Q4 2024 Verra Mobility Corp Earnings Call
Liz: Good day and thank you for standing by. Welcome to Vero Mobility's fourth quarter 2024 earnings conference call. My name is Liz and I will be your conference operator today.
At this time, all participants are in a listen-only mode.
Liz: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one, one on your telephone. You will then hear an automated message advising your hand is raised.
Liz: To withdraw your question, please press star 1 one again. Please be advised that today's conference is being recorded
Liz: I would now like to hand the conference over to Mark Zindler, Vice President, Investor Relations. Please go ahead.
Mark Zindler: Thank you. Good afternoon and welcome to Vero Mobility's fourth quarter 2024 earnings call.
Speaker Change: With me on the call are David Roberts, Vera Mobility's Chief Executive Officer, and Craig Conti, our Chief Financial Officer.
Speaker Change: David will begin with prepared remarks followed by Craig and then we'll open up the call for Q&A.
Speaker Change: Management may make forward-looking statements during the call regarding future events, anticipated future trends, and the anticipated future performance of the company.
Speaker Change: We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict.
Speaker Change: Actual results may differ materially from those projected in the forward-looking statements due to a variety of risk factors.
These factors are described in our SEC files.
Speaker Change: Please refer to our earnings press release and investor presentation for Vera Mobility's complete forward-looking statement disclosure. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today and we do not undertake any obligation to update forward-looking statements.
Speaker Change: Finally, during today's call, we'll refer to certain non-GAAP financial measures.
Speaker Change: A reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is included in our earnings release, quarterly earnings presentation, and investor presentation.
David Roberts: All of which can be found on our website at ir.barrowmobility.com. With that, I'll turn the call over to David.
David Roberts: Thank you, Mark, and thanks to everyone for joining us. We delivered a solid fourth quarter with consolidated revenue growth of 5%, adjusted EBITDA increased 12%, and adjusted EPS increased 38% over the prior year period.
David Roberts: Fourth quarter free cash flow of 22 million was slightly ahead of our expectations and we ended the year with net leverage of 2.4 times while investing nearly 150 million dollars to repurchase about 5 million shares in the fourth quarter.
David Roberts: Moving on to the segment level financials. Commercial Services fourth quarter revenue and segment profit increased about 4% over the prior year period.
David Roberts: Both revenue and segment profit and commercial services were negatively impacted by a prior year period adjustment of approximately $3 million related to tolling activity.
David Roberts: RAC tolling, which includes this $3 million prior period adjustment, increased 3% over the prior year period and FMC revenue grew 5% over the fourth quarter of 2023.
David Roberts: Government Solutions service revenue increased 5% over the fourth quarter of 2023. Revenue from New York City, our largest government solutions customer, was essentially flat year-over-year as we await the outcome of the competitive request for proposal for automated enforcement.
David Roberts: Service revenue increased 9% outside of New York City driven by expansion from existing customers and new cities implementing photo enforcement programs.
David Roberts: Total revenue including international product sales were up about 10% over the prior year quarter.
David Roberts: Fueled by a $5 million increase in product sales compared to the fourth quarter of 2023.
David Roberts: Government solutions segment profit increased 44% or 790 basis points over last year driven by a 4 million non-cash charge in the fourth quarter of 2023.
David Roberts: and a reduction in credit loss expense in the current year quarter.
David Roberts: Moving on to T2, our parking solutions business, total revenue declined about 13% for the quarter, driven by lower professional services and one-time hardware sales.
David Roberts: Segment profit declined to $3 million for the fourth quarter. I'll provide more commentary about what operational improvements we have planned for parking solutions later in my remarks.
David Roberts: Next, I'm going to focus on the key trends shaping our portfolio businesses and what makes me so excited about the future growth trajectory.
David Roberts: Starting with travel demand which directly impacts our commercial services business, full year 2024 TSA passenger volume increased about 5% over 2023 volume driven by stock, strong leisure, and business travel demand.
David Roberts: While that sets up a challenging comparable for 2025, we continue to anticipate resilient travel volume consistent with forecasted GDP growth over the prior year.
David Roberts: The travel trends to start the year have been volatile due to winter storms and the California wildfires. However, based on the positive sentiment from the major airlines and our customers, coupled with other industry data we've evaluated, we remain comfortable with our expectations for 2025 TSA volume.
David Roberts: Additionally, the number of toll roads and the penetration of electronic tolling infrastructure to secular tailwinds that positively impact the long-term growth profile of commercial services
David Roberts: continue to demonstrate ongoing strength. Over the course of 2024, 14 Newcastle's toll roadways were converted or opened, covering nearly 600 miles of roadways across the United States.
David Roberts: Moreover, cashless toll penetration increased from 67% to about 70% in full year 2024, demonstrating that the secular trend to all electronic infrastructure is steady with room for further expansion.
