Good afternoon, ladies and gentlemen, and welcome to the Verra Mobility Fourth Quarter 2023 Earnings Conference Call. This call is being recorded on Thursday, February 29, 2024. And I would now like to turn the conference over to Mr. Mark Zindler, Verra Investor Relations. Thank you. Please go ahead.

Thank you. Good afternoon, and welcome to Verra Mobility's Fourth Quarter 2023 Earnings Call. Today, we'll be discussing the results announced in our press release issued after the market closed along with our earnings presentation, which is available on the Investor Relations section of our website at ir.verramobility.com. With me on the call are David Roberts, Verra Mobility's Chief Executive Officer; and Craig Conti, our Chief Financial Officer. David will begin with prepared remarks, followed by Craig, and then we'll open up the call for Q&A. 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 factors. These factors are described in our SEC filings. Please refer to our earnings press release for Verra Mobility's complete forward-looking statement disclosure. 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, which can be found on our website at ir.verramobility.com and on the SEC's website at sec.gov. With that, I'll turn the call over to David.

Thank you, Mark, and thanks, everyone, for joining us today. For today's call, I'm going to first provide a high-level discussion on our strong fourth quarter results and key drivers. I'll then move on to a discussion of several key trends that are shaping the smart mobility market before closing with our strategic priorities that will influence our 2024 operating plan and build upon the foundation for the long-term outlook that we outlined at our Investor Day in July of 2022. We delivered fantastic results for the fourth quarter, highlighted by robust revenue and adjusted EBITDA. Fourth quarter revenue of $211 million exceeded our expectations and was primarily driven by strong U.S. travel and tolling trends in our Commercial Services segment. Adjusted EBITDA of $91 million for the fourth quarter was slightly ahead of our forecast despite an approximate $4 million one-time noncash charge, which Craig will elaborate on in his remarks. Our strong results are aligned with three macro trends across our operating segments. First, we're seeing strong travel demand by both consumers and businesses, particularly in the U.S. Recent commentary from the major airlines and our RAC partners suggests continued strong demand through at least the first half of 2024. The second macro trend is the continued push for safer roads and communities, which drives the need for investments in automated safety enforcement. We experienced a record year in 2023 with the passage of new automated safety enforcement legislation as lawmakers across the globe recognize the efficacy that automated safety solutions have in reducing traffic fatalities. And lastly, the complexity surrounding university and municipality parking creates opportunities for customers to use our software-enabled parking management solutions. Now, moving on to our business unit operations. The commercial services team delivered outstanding results driven by strong and durable domestic travel trends and our continued strong performance in the fleet management business. Fourth quarter revenue of $95 million grew 16% over the prior year quarter and adjusted EBITDA margins of 66% were up about 570 basis points over last year due to the strength in rack tolling and prior year FMC growth investments. As we disclosed in an 8-K and you'll see discussed in our earnings release and Form 10-K, we entered into a business arrangement with Plus Pass, which fully and finally resolved all litigation and disputes between the parties, and pursuant to which we acquired certain assets from Plus Pass. We accrued $31.5 million for this matter at December 31, 2023, and the resulting payment will be made during the first quarter of 2024. Transitioning back to the business fundamentals. Full year 2023 TSA volume was about 101% of 2019 volume and about 113% of 2022 volume. Track tolling revenue increased 23% over the prior year quarter due to increases in adopted rental agreements, the increased adoption of all-inclusive pricing plans, and a durable trend of longer car rentals. Additionally, our FMC business generated 24% growth over the prior year quarter, primarily