Q2 2025 Verra Mobility Corp Earnings Call
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Please be advised that today's conference is being recorded I would now like to hand over the conference to your speaker today, Mark <unk>, Vice President of Investor Relations.
Thank you good afternoon, and welcome to Verra mobility second quarter 2025 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.
<unk> Dot verra mobility dot com.
With me on the call are David Roberts, Verra mobility, as Chief Executive Officer.
Craig Conti, our Chief Financial Officer.
David will begin with prepared remarks.
Led by Craig and then we'll open up the call for Q&A.
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.
All 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 risk factors.
These factors are described in our SEC filings.
Please refer to our earnings press release, and Investor presentation for Verra mobility is 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.
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 quarterly earnings presentation, and Investor presentation, all of which can be found on our website at IR Dot verra mobility Dot com.
With that I'll turn the call over to David.
Thank you Mark and thanks, everyone for joining us we delivered a strong second quarter with all key financial measures ahead of our internal expectations total revenue for the quarter increased 6% over the same period last year to $236 million with all three business segments meeting or exceeding their respective <unk>.
We caution you that such statements are not guarantees of future performance and involve risk and uncertainties that are difficult to predict.
<unk> plan.
Adjusted EPS increased 10% over the prior year period, driven by our operating performance recent share repurchases and a reduction in our interest rate on our term.
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 filings.
<unk> loan debt.
Moving on to segment level financials, commercial services' second quarter revenue and segment profit increased about 5% and 4% respectively over the prior year period.
Please refer to our earnings press release and investor presentation for verra Mobility is complete. Forward-looking statement disclosure.
Any forward-looking statements that we make on. The call are based on our beliefs and assumptions today.
Rack tolling increased 4% over the prior year period, driven by increased product adoption and higher tolling activity compared to the second quarter of last year.
And we do not undertake any obligation to update forward-looking statements.
The growth in <unk> was partially offset by a decline in FMC revenue of about 2% compared to the second quarter of 2024, primarily due to a combination of customer churn as well as a modest weakness related to enroll vehicles and tolling activity in early <unk> attributable attributable.
Finally, during today's call, we'll 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 quarterly earnings presentation and investor presentation. All of which can be found on our website at irvm mobility.com.
With that, I'll turn the call over to David.
Two macroeconomic factors, we expect incremental weakness in the third quarter and to stabilize and grow from that new level FMC continues to be a core focus area and we remain very optimistic about solid growth prospects in this business area.
Additionally, as we noted in our press release in early July Stacy Moser has joined our executive leadership team and will lead commercial services. Stacy is a commercially focused executive bringing strong experienced and sales leadership product development and international expansion and will be instrumental in leading commercial services.
Thank you Mark and thanks everyone for joining us. We delivered a strong second quarter with all key financial measures ahead of our internal expectations. Total revenue for the quarter increased 6% over the same period last year to 236 million with all 3 business segments meeting or exceeding, their respective internal plan.
Adjusted EPS increased 10% over the prior year period driven by our operating performance recent share repurchases and the reduction in our interest rate on our term loan debt.
Into its next phase of growth.
Next moving on to the macro environment and the implications for our commercial services business with consumer confidence levels, improving amid increased increasing clarity on the economic environment travel demand is stabilizing, albeit at lower levels than our prior forecast second quarter TSA volume declined about one.
Moving on to segment level, financials Commercial Services, second quarter revenue and segment profit increase about 5% and 4% respectively over the prior year period.
Rack tolling increased 4% over the prior year period driven by increased product adoption and higher tolling activity compared to the second quarter of last year.
<unk> percent over the second quarter of last year and year to date TSA volume is about the same as last year.
As a result of these trends and the commentary from the major airlines unexpected demand we have further reduced our travel volume assumptions for the remainder of 2025 relative to the levels discussed in our first quarter call. This is subject to further change and we are closely monitoring the airline industry, which has historically been a good indicator of trends with <unk>.
The growth in rack tolling was partially offset by a decline in FMC revenue of about 2% compared to the second quarter of 2024 primarily due to a combination of customer churn as well as a modest weakness related to enrolled vehicles in, tolling, activity in the early 2q attributable, attributable, to macroeconomic factors.
<unk> the commercial services business.
We expect incremental weakness in the third quarter and to stabilize and grow from that new level FMC continues to be a core Focus area and we remain very optimistic about solid growth prospects in this business area.
Moving on to government solutions service revenue increased 7% over the second quarter of 2020 for revenue from New York City, our largest government solutions customer was essentially flat year over year as we await the finalization of the renewal contract.
Service revenue increased 11% outside of New York City, driven by expansion from existing customers and new cities implementing photo enforcement programs.
Additionally as we noted in our press release in early July Stacy, Moser has joined our executive leadership team and will lead Commercial Services. Stacy is a commercially focused executive. Bringing strong experience. In sales leadership product development and international expansion and will be instrumental in leading Commercial Services into its next phase of growth.
Total revenue, which includes international product sales was up about 10% over the prior year quarter fueled in part by a $3 million increase in product sales compared to the second quarter of 2024.
And of note regarding New York City, we are earnestly working toward finalizing the renewal contract upon executing the contract we will hold an update call to discuss the new contracts key economic terms and the planned Red Lake expansion program.
Next, moving on to the macro environment and the implications for our Commercial Services business with consumer confidence levels, improving amid increased increasing Clarity on the economic environment. Travel demand is stabilizing albeit at lower levels than our prior forecast second quarter, TSA volume declined about 1% over the second quarter of last year and year to date. TSA volume is about the same as last year.
Next I'll discuss the demand for automated photo enforcement the key driver for our government solutions business. We continue to see positive support for photo enforcement programs across the United States. During the second quarter, both Colorado, and Nevada passed legislation authorizing school bus stop arm enforced them, adding about $40 million in total addressed.
As a result of these Trends in the commentary from the major airlines and expected demand, we have further reduced, our travel volume assumptions for the remainder of 2025 relative to the levels discussed in our first quarter call.
This is subject to further change and we are closely monitoring the airline industry, which has historically been a good indicator of trends, that impact, the Commercial Services business.
<unk> market in total enabling legislation passed over the past two and a half years across the United States has added approximately $225 million of Tam with the potential to expand to over $350 million as further enabling legislation allows in California.
Moving on to Government Solutions service Revenue increased 7% over the second quarter of 2024 revenue from New York City are largest Government Solutions. Customer was essentially flat year-over-year as we await the finalization of the renewal contract
Our recent execution against this Tampa has been strong in the second quarter, we entered into contracted bookings of about $21 million of incremental annual recurring revenue at full run rate, bringing the trailing 12 months total to about $60 million. Notable second quarter bookings include the Chicago, Illinois.
Service Revenue increased 11% outside of New York City driven by expansion from existing customers and new cities implementing photo enforcement programs.
Total revenue which includes International products sales was up about 10% over the prior year quarter fueled in part by a $3 million increase in product sales compared to the second quarter of 2024.
Cameron expansion and a five and a five year renewal Cobb County, Georgia, Cobb County, Georgia School bus stop arm expansion Mesa, Arizona speed expansion program and several Florida School Zone speed Awards.
