Verra Mobility Corp (VRRM) 2024 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Verra Mobility second-quarter 2024 earnings call. (Operator Instructions)

I would now like to turn the conference over to Mark Zindler, Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to Verra Mobility's second -quarter 2024 earnings call. Today, we'll be discussing the results announced in our press release issued after the market close, along with our earnings presentation, which is available on the Investor Relations section of our website at ir.verramobility.com. With me on the call are David Roberts, Verra Mobility's Chief Executive Officer; and Craig Conti, our Chief Financial Officer. David will begin with prepared remarks, followed by Craig, and then we'll open up the call for Q&A.

Management may make forward-looking statements during the call regarding future events anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. 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'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.

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 ir.verramobility.com. With that, I'll turn the call over to David.

Thank you, Mark, and thanks, everyone, for joining us. We had a strong second quarter with revenue, adjusted EBITDA and earnings directly in line with our internal expectations. Businesses are performing as expected, and we're poised to have a strong second half of the year. Travel demand remains robust and we anticipate continued strength through the balance of the year. Year to date, TSA passenger volumes as of June 30, stands at 106% of 2023 volume for the same period, driven by strong consumer and business demand, with the latter demonstrated potential for more growth.

In our government solutions business. The bid pipeline for automated enforcement is strong and growing second quarter contract awards represented approximately $12 million in incremental ARR at full run rate, bringing the year to date incremental ARR up to $22 million. I'll explain on our awards and bids opportunities later in my prepared remarks. Transitioning back to our second quarter financial highlights. Consolidated revenue growth was 9%, adjusted EBITDA increased 8% and adjusted EPS increased 7% over the prior year period, demonstrating the predictable strength of our portfolio of businesses.

Based on our year-to-date financial performance and our outlook for the remainder of the year, we are reaffirming full year 2024 guidance, which Craig will elaborate on in his remarks. Now moving onto our business unit operations. The commercial services team delivered outstanding results, driven by strong and durable domestic travel trends and our continued strong performance in the fleet management business. Second quarter revenue of $104 million grew 10% over the prior year quarter and adjusted EBITDA margins of 67% were up about 210 basis points over last year, due primarily to the strength of rental car tolling.

Second quarter TSA throughput volume was about 106% of 2023, driving strong growth in adopted rental agreements and tolls incurred, all of which resulted in an 8% increase in rack tolling revenue. Additionally, our FMC business generated revenue of $18 million for the quarter, representing 18% growth over the prior year period, primarily driven by enrollments of new vehicles and increased tolling from FMC customers.

Moving on to Government Solutions, recurring service revenue, which reflects 94% of total revenue for the quarter grew 8% over the same period last year in recurring service revenue growth was driven by program expansion from existing customers and new cities, implementing photo enforcement efforts to improve road safety. To this point outside of New York city, we drove 14% service revenue growth due to these factors. Total revenue, including international product sales, were up about 11% over the prior year quarter next, I'll elaborate on the second quarter award activity I highlighted earlier and provide an update on a strong quarter for legislative action supporting automated enforcement.

As I mentioned, we won contract awards representing about $12 million of ARR in the second quarter, bringing the year to date incremental ARR total to $22 million. Of note, we were awarded contracts in California for red light enforcement, representing about $3 million in ARR. We are highly engaged in California and are excited to compete for impending seed program pilots. Other notable awards include speed enforcement in Doral, Florida, Tempe, Arizona, and several locations across New Zealand, all of which represent about $5 million in total incremental ARR.

I'm also pleased to report several authorizations and expansions of legislation to advanced automated enforcement that advanced automated enforcement across the US. In Hawaii the existing red-light program was expanded and speed enforcement was newly authorized.Minnesota authorized red-light work zone speed and school zone speed pilot programs. Additionally, in Vermont, a work zone speed pilot program was authorized and finally in Oregon, the state passed authorization for school bus stop-arm enforcement.