David Roberts: Next I'll move on to the demand for automated photo enforcement, the key driver for our government solutions business.
David Roberts: In 2024, 30 bills were enacted at the state and local levels to authorize, expand, or positively reform automated photo enforcement programs, including recent legislation in Massachusetts authorizing school bus stop arms and fixed and mobile bus lane enforcement.
David Roberts: We anticipate these new authorizations in Massachusetts to result in over $30 million of addressable market opportunity.
David Roberts: In total, the enabling legislation passed over the prior two years across the United States adds approximately $185 million in total addressable market, or TAM, with the potential to expand to over $300 million as further legislation allows in California.
David Roberts: Our execution against the TAM has been strong. In the fourth quarter, we won contract awards representing about $11 million of incremental annual recurring revenue at full run rate, bringing the full year incremental ARR total to $56 million.
David Roberts: Notably, as we have previously announced, the San Francisco Speed Safety Program will be the first speed program in the state of California, and it is expected to start issuing warnings by the end of the first quarter of 2025.
David Roberts: Additional fourth quarter awards including a new school bus stop arm award in upstate New York and an expansion of our existing speed program in Toronto.
David Roberts: Our government solutions ARR bookings typically materialize into revenue over a 12 to 18 month period.
David Roberts: In conjunction with an approximate 97% contract renewal rate, we believe demonstrates a strong and predictable recurring revenue stream.
David Roberts: Moving on to New York City, we are awaiting the outcome of the competitive RFP for the City's Automated Enforcement Program.
David Roberts: The New York City Department of Transportation recently published their annual report quantifying the efficacy of their automated photo enforcement programs, and we're incredibly pleased and proud of the findings, which include...
David Roberts: Daily violations in speed camera locations have decreased 94% since the start of the program in 2014.
David Roberts: Seventy-four percent of drivers receive no more than one or two violations per year.
David Roberts: Locations with camera installed in 2022 showed 14% fewer injuries and fatalities between 2021 and 2023 compared to control corridors without cameras.
David Roberts: Violations in the overnight and weekend hours decreased 40% in the two years since 2022 when expanded hours first went into effect.
David Roberts: Following the expansion to overnight and weekend enforcement locations with speed cameras saw 9% fewer injuries compared to control locations without cameras during the overnight and weekend hours.
David Roberts: We believe that these findings demonstrate the importance of implementing automated enforcement and the positive impact it can have on traffic safety for our communities.
David Roberts: Next, I'll discuss T2 Parking Solutions business, which we acquired in December 2021.
David Roberts: T2 is the industry leader delivering parking solutions to universities, municipalities, and private parking operators across the United States.
David Roberts: We offer an end-to-end suite of software, professional services, and hardware to meet our customers' evolving needs to manage parking.
David Roberts: As you can see in the fourth quarter results, we recorded a non-cash impairment of goodwill attributed to the T2 business to better align the current environment and the carrying value with the historic environment when we acquired the business.
David Roberts: Craig will elaborate on the financial impact of the Goodwill Impairment in a moment, but I'll take a few moments to comment on the trends shaping the business.
David Roberts: We believe the market for SAS-enabled solutions to manage the complexities of parking in universities, municipalities, and private parking operations is strongly growing.
David Roberts: As I noted in our third quarter call, Lynn Vogt joined our executive leadership team in August and brings tremendous experience in leading organizations, driving sales growth, and enhancing operations.
David Roberts: Since joining the organization this summer, Len has brought in new sales leadership, and we are seeing early signs of stabilizing our operations.
David Roberts: We have visibility into a strong sales pipeline for our SaaS-enabled permit management solutions. And we are in the very early innings of our sales and marketing of our e-commerce platform, which is designed to create new revenue streams through transactional pricing.
David Roberts: Our goals for 2025 are to stabilize the business first by addressing the challenges that led to elevated customer churn and simultaneously rejuvenating the sales engine and continuing to deliver broad suite solutions.
David Roberts: We anticipate flat revenue in 2025 relative to 2024, and our focus is on exiting 2025 with strong velocity with the goal of getting back to growth in 2026.
David Roberts: We expect the demand for parking, permitting, and enforcement for cities and universities to continue to increase over the long term given the unique challenges related to urbanization and curb management. And we believe the market opportunity for T2 is significant, and we're taking steps needed to drive long-term execution and performance.
David Roberts: Moving on, we had an active year from a capital allocation perspective over the full year in 2024. We deployed 200 million dollars to repurchase over 7 million shares. Additionally, we refinanced our term loan debt twice, lowering our borrowing rate by 100 basis points over the course of the year.
David Roberts: Additionally, we were active in evaluating M&A opportunities, but ultimately redirected capital to share repurchases based on valuations and price discipline.