And a note regarding New York City, we are earnestly working toward finalizing, the renewal contract upon executing the contract. We will hold an update call to discuss the new contracts key, economic terms and the plan red light expansion program.
We believe automated enforcement continues to demonstrate its intended effects, we see proof points that drivers are improving their driving behaviors and traffic fatality rates are slowing slowing decreasing.
For example for our own data our own data revealed positive indicators. When we compare 2024 to 2023 fourth of July holiday travel key findings included a 26% decrease in total violations from 2023, 24% fewer speeding ticket and 31%.
You were red light violations.
Importantly, the data shows that pedestrian deaths were down four 3% year over year, making the second consecutive annual decline, but with over 7700 pedestrian fatalities last year. It's a stark reminder, that more work needs to be done to improve road safety.
Quarter both Colorado and Nevada. Pass, legislation, authorizing school, bus, stop arm enforcement. Adding about $40 million in total addressable Market in total. Enabling legislation passed over the past 2 and a half years across the United States has added approximately 225 million of Tam with the potential to expand to over 350 million dollars. As further enabling legislation allows in California,
Moving onto T to our parking solutions business total revenue declined about 4% for the quarter driven by a reduction in product sales as well as professional services revenue. This result was in line with our internal expectations.
Moving onto our full year outlook. We are remain we are maintaining our full year 2025 financial guidance, while travel demand appears to be stabilizing we remain cautious that a further modest decline in travel volume may cause us to trend towards the lower end of the financial ranges as previously provided Additionally, note that our growth.
our recent execution against this Tam has been strong in the second quarter. We entered into contracted, bookings of about 21 million. Dollars of incremental, annual recurring Revenue at full run rate bringing the trailing 12 months total to about 60 million dollars. Notable second quarter, of bookings include the Chicago Illinois, speed camera expansion, and a 5 and a 5-year renewal Cobb County. Georgia Cobb County, Georgia school bus, stop Farm expansion Mesa Arizona, Speed expansion program and several Florida school zone, speed Awards.
We Believe automated enforcement continues to demonstrate its intended effects. We see proof points that drivers are improving their driving behaviors and traffic fatality rates are slowing slowing, decreasing
And margin expectations for government solutions and T to remain unchanged at the market for photo enforcement is strong and our parking business turnaround is showing some early signs of success. We believe these businesses areas are are largely unaffected by economic sensitivity.
Moving on to capital allocation during the second quarter, our board of directors authorized a $100 million stock repurchase program that is available through November 2026 as of the end of second quarter No repurchases have been made under the new stock repurchase program.
For example, for our own data, our own data reveal positive indicators. When we compare 2024 to 2023 4th of July holiday. Travel key findings included, a 26% decrease in total violations from 2023 24%, fewer speeding tickets and 31%, fewer red light violations.
Finally, before I close a reminder, that was summer nearing its closed please drive safely as kids start going back to school. This month, Greg I'll turn it over to you to guide us through our financial results and additional details on our 2025 financial outlook.
Most importantly, the data shows that pedestrian deaths were down 4.3% year-over-year, making the second consecutive annual decline, but with over 7,700 pedestrian fatalities last year, it's a stark reminder, that more work needs to be done to improve road safety.
David and Hello, everyone. We appreciate you joining us on the call today, let's turn to slide four which outlines the key financial measures for the consolidated business for the second quarter. Our Q2 performance, which included 5% service revenue growth and 6% total revenue growth year over year exceeded our internal expectations.
Moving on to T2 our Parking Solutions business, total revenue declined about 4% for the quarter driven by a reduction in product sales as well as Professional Services Revenue, this result was in line with our internal expectations.
The service revenue growth, which consist primarily of recurring revenue was driven by increased product adoption and higher tolling activities in the commercial services business as well as service revenue growth outside of New York City in the government solutions business.
Moving on to our full year outlook. We are remains. We are maintaining our full year 2025 Financial guidance. While travel demand appears to be stabilizing. We remain cautious that a further, modest, decline in travel volume may cause us to Trend toward the lower end of the financial ranges as previously provided. Additionally note that our growth and margin expectations for Government Solutions and T2 remain unchanged at the market for photo enforcement is strong and our parking business. Turnaround is showing some early signs of success
At the segment level commercial services revenue grew 5% year over year government solutions service revenue increased by 7% over the prior year in <unk> Systems' SaaS and services revenue was essentially flat compared to the second quarter of 2024.
We believe these businesses areas are are, are largely unaffected by economic sensitivity.
Total product revenue was a little over $12 million for the quarter government solutions contributed roughly $9 million in Q2 delivered about $3 million in product sales overall for the quarter.
Moving on to Capital allocation during the second quarter, our board of directors authorized a 100 million dollar stock repurchase program. That is available through November 2026. As of the end of second quarter, no repurchases have been made under the new stock repurchase program.
Additionally, our consolidated adjusted EBITDA for the quarter was $105 million, an increase of approximately 3% versus last year.
Finally, before I close a reminder that with Summer nearing its close. Please drive safely, as kids start going back to school this month.
We reported net income of $39 million for the quarter, including a tax provision of about $14 million, representing an effective tax rate of approximately 27%.
GAAP diluted EPS was <unk> 24 per share for the second quarter of 2025 compared to <unk> 20 per share for the prior year period.
Greg alternative you to guide us through our financial results and additional details on our 2025 Financial Outlook. Thank you, David. And hello everyone we appreciate you joining us on the call today let's turn the slide for which outlines the key financial measures for the Consolidated business. For the second quarter, our Q2 performance which included 5% service Revenue growth in 6%, total revenue growth year-over-year exceeded. Our internal expectations
In addition, adjusted EPS, which excludes amortization stock based compensation and other nonrecurring items was 34 per share for the second quarter. This year compared to 31 per share in the second quarter of 2024, representing a 10% year over year growth.
the service Revenue growth which consists primarily of recurring Revenue was driven by increased product adoption and higher tolling activities in the commercial Services business as well as service Revenue growth outside in New York City in the Government Solutions business
The adjusted EPS growth was driven by the increase in adjusted EBITDA, a sustained reduction in interest expense driven by our prior year debt repricing efforts and our share repurchases in 2024.
Cash flows provided by operating activities totaled $75 million and we delivered 40 million of free cash flow for the quarter in line with our internal expectations.
At the segment level, Commercial Services revenue grew 5% year-over-year, Government Solutions service revenue increased by 7% over the prior year, and T2 Systems SaaS and services revenue was essentially flat compared to the second quarter of 2024.
Turning to slide five we generated $407 million of adjusted EBITDA on approximately $906 million of revenue for the trailing 12 months, representing a 45% adjusted EBITDA margin. Additionally, we generated $189 million of free cash flow or a 46% conversion of adjusted EBITDA over the <unk>.
Total product Revenue was a little over 12 million for the quarter. Government Solutions, contributed roughly 9 million in T2 delivered about 3 million in product sales, overall for the quarter,
Additionally, our Consolidated adjusted Eva for the quarter was 105 million in increase of approximately 3% versus last year.