This is truly an exciting time for our industry as state and local governments embrace technology to solve our most important traffic safety challenges over the past 18 months we have seen the total addressable market for automated enforcement in the US grow by about $125 million, with the potential to further expand to greater than $250 million as further legislation allows.

Moving on to New York City. In July, the city's Department of Transportation released its RFP for operating and maintaining its automated traffic enforcement programs. The RFP outlines the agency's requirements and expectations for a qualified single vendor that will run the current programs with the ability to support back office services for all existing use cases and any potential future expansions. With New York City being among our most important clients, we look forward to submitting our proposal on or before that deadline.

Next, a brief update on T2 Systems. We generated total revenue of approximately $21 million for the second quarter. As we anticipated, onetime product revenue declined about $1 million compared to the prior year quarter due to a structural transition away from hardware and towards software and mobile solutions. As product revenue decelerates, we also experienced a decline in onetime professional services revenue. Recurring SaaS revenue grew mid-single digits over the prior year quarter. Adjusted EBITDA was $3 million for the quarter. We anticipate this quarter to be the low point for adjusted EBITDA dollars and margins and to increase sequentially over the balance of the year.

As we look to the future of the urban mobility market, we're confident that cities will continue to seek out technological solutions to help address their transportation challenges. We recently partnered with survey company Wakefield research to learn what municipal technology leaders were focused on with their technology investments. More than half of these leaders have reducing road safety incidents as a top three priority for tech-based solutions. When asked which AI driven options for traffic monitoring and enforcement would you most one for your jurisdiction, more than half of the responses identified safety needs and high fatality corridors in their top three.

We remain steadfast in our optimism that technology solutions are going to be a top of mind investment for our urban mobility customers. Next, turning to capital allocation. We maintain net leverage at 2.4 times providing optionality for future capital deployment. In the second quarter, we repurchased $2 million shares from a selling stockholder, leaving slightly less than $50 million under our stock buyback open authorization. We also remain active in our evaluation of M&A opportunities. The M&A market and specifically within smart mobility continues to present opportunities for investments.

As we look to adjacent market expansion to broaden our portfolio of companies. We continually scan the landscape for markets where our technology and experience can be leveraged into new vectors for growth. Adjacencies within urban mobility, government software and public safety are examples of markets where we have begun -- that we have begun to look more deeply into.

In summary, we've had a great first half of the year. We're doing exactly what we said we'd do in terms of financial performance. Additionally, travel demand remains robust and the bid pipeline is strong and growing. This is a great business with a bright future. And I look forward to sharing additional updates as we continue to execute against our growth strategy.

Craig, I'll turn it over to you to guide us through our financial results and 2024 guidance discussion.

Thank you, David, and hello, everyone. Appreciate you joining us on the call today. Let's turn to slide 4, which outlines the key financial measures for the consolidated business for the second quarter. We're pleased with our Q2 performance, which included 8% recurring services revenue growth and 9% total revenue. The recurring service revenue growth was driven by strong travel demand in the commercial services business and recurring revenue growth outside of New York City in the Government Solutions business.

At the segment level, commercial services revenue grew 10% year over year. Government Solutions Services revenue increased by 8% over the prior year, while T2 systems and SaaS and services revenue was flat over the second quarter of last year. Product revenue increased to $10 million for the quarter, driven primarily by an increase in international product sales and Government Solutions. GS contributed $6 million and T2 delivered about $4 million and product sales overall for the quarter. Our consolidated adjusted EBITDA for the quarter was $102 million, an increase of approximately 8% versus last year.

We reported net income of $34 million for the quarter, including a tax provision of about $13 million, representing an effective tax rate of 28%. This rate includes certain discrete items, which favorably impacted the tax rate for the quarter. For the full year, we are anticipating an approximate 30% effective tax rate. GAAP EPS was $0.2 per share for the second quarter as compared to $0.13 per share for the prior year period. Adjusted EPS, which excludes amortization, stock-based compensation and other nonrecurring items, was $0.31 per share for the second quarter of this year compared to $0.29 per share in the second quarter of 2023.