David Roberts: Craig will provide a detailed commentary on our 2025 financial outlook, but I'll hit the highlights.
Craig Conti: As we indicated during our third quarter call, we expect to deliver revenue growth consistent with our long-term 6% to 8% outlook, albeit at the low end of that range, in 2025.
Craig Conti: Moreover, we anticipate adjusted EBITDA to grow at a slower pace than revenue due to investments in sales and product installs in government solutions.
Craig Conti: One-time costs related to our ERP implementation and lastly revenue mix as commercial services revenue is expected to reflect lower anticipated travel volume.
Craig Conti: We expect adjusted EPS growth will outpace adjusted EBITDA due primarily to capital allocation efforts I just discussed, lower borrowing costs, and reduced share count driven by the 2024 share repurchases.
Craig Conti: Our business fundamentals are strong and intact. Travel demand appears resilient and a source of ongoing strength for commercial services. We expect that our strong sales bookings and government solutions will drive solid revenue growth over the foreseeable future. And finally, we expect T2 to exit 2025 with a strong velocity.
Craig Conti: Based on these factors, we anticipate that our long-term outlook remains intact relative to the 2026 revenue and adjusted even to targets that we provided at our 2022 Investor Day. Craig, I'll turn it over to you to guide us through our financial results, capital allocation, and 2025 financial outlook.
Craig Conti: Thank you, David, and hello, everyone. Appreciate you joining us on this call today.
Craig Conti: Let's turn to slide 4, which outlines the key financial measures for the consolidated business for the fourth quarter.
Craig Conti: Our Q4 performance was on plan, which included 4% service revenue growth and 5% total revenue.
Craig Conti: The service revenue growth, which consists primarily of recurring revenue, is driven by solid fourth-quarter travel demand in the commercial services business and service revenue growth outside of New York City in the government solutions business.
Shhh!
Craig Conti: At the second level, commercial services revenue grew 4% year-over-year, government solutions service revenue increased by 5% over the prior year, while T2 systems SaaS and services revenue declined 4% over the fourth quarter of 2023.
Craig Conti: Product revenue was $12 million for the quarter. GS contributed $8 million and T2 delivered about $4 million in product sales overall for the quarter.
Craig Conti: Additionally, our consolidated adjusted EBITDA for the quarter was $102 million, an increase of approximately 12% versus last year.
Craig Conti: We reported a net loss of $67 million for the quarter, which reflects the goodwill impairment charge of $97 million for the carrying value of T2 systems.
Craig Conti: The tax provision of about $11 million after adjusting for the goodwill impairment expense represents a normalized full-year effective tax rate of about 30 percent.
Craig Conti: The GAAP EPS loss of $0.41 per share for the fourth quarter of 2024 compares to a profit of $0.02 for the prior year period. The delta between these two results was driven primarily by the $97 million goodwill impairment for T2 systems.
Craig Conti: Adjusted EPS which excludes amortization, stock-based compensation, goodwill impairment, and other non-recurring items.
Craig Conti: was 33 cents per share for the fourth quarter of this year compared to 24 cents per share in the fourth quarter of 2023, representing 38 percent year-over-year growth.
Craig Conti: The increase in adjusted EPS was driven by the increase in adjusted EBITDA, a sustained reduction in interest expense driven by our 2024 repricing efforts and our ongoing share repurchase activities.
Craig Conti: Cash flows provided by operating activities totaled $40 million and we delivered $22 million of free cash flow for the quarter, slightly ahead of our expectations.
Thank you very much.
Craig Conti: Turning to slide 5, we generated $402 million of adjusted even on approximately $879 million of revenue for the full year 2024, representing a 46% adjusted even in March.
Craig Conti: Additionally, we generated $153 million of free cash flow for the year for a 38% conversion of adjusted EPS.
Craig Conti: Please note that this free cashflow total includes the one-time $22 million tax-adjusted plus past legal settlement costs we incurred during the first quarter of 2024.
Craig Conti: Next, I'll walk through the fourth quarter performance in each of our three business segments, beginning with Commercial Services on slide 6.
CS year-over-year revenue growth was 4% in the fourth quarter.
Craig Conti: Rack tolling revenue increased 3% or about $2 million over the same period last year, driven by solid travel demand and increased rental volume.
David Roberts: As David mentioned earlier, we incurred an approximate $3 million dollar charge, impacting both revenue and segment profit due to prior period tolling activity.
David Roberts: This $3 million impact was historical in nature and non-recurring, however, it was not added back to our segment profit.
David Roberts: Our FMC business grew 5% or about $1 million year-over-year, driven by the enrollment of new vehicles and totaling growth from existing and newly enrolled FMC customers.
David Roberts: Additionally, the combination of title and registration, violations management, UROP, and other revenue contributed approximately $2 million of year-over-year revenue growth for the court.
