Q1 2024 Verra Mobility Corp Earnings Call

Participants

Mark Zindler; Investor Relations; Verra Mobility Corp

David Roberts; President, Chief Executive Officer, Director; Verra Mobility Corp

Craig Conti; Chief Financial Officer, Executive Vice President; Verra Mobility Corp

Faiza Alwy; Analyst; Deutsche Bank AG

Daniel Moore; Analyst; CJS Securities Inc

Keith Housum; Analyst; Northcoast Research Partners LLC

Louie DiPalma; Analyst; William Blair & Company LLC

David Koning; Analyst; Robert W. Baird & Co

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to the variability First 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. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, May 2, 2024.
I would now like to turn the conference over to Mark Ziegler, Vice President of Investor Relations.
Please go ahead.

Mark Zindler

Thank you.
Good afternoon and welcome to Varian Mobility's First 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 relations section of our website at ir dot zero mobility.com.
With me on the call are David Roberts, Verra Mobility's Chief Executive Officer, and Craig Conti, our Chief Financial Officer. David, who 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 dot Verra Mobility.com and on the SEC's website at SEC.gov. With that, I'll turn the call over to David.

David Roberts

Thank you, Mark, and thanks, everyone, for joining us. We had a strong start to the year with revenue, adjusted EBITDA and earnings exceeding our internal expectations for the first quarter. Moreover, all three business units met or exceeded our internal expectations for adjusted EBITDA for the quarter through our customer oriented solutions and execution strength guided by the bare mobility operating system or IVMOS. We are consistently delivering strong financial performance, consolidated revenue growth was 9%, adjusted EBITDA increased 6% and adjusted free cash flow increased 57% over the prior year period, demonstrating the predictable strength of our portfolio of businesses. Based on the first quarter financial performance and our outlook for the remainder of the year, we are increasing our 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, first quarter revenue of $96 million grew 12% over the prior year quarter, and adjusted EBITDA margins of 63% were up about 90 basis points over last year due primarily to the strength of rack tolling. First quarter TSA throughput volume was about 106% of 2023, driving strong growth in adopted rental agreements and tolls incurred, all of which resulted in a 10% increase in rack tolling revenue. Additionally, our S&C business generated revenue of $17 million for the quarter representing 25% growth over the prior year period, primarily driven by enrollments of new vehicles and increased tolling from FMC customers.
Looking ahead, over the course of 2024 we expect continued strength in rack tolling revenue due to strong travel bookings based on commentary from the major airlines and hotel chains in our FMC business, we are anticipating a modest pullback in relative growth rates over the balance of the year due primarily to tougher comps this year. The underlying strength of commercial services and particularly the strong travel outlook were the key factors influencing the decision to raise full year guidance.
Moving on to Government Solutions. Recurring service revenue, which reflects 96% 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 growth and improve road safety to this point, outside of New York City, we drove 15% revenue growth due to our existing customers' efforts to expand their safety programs. Total revenue, including international product sales were up about 10% over the prior year quarter. As we discussed in our last earnings call, we are seeing RFPs and award activity continue to ramp up in Florida. I am pleased to report that year to date, we executed contracts for schools on speed, school bus, stop arm and red light programs that in the aggregate represent potential recurring revenue of up to $7 million per year.
Additionally, on the international side of the GS business, we were awarded an extension of our national highways maintenance contract in the United Kingdom for our variable speed and Lane closure systems. This contract award will drive an approximately $2 million of a our increase in the current revenue run rate. We're also very pleased to report that in the state of Washington legislation was passed for the expansion of speed programs, bus lane, automated enforcement and other beneficial reforms. Overall, we had a strong first quarter from an awards perspective, we're highly competitive in the market and winning our fair share of deals, which for the quarter represent up to $10 million of incremental full run-rate ARR potential.
Moving on to the New York City automated enforcement renewal contract. The city recently published a notification indicating its intention to release the RFP in fiscal year 2024, potentially late in the second quarter of this year. We expect this to be a competitive procurement and believe we have a strong combination of best in class technical solutions and market experience to compete effectively for this program.
Next, a brief update on T2 systems. We generate total revenue of approximately $20 million for the first quarter. As we anticipated, onetime product revenue declined by 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 we also experienced a decline of onetime ancillary installation and maintenance services revenue. Recurring SaaS revenue was up 5% over the prior year quarter. Adjusted EBITDA of $3 million for the quarter was primarily driven by the year over year SaaS revenue growth. For the full year, we continue to expect T. two system to deliver mid single digit revenue growth and return to high single-digit revenue growth over the long term, driven by the strength in focus on SaaS and the introduction of transactional revenue pricing opportunities.
Turning to capital allocation, we further reduced net leverage to 2.4 times providing optionality for future capital deployment.
With respect to M&A, the pipeline is growing. We've been disciplined around valuation, but remain active in our evaluation of opportunities. Additionally, we have an open authorization for a $100 million stock buyback through the first quarter. We have sought to increase cash on the balance sheet, but the open buyback continues to be a viable option for capital deployment.
And lastly, I'll provide a brief update on the company-wide implementation of Aperam mobility operating system or DMOS. two years ago, we set out to build the future of air mobility. We knew that to deliver unparalleled value to our customers, empower our employees and maximize returns for shareholders. We needed a unified and standardized approach to continuously improve the critical areas of our business. We established a very mobility operating system, a dynamic set of mechanisms and tools designed to drive operational excellence and Spark continuous improvement across all parts of air mobility. Since then, we have deployed DMOS mechanisms and core focus areas, including operating reviews, strategic planning and deployment, problem-solving and sales funnel management. As an organization. We are building the muscle memory around leveraging VMOS. to drive operational excellence across these areas.
Finally, as we announced in our press release last month, I'd like to formally welcome and congratulate Cate Prescott on her appointment as Executive Vice President and Chief People Officer. Its HR experience and leadership expertise will be instrumental in shaping our organization and HR strategy. Welcome to the teen case. Craig, I'll turn it over you to guide us through our financial results and 2024 guidance update.