Adjusted EPS grew 7% over the prior year quarter, despite nearly 16 million additional shares in the share count due to the completion of our de-SPAC. process during the second third quarters 2023. Cash flows provided by operating activities totaled $40 million, and we delivered $26 million of free cash flow for the quarter, which was below our quarterly run rate due to the normal seasonal timing of cash tax payments as well as collections timing amongst several large customers.

Regarding the latter, approximately $16 million in collections were received in the first three days of July and will benefit third quarter free cash flow as a result. Turning to slide 5, we generated $384 million of adjusted EBITDA on approximately $853 million of revenue for the trailing 12 months, representing a $0.45 adjusted EBITDA margin. Additionally, over the trailing 12 months, we generated $139 million of adjusted free cash flow or 36% conversion of adjusted EBITDA on a weighted average base of approximately 169 million shares.

We expect a large sequential increase in free cash flow for the third quarter, followed by a modest decline in the fourth quarter, all of which is expected to drive a 40% free cash flow conversion of adjusted EBITDA for 2024 in line with our full year guidance. Next, I'll walk through the second quarter performance in each of our three business segments beginning with commercial services on slide 6. CS year over year, revenue growth was 10% in the second quarter. RAC tolling revenue increased 8% or about $6 million over the same period last year, driven by robust travel volume and increased rental volume. Additionally, our FMC business grew 18% or about $3 million year over year, driven by the enrollment of new vehicles and tolling growth from existing and newly enrolled FMC customers.

Commercial services adjusted EBITDA margins expanded about 210 basis points to nearly 67%, driven by volume leverage as the summer driving season began ramping. Turning to slide 7. Government Solutions had strong recurring revenue growth in the quarter, driven by 14% service revenue growth outside of New York City. Total revenue growth grew 11% over the prior year quarter, bolstered by strong international product sales. In addition to the solid non-New York City service revenue growth, adjusted EBITDA was $30 million for the quarter, representing margins of 31%.

The reduction in margins versus the prior year is primarily due to increased spending on business development efforts. The non-capitalized portion of our platform investments and revenue mix as a result of an increased international product sales. Let's turn to slide 8 for a view T2 systems, which is our partner solutions segment, we generated revenue of $21 million and adjusted EBITDA of approximately $3 million for the quarter.

Saas and services sales were flat with the prior year quarter, offset by a $1 million year-over-year reduction in product revenue. Breaking the SaaS and services revenue down a bit for pure SaaS revenue grew mid-single digit over the prior year quarter. However, offsetting this increase was a decline in installation and other professional services due to the reduction in product sales over the past few quarters.

Okay. Let's turn to slide 9 and discuss the balance sheet, we'll take a closer look at leverage. As you can see, we ended the quarter with a net debt balance of $928 million up modestly on a sequential basis due to the repurchase of 2 million shares during the second quarter. We ended the quarter with net leverage of 2.4 times and we've maintained significant liquidity with our undrawn credit revolver. Our gross debt balance at year end stands at $1.1 billion, of which approximately $700 million is floating rate debt.

As we've discussed in the past, our notional hedge of approximately $675 million covers over 95% of our current floating debt total with a float for fixed rate swap that has canceled and our options. Okay. Let's turn to slide 10 and have a look at full year 2024 guidance. Which remains unchanged from our discussion last quarter. For purposes of review, I'll give you a quick refresher on our guidance by major category. We expect total revenue growth of approximately 8% and adjusted EBITDA margin expansion of about 50 basis points compared to last year.

Adjusted EPS is expected at the upper end of the $1.15 to $1.20 per share range. Adjusted free cash flow is anticipated in the range of $155 million to $165 million. And finally, net leverage will land at approximately two times, assuming no additional capital allocation investments beyond the investments we've made through the second quarter. We anticipate revenue and adjusted EBITDA to increase sequentially in the third quarter. However, as we experienced in both 2022 and 2023, we expect sequential growth to slow to low single digits in the third quarter due to travel demand shifting forward in the year.