Selling 12 months.
We reported net income of $39 million for the quarter, including a tax provision of about $14 million, representing an effective tax rate of approximately 27%.
Next I'll walk through the second quarter performance in each of our three business segments, beginning with commercial services on slide six.
Yes year over year revenue growth was 5% in the second quarter.
Rack tolling revenue increased 4% or about $3 million over the same period last year, driven by increased product adoption in tolling activity, partially offset by a 1% decline in travel volume.
Our FMC business declined 2% or about $300000 year over year, driven by customer churn and macroeconomic weakness related to enrolled vehicles and tolling activity in early Q2.
Period Edition, adjusted EPS, which excludes amortization stock-based compensation and other non-recurring items was 34 cents per share for the second quarter this year compared to 31 cents per share. And the second quarter of 2024 representing a 10% year-over-year growth.
The adjusted EPS growth was driven by the increase in adjusted ibida. A sustained reduction in interest, expense driven by our prior year. Debt repricing efforts in our share repurchases in 20224.
As David mentioned, we anticipate that FMC revenue dollars will further decline in the third quarter and then we expect to stabilize and grow from that level.
Commercial services segment profit increased 4% over the prior year. The CES revenue growth was partially offset by nonrecurring ERP implementation costs.
Cash flows provided by operating activities totaled. 75 million and we delivered 40 million of free cash flow for the quarter in line with our internal expectations.
Turning to slide seven government solutions had solid service revenue growth in the quarter, driven by 11% growth outside of New York City.
The growth was broad based across all modalities with particular strength in bustling and school bus stop arm enforcement programs.
Turning the slide 5 we generated 407 million of adjusted ibida on approximately 906 million of revenue for the trailing 12 months representing a 45% adjusted. Even bit of margin. Additionally, we generated 189 million of free, cash flow or a 46 percent conversion of adjusted ibida over the trailing 12 months.
Total revenue grew 10% over the prior year quarter benefiting from about $9 million in product sales, which increased by $3 million over the same period last year.
Next, I'll walk through the second quarter performance in each of our three business segments, beginning with Commercial Services on 56.
CS year-over-year. Revenue growth was 5% in the second quarter.
Government solutions segment profit was $30 million for the quarter, representing margins of approximately 28% reduction in margins versus prior year was primarily due to the mix impact of increased international camera sales ERP conversion costs and project implementation costs for newly awarded programs.
Rack tolling Revenue, increased 4% or about 3 million over the same period last year driven by increased product adoption and tolling activity. Partially offset by a 1% decline in tribal volume.
Let's turn to slide eight for a review of the results of <unk> systems.
Our FMC business declined 2%, or about 300,000 dollars, year-over-year driven by customer churn and macroeconomic weakness related to enrolled vehicles and tolling activities in early Q2.
We generated revenue of $20 million and segment profit of approximately $3 million for the quarter.
SaaS and services sales were essentially flat compared to the prior year, while product revenue declined 18% or $700000 compared to 2024.
As David mentioned, we anticipate that FMC Revenue dollars will further decline in the third quarter and then we expect to stabilize and grow from that level.
Breaking the <unk> and SaaS services revenue down a bit further recurring SaaS revenue, which was flat compared to the prior year quarter and offset by a decline in installation and other professional services due to the reduction in product sales over prior quarters on a year to date basis recurring SaaS revenue has increased low single.
Commercial Services segment profit increased 4% over the prior year. The Cs Revenue growth was partially offset, by non-recurring Erp implementation costs.
Starting in the slide 7 Government Solutions had solid service Revenue growth in the quarter driven by 11% growth outside of New York City.
The growth was broad-based across all modalities with particular, strengths and bustling and school bus. Stop arm enforcement programs.
<unk> over the same period in 2024.
Yeah.
Okay, Let's turn to slide nine for a review of the balance sheet net leverage.
We ended the quarter with a net debt balance of $893 million, which reflects the strong free cash flow we generated in the first half of the year net leverage landed at two two times and we've maintained significant liquidity with our newly expanded $125 million Undrawn credit revolver.
Total revenue grew 10% over the prior year quarter benefiting from about 9 million in product sales which increased by 3 million over the same period last year.
Our gross debt balance at year end stands at about $1 billion of which approximately $690 million is floating rate debt.
Government Solutions. Segment profit was 30 million for the quarter representing margins of approximately 28%, the reduction in margins versus prior year was primarily due to the mixed impact of increased International camera sales Erp, conversion costs and project implementation costs for newly awarded programs.
Let's turn to slide 8 for a view of the results of T2 systems.
Okay, Let's now turn to slide 10, and have a look at full year 2025 guidance.
We generated revenue of 20 million in segment profit of approximately 3 million for the quarter.
Based on our first half results and our outlook for the remainder of the year. We are reaffirming all guidance measures as David discussed our primary consideration in the economic environment and this economic environment and the potential impact to travel demand. While we are reaffirming guidance, we would like to highlight that there is a risk of moving to the lower end.
Assassin Services. Sales were essentially flat compared to the prior year, while product Revenue declined, 18%, or 700,000 dollars compared to 2024
Of the ranges if travel demand worsens from current levels in the event that the U S economy weakens and we see a material move downward in TSA volume, we will reassess and update the market accordingly.
breaking the t2 in SAS Services Revenue down a bit further. Recurring SAS Revenue was was flat compared to the prior year quarter and offset by a decline in installation and other Professional Services due to the reduction in product sales over prior quarters.
At a year-to-date basis. Recurring SAS Revenue has increased low single digits over the same period in 2024.
As a reminder, the full the full year 2025 guidance range as provided on our fourth quarter 2024 earnings call were as follows we expect total revenue in the range of $925 million to $935 million, representing approximately 6% growth at the midpoint of guidance over 2024.
Okay, let's turn to slide 9 for a view of the balance sheet and net Leverage.
We expect adjusted EBITDA in the range of $410 million to $420 million, representing approximately 3% growth at the midpoint over 2024.
We ended the quarter with a net debt balance of 893 million, which reflects the strong free cash flow. We generated in the first half of the Year, net leverage, landed at 2.2 times and we've maintained significant liquidity, where their newly expanded 125 million, undrawn, credit revolver,
We anticipate an adjusted EPS range of $1 30 to $1 35 per share and free cash flow is expected to be in the range of $175 million to $185 million, representing a conversion rate in the low to mid 40 percentile of adjusted EBITDA.
Our growth debt balance at year-end stands. At about a billion dollars of which approximately 690 million is floating rate debt.
Okay, let's now turn to slide 10 and have a look at full year 2025 guidance based on our first half results at our outlook for the remainder of the year. We are reaffirming all guidance measures
Moving on to the segment level government solutions is expected to generate high single digit total revenue growth driven by the expansion of Cameron installations with existing customers and new customers awarded in fiscal year 2024.
Recall that this growth forecast includes an expectation of flat service revenue from New York City in 2025 under the legacy contract, while we work through negotiations for the renewal contract.