Craig Conti

Thank you, David.
Good afternoon, and thanks to everyone for joining us on the call. I'll start out today by providing an overview of our first quarter results, followed by an updated overview of how we're thinking about full year 2024.
Let's turn to slide 4, which outlines the key financial measures for the consolidated business. For the first quarter of 10, total revenue increased approximately 9% year over year to $210 million for the quarter, driven by strong recurring service revenue growth across the Company. Recurring service revenue grew 10% over the prior year quarter, driven by strong travel demand in the CS business and recurring service revenue growth outside of New York City in GS.
At the segment level, commercial services grew 12% year over year. Government Solutions service revenue increased by 8% over the prior year and key to system SaaS and services revenue grew 5% over the first quarter of 2023. Product revenue was $7 million for the quarter, about $3 million of this total was from T. two systems, while $4 million was from government solutions. The majority of which were international products. From a total profit standpoint, consolidated adjusted EBITDA of $93 million increased by approximately 6% over last year. We reported net income of $29 million for the quarter, including a tax provision of about $10 million, representing an effective tax rate of 25%. The tax rate includes certain discrete items, which favorably impacted the rate for the quarter. For the full year, we are anticipating an approximate 30% effective tax. Adjusted EPS, which excludes amortization, stock-based compensation and other nonrecurring items was $0.27 per share for the current quarter compared to $0.26 per share in the first quarter of 2023. Adjusted EPS grew 4% over the prior year quarter despite nearly $16 million additional shares in the share count due to the completion of our DCAC. process over the second and third quarters of 2023. We delivered $42 million of adjusted free cash flow for the quarter, which includes a $22 million adjustment for the resolution of the plus pass matters on an after tax cost basis, 45% conversion of adjusted EBITDA was driven by strong operating performance at over $10 million of collections that were received in early January.
Don't want to sound.
Turning to Slide 5. We generated $376 million of adjusted EBITDA on approximately $835 million of revenue for the trailing 12 months representing a 45% adjusted EBITDA margin. Additionally, we generated $164 million of adjusted free cash flow or a 44% conversion of adjusted EBITDA representing $1 of adjusted free cash flow per share trailing 12.
Moving to Commercial Services on Slide 6, we delivered revenue of about $96 million in the first quarter increasing $10 million or 12% year over year. Rack tolling revenue increased 10% or about $6 million over the same period last year, driven by robust travel volume and increased rental rates. Additionally, our FMC business grew 25% or about $3 million year over year, driven by the enrollment of new vehicles and tolling growth from existing FMC customers. First quarter. Adjusted EBITDA in commercial services was $61 million, representing 14% year over year. Adjusted EBITDA margins of about 63%, a 90 basis points increase over the first quarter of last year were largely driven by the continued strength of rack, tolling and execution of our growth initiatives.
Let's turn to slide 7, 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 $7 million or 8% over the same period last year to $90 million for the quarter. Product revenue was about $4 million for the quarter and was driven primarily by international programs. Adjusted EBITDA was $29 million for the quarter, representing margins of 31%. The reduction in margins versus the prior year is primarily due to slightly increased spending on business development efforts as well as a $2 million one-time benefit for a contract amendment in the first quarter of 2023.
Let's turn to Slide 8 for the results of T. two systems, which is our parking solutions business, we generated revenue of $20 million and adjusted EBITDA of approximately $3 million for the quarter. Software and Services sales increased 5% over the prior year quarter, slightly offset by a $1 billion year-over-year reduction in product revenue for the quarter. This decrease was expected based on the transition we're seeing from hardware to software and mobile solutions before I close out the financial review of the quarter, I'd like to give you an update on where we stand on the material weakness we described in our 2023 10-K. In our 10-K, we described several deficiencies regarding IT general control gaps, which aggregated for material weakness last year. While our remediation work is materially complete, the new controls are required to operate for a sufficient length of time and will undergo additional testing to ensure that they are operating at. And we'll continue to keep you updated on our progress and we remain confident you are correct.
