly half of that growth is coming from secular tailwind and those secular tailwind our toll roads more toll roads than there were in the past more cashless roads were only.
Daniel Joseph Moore: Got it. Thank you so much. You bet. Thank you, and your next question comes from the line of Daniel Moore from TJM. Yes, yeah, let me... Oh, can you hear me?
Craig: At 67% penetration here at the end of 2023, certainly more to go there and then of course, the additional penetration of the all inclusive product through her to AEG. So again out of the high single digit about half of it is in that bucket.
Operator: No, sorry Dan, I think we lost the first part of your question. We just heard commercial services. Would you mind starting again for us? Okay. Yep, absolutely. Starting with.
Speaker Change: About 25% of that high single digit as and PSA group, we expect that growth as a total year 2024 versus 2023 to be about one 5% to 2%.
Daniel Joseph Moore: Obviously, TSA volumes now, you know, fully recovered relative to pre-pandemic levels, maybe just talk about the kind of rank order of the drivers that you laid out, David, embedded in the high single-digit growth expectation for this year between toll roads, miles driven, shift to cashless, you know, kind of, what are the biggest drivers there? Yeah, sure. Yeah, this is Craig. I'll take a shot at that one.
Speaker Change: And then the remaining 25% of the growth in that high single digit is from our growth initiatives that's growth in Europe and growth in ssds.
Speaker Change: Perfect very helpful and then.
Speaker Change: Just going back to the enabling legislation opportunities in government solutions.
Craig C. Conti: So if we want to break down that high single-digit growth in 2024, I would do it in three buckets. Roughly half of that growth is coming from secular tailwinds, and those secular tailwinds are toll roads, more toll roads than there were in the past.
Speaker Change: Any additional color on potential timing you mentioned, Pennsylvania, I think you said it.
Speaker Change: Could be an initial $50 million Tam.
Craig C. Conti: More cashless roads were only at 67% penetration here at the end of 2023, so certainly more to go there. And then, of course, the additional penetration of the all-inclusive product through HERT and ABG.
Speaker Change: What kind of timeframe are you looking at and what would cause that to increase.
Speaker Change: The $100 million that you called out.
Speaker Change: Third remarks.
Speaker Change: Yes, sorry, Dan that might've been slightly the word choice.
Craig C. Conti: So again, out of the high single digits, about half of it is in that. About 25% of that high single digit is in TSA growth. We expect that growth as a total year, 2024 versus 2023, to be about 1.5% to 2%, and then the remaining 25% of the growth and that high single digit is from our growth initiatives. That's growth in Europe and growth in...
Speaker Change: <unk>, that's sort of all the combined legislation that we did across all the states last year got it.
Speaker Change: Yes so.
Speaker Change: Regardless of the way to think about timing is for the ones that we did do last year Youll start usually it's about a year, meaning the legislators passed a law gets signed off by the Governor and then Theres sort of some nuances that are adapted to each state and then RFP start going so I think what youll start to see is more.
Speaker Change: Discussion about that in the back half of this year, probably some wins, maybe even as early as Q3 Q4.
Daniel Joseph Moore: Perfect, very helpful. And then just going back to the enabling legislation opportunities and government solutions, any additional color or potential timing, you mentioned Pennsylvania. I think you said it could be an initial $50 million TAM. You know, what kind of timeframe are you looking at? And what would cause that to increase to the $100 million that you called out in your prepared statement? Yeah, sorry, Dan, that might have been a slightly different word choice. It was that 50, that's sort of all the combined legislation that we did across all the states last year. Got it. Yeah, so, but regardless, the way to think about timing is for the ones that we did last year, you'll start. Usually, it's about a year, meaning the legislators pass the law, and it gets signed off by the governor.
Speaker Change: Perfect and then if you gave it and I missed it I apologize.
Speaker Change: But just the interest expense post the refinancing that's embedded in your.
Speaker Change: Embedded in your 2004, our EPS guide if we plug in 7% was that the right way to think about it Greg.
Greg: Probably yes, if I'm thinking about off top my head, but I'll give you the number and you can calculate and administer it.
Greg: The P&L expense is going to be $80 million. The cash number is going to be 75% in that delta between the cash and the P&L number is the amortization of our originally original issue discount so on the P&L going into adjusted EPS <unk> 80 cash expense will be 75% 75 should put out to your 7%.
