Earnings Call Transcript - VRRM Q2 2025

Operator, Operator

Good day, and thank you for standing by. Welcome to Verra Mobility's Second Quarter 2025 Earnings Conference Call. My name is James Reyes, and I will be your conference operator today. Please be advised that today's conference is being recorded. I would now like to hand over the conference to your speaker today, Mark Zindler, Vice President of Investor Relations.

Mark Zindler, Vice President of Investor Relations

Thank you. Good afternoon, and welcome to Verra Mobility's Second Quarter 2025 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.

David Martin Roberts, CEO

Thank you, Mark, and thanks, everyone, for joining us. We delivered a strong second quarter with all key financial measures ahead of our internal expectations. Total revenue for the quarter increased 6% over the same period last year to $236 million, with all three business segments meeting or exceeding their respective internal plans. Adjusted EPS increased 10% over the prior year period, driven by our operating performance, recent share repurchases and the reduction in our interest rate on our term loan debt. Moving on to segment-level financials. Commercial Services second-quarter revenue and segment profit increased about 5% and 4%, respectively, over the prior year period. RAC tolling increased 4% over the prior year period, driven by increased product adoption and higher tolling activity compared to the second quarter of last year. The growth in RAC tolling was partially offset by a decline in FMC revenue of about 2% compared to the second quarter of 2024, primarily due to a combination of customer churn as well as modest weakness related to enrolled vehicles and tolling activity in early 2Q attributable to macroeconomic factors. We expect incremental weakness in the third quarter and to stabilize and grow from that new level. FMC continues to be a core focus area, and we remain very optimistic about solid growth prospects in this business area. Additionally, as we noted in our press release in early July, Stacey Moser has joined our executive leadership team and will lead Commercial Services. Stacey is a commercially focused executive, bringing strong experience in sales leadership, product development, and international expansion and will be instrumental in leading Commercial Services into its next phase of growth. Next, moving on to the macro environment and the implications for our Commercial Services business. With consumer confidence levels improving amidst increased clarity on the economic environment, travel demand is stabilizing, albeit at lower levels than our prior forecast. Second quarter TSA volume declined about 1% over the second quarter of last year, and year-to-date TSA volume is about the same as last year. As a result of these trends and the commentary from the major airlines and expected demand, we have further reduced our travel volume assumptions for the remainder of 2025 relative to the levels discussed in our first quarter call. This is subject to further change, and we are closely monitoring the airline industry, which has historically been a good indicator of trends that impact the Commercial Services business. Moving on to Government Solutions. Service revenue increased 7% over the second quarter of 2024. Revenue from New York City, our largest government solutions customer was essentially flat year-over-year as we await the finalization of the renewal contract. Service revenue increased 11% outside of New York City driven by expansion from existing customers and new cities implementing photo enforcement programs. Total revenue, which includes international product sales was up about 10% over the prior year quarter, fueled in part by a $3 million increase in product sales compared to the second quarter of 2024. And a note regarding New York City, we are earnestly working toward finalizing the renewal contract. Upon executing the contract, we will hold an update call to discuss the new contracts, key economic terms, and the planned red-light expansion program. Next, I'll discuss the demand for automated photo enforcement, the key driver for our Government Solutions business. We continue to see positive support for photo enforcement programs across the United States. During the second quarter, both Colorado and Nevada passed legislation authorizing school bus stop arm enforcement, adding about $40 million in total addressable market. In total, enabling legislation passed over the past 2.5 years across the United States has added approximately $225 million of TAM with the potential to expand to over $350 million as further enabling legislation allows in California. Our recent execution against this TAM has been strong. In the second quarter, we entered into contracted bookings of about $21 million of incremental annual recurring revenue at full run rate, bringing the trailing 12 months total to about $60 million. Notable second quarter bookings include the Chicago, Illinois speed camera expansion and a five-year renewal, Carroll County, Georgia school bus stop arm expansion, Mesa, Arizona speed expansion program, and several Florida school zone speed awards. We believe automated enforcement continues to demonstrate its intended effects. We see proof points that drivers are improving their driving behaviors and traffic fatality rates are slowly decreasing. For example, our data revealed positive indicators when we compare 2024 to 2023, during the 4th of July holiday travel. Key findings included a 26% decrease in total violations from 2023, 24% fewer speeding tickets, and 31% fewer red-light violations. Most importantly, the data shows that pedestrian deaths were down 4.3% year-over-year, marking the second consecutive annual decline. However, with over 7,700 pedestrian fatalities last year, it's a stark reminder that more work needs to be done to improve road safety. Moving on to T2, our Parking Solutions business. Total revenue declined about 4% for the quarter, driven by a reduction in product sales as well as professional services revenue. This result was in line with our internal expectations. Moving on to our full-year outlook, we are maintaining our full-year 2025 financial guidance. While travel demand appears to be stabilizing, we remain cautious that a further modest decline in travel volume may cause us to trend toward the lower end of the financial ranges as previously provided. Additionally, note that our growth and margin expectations for Government Solutions and T2 remain unchanged as the market for photo enforcement is strong and our Parking Business turnaround is showing some early signs of success. We believe these business areas are largely unaffected by economic sensitivity. Moving on to capital allocation. During the second quarter, our Board of Directors authorized a $100 million stock repurchase program that is available through November 2026. As of the end of the second quarter, no repurchases have been made under the new stock repurchase program. Finally, before I close, a reminder that with summer nearing its close, please drive safely as kids start going back to school this month. Craig, I'll turn it over to you to guide us through our financial results and additional details on our 2025 financial outlook.