As David discussed, our primary consideration in the economic environment in this economic environment, and pot is the potential impact to travel demand. While we are reaffirming guidance, we would like to highlight that there is a risk of moving to the lower end of the ranges. If traveled to man, worsens from current levels in the event that the US economy weakens, and we see a material move downward in PSA volume, we will reassess and update the market accordingly.
We also expect increased product revenue in 2025 taken together both in New York City service and global product sales comprised nearly 40% of total government solutions total revenue the.
The remaining 60% of government solutions revenue is expected to grow low double digits overall in 2025.
ranges provided on our fourth quarter, 2024 earnings call where as follows we expect total revenue in the range of 925 to 935 million representing approximately 6% growth at the midpoint of guidance over 2024,
We continue to anticipate that parking solutions revenue will be about flat with 2024 levels. We expect SaaS revenue to grow low to mid single digits offset by a decline in installation and professional service revenue and roughly flat product sales.
We expect adjusted ibida in the range of 410 to 420 million representing approximately, 3% growth. At the midpoint over 2024
Based on an assumption that travel will be flattish in 2025, compared with $2 20, compared with 2024, we anticipate commercial services growing at the high end of mid single digits. We.
We anticipate an adjusted EPS range of 1.30 to 1.35 cents per share in free cash. Flows expected to be in the range of 175 to 185 million representing a conversion rate in the low to mid 40th percentile of adjusted evidence.
Moving on to the segment level.
We anticipate <unk> revenue.
Adjusted segment profit and margins will improve sequentially in the third quarter, followed by modest declines in the fourth quarter consistent with historical norms based on travel trends.
Government Solutions is expected to generate High single digit total revenue growth driven by the expansion of camera installations with existing customers and new customers awarded in fiscal year 2024.
Other key assumptions supporting our adjusted EPS and free cash flow outlook can be found on slide 11.
Before we close out I would like to give you an update on our ongoing ERP implementation.
Recall that this growth forecast includes an expectation of flat service revenue from New York City in 2025 under the Legacy contract while we work through negotiations for the renewal contract.
I am pleased to report that the project is on schedule and on budget, we have several smaller processes to transition over the next several quarters, but the most complex portion of the project is largely complete.
We also expect increased product Revenue in 2025 taken together both in New York City service and Global product sales comprise nearly 40% of total, Government Solutions, total revenue.
In closing, we're very pleased with our first half performance, we exhibited solid execution across the board and we are delivering strong free cash flow and earnings as we head into the final months of 2025. There is a lot to be excited about stabilizing travel trends finalizing the contract with New York City Department of Transportation and <unk>.
The remaining 60% of Government Solutions. Revenue is expected to grow low double digits overall in 2025
Strong demand for automated enforcement this.
We continue to anticipate that Parking Solutions. Revenue will be about flat with 2024 levels. We expect SAS Revenue to grow low, to mid single digits offset by a decline in the installation and Professional Service revenue on roughly flat product sales.
This concludes our prepared remarks, thank you very much for joining us on the call today I'd now like to open the call for questions.
Based on an assumption that travel will be flattish in 2025 compared with to 20 compared with 2024, we anticipate Commercial Services growing at the high end of mid single digits.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one.
We anticipate CS Revenue adjusted segment profit and margins will improve sequentially in the third quarter followed by Modest declines in the fourth quarter consistent with historical Norms based on travel trends.
Again.
Please standby, while we compile the Q&A roster.
Other key assumptions, supporting our adjusted EPs and free cash flow Outlook can be found on slide 11.
Before we close out, I'd like to give you an update on our ongoing Erp implementation.
Our first question comes from the line of Faiza <unk> from Deutsche Bank. Your line is now open.
Great. Thank you very much so I wanted to just throw out some of your commentary around commercial services and sounds like there's a few moving parts.
I am pleased to report that the project is on schedule. And on budget, we have several smaller processes to transition over the next several quarters. But the most complex portion of the project is largely complete.
First just on travel just want to put a finer point on or are you essentially run rating sort of word Q2 travel firms.
In closing we're very pleased with our first half performance. We exhibited solid execution across the board and we're delivering strong free, cash flow and earnings. As we head into the final months of 2024, there's a lot to be excited about
Or where are you, maybe where you exited to kill so just give us a better sense of what youre assuming for travel in the back half.
Stabilizing travel Trends. Finalizing the contract with New York City, Department of Transportation and strong demand for automated enforcement
And then separately you mentioned, okay, I'll I'll, let I'll, let you answer that.
This concludes our prepared remarks. Thank you very much for joining us on the call today, I'd now, like to open the call for questions.
No.
Yeah. Thanks, So I'll do the first part for <unk> first of all we had a little technical issue at the beginning of the call can you hear me Okay. It's Greg.
Yes.
Okay. So if we back up to the end of the first quarter I'll get to your question I want to start with a little context right. So last time, we were on the call. We talked about the guide for the company was still stand.
Thank you. At this time. We will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 1 on your telephone and wait for your name, to the announced to withdraw your question. Please press star 1 1 1 again.
Please stand by while we compile the Q&A roster.
TSA volumes stayed at around flat to last year or two down a handful of points. Okay now, bringing that forward three months were sold the exact same place what we saw in the second quarter. The TSA throughput was about 99%.
My first question comes from the line of fisa Ali from Deutsche Bank, your line is now open.
First up and got a little better in July just north of 100% and if you look at it as David said in his script on a year to date basis, we're right at about 100%. So that's the state of play I think the other thing that's different is the backdrop where.
Where the sentiment on travel is stronger than it was 90 days ago I think we all heard that from the airlines and the whole cast. So now to your question. What we've done for demand go forward is we've taken in essentially the <unk> exit rate, which is somewhere between 99, and 100% and left that as the throughput rate for the back half.
Great, thank you very much. Um, so I wanted to just flesh out some of your commentary around Commercial Services, and sounds like there's a few moving Parts. Um, first just on on travel. Just want to put a finer point on. Are you essentially run rating? Sort of where Q2 travels hands were, um, or sort of, you know, where you maybe where you exited to Q. So, just give us a better sense of what you're assuming for travel in the back half. Um, and then, secondly, you mentioned, oh okay, I'll, I'll, I'll let you answer that, then then I'll follow up.
For the year, which still puts us within the range of guidance that we set at the beginning of the year and that's what it looks like the consensus is for travel in the near term in the market today.
Yeah, thanks. We'll do the first part first 5, first of all. Okay, then we had a little technical issue at the beginning of the call. Can you hear me? Okay, it's Greg.
Yes.
Alright.
That makes sense and then just on some of the other moving parts, sorry, like humans and fleet management.
Yes.
Maybe macroeconomic factors in China, So just give us some pause I mean, it seems pretty small given the revenue amounts that you gave us but like is it going to get the worsens requeue and just give us a bit more color on sort of how what.
Down a handful of points.
It needs to happen for things to stabilize in Park Hill.
Okay. Now bringing that forward 3 months, we're still in the exact same place what we saw in the second quarter, the TSA throughput was about 99%.