Okay.
Let's turn to Slide 9 and discuss the balance sheet and take a little bit closer look at leverage. As you can see, we ended the quarter with a net debt balance of $903 million represents resulting in net leverage of 2.4 times.
At quarter end, we have maintained significant liquidity with our undrawn credit revolver.
Our gross debt balance at year end stands at about $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 about 95% of our current floating debt totals with a full fixed rate swap that's cancelable at our option.
Before I move on to 2024 guidance, I wanted to provide a brief update on our thinking around long-term leverage targets. We have revised our long-term net leverage target from the prior 3.5 times to an updated target of three times net leverage. Recognizing that in periods of M&A activity, we may temporarily and modestly exceed that level. This updated view is consistent with our commitment to deliver value to our shareholders through a disciplined and flexible capital allocation strategy. And we believe this new lower leverage target level is more contemporary with current market trends.
Okay.
Let's turn to slide 10 and have a look at full year 2024 guidance based on our first quarter results and our outlook for the remainder of the year, we are increasing our revenue guidance from the prior range of $865 million to $880 billion to the upper end of that range. We are increasing our adjusted EBITDA guidance from the prior range of $395 million to $405 million.
So the upper end of that range.
We are increasing our adjusted EPS guidance from the prior range of $1.15 to $1.20 per share to the upper end of that. And lastly, there is no change to our prior adjusted free cash flow guidance of $155 million to $165 million are our expected net leverage at year end and primary influencing factor to raise guidance after the first quarter was strong travel outlook from the major year to date, TSA volume has been about 106% of 2023, and we are anticipating a strong spring and summer travel in terms of payments for the rest of the year. We continue to anticipate revenue and adjusted EBITDA to increase sequentially in the second and third quarters. However, as we experienced in both 2022 and 2023, we expect the strongest sequential growth in the second quarter was slower sequential growth in the third quarter due to travel demand shifting forward in the year, consistent with historical trends, we would then expect a modest reduction to revenue and adjusted EBITDA in the fourth quarter. Adjusted EBITDA margins are expected to follow sequential revenue trends. Commercial Services having the largest influence on the sequential growth rates will follow the same trends as the consolidated company and Government Solutions. We expect modest sequential revenue growth over the balance of the year. And lastly, parking solutions revenue is expected to deliver mid-single digit total revenue growth. As we discussed on our quarter earnings call, temporary reduction in revenue growth is driven by strong demand in SaaS and services, offset by a reduction in onetime product sales as the industry transitions to a focus on software and mobile solutions. We expect comparable adjusted EBITDA margins in the second quarter as compared to first quarter performance, followed by an increase in second half margins. Over the long term, we expect parking solutions to return to high single digit growth as we execute our SaaS and transactional revenue growth strategies other key assumptions supporting our adjusted EPS and adjusted free cash flow outlook can be found on slide 11.
In summary, we had a strong start to the year, and I'm confident in our ability to deliver on our increased 2024 outlook. We have strong operating momentum in the business enabled by secular growth drivers and favorable business trend. We're focused on execution and operational excellence to deliver continued solid performance.
This concludes our prepared remarks. Thank you for your time and attention. At this time, I'd like to invite Constantine to open the line for any questions. Over to you, Constantine.