Craig C. Conti, CFO

Thank you, David, and hello, everyone. We 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. Our Q2 performance, which included 5% service revenue growth and 6% total revenue growth year-over-year, exceeded our internal expectations. The service revenue growth, which consists primarily of recurring revenue, was driven by increased product adoption and higher tolling activities in the Commercial Services business as well as service revenue growth outside of New York City in the Government Solutions business. At the segment level, Commercial Services revenue grew 5% year-over-year Government Solutions service revenue increased by 7% over the prior year, and T2 Systems SaaS and services revenue was essentially flat compared to the second quarter of 2024. Total product revenue was a little over $12 million for the quarter. Government Solutions contributed roughly $9 million in Q2 and delivered about $3 million in product sales overall for the quarter. Additionally, our consolidated adjusted EBITDA for the quarter was $105 million, an increase of approximately 3% versus last year. We reported net income of $39 million for the quarter, including a tax provision of about $14 million, representing an effective tax rate of approximately 27%. GAAP diluted EPS was $0.24 per share for the second quarter of 2025 compared to $0.20 per share for the prior-year period. Adjusted EPS, which excludes amortization, stock-based compensation and other nonrecurring items, was $0.34 per share for the second quarter this year compared to $0.31 per share in the second quarter of 2024, representing a 10% year-over-year growth. The adjusted EPS growth was driven by the increase in adjusted EBITDA, a sustained reduction in interest expense driven by our prior year debt repricing efforts in our share repurchases in 2024. Cash flows provided by operating activities totaled $75 million, and we delivered $40 million of free cash flow for the quarter, in line with our internal expectations. Turning to Slide 5. We generated $407 million of adjusted EBITDA on approximately $906 million of revenue for the trailing 12 months, representing a 45% adjusted EBITDA margin. Additionally, we generated $189 million of free cash flow or a 46% conversion of adjusted EBITDA over the trailing 12 months. 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 5% in the second quarter. RAC tolling revenue increased 4%, or about $3 million over the same period last year, driven by increased product adoption and tolling activity, partially offset by a 1% decline in travel volume. Our FMC business declined 2% or about $300,000 year-over-year, driven by customer churn and macroeconomic weakness related to enrolled vehicles and tolling activity in early Q2. As David mentioned, we anticipate that FMC revenue dollars will further decline in the third quarter, and then that we expect to stabilize and grow from that level. Commercial Services segment profit increased 4% over the prior year. The CS revenue growth was partially offset by nonrecurring ERP implementation costs. Turning to Slide 7. Government Solutions had solid service revenue growth in the quarter, driven by 11% growth outside of New York City. The growth was broad-based across all modalities with particular strength in bus lane and school bus stop arm enforcement programs. Total revenue grew 10% over the prior year quarter, benefiting from about $9 million in product sales, which increased by $3 million over the same period last year. Government Solutions segment profit was $30 million for the quarter, representing margins of approximately 28%. The reduction in margins versus prior year was primarily due to the mix impact of increased international camera sales, ERP conversion costs and project implementation costs for newly awarded programs. Let's turn to Slide 8 for a view of the results of T2 Systems. We generated revenue of $20 million and segment profit of approximately $3 million for the quarter. SaaS and services sales were essentially flat compared to the prior year, while product revenue declined 18% or $700,000 compared to 2024. Breaking the T2 and SaaS services revenue down a bit further, recurring SaaS revenue was flat compared to the prior year quarter