David Roberts: Commercial services segment profit margins declined about 40 basis points in the fourth quarter to 65% driven primarily by the prior period adjustment mentioned earlier.
David Roberts: For the full year, Commercial Services generated $408 million of revenue, or 9% growth over last year.
David Roberts: Segment profit of $268 million resulted in margins of about 66%, a 70 basis point improvement over the prior year, driven by volume-based operating leverage.
David Roberts: Turning to slide 7, government solutions had solid service revenue growth in the quarter, driven by 9% growth outside of New York City.
David Roberts: Total revenue grew 10% over the prior quarter, benefiting from about $8 million in product sales.
a $5 million increase over the same period last year.
David Roberts: Government Solutions segment profit was $35 million for the quarter, representing margins of approximately 34%. The increase in margins versus the prior year is primarily due to a prior period $4 million expense adjustment in the fourth quarter of last year, as well as lower credit loss expense in the current year quarter.
David Roberts: For the full year, Government Solutions generated $391 million of total revenue, a 9% increase over 2023, driven primarily by 12% service revenue growth outside of New York City.
David Roberts: Segment profit was $122 million for the year, an increase of 6% over the prior year.
David Roberts: Let's turn to slide eight for a view of the results of T2 Systems, which is our parking solutions business sector.
David Roberts: We generated revenue of $20 million in segment profit of approximately $3 million for the quarter. SaaS and service sales were down 4% or $700,000 from the prior year quarter, while product revenue was down 35% or $2 million compared to last year.
David Roberts: Breaking down the SAS and services revenue a bit further, recurring SAS revenue grew about 4% over the prior year.
David Roberts: However, offsetting this increase was a decline in installation and other professional services due to the reduction in product sales over the past four quarters.
David Roberts: For the full year, P2 delivered revenue of $81 million, a decline of approximately 6% versus last year and set a profit of $12 million.
David Roberts: As David discussed, we recorded 97 million non-cash impairment up at Goodwill to better align the current environment and the carrying value of T2.
David Roberts: This does not change our view of the strength of the end markets in which T2 competes. We highly value the recurring nature of the SaaS business where we see strong demand and we anticipate significant potential for a nascent e-commerce platform which creates new revenue streams through transactional pricing.
David Roberts: Okay, let's turn to slide 9 and discuss the balance sheet and take a closer look at leverage.
David Roberts: As you can see, we ended the quarter with a net debt balance of $968 million, which reflects about $150 million used for share repurchases in the fourth quarter. We ended the quarter with net leverage of 2.4 times, and we've maintained significant liquidity with our on-drawn credit revolver.
David Roberts: Our gross debt balance at year-end stands at about a billion dollars of which approximately 700 million is floating rate debt.
David Roberts: At the end of the third quarter and based on the SOFR forward yield curve, we opted to utilize our early termination option and cancel the entirety of our flow-per-fixed rates well. Consequently, the term loan is now fully floated.
David Roberts: In addition, in the fourth quarter, we completed successful repricing of our $700 million term loan fee.
David Roberts: The repricing was oversubscribed, and we achieved a 50 basis point reduction in the coupon rate, lowering it to SOFR plus 2.25%.
David Roberts: This repricing will yield about $10 million in cash savings, net of fees, over the remaining life of the pet.
David Roberts: On our total debt stack, this lowers our weighted average cost of debt to a little over 6% at current SOFR levels. This was our second successful debt repricing this year, the cumulative effect being a reduction in our spread of a full 100 basis points over the course of 2024.
David Roberts: Closing out our discussion on 2024, I'm pleased to report that we successfully remediated the IT General Controls Material Weakness identified in our 2023 audit.
David Roberts: through a combination of the implementation of enhanced IT oversight, system-enforced segregation of duties, and the hiring of new and experienced personnel.
David Roberts: Now let's turn to slide 10 for a discussion on full year 2025.
David Roberts: We expect total revenue in the range of 925 to 935 million, representing approximately 6% growth at the midpoint of guidance over 2024, consistent with the preliminary outlook we provided on our third quarter earnings call.
David Roberts: We expect adjusted EBITDA in the range of $410 million to $420 million representing approximately 3% growth at the midpoint over 2024, again consistent with the preliminary outlook on our Q3 call.
David Roberts: This represents an adjusted EBITDA margin of about 45%, down about 100 basis points compared to last year.
David Roberts: As we previously discussed, the combination of CAM execution costs, financial infrastructure investment, and portfolio mix are expected to drive the temporary reduction in margins.
David Roberts: Let me provide a refresher on each of these margin drivers.
David Roberts: The TAM execution cost item is largely driven by our government business as we incur incremental business development and project go-live costs in advance of converting our growing backlog to revenue.