Question and Answer Session

Operator

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should your which wish to decline from the polling process. Please press star, followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys.
Your first question comes from the line of Faiza Alwy from Deutsche Bank.
Please go ahead.

Faiza Alwy

Yes, hi. Thank you so much on. So first, just wanted to talk about the raised guidance on Craig. I know you you mentioned sort of the travel outlook and that was a factor in the raised guidance for then. And you also mentioned sort of additional potential contracts on the government side. So just wanted a little bit more color in terms of how we should think about about the risk guidance and whether any incremental recurring revenue we should expect an incremental recurring revenue on the government services side as well.

Craig Conti

Yes, sure.
Thank you, Faiza.
So I think I'll give you a little more detail on how we think about that. So if you take it, let's just use revenue for simplicity.
If we look at the midpoint of the previous guidance go into the high end of that range, that's an increase of you know, and $5 million to $10 million.
Okay.
The vast majority of that increase in the guidance is in commercial services due to the increase in travel, right? We saw that come through as the TSA came in a couple of points higher than we anticipated in the first quarter as we take that out for the remainder of the year. And I think that raises our full year outlook on TSA throughput by about 0.5 to 2-point. Somewhere in that GES is pretty much on the service side in the same spot that we talked about last time, which I do think we're going to see the low end of high single digit growth for offer GS service this year.
What we talked about in terms of ARR., we continue to see great progression and not in the state of Florida. And overall, it's all about when that revenue actualize. So we don't have a lot of notice to proceeds on those that revenue will come into the business either in the fleet very late part of this year or potentially into 2025.
That's why it's not necessarily a factor in increasing the revenue guidance for 2024. But I think it's a very good indication and what the business can deliver going forward.

Faiza Alwy

Great.
That's very helpful. Thank you. And then just a question on capital allocation. You did lower your leverage target and you mentioned sort of your opportunity to potentially buyback stock. So just wanted to understand, you know, do you need do you want to reach that target first before you buy back stock? Or should we expect you to be actively buying back stock, you know, at this point and you sort of want to get to that leverage by the by the end of the year. So just talk about some of your thinking process around capital allocations.

Craig Conti

Yes, thanks again for the question. By the way I'm thinking about we're going to remain balanced as we've been in the past.
You know, we have that open authorization, which is there for a reason. And when we look at what I could say on the M&A side, as we look out at the market today, there's certainly more processes and more assets that are actually showing up on screen than there were right. So it's really hard to kind of to kind of dial in on that on which one would come first, I if I guess I got a 50% chance of being wrong.
So I won't I won't do that.
But what I would say is, as we've looked at it in totality, the 3.5 times net leverage was very contemporary view for the company two years, right? And as we look out today with what we've seen in rates and how we've seen that perform and also what we're seeing on the screen in terms of M&A, we think that three times is the right leverage for the Company and remember that that three times is a long-term target.
So hopefully it came out in the prepared remarks, right?
We still could go lower that for a period, right? But as we've talked about in the past, with the cash generation of the Company, we have the ability to delever over a period of quarters and come back to that level point now being three versus 3.5 that we talked about. It may be Tim too.

Faiza Alwy

Got it. Thank you so much.

Operator

Your next question is from the line of Daniel Moore from CJS Securities.
Please go ahead.

Daniel Moore

Thank you and thanks for the color, Dave and Craig, maybe to drill down on commercial services a little bit and not necessarily every quarter, but just multiple quarters now, it's another double-digit quarter double-digit growth quarter on top of it, tough difficult comp. Clearly, we've cycled past the pandemic recovery. So obviously, TSA volumes help quite a bit. When you think about the algo, what continues to outperform expectations is it attachment rates or uptake on your services on rental contracts, more toll roads shift to cashless? What's sort of maybe trending better than maybe a higher single digit algo would indicate.

Craig Conti

Right, right.
So I still think come to totally understand what you're asking. So let me start by saying that high single digit is still is still the growth target, even with the increased guidance for commercial services.
And I think that that rubric looks a lot like it did when we talked last quarter, right. So about half of that half of that high single digit growth, let's build it from zero is coming from the secular tailwinds.
So this is toll roads. These are of transition from sorry, additional toll road transition from barrier based cashless roads predominantly in United States and then continued rollout of the all-inclusive pricing box.
And then the other half of that growth is split between two pieces.
That's the growth initiative side.
And we've talked about the strength in the FMC business, mostly coming from increased utilization at fleets and then some growth in Europe as well to then the remaining 25% or half of the half is coming from TSA. That's what we said three months ago. I think maybe today it's a little bit more towards TSA than other growth initiatives, just given the outperformance in the in the first quarter, but that rubric about 50% for the tailwinds and then the other 50% split between TSA and growth initiatives remains intact from what we discussed last time.