and offset by a decline in installation and other professional services due to the reduction in product sales over prior quarters. On a year-to-date basis, recurring SaaS revenue has increased low single digits over the same period in 2024. Okay. Let's turn to Slide 9 for a view of the balance sheet and net leverage. We ended the quarter with a net debt balance of $893 million, which reflects the strong free cash flow we generated in the first half of the year. Net leverage landed at 2.2x, and we've maintained significant liquidity with our newly expanded $125 million undrawn credit revolver. Our gross debt balance at year-end stands at about $1 billion, of which approximately $690 million is floating rate debt. Okay. Let's now turn to Slide 10 and have a look at full-year 2025 guidance. Based on our first-half results and our outlook for the remainder of the year, we are reaffirming all guidance measures. As David discussed, our primary consideration in this economic environment is the potential impact to travel demand. While we are reaffirming guidance, we would like to highlight that there is a risk of moving to the lower end of the ranges if travel demand worsens from current levels. In the event that the U.S. economy weakens, and we see a material move downward in TSA volume, we will reassess and update the market accordingly. As a reminder, the full-year 2025 guidance ranges provided on our fourth-quarter 2024 earnings call were as follows: we expect total revenue in the range of $925 million to $935 million, representing approximately 6% growth at the midpoint of guidance over 2024. We expect adjusted EBITDA in the range of $410 million to $420 million, representing approximately 3% growth at the midpoint over 2024. We anticipate an adjusted EPS range of $1.30 to $1.35 per share, and free cash flow is expected to be in the range of $175 million to $185 million, representing a conversion rate in the low to mid-40th percentile of adjusted EBITDA. Moving on to the segment level. Government Solutions is expected to generate high single-digit total revenue growth, driven by the expansion of camera installations with existing customers and new customers awarded in fiscal year 2024. Recall that this growth forecast includes an expectation of flat service revenue from New York City in 2025 under the legacy contract while we work through negotiations for the renewal contract. We also expect increased product revenue in 2025. Taken together, both New York City service and global product sales comprised nearly 40% of total Government Solutions total revenue. The remaining 60% of Government Solutions revenue is expected to grow low double digits overall in 2025. We continue to anticipate that Parking Solutions revenue will be about flat with 2024 levels. We expect SaaS revenue to grow low to mid-single digits, offset by a decline in the installation and professional service revenue on roughly flat product sales. Based on an assumption that travel will be flattish in 2025 compared with 2024, we anticipate Commercial Services growing at the high end of mid-single digits. We anticipate CS revenue, adjusted segment profit, and margins will improve sequentially in the third quarter, followed by modest declines in the fourth quarter, consistent with historical norms based on travel trends. Other key assumptions supporting our adjusted EPS and free cash flow outlook can be found on Slide 11. Before we close out, I'd like to give you an update on our ongoing ERP implementation. I am pleased to report that the project is on schedule and on budget. We have several smaller processes to transition over the next several quarters, but the most complex portion of the project is largely complete. In closing, we're very pleased with our first-half performance. We exhibited solid execution across the board, and we're delivering strong free cash flow and earnings. As we head into the final months of 2025, there's a lot to be excited about. Stabilizing travel trends, finalizing the contract with New York City Department of Transportation, and strong demand for automated enforcement. This concludes our prepared remarks. Thank you very much for joining us on the call today. I'd now like to open the call for questions.