David Roberts: The financial infrastructure item relates to the previously discussed in-flight replacement of our aging ERP and HR information systems.
David Roberts: We expect to incur about $5 million of non-capitalized costs in the first half of the year to complete this project. These project costs are one-time in nature and will not continue past 2025.
David Roberts: The portfolio mix is primarily in our commercial business where we expect travel growth year over year, however that growth will be moderated relative to other growth drivers in the business, limiting margin expansion.
David Roberts: Moving on to the segment level, in commercial services we expect high single-digit revenue growth driven by resilient travel demand and product adoption. We are modeling TSA volume at 102.5 percent for the full year and breaking that down further, we anticipate the first quarter will be modestly below that estimate.
David Roberts: followed by a sequential ramp up in travel volume in the second and third quarters, ending with a reduction in the fourth quarter, very much in line with historical trends.
David Roberts: In addition, we're expecting increased FMC revenue at a growth rate generally in line with the overall CS business.
Speaker Change: For the combined CS business, 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.
David Roberts: As a reminder, all revenue in this segment is service revenue.
David Roberts: 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 the fiscal year 2024.
David Roberts: We expect annual product revenue in the GS segment to be roughly comparable to 2024 levels.
David Roberts: To contextualize this further, we anticipate flat service revenue from New York City while we await the outcome of the competitive RFP and we expect product revenue to be mostly flat, all of which comprises nearly 40% of total government solutions revenue.
David Roberts: Lastly, parking solutions is expected to be about flat with 2024 levels. We expect fast revenue to grow low to mid-single digits, offset by a decline in installation and professional service revenue on roughly flat product sales.
David Roberts: For the company as a whole, we are guiding to a 2025 non-gap adjusted EPS range of $1.30 to $1.35 per share.
David Roberts: Free cash flow is expected to be in the range of $175 to $185 million, representing a conversion rate in the low to mid 40th percentile of adjusted EVA.
David Roberts: We expect to spend approximately $90 million of CapEx in 2025, an increase of about $20 million over 2024. The vast majority will be spent in government solutions to implement newly awarded photo enforcement programs.
David Roberts: 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 2025.
Thank you, everyone. Thank you.
David Roberts: Other key assumptions supporting our adjusted EPS and free cash flow outlook can be found on slide one.
David Roberts: In closing, we are well positioned to deliver a strong 2025 on both the top and bottom line. Our core markets are solid and the secular growth trends are durable. We remain confident in achieving the 2026 revenue and adjusted EBITDA targets we set back at our investor day in the summer of 2022.
David Roberts: This concludes our prepared remarks. Thank you for your time and attention today. At this time, I'd like to invite Liz to open the line for any questions. Liz, over to you.
Liz: As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
Speaker Change: Our first question comes from the line of Faiza Alwi with Deutsche Bank.
Faiza Alwi: Yes, hi, thank you. So I wanted to follow up on the commercial services business. You mentioned maybe some volatile trends, you know, this
Faiza Alwi: quarter, starting the year because of the weather and wildfires, etc.
Faiza Alwi: So just want to clarify there, and I know, Craig, you gave pretty good, you know, seasonality on how you're thinking about trends, but...
Speaker Change: Curious if there's sort of anything else you'd like to say about the, you know, quarterly cadence around whether it's travel trends or commercial revenues in general.
Speaker Change: Yeah, okay. Thank you, Faisal. Let me take that in two parts. So first, I think as we go into 2025, no change to what we've discussed historically, TSA is probably a good thing to look at for a business. So why don't we do a quick recap of how TSA is performed.
Speaker Change: We closed the fourth quarter of 2024 at about a hundred and three percent. So that's quarter over quarter 24 versus 23.
Speaker Change: Coming into 2025, I expect 102.5% for the year. As I said in the prepared comments slides, I think that's a lot slower in the beginning of the year. It ramps to that 102, a little higher than 102.5% at the end of the year to average out to 102.5%.
Speaker Change: So that kind of says I expect 101-ish in the first quarter.
Speaker Change: Here's what it looks like as of today. We closed January at about just shy of 102% February month to date as of this morning is right at a hundred percent. So year-to-date we're at 101
Speaker Change: The comment on the wildfires and some of the weather events is if you look at it I gave you a 60-day rolling average if you look at individual days and weeks There's been quite a bit of variability from week to week because of some of the events but in general
Speaker Change: The year is starting to pan out volume-wise as we anticipated.
Speaker Change: Let me go into the sequentials for the business because I just want to make sure that we're clear on that one for the commercial business. Here's how I expect revenue to pace out by quarter.
Speaker Change: Versus 2024 for commercial services only. I expect the first quarter to be down sequentially from the fourth quarter of last year, no single digits.
Speaker Change: I expect the second quarter to be up low double digits very similar as it was this year. I expect the third quarter to be up high single digits and then I expect the fourth quarter to come back down high single digits.