driven by enrollment of new vehicles and tolling growth from existing customers. The FMC business delivered $63 million of full year growth and outstanding accomplishment. I'm incredibly proud of our team's execution efforts. Looking ahead, as I've discussed previously, we expect FMC revenue growth to slow to mid- to high single digits, primarily as a result of tougher comps in 2024. I'm also pleased to report the launch of Hertz Italy in the fourth quarter of 2023. We're excited to support our partner in the rollout of their tolling program in Italy, a market with strong and growing cashless tolling trends. Lastly, the secular trends underpinning these business drivers continued conversion to cashless tolling and new toll roads continue to positively impact our business. Cashless or all-electronic toll roads reached approximately 67% penetration this past year and nine U.S. toll roads were completed in 2023 as well, including in the metropolitan Washington, D.C. area, Denver, Colorado, and Orange County, California. As we look forward, CS is positioned as a high single-digit grower, driven by strong and durable travel trends, continued growth in cash flow tolling, and new toll roads. The transition to all-inclusive pricing plans, segment expansion, and a nascent but attractive connected vehicle opportunity. Moving on to Government Solutions. Recurring service revenue, which reflects 97% of total revenue for the quarter, grew 10% over the same period last year. The recurring service revenue growth was driven by program expansion from existing customers and new cities implementing photo enforcement efforts to improve road safety. To this point, outside of New York City, we drove strong revenue growth due to our existing customers' demand to expand their programs. From a profitability standpoint, Government Solutions adjusted EBITDA declined 22% compared to the prior year due to a noncash charge I mentioned earlier and the platform investments that we're making in the business. Looking forward, in addition to the new legislation passed in Florida, Connecticut, Colorado, Washington State, and California, Pennsylvania signed new automated enforcement legislation into law in the fourth quarter. The legislation enables new use cases in select cities, including school zone speed management and school bus stop-arm safety. It also extends and expands existing use cases for work on speed management and highway speed management. The passage of this new legislation resulted in a significant TAM expansion, which we currently estimate at about $50 million and potentially growing to approximately $150 million annually within the next few years if the legislation allows. Moving forward, we're now focused on the next steps in the procurement process. In Florida, procurement processes are ramping up. And in California, we may see RFPs as early as the second quarter continuing into the second half of the year. In Colorado and Washington State, we have had success expanding existing programs enabled by the new legislation, and we have won several new procurements. Additionally, in the international side of the business, we are experiencing attractive award activity in our expansion efforts in New Zealand as well as expansion in new business awards across several provinces in Canada. In New York City, we are awaiting the issuance of the RFP for the city's automated enforcement renewal contract. The timing of the RFP is uncertain, but we are working hard to position ourselves for a successful outcome, more to come as this process moves forward. Now stepping back and looking at the big picture, GS is currently positioned as a mid-single-digit grower on the basis of our existing portfolio, improving net retention rates. We are operating in a very favorable environment as states continue to demonstrate confidence and optimism, enabling various use cases to automate traffic safety and make mobility safer and easier. Moving on to T2 Systems. Fourth quarter total revenue increased 13% over the prior year quarter, driven by strength in software services revenue. Adjusted EBITDA of $5 million was in line with our expectations and reflects year-over-year SaaS and services revenue growth. We expect Q2's growth rate to moderate to mid-single digits in 2024, but over the long term, we continue to see T2 growing at high single digits driven by the