David Martin Roberts: And then there's sort of some nuances that are adapted to each state, and then RFPs start coming in. So I think what we'll start to see is more discussion about that in the back half of this year, probably some wins, maybe even as early as Q3, Q4. Perfect. And then if you gave it and I missed, I apologize.
Speaker Change: Very good ill circle back with follow ups. Thank you.
Speaker Change: Thank you. Thank you.
Speaker Change: Thank you once again should you have a question. Please press Star then the number one on your telephone keypad and your next question comes from the line of Louie Dipalma from William Blair. Please go ahead.
Daniel Joseph Moore: But just the interest expense post refinancing that's embedded in your, embedded in your 24 EPS guide. If we plug in 7%, is that the right way to think about it, Craig? On you, probably yes, if I'm thinking about a problem I have, but I'll just give you the number, and you can calculate it in a minute here.
Speaker Change: Okay.
Michael Louie DiPalma: David Craig and Mark good afternoon.
Michael Louie DiPalma: Hey, Louie Louie.
Michael Louie DiPalma: Sure.
For David.
Craig C. Conti: The P&L expense is gonna be 80 million. The cash number is gonna be 75, Dan. The delta between the cash and the P&L number is the amortization of the original issue discount.
Speaker Change: They're a trial for the Hertz, Italy, tolling service or as Hertz, Italy, starting directly with a commercial implementation.
Daniel Joseph Moore: So on the P&L, going into adjusted EPS, 80. Cash expense will be 75, and that 75 should foot out to your 70. Very good. I'll circle back with any follow-ups. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Once again, should you have a question, please press star 10, the number 1 on your telephone. And your next question comes from the line of Louie. DiP
Speaker Change: They will.
Speaker Change: They're going to do a commercial implementation, Mike I suspect that they will start it wasn't a trial to then decide they've already decided but they will probably start with the pilot I would almost bet.
Speaker Change: Okay, Great and are you able to provide an update on that.
Speaker Change: Status of your other trials in Europe.
Michael Louie DiPalma: David, Craig, Anne, and Mark, good afternoon. Hey, Louie. For David, was there a trial for the Hertz Italy tolling service, or is Hertz Italy starting directly with a commercial implementation? They're going to do a commercial implementation, I suspect that they will start. It wasn't a trial to then decide; they've already decided, but they'll probably start with the pilot, I would almost bet. Okay, great. And are you able to provide an update on the status of your other trials in Europe? Is there any potential that those trials will move forward to commercial implementation?
Speaker Change: Yep.
Speaker Change: Is there any potential that.
Speaker Change: Post trial move forward to commercial implementation.
Speaker Change: Yes, I mean, some of them actually have I think we're starting to see a broader base.
Speaker Change: Spain.
Speaker Change: And we continue to work in Ireland.
Speaker Change: But most of them have not.
Speaker Change: Ireland's obviously, not a very big country and are a very big tolling opportunity but.
Speaker Change: We have had some traction there so what I would say is that we wanted to get more France, and Italy are really the ones, we want to get that as they move to cashless thats going to be a bigger opportunity.
David Martin Roberts: Yeah, I mean, some of them actually have. I think we're starting to see a broader base in Spain. And, you know, we continue to work in Ireland. But most of them have not, I mean, Ireland, obviously not a very big country nor a very big tolling opportunity, but we have had some traction there. So what I would say is that, you know, we want to get more. France and Italy are really the ones we want to get as they move to cashless. That's going to be our bigger opportunity. This kind of thawing in Italy is a great sign for things to come, but it's hard to pace it.
Speaker Change: Starting kind of thawing in Italy is a great sign for things to come it is hard to pace. It. So as I mentioned on the earlier question, that's probably a mid year understanding of where that might be too.
Speaker Change: Great and I think on one.
Speaker Change: One of your slides you mentioned, how the cash.
Speaker Change: Cashless tolling penetration.
Speaker Change: The state is now 67% and that's up from I think <unk>.
Michael Louie DiPalma: So we, as I mentioned in the other question, that's probably a mid-year understanding of where that might lead to. Great. And I think on one of your slides, you mentioned how the cashless tolling penetration in the United States is now 67%. And that's up from, I think, 64% two years ago when you showed this slide at your Analyst Day, but what does the different penetration look like in these different countries in Europe that you're targeting? For instance, in Italy; do you have any estimate on how much penetration is there?