Speaker Change: and if you average that out you get to a high single-digit organic growth for CS overall for 25-year-olds.
Speaker Change: Great, that's very helpful. Thank you. And then on the on the government services business, it sounds like you're starting to build in some revenues from the new contracts coming from the new legislation. So a two part question on that one, maybe update us on, you know, some of these win rates as you're bidding for these contracts. And then secondly, how similar question around how do you expect sort of revenue to build through the course of the year
and R.R. Converge to Revenue.
Speaker Change: Yeah, I mean, hey, it's David. I mean, I think we don't really talk to win rates, but I think we're saying we're winning more than our fair share, for sure, as we talked about in terms of the total dollar amount that we've closed over the last, you know, six months, or the end of last year was.
Our pent-up demand is exciting, and for further prepared remarks...
Speaker Change: It tends to take anywhere from 12 to 18 months for that revenue to build. That is just kind of a, I would call that an industry standard. Sometimes we can get a little ahead of that, sometimes a little behind it, but that's about average. So we would expect to draw down on that backlog over the next 12 to 18 months.
Speaker Change: and I think in terms of pacing I would expect that service revenue so if we if we go all the way back and we look at growth for overall government solutions we talked about the high-end and mid-single digits for the business as a whole.
Speaker Change: 40% of this business is New York City, which we're still forecasting as flat for this year, and product, right, together. We're forecasting that as flat as well. So all the growth...
Speaker Change: In the remaining 60% of that business, the service growth is outside of New York City. We expect that number, Pfizer, to be low double-digit year over year. And if I were to look at that sequentially, that number should ramp roughly sequentially.
Speaker Change: So the service revenue should be flat to up each quarter as we go through. Again, timing dependent. Where that may get a little more complicated is on the total government solutions revenue line.
Speaker Change: The product, we still expect somewhere in the range of, you know, last year's product revenue. That could be a little bit more episodic.
Speaker Change: So, I would always think about that, that growth of government solution service revenue to be a sequential grower and the majority of that growth, almost all of that growth is coming from the service line outside of New York City.
Great, thank you so much.
Speaker Change: Our next question comes from a line of Nick Cremo with UBS.
Nick Cremo: Hi, David and Craig. Thanks for taking my questions. First, I just wanted to touch on the GS business. It's good to hear that the SF pilot remains on track for Q1. I just wanted to check on the other cities in California that are going to be having RFPs for a similar pilot program. Have those RFPs came out yet, and when can we expect to hear back on those?
Nick Cremo: Yeah, the one that's gone out that we've already responded to is San Jose. We're anticipating the others to be, I would say, any time in the next three to six months that we'll hear a couple of others.
Nick Cremo: and places like Oakland, LA, Long Beach, places like that. But they're not out yet, but those are the ones we're expecting. But San Jose has already come out and has already been responded to.
Nick Cremo: Okay, great. And then for my follow up, is the second quarter still the right approximate timing for when we could get some clarity on the outcome of the NYC RFP?
Nick Cremo: Yeah, it's really not dependent on us. It's dependent upon the city and their decision-making. That's a reasonable guess to say sometime in Q2, but I couldn't tell you if it's the first day or the last day.
Okay, got it. Thanks a lot guys.
Thank you.
Our next question comes from Daniel Moore with CJS Securities.
Nick Cremo: Hey, this is Will on for Dan. Given that 2025 is more of an investment or setup year, particularly in government solutions, how should we think about the opportunity for margin expansion looking into 2026 and beyond? Thank you.
Yeah, the way I look at this is...
Speaker Change: I'm going to give you an answer that's probably not the perfect answer, Will, but the answer is it depends, and here's why it depends.
Speaker Change: We are expanding into new geographies. In 2024, we did. We're doing it again in 2025. To the degree that that accelerates or exists in the 2026, I would expect margins to look a lot like they do in 2025 and 2026.
Speaker Change: Maybe said a little better. If I think about GS margins for the year, for 2024, we closed at about 31%. If I think about them next year, I think we've probably got somewhere in the neighborhood of 150 to 200 basis points of pressure. Now, half of that pressure is coming from the fact that we're putting in a new ERP system.
Speaker Change: So we want to think about that. So when I have growth of low double digits in service revenue in new geographies, that cost comes before that revenue, and especially if it's at the quantum that we've seen in the past.
Speaker Change: I would expect high 20s to around 30%, but, you know, when my head hits the pillow at night, I think about this as a 30% margin business.
Speaker Change: That's super helpful, thank you. And then just to follow up, where are you seeing the most potential opportunity from an M&A perspective?
Speaker Change: For M&A, I mean, we've obviously continued to be broad in our view, but I think
Speaker Change: What I would say the activity level of assets seems to be as hot meaning assets are coming sale from private equity owners or financial sponsors.