strength and focus on SaaS and the introduction of transactional revenue pricing opportunities. Additionally, hardware, particularly pay stations, will likely become a smaller percentage of revenue as the market transitions away from hardware and continues to move towards software and mobile solutions. Turning to the balance sheet and capital allocation. Over the course of 2023, we fully leased back in our fifth year of being a publicly traded company. I am pleased to report we've lowered net leverage nearly a full turn over the course of 2023, ending the year at 2.5x adjusted EBITDA. In addition, we purchased $100 million of shares over the course of 2023 and in November, as we previously reported, our Board of Directors authorized a new share repurchase program for $100 million. Overall, 2023 marked all-time highs in revenue, adjusted EBITDA, and adjusted EPS. We benefited from record airline passenger traffic with 2023 TSA volume at 101% of 2019 levels. And in Government Solutions, we experienced a highly favorable legislative environment resulting in a long-term total addressable market expansion of up to $150 million. Next, I'm pleased to report that we recently published our inaugural corporate responsibility report, which outlines how our core values, purpose, vision, and operating system form the foundation of our corporate responsibility strategy. We believe that our technology helps make the world safer and a better place and are committed to being good corporate citizens and supporting the communities in which we, and our customers, live and work. Now I will turn to our top strategic priorities in 2024. Over the past two years, we have implemented the Verra Mobility Operating System, or VMOS, a robust standard business system that drives growth, efficiency, and talent development. At the heart of VMOS are three strategic pillars: drive core business outcomes, build the Verra Mobility of the future, and create engaging and fulfilling workplace experiences. As you'll see on Slide 5, in 2024, we established key objectives for each of these pillars focusing on financial execution of the 2024 annual plan, leverage recent investments to capitalize on expanded TAM, and drive operating efficiencies, pursuit of accretive expansion opportunities, accelerating our portfolio model adoption, and making Verra Mobility a best place to work. Through execution of our three strategic pillars, we are poised to deliver superior long-term value creation for all stakeholders. Next, I'll drill down a layer and focus on key priorities for each of our business segments as described in more detail on Slide 6, 7, and 8. In commercial services, where we benefit from strong secular tailwinds, including increased adoption of cashless tolling, new toll roads, and a transition to all-inclusive pricing models, we are focused on growing the core while simultaneously capitalizing on numerous expansion opportunities. Our top priorities include executing the core business while investing in growth, continued segment expansion in fleet management and European tolling enforcement and violations, and laying the foundation to capitalize on next-generation connected vehicle opportunities. In Government Solutions, where we benefit from an expanding addressable market for automated enforcement, our top priorities are to win our share of new contract awards in Florida, Colorado, Washington, California, Canada, and New Zealand, position ourselves to retain the New York City contract renewal, and leverage 2023 and 2024 investments in our software platform to enhance our strategic advantages. And finally, in T2 Systems, where we have significant runway for continued growth and profitability in the university segment as well as our focused efforts to penetrate the municipality segment, our focus is on the following priorities: continue to focus on growing our high-margin core permits and enforcement business, successfully launch new products to drive transactional revenue growth, and invest in our software platform to further enhance strategic position. These are our top priorities as we execute our strategy in 2024. As I've said previously, this is a great business with a bright future, and I look forward to sharing updates on our progress as we execute our plan in 2024. Craig, I'll turn it over to you to guide us through our financial results and 2024 guidance.