Operator, Operator

Our first question comes from Faiza Alwy from Deutsche Bank.

Faiza Alwy, Analyst

Great. I wanted to elaborate on your comments regarding Commercial Services. It seems there are several factors at play. First, concerning travel, could you clarify if your forecasts are aligned with the travel volumes from the second quarter or how you ended the second quarter? Please provide more details on your travel assumptions for the latter half of the year. After that, I will have a follow-up question.

Craig C. Conti, CFO

Yes. Thanks. I'll do the first part first. Faiza, first of all, we had a little technical issue at the beginning of the call. Can you hear me okay? It's Craig.

Faiza Alwy, Analyst

Yes.

Craig C. Conti, CFO

Excellent. Okay. So if we back up to the end of the first quarter, I'll get to your question, but I want to start with a little context, right? So last time we were on the call, we talked about the guide for the company would still stand if TSA volumes stayed at around flat to last year to down a handful of points, okay? Now bringing that forward three months, we're still in the exact same place. What we saw in the second quarter, the TSA throughput was about 99%, that stepped up and got a little better in July at just north of 100%. And if you look at it, as David said in his script, on a year-to-date basis, we're right at about 100%. So that's the state of play. I think the other thing that's different is the backdrop or the sentiment on travel is stronger than it was 90 days ago. I think we all heard that from the airlines and the hotels. So now to your question. What we've done for demand going forward is we've taken in essentially the 2Q exit rate, which is somewhere between 99% and 100% and left that as the throughput rate for the back half of the year, which still puts us within the range of guidance that we set at the beginning of the year, and that's what it looks like the consensus is for travel in the near term in the market today.

Faiza Alwy, Analyst

Understood, that makes sense. Regarding some of the other factors, like fleet management, macroeconomic influences, and churn, could you provide insight on whether this situation will worsen in the third quarter? Additionally, what needs to occur for stabilization in the fourth quarter?

Craig C. Conti, CFO

Yes, I agree with what you said, Faiza. We did experience a slight decline in our second quarter results, amounting to $300,000 or roughly 2%. This was due to some macroeconomic challenges and customer churn. We anticipate this trend to continue and accelerate as we enter the third quarter, with expectations that it will be fully reflected in our run rate by then. Therefore, we expect to see another decline in the third quarter. From a total demand perspective, this will serve as the foundation from which we can start to grow again.

Faiza Alwy, Analyst

All right. Great. My second question is about the raised guidance for Government Solutions. Can you explain what improved? Was it due to better or earlier execution or the conversion of some annual recurring revenue to revenue, or is there another reason?

Craig C. Conti, CFO

I'm sorry, Faiza, are you asking about the commercial activity?

Faiza Alwy, Analyst

No, I was asking about the Government Solutions and the slight guidance raise there. And if you were seeing faster conversion from ARR to revenue or if it was something else that was driving the increase?