Speaker Change: Us not closing a deal in the last year or two is not a result of us not working deals. We just want to maintain price discipline, make sure we have a good line of sight. And so I would say that there's a broad, both across connected vehicle and urban mobility, a lot of assets that we're looking at and are excited about.
Thank you.
Yeah, thanks.
Speaker Change: Our next question comes from Louis De Palma with William Blair.
David, Craig, and Mark, good afternoon.
Hey Louie, Hey Louie
Hey, um...
Speaker Change: Does the speed camera pipeline remain as elevated as it was before?
Speaker Change: two years ago when the legislation for Florida and California came out, and I know you mentioned the new legislation that's pending in Massachusetts, but with the pipeline
Speaker Change: Let me take the first part first. If I think about
Speaker Change: In David's prepared remarks, he talked about $185 million of AM opening in the near term.
Speaker Change: somewhere on the rounds of 20 to 40 percent of that is sitting in school zones. So I think the easy answer to the first part of your question is the pipeline looking as strong as it was two years ago is an emphatic yes.
Speaker Change: The second part of your question, will bookings look the way that they did, as strong as they did in 2024? I simply don't know.
Speaker Change: As we look at the activity year-to-date, we feel very good about where our funnel sits.
Speaker Change: I think you could triangulate what we think on bookings. I can't give a booking number. I'll only do that on an actual basis for obvious reasons, but if you think about the fact that we're forecasting low double-digit service revenue growth outside of New York City, we would need more bookings than we had going into 2025 to get that done, so there will be some in-year revenue.
So I think that the overarching...
Speaker Change: The thing that I want to communicate is the pipeline remains as strong as it's ever been, and we're really excited about our ability to execute on it.
Great, thanks Craig. And you discussed your catbacks associated with
Speaker Change: Business Development and taking advantage of this market opportunity. I was wondering what technology investments have you continued to make on the
Speaker Change: the customer side in order to, you know, stay ahead of the curve in terms of, you know, the latest functionality with cameras and, you know, catering to the different needs of, you know, your very large customer base.
Speaker Change: Yeah, we have a product engineering group within the business that is, you know, always both looking and, you know, not only working with our current customers, but surveying the landscape globally as to what we can do to be
Speaker Change: more supportive and forward leaning with our customers. So we have a team that's fully deployed to do that. I don't have a dollar amount to share, but that's you know, we we leverage both our internal teams as well as the several partners that we use across the different camera technologies.
Speaker Change: One last one. A few years ago, David and Craig, you and your RAC partners have offered all-inclusive pricing, and there seems to be a lot of customer satisfaction. What is the penetration now?
Speaker Change: All-inclusive pricing within your customer base. Do most customers, you know, go for all-inclusive or do they still use the per day pricing?
Speaker Change: It's very driven by the location, Louie, because All-Inclusive works better in some locations than others. So we actually look at that adoption rate basically at an airport-by-airport location. And so we don't really get into any specific disclosures around customers.
Speaker Change: Right, the one thing on customers on that that we will say though is that this only exists technically today for two of our customers.
Speaker Change: So, Enterprise does not use this on a wide basis, which is something that we've thought about in the past. But this continues to be a popular product, and you're right, we've gotten some really good feedback on it, and it's performing well.
Excellent. Thanks, everyone.
Thank you.
Thank you very much.
Our next question comes from David Koening with Baird.
David Koening: Yeah, hey guys, thanks. Nice job. I just, I guess in commercial, I just wanted to look at the year-over-year growth in Q4
Speaker Change: I think it was $4 million, but there was a $3 million headwind. So it should have been $7 million kind of on a core basis. But the way you're kind of guiding Q1 is for only about, let's say $1 million or maybe even less year-over-year growth.
Speaker Change: What's, I guess, why the deceleration and just kind of normalized year-over-year growth?
Speaker Change: I think that you're right on the fourth quarter, David. You're right on with the $3 million. You would have to add that back.
Speaker Change: I don't know that I would look at the acceleration of the Q1 as being anything other than seasonal.
Speaker Change: and I would say that the same on a year-over-year basis. Remember, you're not looking at equivalent TSA throughput in both periods.
Speaker Change: Right, so that's going to skew your result. There was more TSA growth sequentially going into this period last year on your comp period than you're seeing today. That's one piece.
Speaker Change: I think the other thing, if you look at it in total...
and David Roberts. Thank you.
We still expect this to be a high single-digit grower.
Speaker Change: And if we remember back to how we talked about it last year, we talked about 50%, 25%, 25% to get to that high single-digit growth, and I talked about the three pillars. Those same three pillars are intact today.
Speaker Change: However, it's more like a third, a third, a third this year. So let me explain what that is.