Yeah sure I think I think you said it well right. So yes, there we saw a small decrease in our <unk> results. It was only $300000 or about 2% and that was the result of some macroeconomic headwinds in some churn now that is going to accelerate as we get into the third quarter. So we expect that.
To be fully baked into our run rate by the third quarter. So we will be down again here in the third quarter and then I think from a total demand standpoint that will be the base from which we will then again grill.
Alright, Great and then just my second question was really around your it sounds like you raised the guide for government solutions, just give us some color on like what got better or is it just better earlier execution or conversion of the some of the <unk>.
That stepped up and got a little better in July at just north of 100%. And if you look at it as David said in the script on a year to date basis, we're right at about 100%. So that's the state of play. I think the other thing that's different is the backdrop, um, where the sentiment on travel is stronger than it was 90 days ago. I think we all heard that from the airlines in the hotels. So, now to your question, what we've done for demand. Go forward, is we've taken in essentially, the 2q exit range, which is somewhere between 999 and 100% and left that as the throughput rate, for the back half of the year, which still puts us within the range of guidance that we set at the beginning of the year. And that's what it looks like. The consensus is for travel in the near term in the market today.
Two of revenue or is it something else.
I'm, sorry are you asking about the commercial activity.
No I was asking about the government solutions.
And the guy the slight guidance raise there and if you were seeing.
There is conversion from <unk> to revenue or if it was something else that was driving the increase.
All right, understood. Makes sense. Um, and then just on some of the other moving parts, right? Like you mentioned fleet management, you know, some maybe macroeconomic factors, insurance. So, just give us a sense of, I mean, it seems pretty small given the revenue amount that you gave us. But like, is it going to get worse than Q3? And just give us a bit more color on sort of how, you know, what needs to happen for things to stabilize in Q2?
Yes.
As I think about it is there is there is really broad based strength.
It's across both so product is going to be higher than we anticipated at the beginning of the year and thats a bit of a positive and negative right. So that's positive on the revenue line. If I look at the mix of that business, that's going to be a little bit dilutive on the margin line you can see that in the results in the second quarter.
Not materially 100 basis points in the quarter, but still you will see it and as we go forward and look at the demand for photo enforcement that honestly, it's done nothing but accelerate throughout the year. So when we started the year. We said high single digits is pretty much what we saw the non New York City service revenue growth, we feel comfortable today.
Yeah, sure. I I think, I think you said it. Well, so, yes, there. There, we we saw a small decrease in our 2 Cube results. So it was only 300,000 or about 2% and that was the result of some macroeconomic, headwinds, and some churn. Now that is going to accelerate as we get into the third quarter. So we expect that to be fully baked into our run rate by the third quarter. So we'll be down again here in the third quarter and then I think from a total demand standpoint that will be the base from which we will. Then again grow
And thats going to be in the low double digits. So the short answer is it's both of those things I think the final piece to that is if we think about the.
All right. Great. And then just my sort of second question was really around uh, you know, you it sounds like you. So you raised the guide for Government Solutions, just give us some color on, like what, you know what got better? Is it just better or earlier execution or conversion of the, you know, some of the arr2 revenue or is it something else?
The commercial activity, we talk about it in terms of loosely defined this backlog or what does that <unk> that we've built up in the last trailing 12 months that number is sitting at $61 million.
I'm I'm sorry if I are you asking about the commercial activity?
The TTM basis of that six months ago is in the <unk> or fifties right. So we continue to see.
Uh, know I was asking about the Government Solutions, um, and the the guy the slight guidance raised there. And if you were seeing, you know, faster conversion from arr2 revenue or or if it was, you know, something else, that was driving the increase.
This bow wave of the move to photo enforcement continue to move in the Companys favor an infant capitalized.
Got it thank you.
Okay.
Okay.
Thank you. Our next question comes from Daniel Moore from CJS Securities. Daniel Your line is now open.
Thank you thanks, David Thanks, Greg.
And congrats on another solid quarter.
I wanted to pull on the string of margins in government solutions, a little bit you just gave good color regarding the mix pressure in the quarter.
Hum.
How much.
Setup costs are in that and are sort of in the guide as we think about some of these new opportunities.
Yeah. Yeah, you know, I I, as I think about it, there's there's, there's really broad-based strength. It's it's across both. So product, is is going to be, um, higher than we anticipated at the beginning of the year. And that's a bit of a, a positive and negative, right? So that's a positive on the revenue line. If I can look at the mix of of that business, that's going to be a little bit diluted on the margin line. You could see that as a result of the second quarter, not materially 100 basis points in the quarter, but still you'll see it. And as we go forward and look at the demand for photo enforcement. That honestly, it's done nothing but accelerate um, throughout the year. So when we started the year, we said High single digits, is pretty much what we thought. The non New York City service Revenue would grow. We feel comfortable today saying that's going to be in the low double digits.
You generally have to invest a little bit ahead of revenue so.
I'm getting at is sort of as we think about full year margins.
Whether that's a new baseline from which will be flat to up or expand from as we think about you know kind of fiscal 'twenty six and beyond in the government solutions piece of the business.
Yeah. Thanks, Dan This is Craig again.
Let me, let me answer with a very detailed answer for the quarter and then give you an idea how is how I think this looks okay. So.
So, the short answer is it's both of those things. And I think the final piece to that is. If we think about the, um, the commercial activity, we talk about it in terms of loosely defined, this backlog, or what is that ARR that we've, we've, uh, built up in the last trailing, 12 months. That number is sitting at 61 million the TTM basis of that 6 months ago is in the 40s or 50s, right? So we continue to see um, the the this bow wave of the move to photo enforcement continued to move in the company's favor and we've been capitalizing
If I just look at year over year were down 250 basis points. So if you look at that on the face of it that thats, a rough number but let me break it down about 100 basis points of that is simply mix that is we are up 46% in product sales to international customers year over year I Love that is just lower margin is just lower margin the headquarter.
Got it. Thank you so much.
Thank you. Our next question comes from Daniel Moore from CJs Securities. Daniel your line is now open.
So we kind of take that away from the 250, another 100 basis points now we've built up 200 to 250 is from the ERP cost that we incurred in the second quarter, that's going to hit full <unk> that was the thrust of the activity.
Thank you, thanks. David. Thanks Greg. Um, and congrats on another solid quarter. I wanted to pull on the string of margins and Government Solutions a little bit. Um, you just gave the color regarding the the mixed pressure in the quarter.
So now we've got 50 basis points left which is exactly what you asked that is the incremental if you will set up cost now.
I hesitate to go out to 2026 simply because we are not yet through contracting with New York City. Once we're done contracted with New York City I think we can lay all of that out, but what I will tell you that the hopefully help you a little bit farther down the path is if we kind of set New York City to the side for a second the way.
Your margins. Um, whether that's a new baseline from which, you know, will be flat to up or expand from as we think about, you know, kind of fiscal 26 and Beyond in the Government Solutions, piece of the business
We think about this is if the business continues to grow outside of New York City up low double digits that will probably be slightly margin dilutive until we get most of the way through 2026, and what I mean by that is if we go back to the last 12 months to 18 months, we talked about the platform consolidation that's going on in <unk>, yet that's still going on.