Craig C. Conti, CFO

Yes. As I think about it, there's really broad-based strength, it's across both. So product is going to be higher than we anticipated at the beginning of the year. And that's a bit of a positive and negative, right? So that's positive on the revenue line. If I look at the mix of that business, that's going to be a little dilutive on the margin line. You could see that in the results in the second quarter, not materially 100 basis points in the quarter, but still, you'll see it. And as we go forward and look at the demand for photo enforcement, that honestly has done nothing but accelerate throughout the year. So when we started the year, we said high single digits is pretty much what we thought the non-New York City service revenue would grow. We feel comfortable today saying that's going to be in the low double digits. So the short answer is both of those things. And I think the final piece to that is, if we think about the commercial activity we talk about in terms of loosely defining this backlog or what is that ARR that we've built up in the last trailing 12 months. That number is sitting at $61 million. The TTM basis of that six months ago was in the 40s or 50s, right? So we continue to see this bow wave of the move to photo enforcement continue to move in the company's favor and we've been capitalized.

Operator, Operator

Our next question comes from Daniel Moore from CJS Securities.

Daniel Joseph Moore, Analyst

Congrats on another solid quarter. I wanted to pull on the string of margins in Government Solutions a little bit. You just gave good color regarding the mix pressure in the quarter. How much setup costs are in that and are sort of in the guide as we think about some of these new opportunities you generally have to invest a little bit ahead of revenue. So what I'm getting at is sort of as we think about full-year margins, whether that's a new baseline from which will be flat to up or expand from as we think about kind of fiscal '26 and beyond in the Government Solutions piece of the business?

Craig C. Conti, CFO

Yes. Thanks, Dan. It's Craig again. Let me answer with a very detailed answer for the quarter and then give you an idea of how I think this looks, okay. So, first of all, if I just look at year-over-year, we're down 250 basis points. So if you look at that on the face of it, that's a rough number, but let me break it down: about 100 basis points of that is simply mix. That is we are up 46% in product sales to international customers year-over-year. I love that. It's just lower margin, and that just lower margin that hit the quarter. So we kind of take that away from the 250. Another 100 basis points, now we've built up 200 of the 250 is from the ERP costs that we incurred in the second quarter. That's going to hit both CS and GS. That was the thrust of the activity. So now we've got 50 basis points left, which is exactly what you asked, that is the incremental, if you will, setup cost. Now I hesitate to go up to 2026 simply because we are not yet through contracting with New York City. Once we're done contracting with New York City, I think we can lay all of that out. But what I will tell you to hopefully help you a little bit farther down the path is if we kind of set New York City to the side for a second, the way we think about this is if the business continues to grow outside of New York City at low double digits, that will probably be slightly margin dilutive until we get most of the way through 2026. And what I mean by that is if we go back to the last 12 to 18 months, we talked about the platform consolidation that's going on in GS. That's still going up. We're still investing in that, not a material year-over-year amount of money, but it's not live yet. So the confluence of that against the low double-digit growth will help us be able to accrete and grow our revenue and maintain margin until that point; I can get there. That's the temporary answer. Obviously, we'll reset the whole mark once we have the view of where New York City is going to be.

Daniel Joseph Moore, Analyst

Perfect. Really helpful. I'm sure the answer is no comment, but any update just in terms of timing around the New York City renewal? Or the finalization metric.

David Martin Roberts, CEO

Dan, it's David. I believe it's a bit impolite to say no comment given our long-standing relationship. However, I want to emphasize that we respect the terms of the contract we have with our customer and are actively working toward a resolution. While it would be preferable to finalize things sooner, we will announce the outcome and provide all pertinent information to the market as soon as it is ready.

Daniel Joseph Moore, Analyst

I look forward to the call. Lastly, obviously, the balance sheet continues to improve. Leverage ticking down towards 2x. Maybe just touch on M&A pipeline and borrowing position, given more likely to pick up the pace of share buybacks rather than let leverage continue to tick lower below the kind of low end of your target range?

David Martin Roberts, CEO

Yes. Thanks, Dan. I don't think anything has changed in our strategy that we've laid out, which is we still think 3x is the level of flight plan for the company. We've got an open share repurchase. We're going to be opportunistic with that. But I would just say that M&A activity has really started to pick up. And so we continue to look at really interesting businesses across multiple segments. And so we'll continue to play our strategy, but we're only going to do a deal when it makes sense for our shareholders. So if not, we'll always go back to investing in the business or potentially buying back shares. So we're going to kind of keep doing exactly what we've been doing.