Thanks, David. Good afternoon, and thanks to everyone for joining us on the call. I'll start out today by providing an overview of our fourth quarter and full year 2023 results, followed by a detailed overview of how we're thinking about 2024. Let's turn to Slide 9, which outlines the key financial measures for the consolidated business for the fourth quarter. Total revenue increased approximately 13% year-over-year to about $211 million for the quarter, driven by strong recurring service revenue growth across the company. Recurring service revenue grew 13% over the prior year quarter, driven by strong travel demand in the GS business and recurring service revenue growth outside of New York City and the GS business. At the segment level, commercial services revenue grew 16% year-over-year. Government Solutions service revenue increased by 10% over the prior year, and T2 Systems SaaS and services revenue grew 10% over the fourth quarter of last year. Product revenue was $9 million for the quarter, about $6 million of this was from T2 Systems, while $3 million was from Government Solutions, the majority of which were international product sales. From a total profit standpoint, consolidated adjusted EBITDA of $91 million increased by approximately 9% over last year. As David mentioned, we took a $4 million noncash charge in the GS business for inventory obsolescence, largely driven by supply chain optimization. Excluding this charge, year-over-year adjusted EBITDA growth would have been 14%, and consolidated margins would have been about 45%, which is consistent with Q4 of 2022. We reported net income of $3 million for the quarter, including the $31.5 million Plus Pass accrual pursuant to our legal settlement, which is discussed in more detail in our 10-K. Adjusted EPS, which excludes amortization, stock-based compensation, and other nonrecurring items, including the Plus Pass legal settlement, was $0.24 per share for the current quarter compared to $0.25 per share in the fourth quarter of 2022. The primary driver for the reduction compared to the prior year was the $4 million pretax inventory write-down in the GS segment and our increased share count resulting from the exercise of warrants and the issuance of earn-out shares in the second and third quarters of this year. As David mentioned earlier, the company is fully leaseback with no remaining warrants or earn-out shares. We delivered $19 million of free cash flow for the quarter, which resulted in meeting our annual guidance of a 40% full year conversion rate, but was below our recent quarterly run rate, largely driven by timing. The primary factors driving our performance were $14 million in accounts receivable we expected to collect in December, which shifted to early January, and about $4 million of incremental CapEx relative to quarterly trends. When comparing to the fourth quarter of 2022, in that period, we generated a source of working capital, about $16 million higher than normal, driven by increased collections and higher accounts payable balances. Moving forward, I expect to return to an approximate $40 million free cash flow run rate, subject to historical seasonality in our CS business. Turning to Slide 10. We generated about $372 million of adjusted EBITDA on approximately $817 million of revenue for the full year, representing a 45% adjusted EBITDA margin. Additionally, we generated about $149 million of free cash flow, or a 40% conversion of adjusted EBITDA, representing $0.93 of free cash flow per share for full year 2023. Moving to Commercial Services on Slide 11. We delivered revenue of about $95 million in the fourth quarter, increasing $13 million or 16% year-over-year. Rack tolling revenue increased 23% or about $12 million over the same period last year, driven by robust travel demand and increased rental volume. Additionally, our FMC business grew 24% or about $3 million year-over-year as our growth initiatives continue to produce the intended results. Fourth quarter adjusted EBITDA in Commercial Services was $62 million, representing 27% year-over-year growth. Adjusted EBITDA margins of about 66%, a 570 basis point increase over the fourth quarter of last year, were largely driven by the continued strength in rack tolling and execution of our growth initiatives. For the full year, Commercial Services generated $373 million of revenue or 14% growth over last year. Adjusted EBITDA of $242 million resulted in margins of about 65%, a 100 basis point improvement over the prior year driven by volume-based operating leverage. Let's turn to Slide 12, and we'll take a look at the results of the Government Solutions business driven primarily by growth outside of our largest customer, New York City, service revenue increased by $8 million or 10% over the same period last year to $91 million for the quarter. Product revenue was about $3 million for the quarter and was primarily driven by international programs. Adjusted EBITDA was $24 million for the quarter, representing margins of 26%. The reduction in margins versus the prior year is due to the $4 million inventory obsolescence write-down I previously discussed and increased spending on platform investments and business development efforts. For the full year, Government Solutions generated $358 million of total revenue, a 6% increase over 2022, and adjusted EBITDA was $114 million for the year, effectively flat with the prior year. Let's turn to Slide 13 and take a view of the results of T2 Systems, which is our Parking Solutions business segment. Revenue of $23 million and adjusted EBITDA of approximately $5 million were in line with expectations for the quarter. Software and services sales increased 10% over the prior year quarter and product revenue increased to $6 million for the quarter. This sequential increase is consistent with historical seasonal trends. For the full year, T2 delivered revenue of $86 million or approximately 9% growth over last year and adjusted EBITDA of $15 million. Okay. Let's turn to Slide 14 and discuss the balance sheet and take a closer look at leverage. As you can see, we ended the year with a net debt balance of $918 million, resulting in net leverage of 2.5x at year-end, as well as significant liquidity with our undrawn credit revolver. The primary drivers of the reduced leverage were strong free cash flow and the exercise of warrants, which yielded approximately $160 million in cash proceeds during the second and third quarters of 2023. Through year-end, we paid down approximately $180 million of floating rate term loan debt. Our gross debt balance at year-end stands at about $1.1 billion, of which approximately $700 million is floating rate debt. With a notional hedge of approximately $675 million, we have hedged about 95% of our current floating debt total with a float for fixed rate swap. This hedging instrument fixes the SOFR portion of our Term Loan B at a rate of 5.2% for two more years with a monthly option to cancel that began in December of 2023 that we can execute in the event that interest rates move in our favor. In addition, subsequent to the end of the fourth quarter, we completed a successful repricing of our $700 million Term Loan B. Our offering was materially oversubscribed, and we achieved a 50 basis point reduction in the coupon rate and also eliminated a historical 12 basis point credit spread adjustment. The transaction yields about $16 million in cash savings, net of fees over the remaining life of the debt. On our total debt stack, this lowers our weighted average cost of debt to about 7%. The fourth quarter marks our second closing period and first year-end under our new engagement with Deloitte as our independent accounting firm. The partnership has been excellent and our audit, while compressed from a timeline perspective, was thorough and well executed. In our 10-K, you will note that we have disclosed several deficiencies regarding IT general control gaps, which aggregate to a material weakness for 2023. It is important to note there were no errors in our current or past financial results as a result of these controlled findings. We've already identified a detailed path to correct these gaps and remediate this material weakness in 2024, and we will update you regularly on our progress. Now let's turn to Slide 15 for a discussion on 2024, which we expect will be another strong year for the company. We expect total revenue in the range of $865 million to $880 million, representing approximately 6% to 8% growth over 2023, consistent with the long-term outlook we shared at our Investor Day in July of 2022. We expect adjusted EBITDA in the range of $395 million to $405 million, representing approximately 8% growth at the midpoint over 2023. This represents an adjusted EBITDA margin of about 46% or about 50 basis points of margin expansion year-over-year. In Commercial Services, we expect high single-digit revenue growth driven by increased TSA volume and product adoption. In addition, we are expecting increased FMC revenue at a growth rate in line with the overall CS business. Consistent with historical trends, the first quarter is forecast to be our lowest revenue-generating quarter, followed by a sequential increase in the second and third quarters, followed then by a decline in the fourth quarter as the summer driving season comes to a close. As a reminder, all revenue in this segment is service revenue. Government Solutions is expected to generate the high end of mid-single-digit total revenue growth driven by the expansion of camera installations with existing customers and new customers awarded in fiscal year 2023. We expect annual product revenue in the GS segment to be comparable to 2023 levels. As we previously discussed, we are anticipating a planned increase in CapEx to support GS long-term growth, which I will elaborate on shortly. Lastly, Parking Solutions revenue is expected to deliver mid-single-digit total revenue growth. This temporary reduction in revenue growth is driven by strong demand in SaaS and services growth offset by a reduction in one-time product sales as the industry transitions to a focus on software and mobile solutions. As David mentioned, over the long term, we expect parking to return to high single-digit growth as we execute our SaaS and transactional revenue growth strategies. For the company as a whole, we are guiding to a 2024 non-GAAP adjusted EPS range of $1.15 to $1.20 per share. Adjusted free cash flow is expected to be in the range of $155 million to $165 million, representing a conversion rate of about 40% of adjusted EBITDA. Adjusted free cash flow excludes the after-tax Plus Pass legal settlement, which was accrued in 2023 and will be paid in 2024. The 40% free cash flow conversion rate is below our long-term guidance due to our plan to spend an incremental $30 million to $35 million in 2024 CapEx. The vast majority of the CapEx will be spent in Government Solutions to enhance and consolidate our software platform and for revenue-generating cameras contingent on winning procurements during the year. We also anticipate spending about $4 million in corporate CapEx to upgrade our current ERP system. Lastly, based on the adjusted EBITDA and free cash flow guidance and excluding capital allocation investments, we expect to reduce net leverage to about 2x by year-end 2024. Other key assumptions supporting our adjusted EPS and adjusted free cash flow outlook can be found on Slide 16. In summary, we generated strong fourth quarter and full year results, and I'm confident in our ability to deliver on our 2024 outlook. We're operating in attractive end markets with strong secular tailwinds, and I believe we're making the right investments to continue to drive growth and margin expansion throughout the company. This concludes our prepared remarks. Thank you for your time and attention today. At this time, I'd like to invite Ina to open the line for any questions. Over to you, Ina.