Consistent with historical trends, we would then expect a low single digit reduction to revenue and adjusted EBITDA in the fourth quarter. Adjusted EBITDA margins are expected to follow the same sequential revenue trends. We expect commercial services to grow mid single digits sequentially in the third quarter and to decline mid-single digits in the fourth quarter, consistent with historical performance. In Government Solutions, we expect flat to low single digit sequential revenue growth over the balance of the year.

Lastly, parking solutions revenue is now expected to deliver flat total revenue compared to prior year. As we've discussed, the temporary reduction in revenue growth is comprised of strong demand in SaaS, offset by a reduction in onetime product sales and related installation services as the industry transitions to a focus on software and mobile solutions. We expect Q2 adjusted EBITDA margins to grow sequentially in the third and fourth quarters with a full year, up about 10 basis points to 25 basis points over last year. Over the long term, we expect parking to return to strong organic growth as we execute our SaaS and transactional revenue growth strategy.

Other key assumptions supporting our adjusted EPS and adjusted free cash flow can be found on slide 11. In summary, we had a strong first half to the year, and I'm confident in our ability to deliver on our 2024 outlook. We are benefiting from a number of secular tailwinds, strong travel, continued transition to cashless tolling as well as a robust and growing landscape for automated enforcement and other urban mobility technology solutions.

Strength of our end markets and our continued focus on execution have set us up well to execute on our long-term growth commitments. This concludes our prepared remarks. Thank you for your time and attention. At this time, I'd like to invite Jenny to open the line for any questions over to you Jenny.

(Operator Instructions)

Faiza Alwy, Duetsche Bank.

Yeah, hi. Thank you so much on to David. Thanks for all the color around the incremental ARR in Government Solutions. I wanted to ask about, competitive activity there or what type of contracts are you winning, how would you characterize sort of your win rate? Is it in line with historical levels. Just give us a bit more color around the competitive landscape there.

Yeah, of course, one, the competitive landscape really depends on what -- where in the country are really where I guess where in the world, but mostly where in the country where we are, it seems that some of our other competitors have focused more on in certain areas there's a couple of competitors that have really focused in the what I would just comment generally, the Southeast of the United States, others are a little bit more in the Northeast and hence less so on the west side, a little bit there.

In general, what you would say is that our win rate, both in terms of the total number of contracts as well as the dollars that we're going after, which is obviously a more important number is in line with our expectations and similar to historic numbers overall, what I would say is that our competitors are definitely fighting. They've been doing a good job, because of all the work we've done to open up the market. But in the major accounts, I feel like we've done a really good job there.

Great. Thank you. And then in commercial services, right, you had strong growth in the quarter. It sounds like you are saying that you expect strong travel demand to continue? And just talk a little bit more about your confidence there, because it seems like there are some travel companies are calling out a little bit of slowing in demand. And I wonder if there are other factors that are making up for any slowing. Just you know, there's a little bit more concern around the consumer environment. So talk a bit more about your confidence there.

Yeah. Thanks, Faiza. I think, I know what you're referring to but in general, if you look at the demand commentary coming from the airlines and quite frankly, some of our largest customers that continues to remains right. And I think the -- let's take a look at the TSA throughput. I mean, the TSA throughput to 106% year to date was 106%. That's versus 2023 was 106% first quarter, it was 106% in second quarter, and was 106 percentage in July, it's in around that range in August. So we have not yet seen that, so we still think that the level of travel that we've seen year to date is what we're going to experience go forward. And I haven't heard anything different.

I think the only other thing I would add to that, it's qualitative, but we have seen a return to the business ramp rates of to the degree that the consumer would to slow down a bit. There is an offsetting increase in business travel that we've continued to see come through 2024. And I think that's why we've seen TSA home really, really flat through the first seven months and change in the year.

Daniel Moore, CJS Securities.