Daniel Moore

Makes sense. And then on the Government Solutions side, I think I can back into the math, but just any more color on some of the investments you're making in terms of the enhancing customer facing platforms, more generally, what it is you're you're looking to accomplish and then how much how long will that incremental expense last or was it sort of a one-time? Thanks.

David Roberts

Yes, Dan, it's David. So I mean, basically, the we're really excited for the Government Solutions business. There's a lot of really great things going on that are have been buoyed by an ongoing sort of legislative opening across the country and to the investments is which is our platform over the history of the Company. We've done lots of acquisitions. And when you do that, you end up with multiple platforms. And so this is an opportunity to one consolidate from several platforms to one or two and two to modernize that and reduce our ongoing cost of ownership of the platform. So we can be really much more scalable in the future and that's going to be ongoing. We would anticipate that's going to be pretty much the bulk of this year as it had been and probably go into maybe the first part of next year as well.

Daniel Moore

Perfect.
I'll jump back with a follow-up.
Thank you.

Operator

Your next question comes from the line of Keith, so from Northcoast Research.
Please go ahead.

Keith Housum

Great. Thank you. Congratulations, guys.
On a good quarter in terms of the Government Solutions segment, perhaps talk a little bit about the outperformance in the quarter. I'm assuming these are unrelated to the positive legislation developments that we had last year, but are these a mix of smaller engagements or reserved weighted down by just a few different agencies?

David Roberts

I think it's some it's not as much from then I think where you're saying it's not from the TAM that we just opened, we are starting to win some of those, which is really exciting, especially in Florida, but off the tail of that is going to be a couple of quarters away before you start seeing the revenue. This goes back to the team, really focusing on the wins that we got last year and the customer expansions that we did last year alongside them, some of that on some international wins as well.

Keith Housum

Great. And actually following up on that on the international front International, that area for government solutions. We've talked a lot about in the past, but perhaps can you provide a little context or color about the size of the international and the opportunities there internationally growing in line with domestic highly kind of compare from a growth trajectory?

David Roberts

Yes.
I mean, if you look globally, it's a decent sized market in many places, it's a hardware only market. So we've really focused in the areas where there's a service component because that's where kind of our skill set and expertise is which really lends itself for the most part, not exclusively, but for the most part in North America. So Canada, you've got a little bit in Europe and Australia are the primary places where that exists. So we feel really good about those markets that we're in, and we'll continue to look for kind of the same approach, which is where we may have red light or speed in some countries, we may look to expand that as well as look for opportunities to expand to a service model versus in a hardware-only model. But right now, the North American market is growing so fast. We've got plenty to focus on right here no.

Keith Housum

Great.
Thank you. Appreciate it.

Operator

Your next question is from the line of Louie DiPalma from William Blair. Please go ahead.

Louie DiPalma

David, Craig and Mark.
Good afternoon.

David Roberts

Hey, Louie.

Craig Conti

Hey, Louie.

Louie DiPalma

You announced strong government bookings with the $10 million of ARR on incremental awards and over the past year has been well documented that there has been industry momentum for school zone speed cameras across the U.S., but along these lines, have you also witnessed any change in sentiment for red light cameras and has the overall demand for red light cameras improved.

David Roberts

I would say that the overall demand is mostly unchanged.
And what I mean by that is for the most part, really the transition to what we call purpose-built enforcement is really the trend, which is, hey, instead of just having something at an intersection, let's go to where the problems are, which are the most important to a community where their precious cargo is, which is around work zones, school zones, school buses. And so what I would say is that the red light demand, we've always thought that would be a flat flattish type of business long term. I think it's actually up a little bit, and I would anticipate it to stay there because I think the other ones are one more meaningful to the communities and also legislatively a bit more palatable.

Louie DiPalma

That makes sense.
And yes, I was just thinking about how there is proposed legislation to dramatically expand the The New York City Redlake program. And I was wondering that was part of a nationwide trend for exits, more one-off. (multiple speakers) Yes, granted, it's not in legislation.