And your first question comes from the line of Keith Housum from Northcoast Research.

David, Obviously, as you guys pointed out, last year was a great year for positive legislation movements or traffic enforcement cameras. I think last week, you guys announced the acquisition of Davy Win. But are there any other big wins or significant wins you perhaps point us to, to get us a little bit more excited about next year?

Yes, I think Davy Win indicates positive developments ahead. There are several large opportunities that will likely come up for proposals in the next three to six months. We are in a strong position as many of our current customers will participate in these proposals, along with some potential new clients. It's important to note that these processes can take time to initiate after legislation passes. You may have seen some announcements about smaller deals that we might not even pursue, but we are very optimistic about the upcoming opportunities in the next three to five months.

Great. Appreciate it. And then I noticed there was some movement in the Board of Directors here over the past few weeks. I think Sarah rolled off, and I know Raj joined the Board. I guess help me understand a little bit more about what Raj brings to the board and how he complements what you guys are doing?

Yes, first, I want to express my gratitude to Sarah. She was an exceptional board member and investor, and I wish her tremendous success in her future endeavors. As for Raj, we have been transitioning our business towards a portfolio company model similar to leaders like Danaher and Fortis, which means we have strong businesses connected by a unified system. Mergers and acquisitions are a key part of our strategy to create value for shareholders. Raj’s impressive background, especially in M&A roles at companies like Fortive, Danaher, and DuPont, brings a high level of expertise and insight that will help us as we continue to expand our business. We are thrilled to have him onboard because we see M&A as a crucial aspect of our future, and we believe he will contribute significantly.

Great, thank you. If I could ask one more question, the recent announcement regarding Hertz Italy is a positive development for your team. Can you share any other updates that might create more enthusiasm about activities in Europe, particularly given that the European tolling process seems to be progressing slowly?

Yes, I believe Italy is a significant area of interest. We don't yet fully understand the situation as it seems transponders haven't been installed in vehicles. We will soon get an idea of the expected volume. The transition to a cashless environment is key for Italy, and similar regions like France, which have traditionally relied on barriers, are beginning to adapt, especially with our partnership with Telepass. This is likely a positive indication of future developments. While we don't have specific details at this moment on how this may accelerate progress, I anticipate we will have more concrete information by mid-year to share with you.

And your next question comes from the line of Faiza Alwy from Deutsche Bank.

So first, I wanted to actually pick up on the M&A comments that you just made. It sounds like that's a big focus for the company. And certainly, you have some flexibility now. Could you just refresh us on how you're thinking about M&A? What we should expect in terms of the type of businesses that might fit in with Verra Mobility? Just sort of what the vision is there?

Yes, thank you for the question. As we've always mentioned, our primary focus is on growing our core businesses that serve our customers well. Following that, we are exploring mergers and acquisitions in adjacent opportunities, which may include similar products targeting the same customers, geographic expansion, or possibly acquiring competitors. Additionally, we consider platform opportunities as well. Ultimately, our approach remains centered on cash flow generation; we do not engage in activities that do not produce cash flow. As stated during Investor Day, we identified two segments: connected vehicle and urban mobility. These represent broad and exciting areas for us to explore within various markets. Our dedicated team is actively researching to determine which markets are best suited for our operations. This year's activity has increased significantly compared to the end of last year, and we are very optimistic about the potential opportunities. However, we will maintain strict discipline in selecting the businesses we wish to integrate into our portfolio.

And I'd just add to that. I'd say that the only thing that's really changed on that is that the environment seems to be opening up. I don't think, Faiza, there's any specific comment from Verra Mobility on that. But our capital allocation framework that we've talked about in the past is unchanged. The next dollar out the door has to have the highest yield to shareholders against paying down debt, buying back shares, and potentially adding to the portfolio. I just think that we're going to be operating in a different environment in 2024 than we've seen in the recent past.

Understood. And then I wanted to talk about government services revenue. You mentioned some of the RFPs, including the New York City RFP. Just curious about what's embedded in the mid-single-digit growth guide? And if you can talk about the quarterly cadence of what you're expecting there? And maybe if I can just throw this one in: just give us a bit more context on the charge that you talked about.