We're still investing in that not a material year over year amount of money, but it's not like yes. So the confluence of that against the low double digit growth will help us be able to create and grow on revenue and maintain margin until that point I can't get there. That's the temporary answer obviously will reset the whole mark once we <unk>.
Have a view with where New York City's gave me.
Perfect really helpful.
I'm sure. The answer is no comment, but any update just in terms of timing around that.
Yeah, thanks Dan. Craig again. Um, let let me, let me answer with a, a very detailed answer for the quarter. And then give you an idea how I, how I think this looks. Okay. So if, if I just look at year-over-year, um, we're down 250 basis points. So, if you look at that on the face of it, that, that, that that's a rough number. But let, let me break it down about a 100% of that is simply mixed. That is, we are up 46% in product sales to International customers year-over-year. I love that. It's just lower margin. It's just lower margin that hit important. So we kind of take that away from the 250, another 100 basis points. Now, we've built up, 200 of the 250 is from the Erp cost that we incurred in the second quarter that's going to hit both Cs and GS that was the thrust of the activity. Um, so now we've got 50 basis points left, which is exactly what you asked. That is the incremental if you will set up cost,
New York City renewal alright.
Alright.
Finalization.
Dan its David and no comments seems a bit rate given our longstanding relationship but what.
I would say is that.
We honor the state the state of the contract with our customer and so we're working toward a resolution so.
Obviously sooner than is better, but we'll just as soon as soon as it is done we will announce it and get all the relevant <unk> to the market.
Now to to I I hesitate to go out to 2026 simply because we are not yet through Contracting with New York City. Once we're done, Contracting with New York City, I think we can lay all all of that out. But what I, what I will tell you that the hopefully help you a little bit farther down, the path is if we kind of set New York City to the side for a second. The way we think about this is if the business continues to grow,
Look forward to the call.
Lastly, obviously the balance sheet continues to improve.
Leverage ticking down towards two times, maybe just touch on MMA M&A pipeline and borrowing conditions were more likely to pick up the pace of share buybacks, rather than let leverage continue to take lower below the kind of low end of your target range. Thanks again.
Yes, Thanks, Dan I don't think anything's changed in our strategy that we've laid out which is we still think that three times is the level of flight plan for the company. We've got an open share repurchase we're going to be opportunistic with that.
Outside of New York City at low double digits, that will probably be slightly margined until we get most of the way through 2026. And what I mean by that is if we go back to the last 12 to 18 months, we've talked about the platform consolidation that's going on in Gs that's still going on. We're still investing in that, not not a material year-over-year amount of money, but it's not live yet. So the Confluence of that against the low double digit growth will help us be able to recreate and grow on revenue and maintain margin until that point I can't get there. That's the temporary answer. Obviously we'll reset the whole Mark once we have a view of where New York City's going to be
But I would just say that M&A activity is really starting to pick up and so we are we continue to look at really interesting businesses.
Across multiple segments and so we will continue to play our strategy, but only we're only going to do a deal when it makes sense for our shareholders. So if not we'll always go back to investing in the business or potentially buying back shares. So we're going to kind of keep doing exactly what we've been doing.
Perfect. Really helpful. Um, I I'm sure the answer is, uh, no comment. But any update just in terms of timing around the the New York City renewal
Very good I appreciate it.
Thank you. Our next question comes from Keith <unk> from Northcoast Research Keith Your line is now open.
Or that finalization. Hey Dan Dan, it's David and uh no comment seems a bit rude given our long-standing relationship. But uh, what I would say is that, um, you know, we we honor the state, the state of the contract that it is with our customer. And so we we're working toward a resolution, so, um, obviously sooner than is better. But we'll just as soon as, as soon as it is done, we will announce it and give all the relative, all the relevant information to the market.
Good afternoon, guys, Hey, David I think it was maybe the first quarter I recall European operation is being called out and see us.
Of course, you guys had a press release announcing our agreement with six during the.
Quarter I believe it was with Italy, perhaps maybe you can dimensionalize about the success, you're having with Europe understanding it's still early stages, but perhaps the contribution and how you think about that over the next year or so.
Look forward to the call. Um, lastly, obviously the balance sheet continues to improve, you know, leverage taking down toward 2 times, maybe just touch on, you know, Emily m&a Pipeline and borrowing positions and we more likely to pick up the pace of share BuyBacks, you know, rather than let leverage continue to take lower, you know, below the kind of low end of your target range. Thanks again.
Yes, Thanks, Keith I actually just got back from there are a couple of weeks ago and was meeting with customers and what I would say.
You've been with us for a while.
But the ice falling and I would say that there's water on the side of the glass is maybe the best way I describe.
We are definitely.
We are starting to rollout in Italy with some of the customers like Avis budget the value proposition is.
It's compelling to our customers.
And so I think it's starting to move up again, it's not going to be material. I think next year, we'll probably be able to dimensionalize that in terms of total contribution, but we are starting to see multiple deployments in multiple countries and so it's actually getting pretty excited and the greatest part of that obviously gave us the customers are telling us that they really like it.
Yeah, thanks Dan. I don't think anything's changed and our strategy that we've laid out which is we still think that 3 times is the level of flight plan for the company. Uh, we've got an open share repurchase, we're going to be opportunistic with that, um, but the, I would just say that m&a activity is really starting to pick up. And so we, uh, we continue to look at really interesting businesses, uh, across multiple segments and so, uh, we'll continue to play our strategy but only, you know, we're only going to do a, do you want to make sense for our shareholders? So, if not, we'll always go back to investing in the business or potentially buying back shares. So we're going to kind of keep doing exactly what we've been doing.
Very good. Appreciate it.
Well congratulations I know, it's been a long haul and he has been working hard on that yes. So a good yes outside of Italy is there any other countries that are getting close to doing it as well or as far as long as Italy.
Thank you. Our next question comes from Keith howsam from North Coast research. Keith your line is now open.
Yes, so we have.
But I believe seven countries total Italy is what you really want is really one of the bigger ones because it was it's moving to cashless.
And because of our Peg Italia.
But we're able to do transponders in Italy, as well as others.
Thank you. Um, good afternoon, guys. Hey, you know, David, I think this might be the first quarter. I recall European operations being called out in CS. And then of course you guys had a press release announcing an agreement with 6 during the um quarter. I believe it was with Italy. Perhaps maybe even dimensionalized about some of the success you're having with Europe, other things still early stages but perhaps the contribution and and how you think about that over the next year or so.
So thats part of it we are also France is the other big one, but we also work in Portugal, Spain and Ireland.
France, Italy. So those are the ones that we're working on today.
Okay.
I've got to ask this question more just to make sure we're covering our basis here, but as you guys are adding new cameras to the portfolio here.
The tariff issues are obligations that we have to worry about impacting costs going forward doing.
When you.
<unk> drill that in a little bit more Keith in terms of what kind of cost youre talking about yes, sorry in terms of purchasing cameras for the photo enforcement program as you've been adding new <unk>.
Agencies here are there any tariff stereo practical reduce your <unk>.