Operator, Operator

Our next question comes from Keith Housum from Northcoast Research.

Keith Michael Housum, Analyst

David, I believe it may happen in the first quarter. I remember European operations being highlighted in CS. Additionally, your team issued a press release about an agreement in Italy during the quarter. Could you elaborate on some of the successes you're experiencing in Europe? I know it's still in the early stages, but how do you view its contribution over the next year or so?

David Martin Roberts, CEO

Yes. Thanks, Keith. I actually just got back from there a couple of weeks ago and was meeting with customers. And what I would say is, as you've been with us for a while, you know about the ice thawing. And I would say that there's water on the side of the glass is maybe the best way to describe it; we are definitely starting to roll out in Italy with some customers like Avis Budget. The value proposition is compelling to our customers. And so I think it's starting to move up. Again, it's not going to be material. I think next year, we'll probably be able to dimensionalize that in terms of total contribution, but we are starting to see multiple deployments in multiple countries. And so it's actually getting pretty exciting. And the greatest part of that, obviously, Keith, is the customers are telling us that they really like it.

Keith Michael Housum, Analyst

Yes. Congratulations. I know it's been a long haul, and you guys have been working hard on that. So good to see. Outside of Italy, is there any other countries that are getting close to doing it as well or as far along as Italy?

David Martin Roberts, CEO

We have a total of seven countries. Italy is a key market as it is moving towards cashless transactions. Thanks to our Pagatelia asset, we can implement transponders in Italy and other locations. France is another significant market for us. Additionally, we operate in Portugal, Spain, Ireland, and Italy. Those are the countries we are currently involved with.

Keith Michael Housum, Analyst

Okay. And I've got to ask this question more just to make sure we're covering our bases here. But as you guys are adding new cameras to the portfolio here, there's no tariff issues or obligations that we have to worry about impacting costs going forward, do we?

Craig C. Conti, CFO

Would you drill that in a little bit more, Keith, in terms of what kind of costs you're talking about?

Keith Michael Housum, Analyst

Yes, I'm sorry. In terms of purchasing cameras for the photo enforcement program, as you've been adding new agencies here, are there any tariffs that perhaps will reduce your profit on the cameras?

Craig C. Conti, CFO

No, I don't think so. I mean, if anything, I like where we're heading on the volumes. And I think the other piece is, when we talk about platform consolidation, it's a multiyear project that's going to bear some fruit for us here in the back half of next year, which is going to work really well with the generation of cameras that we've been buying. So I think, I'll say what I said a little bit earlier, Keith, because I think it bears repeating, is if the business continues to grow in the low double digits, which let me be crystal clear, I have every intention that it will; I certainly hope it does. We are going to continue to see those installation costs, small incremental installation costs come ahead of revenue, especially in the greenfield area. So we talked about, David mentioned, Colorado and Nevada, I believe, earlier. But outside of that, I don't see anything structural coming down the pipeline.

Operator, Operator

Our next question comes from Louie DiPalma from William Blair.

Michael Louie DiPalma, Analyst

You have talked about the expansion of the photo enforcement market over the past few years. Could you share some insights on the pipeline now that you have reported strong bookings this quarter and over the past year? Specifically, regarding your outstanding bids and the newer markets, how is the RFP process progressing? Do you have more outstanding bids today compared to a year ago? Additionally, how are your bookings converting into actual revenue?

David Martin Roberts, CEO

Yes. Craig mentioned that we have added $60 million to our annual recurring revenue run rate. Overall, things are going very well. California is a strong example for us; we developed a playbook and supported the state in implementing legislation more quickly than we expected. We have collaborated with great cities, such as San Francisco and Oakland, among others. All of this is starting to lead to revenue recognition at a reasonable pace, but it also highlights what Craig mentioned earlier: our work begins as soon as we get the go-ahead, yet revenue only kicks in when the cameras are active. We're experiencing significant movement in our pipeline, with strong conversion rates in our win rate, and all of this will contribute to revenue, making the $60 million an indicator of that growth.