Yes, sure. So let me start with the first one. What do we think about what's embedded in the mid-single-digit growth guide for government solutions? It's the very high end of mid-single digits. If I bifurcate that into services and product, I don't guide on these specifically, but I think this warrants this level of detail. I think products are going to be flat at best. It could be a little bit in either direction. Given that while the service revenue is probably at the very low end of the high single digit. When I combine those two together, I get the high end of mid-single digit for the overall business. The exit rate of growth on services in the fourth quarter for Government Solutions, I expect the rest of the year to look something like that. The business is certainly not slowing down; if anything, it's speeding up. But I do expect those products to be flat at best, which is bringing down the overall growth rate. So that was the first one. And I'll stay on government a little because I'll go to your third one next. The $4 million noncash charge on supply chain optimization. The easiest way to think about this without mentioning names on the open call here is we did have a supplier who has come in to attempt to be a competitor. Some of the inventory that we've had and used for years isn't going to be as usable as it once was. We had to go across our global inventory stocks and make the appropriate accounting adjustment for that. That really happened in the back half of 2023. So that's nonrecurring, a $4 million noncash charge. The final piece is the overall cadence for the company. If you were to take the fourth quarter actuals for Verra Mobility and sequentially look at how it's going to pace out by quarter, it would look something like this. The first quarter of 2024, I expect to be down mid-single digits. I expect the second quarter again sequentially to see high single digits. The third quarter will grow again incrementally mid-single digits, and then I expect the fourth quarter to come back low single digits. It's that same trend that we talked about a year ago on the call. The difference is we're seeing the summer driving season in the CS business start a little earlier in the second quarter than we probably did pre-COVID.

Perfect. And then just to clarify quickly, are you expecting and should we expect sort of service revenue growth in Government Solutions to accelerate through the course of the year?

Not really. My comment was the exit rate that we saw in the back half of the year is going to be the growth rate I expect for the total year in 2024. So the business is a little bit variable, but relatively even across the year, probably skewed to the back three quarters.

And your next question comes from the line of Daniel Moore from CJS Securities.

Can you hear me?

No. Sorry, Dan. I think we lost the first part of your question. We just heard Commercial Services. Do you mind starting again for us?

Okay. Yes, absolutely. Starting with Commercial Services, obviously, TSA volumes are now fully recovered relative to pre-pandemic. Maybe just talk about the kind of rank order the drivers that you laid out, David, embedded in the high single-digit growth expectation for this year between toll roads, miles driven, shift to cashless or the biggest drivers there that you see near term.

Yes, Dan, this is Craig. I'll take a shot at that one. If we want to break down that high single-digit growth in 2024, I would do it in three buckets. Roughly half of that growth is coming from secular tailwinds. Those secular tailwinds are more toll roads than there were in the past, more cashless roads; we're only at 67% penetration here at the end of 2023, so certainly more to go there. And then, of course, the additional penetration of the all-inclusive product through Hertz and ABG. So again, out of the high single digit, about half of it is in that bucket. About 25% of that high single digit is from TSA growth. We expect that growth as a total year 2024 versus 2023 to be about 1.5% to 2%. Then the remaining 25% of the growth in that high single digit is from our growth initiatives. That's growth in Europe and growth in areas we've not yet tackled.

Very helpful. And then just going back to the enabling legislation opportunities in Government Solutions. Any additional color on potential timing? You mentioned Pennsylvania, I think you said could be an initial $50 million TAM. What kind of time frame are you looking at? And what would cause that to increase to the $100 million that you called out in your prepared remarks?

Yes. Sorry, Dan, that might have been slightly the word choice. That $50 million is sort of all the combined legislation that we did across all the states last year. But regardless, the way to think about timing is, for the ones that we did do last year, it usually takes about a year; meaning the legislation passed, gets signed off by the governor, and then there are nuances that are adapted to each state, and then RFPs start going. So I think what we'll start to see is more discussion about that in the back half of this year, probably some wins, maybe even as early as Q3 and Q4.

Perfect. If you have already provided this information and I missed it, I apologize. Could you clarify the interest expense after the refinancing that is included in your '24 EPS guidance? If we assume a 7%, is that the correct way to consider it, Craig?

Probably yes, if I'm thinking about it off the top of my head. But I'll give you the number, and you can calculate it in is the P&L expense is going to be $80 million. The cash number will be $75 million, Dan. The delta between the cash and the P&L number is the amortization of the original issue discount. So on the P&L going into adjusted EPS, $80 million cash expense will be $75 million, and that $75 million should fit out to your 7%.

There are no further questions at this time. That concludes our question-and-answer session. Thank you all for participating. You may now disconnect.

Thank you.

Thank you.