Speaker Change: 64% two years ago, when you showed.
Speaker Change: The slide at your analyst day.
Speaker Change: What is the different penetration look like in these different countries in Europe that you are targeting in like France and thing.
Speaker Change: Like do you have any estimate on what the penetration is.
Speaker Change: Dan.
Speaker Change: Yes.
Speaker Change: That penetration in the U S. That's the U S market right Fran.
Speaker Change: France and Italy.
Speaker Change: Alright.
Speaker Change: Very well yes.
Speaker Change: Very well.
Speaker Change: Less than 5%, yes for France less than 5% accurate.
Craig C. Conti: Yeah, Louie, that penetration is the U.S., that's the U.S. market. Right. France and Italy are...
Speaker Change: And I guess is it.
Speaker Change: Tell possible for like the Hertz, Italy like commercial implementation to be successful.
Craig C. Conti: They're very low, Louie, very low. I mean, maybe less than 5%. Yes, for France, less than 5%.
Speaker Change: If the penetration is.
David Martin Roberts: And I guess, is it still possible for the Hertz Italy commercial implementation to be successful if the penetration is so low? What penetration does Europe need to get to for rental car tolling services to become attractive for the rental car providers to implement? Yeah, obviously, I mean, we still work in cash. We still work in an environment where they can pull over, and they can still provide value to the consumers. I think overall, it really depends on where the cashless lanes are. If they're, and this is me guessing, I don't know the total structure of Italy off the top of my head, but if they're outside of Rome, then that can still be a good opportunity.
Speaker Change: So low end like what penetration does.
Speaker Change: Europe needs to get to four like rental car tolling services to become attractive for the rent per car providers to implement.
Speaker Change: Yes, obviously I mean, we still work in a cash we stopped working environment or they can pull over and they can still provide value to the consumers I think overall it real.
Speaker Change: Depends on where it's kind of where are the cashless lanes if there.
Speaker Change: And this is me guessing I don't know the total structure of Italy off the top of my head, but if they are outside of our owned and Thats still can be a good opportunity I suspect where they're thinking about it.
David Martin Roberts: That's, I suspect, where they're thinking about it. If it's elsewhere, then it won't make as much of a difference. So I don't have a percentage that I could give you to say that's the most valuable, you know, like, or what percentage that ought to be. But I think the key notion is that last year, France started to convert some cash-based tolling to cashless. The fact that Hertz is launching in Italy means it'll solve a problem for them there.
Speaker Change: As elsewhere, then it won't make as much of a difference. So I don't have a percentage that I could give you to say that's the most valuable.
Speaker Change: What percentage is that ought to be but I think the key the key notion is that last year, France started to convert some cash based falling to cashless.
Speaker Change: <unk> harnesses launching in Italy to solve a problem for them there and those are the markers of hey, things are starting to go our way a little bit more.
David Martin Roberts: And those are the markers of, hey, things are starting to go our way a little bit more. So, again, it's not going to be material in the years, but it'll be something that will be an update, I think, in the mid-year in terms of our progress. Great, now that is, and one more question. You, um, I think you mentioned how, uh, on the government systems camera side, one of your suppliers is trying to become a competitor in general. Have you seen increased competitive activity associated with all of the new legislation, like across, you know, Florida, California, and Pennsylvania?
Speaker Change: So again, it's not going to be material in the years, but it'll be something that will be an update I think in the mid year in terms of our progress.
Yes.
Great.
Speaker Change: One more.
Hugh: Question Hugh.
Hugh: I think you mentioned how on the government systems camera side, one of your suppliers is trying to become.
Hugh: A competitor.
Hugh: General have you seen increased competitive activity associated with all of.
Hugh: The new legislation like across Florida, California, and Pennsylvania, and again in general does like Vera expects to maintain its like roughly 70% market share.
Michael Louie DiPalma: And, like, in general, does, like, Verra expect to maintain its, like, roughly 70% market share? Yeah, we certainly do. I mean, look, we would anticipate with the growth opportunity here that other companies are going to try to rally to their cause and try to win some, and they will, I mean, especially in smaller cities where we may not be as competitive, but we certainly are in the larger mandates, which, and so we positioned ourselves very well in Florida, very well in California.