Thanks, David. Thanks, Craig, thanks for all the color. Wanted to -- maybe just dig in on margins a little bit by segment, not necessarily this year, but the commercial services 67% margin, clearly exceptional and benefiting from seasonal strength, but just talk about sustainability of those levels as we look beyond '24.

And then conversely, in Government Solutions, margins come in a bit with some of the investments you've made, talk about the opportunity for operating leverage as we look out and some of those new enforcement programs come online.

Yeah, great. And so a lot to unpack in that question. So I'll do my best for I'll start with what I think is going to happen for the year. And then I'll give you some directional indication and how we're thinking about 2025. Overall for the company for the year, I think we're going to accrete 50 basis points which is consistent with what we said at the beginning of the year. I think CS will probably be about 100 basis points. GS is going to end the year flat, slightly down, and T2 will be (inaudible) two. So again, if you cost that out, you get up to 50 basis points.

Now, the one thing on 67% for CS, remember, we're in the summer driving season. So we could see that even maybe potentially tick a bit higher in the third quarter. But that will come back in the fourth quarter. Okay. For the GS business, you're right, if you compare where we're at today year-over-year, you will see the reduction in GS that's roughly split 50/50 between us doing more product sales internationally, which have follow on service agreements which are higher margin, but they're lower margin sales upfront. That's what you're seeing journalized.

And then the other side are the investments that we're making to win some of some of these new TAMs. But I think if you look at GS sequentially, one thing I'd like to point out, we're down 50 basis points sequentially in the second quarter. That's all mix driven. So as we see those investments ramp up year-over-year, we're consistent within the year. And I'm going to use that as a jumping off point. I think for the second part of your question is what does 2025 look like?

If travel remains where it is today? Like we've said, it will be a GDP grower, right. If nothing else changes, the business can both continue to scale. So we should see margin accretion again year-over-year in CS. Just based on what we're seeing for travel. For GS, that one's a tougher part. If the volume falls exactly as we see it today, we'd probably be flat to slightly accretive. But here's what can happen. As you've listened to the calls for the last couple quarters, every time one of these new markets open, we mobilize and we get our feet on the ground and that costs money to do.

Obviously it's the easiest return on investment you could imagine for us to invest, but we will continue to see that. So if I had to guess on GS, I don't think we'll see margin percent accretion next year. I think flat would probably be good, down another 50 basis points probably wouldn't be horrible. But then once we know where we land in California and some of these other TAMs and we get some notices to proceed, then the margin accretion will start as we're able to lean out that cost that you need to put in when you're opening up a new market.

Really helpful. And then on the T2 side, you obviously continue to shift from hardware to SaaS-based solutions and appreciate you calling out the maintenance work that goes along with that with the implementation and maybe just talk about the pipeline of opportunities one and then two when do you think those two inflect and we might get back to more positive growth or start to drift back toward the longer term expectations for that business? Thanks.

Hey Dan, it's David. Yeah, great question. So what I would say is right now, I think the team is really building some momentum. We're seeing a lot of traction in our permits and enforcement side of that business as you recall, there's the university segment where we're back in software. As you recall, there's a university segment where we're back in software and then there a municipal segment that is more permits and enforcement and we're seeing a tremendous growth well above plane. That's a smaller portion of the business.

And so what I would say is we've obviously we're going to be adjusting ourselves to make sure we're taking an opportunity to capture that demand. I would say that as we exit the year, we should probably be back on toward trajectory of getting to a higher run rate. And I would expect next year is still not going to be at the high single digits, but probably starting to get toward that -- toward the end of next year is probably the best trajectory in the margin to come along with that?

No, it really helps. The last one for me is just the balance sheet guidance for is to exit the full year with net leverage of 2.0 times. Is that a priority for you? Or are you still be up for touristic looking at M&A and or buybacks between now and year end? Thanks again.

