Earnings Call Transcript - VRRM Q2 2024

Operator, Operator

Good afternoon, ladies and gentlemen, and welcome to the Verra Mobility Second Quarter 2024 Earnings Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. I would now like to turn the conference over to Mark Zindler, Investor Relations. Please go ahead.

Mark Zindler, Investor Relations

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 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, 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.

David Roberts, CEO

Thank you. 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. The 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 30th stand at 106% of 2023 volume for the same period, driven by strong consumer and business demand, with the latter demonstrating 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 our awards and bid 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 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. 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 RAC 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 the enrollment 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. 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 14% service revenue growth due to these factors. Total revenue, including international product sales, was up about 11% over the prior year quarter. Next, I will elaborate on the second quarter award activity I highlighted earlier and provide an update on a strong quarter for legislative actions 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 speed 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 am also pleased to report several authorizations and expansions of legislation to advance automated enforcement across the U.S. 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 U.S. 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 the deadline. Next, a brief update on T2 Systems. We generated total revenue of approximately $21 million for the second quarter, as we anticipated. One-time 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 one-time 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 want 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 will 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 two 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, specifically within smart mobility, continues to present opportunities for investment. 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 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 would 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 the 2024 guidance discussion.

Craig Conti, CFO

Thank you, David, and hello, everyone. I 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, 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 in 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 that favorably impacted the tax rate for the quarter. For the full year, we anticipate an approximate 30% effective tax rate. GAAP EPS was $0.20 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 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 and third quarters of 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 among 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've 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've generated $139 million of adjusted free cash flow or a 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 up. 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 increased international product sales. Let’s turn to Slide 8 for a view of T2 Systems, which is our Parking Solutions segment. We generated revenue of $21 million in 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 revenues in the quarter. Breaking the SaaS and services revenue down a bit further, fewer SaaS revenue grew mid-single digits 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 in the past two quarters. Okay. Let’s turn to Slide 9 and discuss the balance sheet, and 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 a 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 canceled and our option. 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 2 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 the prior year. As we discussed, the temporary reduction in revenue growth is comprised of strong demand in SaaS, offset by a reduction in one-time 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 of 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 strategies. 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 of 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. The 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, Operator

Ladies and gentlemen, we will now begin the question-and-answer session. Your first question is from Faiza Alwy from Deutsche Bank. Please ask your question.

Faiza Alwy, Analyst

Yes, hi, thank you so much. So David, thanks for all the color around the incremental ARR and government solutions. I wanted to ask about competitive activity there, 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.

David Roberts, CEO

Yes, of course. The competitive landscape really depends on where in the country, or really, I guess, where in the world, but mostly we're in the country where we are. It seems that some of our other competitors have focused more in certain areas; there's a couple of competitors that have really focused on, what I would just call, generally the southeast of the United States. Others are a little bit more in the Northeast and then less so in the west and a little bit there. In general, what I would say is that our win rate, both in terms of 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. I would say that our competitors are definitely busy. 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.

Faiza Alwy, Analyst

Great. And then in Commercial Services, right, you had strong growth in the quarter. It sounds like you're saying that you expect strong travel demand to continue. Just talk a little bit more about your confidence there. It seems like 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 – there's a little bit more concern around the consumer environment. So talk a bit more about your confidence there.

Craig Conti, CFO

Yes. 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, with some of our largest customers, that continues to remain strong. And I think the – let's take a look at the throughput. I mean the TSA throughput is 106% year-to-date. It was 106% versus 2023. It was 106% in the first quarter and 106% in the second quarter, and it has remained at that level in July and August. So we have not yet seen a decline in travel. So we still think that the level of travel that we've seen year-to-date is what we're going to experience going forward, and I haven't heard anything different. I think the only other thing I would add to that – and it's qualitative – what we have seen is a return in business travel. So to the degree that the consumer were 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 hold really, really flat through the first seven months and change of the year.

Faiza Alwy, Analyst

Great. Thank you.

Operator, Operator

Thank you. Your next question is from Daniel Moore from CJS Securities. Please ask your question.

Daniel Moore, Analyst

Thank you, David. Thanks, Craig. Thanks for all the color. To maybe just dig into margins a little bit by segments, not necessarily this year, but 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 came in a bit with some of the investments that you've made. You talked about the opportunity for operating leverage as we look out and some of those new enforcement programs come online.

Craig Conti, CFO

Yes. Great. A lot to unpack in that question. So I'll do my best. I'll start with what I think is going to happen for the year, and then I'll give you some directional indication on how we're thinking about 2025, okay? 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 up a shade or 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 potentially tick a bit higher in the third quarter. But that will come back in the fourth quarter. 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 that 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 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 with the overall year. And I'm going to use that as a jumping-off point. I think for the second part of your question about 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 of 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 those costs that you need to put in when you're opening up a new market.

Daniel Moore, Analyst

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 or the implementation work. Maybe just talk about the pipeline of opportunities, and when do you think those two sort of inflect and we might get back to more positive growth or start to drift back toward the kind of longer-term expectations for that business? Thanks.