Yes, we certainly do I mean, there is.
Hugh: I mean look we.
Hugh: You would anticipate with the growth opportunity here that other companies are going to try to rally to their cause and tried to wisdom and they will I mean, especially in smaller cities work.
Hugh: We may not be as competitive, but we certainly are in the larger mandates which.
Hugh: And so we positioned ourselves very well, Florida, very well in California.
David Martin Roberts: But we would certainly anticipate to maintain, maintain our position in the market clearly. Sounds good. Thanks, Dave. And thanks, everyone. Yeah, thank you, Louie, and your next question comes from the line of Dave Koning from Bay Area. Yeah. Hey guys.
Hugh: But we would certainly anticipate the maintain maintain our position to market clearly.
Speaker Change: Okay, Thanks, Dave and thanks, everyone.
Speaker Change: Yes, Thank you Luis.
Speaker Change: Thank you and your next question comes from the line of Dave Koning from Baird. Please go ahead.
David John Koning: Yeah, Hey, guys nice job.
David John Koning: Nice job. Um, yeah. Yeah, I guess my first question is, guidance calls for about 50 bps of margin expansion, which is a nice expansion here. Is that going to be pretty consistent by segment? Or maybe you can walk through and maybe see what the puts and takes would be by segment across margin? Yeah, in general, it will be consistent across all the segments. You know, I think CS will be on the higher end of that T2 really close to that, and GS a little bit lower than that.
Dave Koning: Thanks.
Dave Koning: Yeah.
David John Koning: I guess my first question guidance calls for about 50 bps of margin expansion, which is nice expansion here.
David John Koning: Is that going to be pretty consistent by segment or maybe you can walk through and maybe what the puts and takes would be by segment across margins.
Speaker Change: And in general it will be consistent across the across the segments.
Speaker Change: I think <unk> will be on the higher end of that key to really close to that in GFS, a little bit lower than that but all segments are anticipated to.
Craig C. Conti: But all segments are anticipated to grow a bit with, you know, about 60 basis points being in the ceiling. Yeah. Gotcha. Okay. And then the one other thing I noticed in the press release about the plus pass stuff you're going through, it included that you're going to acquire some assets from them. And I guess maybe you did that in February, but how much revenue might come from that acquisition? And I mean, I assume it's pretty small, maybe you could just walk through it like maybe how much you paid for it, how much revenue might come from it, etc.
Speaker Change: To grow a bit with.
Speaker Change: About 60 basis points being the ceiling.
Speaker Change: Got you, Okay, and then the one other thing I noticed in the press release that.
Speaker Change: The plus pass.
Speaker Change: Got it.
Speaker Change: So if you go into it included that Youre going to acquire some assets from them.
Speaker Change: I guess, maybe you did that in February, but how much revenue might come from from that acquisition.
Speaker Change: And Thats pretty small maybe you could just walk through maybe how much you paid for it how much revenue might come from it et cetera.
David Martin Roberts: Well, we can't, it's all part of the negotiated settlement as part of it. But it's mostly IP-related assets that we acquired as part of it, not any like, not a customer asset. Those are pre-revenue assets.
Speaker Change: Well, we can it's all part of the negotiated settlement as a part of it but it's mostly IP related assets that we acquired.
Speaker Change: As a part of it not any like not a customer et cetera.
Craig C. Conti: Yeah, that's right. Gotcha. Okay. That totally makes sense.
Speaker Change: Our pre revenue, yes, that's right.
Speaker Change: Got you, okay that totally makes sense great. Thanks, guys.
David John Koning: Well, great. Thanks, guys. Okay, thank you. And once again, should you have a question, please press star, then the number 1 on your remote control. There are no further questions at this time. That ends our question and answer session. Ladies and gentlemen, thank you all for participating. You may all. Thank you. Thank you. Thank you. Thank you for watching!
Speaker Change: Okay. Thank you.
Speaker Change: Yes.
Speaker Change: Thank you once again should you have a question. Please press Star then the number one on your telephone keypad.
Speaker Change: Okay.
Speaker Change: There are no further question at this time that ends our question and answer session, ladies and gentlemen, Thank you all for participating you may all disconnect.
Speaker Change: Thank you. Thank you.
Speaker Change: [music].