And so I think it's starting to move up again. It's not going to be material. I think next year, we'll probably be able to Dimension that in terms of total contribution. But we are starting to see multiple deployments in multiple countries, and so, it's actually getting pretty exciting and and the greatest part of that, obviously, keep is, the customers are telling us that they really like it.
Profit on the cameras.
No.
I don't think so I mean, if anything I like I like where we're heading on the volumes and I think the other pieces. When we talk about platform consolidation is a multiyear project that's going to bear some fruit for us here in the back half of next year on what is going to work really well with the generation of cameras that we've been buying so.
Yeah, well congratulations. I know it's been a long haul. And you guys have been working hard on that. So good to see outside of Italy is there any other countries that are getting close to doing it as well? Or as far as long as Italy?
Yes, I think.
I'll say, what I said, a little bit earlier, Keith because I think it bears repeating is the business continues to grow in the low double digits, which let me be crystal clear.
I have every intention that it will I certainly hope it does we are going to continue to see those those those installation costs small incremental installation costs come ahead of revenue, especially in the Greenfield area. So we talk about David mentioned, Colorado, and Nevada, I believe earlier, but outside of that I don't see anything structural coming down the pipe.
Uh, yes, so we have uh, I believe it's 7 countries. Total Italy is 1 you really want. It is really 1 of the bigger ones because it was, it's moving to cashless. Uh, and because of our packet, tell you, uh, apps that were able to do transponders in Italy as well as others. Um, so that's part of it. Uh, we are also France is the other big 1, but we also work in Portugal, uh, Spain and Ireland, uh, France, Italy. Uh, so those are the ones that are working in today.
Great. Thank you.
Okay. And I've got to ask this question more just to make sure we're covering our bases here. But as you guys are, you know, adding new new cameras to the portfolio here. Uh, you there's no tear issues or obligations that we have to worry about impacting cost going forward. Do we?
Thank you. Our next question comes from Louie Dipalma from William Blair Louie You're line is now open.
David Craig and Mark good afternoon.
Hello, Good afternoon Murray.
What do you what do you do? You drill that in a little bit more geese in terms of what kind of cost you're talking about. Yeah, I'm sorry and in terms of purchasing cameras for the photo enforcement program as you've been, you know, adding new, um, agencies here, um are there any tariffs that are perhaps will reduce your um, your profit on the cameras?
No, I don't. I
You have discussed.
Our the past several years and everybody has witnessed the Tam or a thought.
Photo enforcement.
Expanding and I was wondering could you provide some commentary on the pipeline.
You you announced very strong bookings this quarter and strong bookings over the past.
Trailing 12 months.
And.
In terms of your your bids outstanding and some of the newer markets.
Or.
How does the RFP process and do you have more bids outstanding today than you did a year ago and how is everything translating in terms of.
Don't know. I mean, you know if if anything I like I like where we're heading on the volumes and I think the other piece is when we talk about platform, consolidation is a multi-year project that's going to Bear some fruit for us here in the back half of next year. Um what's going to work really well with the generation of cameras that we've been buying? So I I think, you know what, I'll say what I said a little bit earlier Keith because I think it it Bears repeating is, you know, if the business continues to grow in the low double digits, which let me be crystal clear I I I have every intention that it will and I'm certainly hope it does. We are going to continue to see those those in those installation costs. Small incremental, installation costs.
Come ahead of Revenue, especially in the Green Field areas. So we talked about David bench in Colorado and robot I believe earlier. Um but outside of that, I don't see anything structural coming down the pike
Bookings converting into actual revenue.
Great. Thank you.
Yes, so I think Craig.
We had 60 million run rate.
Thank you.
We've added.
So big picture Louis is going very well.
Our next question comes from Louie DePalma from William. Blair Louie. Your line is now open.
I think California is sort of are great.
Craig and and mark good afternoon.
<unk>.
Good afternoon, Louie.
We laid out a playbook, we talked about opening legislation, we were able to support the state and enabling that legislation at a pace that was higher than we would've anticipated we've been able to work with great cities, including San Francisco, and Oakland and some of the others and so I would say that all of those are starting to translate.
They are moving toward revenue recognition reasonably well, but that also speaks to the issue that Craig was talking about just a moment ago were.
When they say go we start working as fast as we can but the revenue doesn't start until the cameras turned on so thats part of that.
you have discussed um over the past several years and everybody has witnessed um The Tam for the photo enforcement Market expanding and I was wondering could you provide some commentary on on the pipeline and that you, you announced, um, very strong bookings this quarter and strong bookings, over the past trailing 12 months,
Reality, so we're seeing very very strong pipeline movement very strong conversion in our win rate and all of that's going to slow down the revenue the $60 sort of an indication of that.
Fantastic, Thanks and for them.
The commercial business.
You discussed the.
And but in terms of your, your bids outstanding and some of the newer markets, um, our house, the RFP process and do you have more bids outstanding today than you did a year ago? And and how is everything translating in terms of bookings converting into actual Revenue.
Slowdown in travel.
And I was wondering.
As it relates to the overall algorithm with all things being equal can investors assume.
Yeah. So I think Craig had said that we had UH, 60 million of our run rate, uh, that we've added. Uh, so so I I say, say, big picture Louie is, it's going very well.
A general 5% Alpha outperformance of your revenue growth above the travel volume.
And.
Craig and David and Mark you've previously discussed how in addition to <unk>.
Travel volume, there's other variables such as the ship the cashless more toll roads.
Total inflation.
And the bundled.
Thing, but has there been any.
Other.
Slowing for those other secular trends in terms of the share.
The cashless or increased coloradans or are those other secular trends healthy.
Louis They are so let me let me try to answer your question that you started with those as safely as I, possibly can.
Uh, I think California is sort of our great sign of. We we laid out a Playbook, we talked about opening legislation, we were able to support the state and enabling that legislation at a pace that was higher than we would have anticipated. We've been able to work with great cities, including San Francisco and Oakland and some of the others. And so I would say that all those are starting to translate, um they are moving toward Revenue, recognition reasonably well but that also speaks to the issue that Craig was talking about just a moment ago where, you know, we when they say go we start working as fast as we can. But the revenue doesn't start until the cameras turned on. So that's part of that, uh, reality. So we're we're seeing very, very strong pipeline movement, very strong conversion in our win rate and all that's going to slow down the revenue. The 60 million is sort of an indication of that.
I Love the way you phrased it can I put a 5% outbound travel demand and say you know.
Fantastic, thanks and for um, the commercial business.
Run macro and Thats going to go forecast.
Commercial services, what I would tell you is for this year, that's going to hold it might not next year it might be bigger it might be smaller. So that's why I would say that's the state of affairs, where it is today and let me equate that back to what we talked about two quarters ago and last quarter right. We talk about growth in this business as a third a third a third a third of that growth to get to.
The um, slowdown in travel.
And I was wondering.
as it relates to the overall algorithm, with all things being equal can investors assume
A general.