Yeah. Thanks for asking that. And the fact that you asked the question as I should have said a different in script, so double thank you. No, that's not a target. That is not our target. That will be the result, right? So the target for the company over term, I think we talked about this a quarter or two ago, Dan, is three times net leverage. So – we are out there looking to deploy capital, but like we said, right, if we can't do that accretive way, I mean it will delever the company. But that would be the result, not necessarily a target.

Thought that was the case. Just wanted to confirm. Thanks again.

Thank you.

Keith Housum, Northcoast Research

Great. Thank you. Good morning, guys, or good afternoon. I should say the long deck in terms of the T2 parking, is there any KPIs or any metrics you can give us again some confidence that that business is growing and understanding the shift from license to SaaS model that on. So I give them an account of that story if we can.

Yeah. I mean, I won't give any specific KPIs that we manage internally, and that's what I would say is that the revenue growth from permits and enforcement is well above plan. What I would also say is that our pipeline of new and expansion sales opportunities in our current basis is also starting to expand again. So what I would say is right now after this conversion in the market of our operator segment, we've really pivoted the business back to the core around university and small municipalities.

And so what I would say is that we are probably in the bottom of the trough right now and the way I would describe the business from that and we are moving our way up the other side of that. And again, I think about this business's trajectory base. So how do we think about it as it's going to end this year? And maybe more importantly, how do we get back to that high single digit growth rate and expanded margin opportunities toward the end of next year as well?

And let me let me just add to that a bit. So David did it from a product standpoint, which is good, but let me tried to do it from how we go to market standpoint. So there's three things that we look at and we're not -- we're not going to do this externally on a regular basis. But I think given this quarter in Warren's mentioned, right is we've got through traditional SaaS revenue. We have service revenue, which are hardware enabled services. So it's not fast and it's also not hardware. Then, of course, we got hard with hardware goes when -- hardware demand pulls back, which we saw happening year over year and brings with it some of our service.

Okay. But the true value driver, T2 is the recurring SaaS part of the business. That's the part that we want to see continue to grow that some partners become a larger part of the portfolio over the next handful of years is going to make this arm more sustainable and it's going to make it a higher margin business. We saw that pop that part this quarter grow 5% year over year. So when we talk about being flat in total revenue, what we're seeing happen is the shift away from hardware, which again for us is buy resell, right? So that we're not too sad to see it go hand on some of the attached services that go along with that. But the stuff that keeps us in front of the customer and drives. Our 97% retention rate in this business actually grew mid single digit, even in a pressured quarter like this.

Okay. Great. I appreciate that color. Thank you. In terms of the European tolling efforts, is there any updates to report there?

Yeah, nothing new from the last -- from last quarter in terms of number of pilots or things like that. And at the time, I had no new toll roads that have opened or gone cashless. That would be of any note. So in the same position that we were, which is we've got a couple of pilots in some key countries. We are beginning to see a bit of the thaws it relates to the barrier based tolling in places like France and Italy. And we'll just continue to monitor that and execute on the pilots that we do have.

Great. And last question for me. In terms of the Florida schools on cameras. If I remember right, you guys really are thinking that your revenue is really going to be more of a first half of 2025 versus second half 2024 event. Is that still a line of thought?

Yeah, that's correct. That's exactly right, Keith.

Great. Thanks, guys. Appreciate it.

Louie DiPalma, William Blair

Following up on the answer that you just gave, the $22 million in ARR bookings year-to-date for photo enforcement represents roughly 6% of our forecast for your government services revenue this year. And do you still expect that the ARR growth rate will accelerate in 2025 from these wins and you expecting that the acceleration will likely be like back-end loaded to the second half of the year as it generally takes time to install these cameras? Or like what are your thoughts in terms of the time of installation for these wins that you've achieved thus far?

The short answer to your question, Louis is yes, okay, but the slightly longer answer is timing really matters here is really matters, right? So what we're looking myopically at a 90-day cycle or a 360-day cycle to show growth for the company. So let me let me bring it back for a second, and then I'll tried to give you a little more detail. So bringing it back, we expect the government solutions business still to grow mid, say, at the high end of mid-single digits this year.