Speaker Change: A third of that is coming from GDP-type travel growth. That ties to the 102.5 I mentioned in my comments. A third of that are the secular tailwinds. David gave some perspective on how many toll roads were added here domestically and also what happened with cashless toll roads. We expect that to accelerate. That's another third of the growth.
Speaker Change: And then the remainder of the growth, the remaining third, are all the other things. That's the fleet business, that's the title and registration business, and our European business.
Speaker Change: So, if Q1, when you're comparing non-linear comparables year over year, may look a little wacky, but I think if you look at it in total, the year kind of makes sense.
Speaker Change: Yeah, no, that's a good explanation on that. And then just my follow-up, so New York, you're assuming is flat.
Speaker Change: Would you say you have confidence, like 100% confidence it's within plus minus 5%, or is this just your baseline expectation and, you know, there are all sorts of scenarios that it could be down 50% or up 30 or just, I'm just wondering how confident you are that flat-ish is kind of the right outcome?
Thank you.
Speaker Change: I think where we've been really specific is that we're in an RFP time so we're going to wait and see what the city does and at whatever time they decide to expand with the program that would be the time that we would be able to be more specific around that.
Thank you.
Gotcha. Okay. All right. No, thanks, guys. Good job.
Peter Cutings
Our next question comes from Keith Hosum with Northcoast Research.
Keith Hosum: Good afternoon guys. Hey, in terms of the the impairment charge in the parking segment, you know, obviously you guys have a lot of confidence and ability to turn that business around, but I guess maybe a little more about what gives you that confidence there. Is that, is this a market that's growing? I mean, is everybody else growing the business but you guys aren't? I just want to understand a little more your confidence levels.
Keith Hosum: Yeah, I think one, specifically around permits and enforcement, that continues to be a problem for...
cities, municipalities, and universities that we've seen
Keith Hosum: you know, by watching both our competitors and maybe more uniquely the the dollars of
Keith Hosum: private equity capital that are flowing into this category is pretty significant. We've seen a lot of M&A activity which, you know,
Keith Hosum: and we can see some of our competitors and what their growth is. We've only just had our own sort of execution issue, so there's a lot of data pointing to the growth and that this can be a significant contributor to the company. So that's part of the data that we're using, as well as our own ear to the ground and our own pipeline development since we brought in new leadership.
Speaker Change: Okay, appreciate that. I can understand the challenges in the M&A environment now, how competitive it is. If 2025 from an M&A perspective is much like 2024, do you anticipate another round of significant share purchases to kind of use your free cash flow?
Speaker Change: Yeah, you know, our strategy for that has not changed at all.
Speaker Change: We, because of the incredible cash flow generation of the company, were able to make those sort of decisions.
you know, pretty much every quarter.
Speaker Change: We'll look at our M&A pipeline where we are in different deal processes.
Speaker Change: versus you know what we're looking at in terms of our intrinsic value in the trading of the stock and we'll make the decision every time so it's really most would we continue to be opportunistic on share purchase absolutely but that's contingent upon our M&A 5.1
Good job. Okay, thanks guys. Good luck.
Yeah.
Speaker Change: Our next question comes from a line of James Fawcett with Morgan Stanley.
Speaker Change: Hi, this is Shefali Damaskar asking a question on behalf of James. Thanks for taking my question. I just wanted to touch on international markets. I wanted to see if you've seen any change in trends towards more cashless adoption in Europe specifically and if there's anything to call out in terms of new wins there or visibility into international for 2025.
Speaker Change: Yeah, the only thing I would say is there's definitely been a several toll roads in France and a couple in Italy that have gone cashless. Those are
Speaker Change: a couple of the many toll roads that are in each of those countries. I would also say that we've renewed several of our customers that we started with pilots over the last course of last year because they have found the value in the program, especially when they're working in places that have more free flow like Spain or Portugal.
Speaker Change: So, I would just say that the trend is definitely moving forward to positive and up and to the right. It's just, you know, remaining slow because the toll authorities will also have to change to allow that to accelerate.
Okay, great. Good to hear on that.
Speaker Change: in government wanted to touch on any recent trends you've been seeing in terms of specific demand. I know you've previously called out more strength and
Speaker Change: I think what you've called purpose-built enforcement, and I wanted to see if that's still the case in terms of where demand is from a legislation perspective, and any change in kind of how the economics compare across like red light and the bus arm and all the different types of offerings you have.
Speaker Change: Yeah, I would say the demand is effectively the same, that the real shift is still toward specific areas where there is precious cargo, which is in and around schools and school buses, that those are still what I would say is by far and away the larger demand drivers.
Speaker Change: and the economics around that, you know, saw in our capabilities to increase certain things through our technology deployment remain, you know, I think effectively the same.
Okay, cool. Thank you.