David Roberts

Yes, it's a good point. New York, obviously has really embraced the benefits of automated enforcement, and they are often a trendsetter for other areas. But that could go quite slowly. So I wouldn't say that's a harbinger of immediate transition to red light expansion, but it could be something that means something in the future.

Louie DiPalma

Great.
And for Craig, you may have answered this in one of the prior answers. But when are you targeting for the migration to be finished from the legacy platforms onto the new VeriMed mobility operating system, should we expect that expenses will be elevated throughout the rest of the year? Or is that something that you expect to finish in the next couple of quarters?

Craig Conti

Yes, I'll do the first part of that, Louise, we expect to have that work completed in 2025, and we will see some incremental expenses if you were to look at dollars year over year. But I still do expect to keep the margins in the GS business at least flat to 25 basis points up year over year.
Right.
So again, you'll see that increase on a dollar for dollar basis, but that increase isn't sure the new system spent as these new TMs, David walked through some of them in his prepared remarks as they go. But right, we need to put salespeople in some of those areas. We need to train folks. We need to attend conferences we haven't been to before. So there is also some SG&A that just comes along with the market expanding. So but I think if you take that and roll it all together and put it into the total GS business, we still do expect to be able to hold margins and even increase them up 25 basis points year over year with the spending.

Louie DiPalma

Great.
And then that makes sense and you reiterated the $90 million full year CapEx target, and I may have missed this, but what was CapEx in the first quarter? And is there expected to be any seasonality too.
Capex throughout the year?

Craig Conti

It was 15 in the first quarter, Louis, so it is going to ramp up a little bit over that. We anticipated that that was not a surprise whatsoever. I still think it will come in somewhere around the rounds around $90 million for the year.
It does ramp up in the back half.

Louie DiPalma

That's it for me.
Thanks, everyone.

Operator

Just a reminder, if you have any questions, please press star and the number one on your telephone keypad. And your next question is from Dave Koning from Baird.
Please go ahead.

David Koning

Yes, hey, guys, nice job and thank you.
I guess first of all, the year-over-year growth in commercial was about $10 million. And I think you said about $6 million travel, $3 million on FMC on. But then as we go through the year, the FMC. growth gets a little smaller, but this travel stay give or take around that, that $6 million that or maybe even a little better if that if the TSA demand looks good. I mean, is that is that kind of how to think about it.

Craig Conti

That is how to think about it. I think you're really close there. So I expect FMC growth year over year in the second quarter. I expect it again, in the third quarter expected to level out Q4. So there is a little bit more to go on FMC when I speak. I think the right way to think about PSAs essentially we took what we saw here in the first four months of the year and apply that to the seasonality that we've seen for the last decade over the balance of right. And I'll save you the math on that. The way that that kind of worked out when we thought at the beginning of year and we talked a few months ago, we said come in before a vis-a-vis, let's remember that 2023 is no perfect comp, either didn't ramp a little bit through 2023. So as we look at the quarters, it looks a little funky, but for the total year, here's how here's how it shook out. We said originally you'd be somewhere between one and 1.1 to 1 or 2?
Right.
I think that if I take what we saw in the first four months of the year, apply that to the back eight months of the year, the total year probably goes up to one or three, maybe a little bit north.
That's what's taking what we see today and bringing it forward through the right comps to the end.

David Koning

Got you.
Yes, that makes sense. Thank you. And then maybe my follow-up, just an interesting thing in the cash flow statement. The bad debt expense was about $5 million in Q1 and you kind of all through last year was kind of $1.5 million to $3 million per quarter and even before that, so it was a little higher. Was there some to the credit cards used by travelers that were a little harder to collect or what was was?

Craig Conti

It's a great question and a really good catch on. It's not let me tell you what's not. And then I'll do my best to tell you what it is, right.
So what it's not we're not seeing the consumer get weaker, right, because when we saw those come through in the actualized.
We had the same question and what we're seeing is transactionally there has been differences and it's not necessarily with the health of the consumer, and it's how we train how we transact it. So I think that has come back in line. So the way we think about it is that the bet incremental bad debt expense that we saw in the first quarter.
I'm not seeing in the second quarter. I still need to go do some work and find out exactly what that was.
But I do know that it was not the health of the consumer. So I think it was a one-time thing that I don't expect to see go forward.

David Koning

Got to.
Thanks for Nice job, guys.

Craig Conti

Thank you.

David Roberts

Thank you.

Operator

Are no further questions at this time.
Ladies and gentlemen, this concludes today's conference call and thank you for your participation. You may now disconnect.