I don't see that changing. I don't see anything that in the new ARR that we've been able to put under contract or anything that's going to move that for 2024 as we go out into 2025. And the notice to proceed start coming. Couple of things happened and the notice to proceed it gets it gets awarded, right? Then the actual install happens and there is a calibration period, then the program actually starts, and it really matters if that lasts the vendor program actually start happens in April or it happens in June because you're going to see a materially different impact in 2025 because that.

I'll just have a better view of that six months from today. But bringing it back to the easy answer is, I do think this is, for sure, a 2025 impact most likely second half is where you'll see the most material impact, just given how long it takes the program to actually turn into revenue for the company.

Great. And does anything stand out with the New York City RFP, I think you mentioned that bids are due in October. Do you think that it's a fair RFP?

Well, what I would say is the best word I can use long. It's 800 pages. It's a pretty comprehensive RFP. They did a really thoughtful. And we had -- as you recall, that we had expected it earlier in the year. And clearly they were busy putting together a very, very comprehensive note. So I would say that it was originally going to be due in I think August and has moved back now to the end of October is the current data, and I think it's been written, extremely New York has high expectations in the REP reflects that.

Great. And one final one on the tolling side, does the rollout of your and your partners all-inclusive plans, does that continue to do well? And is it continuing to expand with your partners?

It's continuing to do well, Louie. It's going to flex quarter-to-quarter depending on opt-in and counter incentives, but we're very happy with the performance. But what we're not going to see, so we've anniversaried the inclusion of – so we've anniversaried Hertz actually flipping the program on. So you're not going to see those kind of momentum year-over-year growth now that that's in the run rate. But we – the opt-in rate there continues to be exactly where we have a pet. We're very pleased.

Sounds good. Thanks everyone.

David Koning, Baird.

I'm a little late to join. But a couple of questions. One, credit loss expense year-to-date is a little higher, both Q1 and Q2 are up about 50% compared to last year, now those aren't big numbers, so 50% move isn't that much. But is that economic related at all? Or maybe what is that?

Yeah. Dave great, great question. It is not economically related. Let me start there, and we did have some contractual things that we're still quite frankly in negotiations with to get recoveries that we book prudently in the first quarter. As I look at our number -- I'm doing this off the top of my head, Dave. So I know you'll keep me honest, but I believe the credit loss expense was something on the rounds of about $3.9 million in the second quarter of 2024. That's pretty much exactly what it was in the third quarter of 2023 right? So if I look at it year over year, it's up about 25%, but my volumes up roughly half that.

So what I'm seeing today is literally volume driven. I have not seen the consumer getting any weaker in our stack. And again, I think some of that stuff that we put on the books in the first quarter. Hopefully, I'll be able to come back to you in the back half of the year and tell you that we had a favorable contractual sale.

Got it know that. That's helpful. And then I guess the other question, Avis and enterprise obviously doing really well hurt in maybe you at the anniversary, but hurts was down year over year in the -- I guess, in the quarter and maybe not surprising at all, but is that expected from Hertz just given kind of where they're at?

I was surprised to I saw that too, Dave. Look, I think it just has to do with snapping and the Chalk and 90 days, you know, I can't my business is not necessarily a reflection totally of hurts, right, because hurts does business a lot of places where my product doesn't exist because there's no total, right. But as long as those numbers are directionally correct over a longer period of time. I think we're okay if I'm not mistaken, I think Hertz's rental days were about flat year over year. So I would chalk -- I would shock us being down inherent to year over year more to locational mix than it would anything macroeconomic or anything going on with the customer.

Got you no, that's great. Thanks, guys.

Thank you.

Thanks.

Thank you. There are no further questions at this time, and that concludes the question-and-answer session for today. Ladies and gentlemen, we have reached the end of the conference. Thank you all for joining, and maybe we ask that you please disconnect your lines.