High single digits right that a third of that growth was GDP as travel growth. If we have 99% to 100% in the back half of the year, we did 99% in the second quarter, a little over 100% in the first quarter you average that out it looks a lot like a 100%. So I don't have that percentage right. So I see how you are getting.
5% alpha outperformance of your Revenue. Growth above travel volumes.
Yeah, I would say that.
All of those secular tailwind that we've talked about in the past they are absolutely still occur absolutely. The trend is unmistakable. However, sometimes there is fits and starts right. Sometimes it grows a little faster sometimes it grows a little slower so that growth will be there whether it will be a 5% alpha in 2028, I can't sit here and.
Um, as Craig and and David and Mark, you probably see, discussed how in addition to, um, travel volumes there's other variables such as the ship, the cashless more toll roads, total inflation. Um and the the bundled pricing. Um, but has there been any other um, slowing for those other secular Trends in terms of the shift to cash flows or increase tolerance, or are those other secular Trends healthy?
Definitively tell you this.
Yeah.
That makes sense excellent thanks, everyone.
Thank you.
Thanks, Larry.
Okay.
Thank you. Our next question comes from David Koning from Baird. David Your line is now open.
Yeah, Hey, guys.
You know, Louis, they they are. So let me let me try to answer your question that you started with those succinctly as I possibly can. But I love the way you phrase it. Can I put a 5% alpha on travel demand and say you know run macro and that that's going to go forecast um you know Commercial Services. What I would tell you is for this year's that that's going to hold, it might not next year. It might be bigger, it might be smaller. So I wouldn't. So I would say that's the State of Affairs where it is today and let me equate that back to what we talked.
Good job and I guess first of all I.
I wanted to just look at Capex. It was like clockwork kind of $10 million to $15 million a quarter for for many quarters kind of through 2000 early 2022 through 2024, mostly and then by late 2024 and into this year. It's it's I'd say over doubled in I know that's in preparation for demand.
But it's not like revenues doubled yet and just I'm wondering like what's the what's the relationship there like if it's double why shouldn't revenue be double.
Talked about 2 quarters ago and last quarter, right? We talked about growth in this business as a third, a third, a third, a third of that growth to get to high single digits, right? That a third of that growth was GDP is travel growth. If we have 99 to 100% in the back, half of the year, we did 99% in the second quarter, a little over 100% in the first quarter. You average. That out looks a lot like 100% so I don't have that to a half percent this year.
Or is it just a.
Shorter term kind of build and then six months from now we'll see better growth how should we think of that relationship.
Yes.
Get it.
Dave Thanks for the question. So couple of things right is that Capex tends to lag the depreciable life of that Capex is five to seven years. The useful life of that Capex can be tenants. So I think just from linear mathematics, we're going to have or we can have a disconnect on that piece. The second thing I would say is when youre right.
Right, so I I I see how you're getting there. I would say that. And, and all of those secular Tailwinds that we've talked about in the past, they are absolutely still occurring. Absolutely. The trend is unmistakable. However, sometimes there's fits and starts, right, sometimes it grows a little faster, sometimes it grows a little slower, so that growth will be there, whether it will be a 5% alpha in 2028. I can't sit here and defend you then.
That makes sense. Excellent. Thanks everyone.
Thank you.
Thanks.
That grew like $15 million to $18 million like clockwork. He nailed it at the time the growth rate of the business was in the mid single digit, especially outside of New York City or might have been closer to low single digits that today's growing at 12% net 12% is compounded on double digit growth last year right. So the vast majority.
Thank you. Our next question. Comes from David coning from beard David. Your line is now open
That's the buildup now let me go and kind of tear it down from the top down if you think about a roughly $100 million capital expenditure for the business you take out the ERP the platform consolidation youre going to end up with we're going to spend somewhere between $60 million to $80 million I know, that's a big range, but business is really moving quick right now.
$60 million to $80 million worth of Capex into the government solutions business, which is roughly two five times what it was in the past and the business could be that size with this kind of growth five to seven years from today.
Yeah. Hey guys. Um, good job and I guess, first of all, I I wanted to just look at capex. It was like clockwork, kind of 10 to 15 million a quarter for for many quarters, kind of through 20, really 2022 through 2024 mostly and then by late, 2024, and into this year, it's, it's, I'd say, over doubled and I know that's in preparation for demand, but it's not like revenues doubled yet. And just, I'm wondering, like, what's the, what's the relationship there? Like, if it's double, why shouldn't Revenue be double? Um, or is it just a, a shorter term kind of build? And, and then 6 months from now, we'll see better growth. Like, how how should we think of that relationship?
That's how I look at it.
I I get it. Uh, uh, Dave. Thanks for the question.
Yeah, no that makes sense and certainly leading to better to good growth better growth it's great.
right is
And then my follow up the big kind of Nerdy question Dean.
DNA has been running 28 $29 million a quarter. The last couple of quarters full year Guide I think is $110 million that implies lower back half DNA unless I'm looking at something wrong.
I think I don't think youre looking at something wrong, when youre starting to see thats not on the <unk> side right. So what we're starting to see is look is this is a something else we talked about earlier in the call right, where the company hasn't done a deal in three years plus years. So some of the amortization from the deals that we did in.
tends to well, the depreciable life of that capex is 5 to 7 years. The useful life of that capex can be 10 plus. So I think, just from linear mathematics, we're going to have, oh, we're going to have a disconnect on that piece. The second thing I would say is when you're right, right, that grew like 15 to 18 million dollars like clockwork, you nailed it. At the time. The growth rate of business was in the mid single digits, especially outside of New York City. It might have been closer to the low single digits that today's growing at 12%. That 12% is compounded on Double Digit growth last year, right? So I I the vast majority like that. So, that that's the build up. Now, let me go and kind of tear it down from the top down.
The late teens and even into 2020.
The customer list amortization non cash expenses are starting to run off and if you take a look at I know you do if you look at our Q and our K you can see the useful lives those are starting to get down to low single digits. We're couple of years ago. They were 567 years.
Gotcha totally makes sense. Thank you.
Thank you.
Thank you.
If you think about a roughly hundred million dollar capital expenditure for the business, you take out the Erp, the platform consolidation. You're going to end up with we're going to spend somewhere between 60 to 80 million. I know, that's a big range, but business is, is really moving quick right now. 60 is roughly 2 and a half times what it was in the past and the business could be that size with this kind of growth 5 to 7 years from today.
That's how we look at it.
Okay.
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29 million a quarter, the last couple quarters full year guys, I think is 110 million that implies lower back, half DNA unless I'm looking at something wrong.
Uh, I think you're, I don't think you're looking at something wrong when you're starting to see, that's not on the D side. It's on the a side, right? So what we're starting to see is look is this is something else we've talked about earlier in the call, right? With with companies on deals in in uh 3 years plus years. So some of the amortization from the deals that we did in the late teens and even into 2020 um that the customer list standardization, non-cash expenses are starting to run off and if you take a look at, I know you do. If you look at our q and our K, you can see the useful life of those are starting to get down to low single digits where a couple years ago. They were, you know, 5 6, 7 years.
Gotcha, totally makes sense. Thank you.
Thank you.
Thank you.
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