Michael Louie DiPalma, Analyst

Fantastic. And for the Commercial Business, you discussed the slowdown in travel. And I was wondering, as it relates to the overall algorithm with all things being equal, can investors assume a general 5% alpha outperformance of your revenue growth above travel volumes? As Craig and David and Mark, you previously discussed how, in addition to travel volumes, there's other variables such as the shift to cashless more toll roads, total inflation and the bundled pricing. But has there been any other slowing for those other secular trends in terms of the shift to cashless or increased toll roads? Or are those other secular trends healthy?

Craig C. Conti, CFO

Let me answer your question as clearly as possible. I appreciate how you framed it: can I assume a 5% outperformance in travel demand for forecasting on Commercial Services? For this year, I believe that holds, but it may not be the case next year; it could be higher or lower. That's the current status. Two quarters ago and last quarter, I mentioned that growth in this business is divided into three parts. One-third of the growth that leads to high single digits is tied to GDP-like travel growth. In the second half of the year, if we achieve 99% to 100%, we had 99% in the second quarter and a little over 100% in the first quarter, averaging around 100%. So, I don't see that 2.5% this year. I understand your reasoning. All the secular trends we've discussed are definitely still present, and the trend is clear. However, growth can have its ups and downs; sometimes it speeds up, other times it slows down. That growth will continue, but I can't say for certain whether it will be a 5% outperformance by 2028.

Operator, Operator

Our next question comes from David Koning from Baird.

David John Koning, Analyst

Good job. And I guess, first of all, I wanted to just look at CapEx. It was like clockwork kind of $10 million to $15 million a quarter for many quarters through really 2022 through 2024 mostly. And then by late 2024 and into this year, it's, I'd say, over doubled. And I know that's in preparation for demand, but it's not like revenues doubled yet. And I'm just wondering like what's the relationship there? Like if it's double, why shouldn't revenue be double? Or is it just a shorter-term kind of build and then six months from now, we'll see better growth? Like how should we think of that relationship?

Craig C. Conti, CFO

Thank you for your question, Dave. There are a few points to consider. Capital expenditures typically have a depreciable life of 5 to 7 years, but their useful life can extend beyond 10 years. This means there will always be some discrepancy in that aspect. Additionally, you're correct that we experienced growth of around $15 million to $18 million fairly consistently; you identified that accurately. At the time, the business growth rate was in the mid-single digits, particularly outside of New York City, where it could have been even lower. Currently, the growth rate has reached 12%, building on last year's double-digit growth. To break this down further, if we look at approximately $100 million in capital expenditures for the business, after accounting for the ERP and platform consolidation, we expect to allocate between $60 million and $80 million. I understand that’s a wide range, but the business is rapidly evolving, and the planned expenditure for the Government Solutions segment is about 2.5 times higher than in the past. This level of growth positions the business to potentially achieve similar size 5 to 7 years from now. That's my perspective.

David John Koning, Analyst

Yes. No, that makes sense. And certainly, leading to good growth, better growth, it's great. And then my follow-up, big kind of nerdy question. D&A has been running $28 million, $29 million a quarter in the last couple of quarters. Full-year guidance, I think, is $110 million, that implies lower back half D&A unless I'm looking at something wrong.

Craig C. Conti, CFO

I don't think you're misunderstanding the situation. What you're beginning to notice is not related to D but rather to A. As we mentioned earlier in the call, the company hasn't completed a deal in over three years. Consequently, some of the amortization from the transactions we conducted in the late teens and in 2020 is starting to decrease. If you examine our Q and K reports, you'll see that the useful life of those items is now approaching low single digits, compared to five to seven years a couple of years ago.

Operator, Operator

I'm showing no further questions at this time. So this concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.