David Roberts, CEO

Hey Dan, it's David. Yes, 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 a university segment where we're back in software, and then there's a municipal segment that is more permits and enforcement, and we're seeing tremendous growth well above plan. 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 a 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 to the end of next year, and that will probably entail margin improvements as well.

Daniel Moore, Analyst

All right, really helpful. Last one for me is just the balance sheet guidance is to exit the full year with net leverage of 2.0 times. Is that a priority for you, or will you still be opportunistic looking at M&A and/or buybacks between now and year end? Thanks again.

David Roberts, CEO

Yes. Thanks for asking that. And the fact that you asked the question is something I should have said differently in the script, so double thank you. No, that's not a target. That will be the result, right? So the target for the company over time, I think we talked about this a quarter or two ago, Dan, is 3x net leverage. So we are out there looking to deploy capital, but like we said, if we can't do that in an accretive way, I mean it will delever the company. But that would be the result, not necessarily a target.

Daniel Moore, Analyst

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

Craig Conti, CFO

Thank you.

Operator, Operator

Thank you. Your next question is from Keith Housum from Northcoast Research. Please ask your question.

Keith Housum, Analyst

Great, thank you. Good morning, guys, or good afternoon, I should say. It's been a long day. In terms of the T2 Parking, is there any KPIs or any kind of metrics you can give us to give us some confidence that this business is growing, understanding the shift from license to the SaaS model. But I just want to give a little more confidence in that story if we can.

David Roberts, CEO

Yes. I mean I won't give any specific KPIs that we manage internally necessarily. 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 sort of 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're probably in the bottom of the trough right now with regard to that, and we are moving our way up the other side of that. And again, I think about this business as trajectory-based. 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.

Craig Conti, CFO

And let me just add to that a bit. So David did it from a product standpoint, which is good. Let me try to do it from how we go to market standpoint. So there are three things that we look at. We're not going to do this externally on a regular basis, but I think given this quarter, it warrants mention. We've got true traditional SaaS revenue. We have service revenue, which are hardware-enabled services. So it's not SaaS; it's also not hardware. And then, of course, we've got hardware. When hardware goes down, when hardware demand pulls back, which we saw happen year-over-year, it brings with it some of those services, okay? But the true value driver of T2 is the recurring SaaS part of the business. That's the part that we want to see continue to grow. That's the part that becomes a larger part of the portfolio over the next few years and is going to make this a more sustainable and higher margin business. We saw 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. So we're not too sad to see it go. And 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 digits even in a pressured quarter like this.

Keith Housum, Analyst

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

David Roberts, CEO

Yes, nothing new from the last quarter in terms of number of pilots or things like that. And off the top of my head, no new toll roads that have opened or gone cashless that would be of any note. So kind of 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 thaw with regard 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.

Keith Housum, Analyst

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

David Roberts, CEO

Yes, that's correct. That's exactly right.

Keith Housum, Analyst

Great. Thanks, guys. Appreciate it.

David Roberts, CEO

Yes.

Operator, Operator

Thank you. Your next question is from Louie DiPalma from William Blair. Please ask your question.

Louie DiPalma, Analyst

David, Craig, and Mark good afternoon.

David Roberts, CEO

Hey, Louie.

Craig Conti, CFO

Hey, Louie.

Louie DiPalma, Analyst

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 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 timing of installation for these wins that you've achieved thus far?

Craig Conti, CFO

The short answer to your question, Louie, is yes. The slightly longer answer is timing really matters here. It really matters, right? So when we're looking myopically at a 90-day cycle or a 360-day cycle, to show growth for the company. So let me bring it back for a second, and then I'll try to give you a little more detail. Bringing it back, we expect the Government Solutions business still to grow at the high end of mid-single digits this year. I don't see that changing. I don't see anything in the new ARR that we've been able to put under contract here that's going to move back for 2024. As we go out in 2025 and those notices to proceed are coming, a couple of things happen to proceed gets awarded. Then the actual install happens, there's a calibration period, then the program actually starts. And it really if that last thing then the program actually starts happens in April or it happens in June, you will see a materially different impact in 2025 because of 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 will be, for sure, a 2025 impact most likely with the most material impact occurring in the second half of the year, given how long it takes the program to actually turn into revenue for the company.

Louie DiPalma, Analyst

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?

David Roberts, CEO

What I would say is the best word I can use is long; it's 800 pages. It's a pretty comprehensive RFP. They did a really thorough job, and we had – as you recall, we had expected it earlier in the year. Clearly, they were busy putting together a very comprehensive note. So I would say, yes, it was originally going to be due in, I think, August and has moved back now to the end of October as the current date, and I think it's been written to extremely high expectations and the RFP reflects that.

Louie DiPalma, Analyst

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?

Craig Conti, CFO

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 is – 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 kinds of momentum year-over-year growth now that that's in the run rate. But the opt-in rate there continues to be exactly where we projected, and we're very pleased.

Louie DiPalma, Analyst

Sounds good. Thanks, everyone.

Craig Conti, CFO

Thank you.

Operator, Operator

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 may we ask that you please disconnect your lines.