Verra Mobility - Earnings Call - Q1 2025
May 7, 2025
Executive Summary
- Q1 2025 delivered above-plan results: revenue $223.3M (+6% YoY), Adjusted EPS $0.30 (+11% YoY), and Adjusted EBITDA $95.4M (43% margin), while GAAP diluted EPS was $0.20.
- The company reaffirmed full-year 2025 guidance (Revenue $925–$935M, Adjusted EBITDA $410–$420M, Adjusted EPS $1.30–$1.35, FCF $175–$185M), but flagged macro uncertainty and possible drift to the lower end if travel softens.
- Key positive catalysts: NYCDOT identified VRRM as the vendor for NYC’s automated enforcement camera programs (expected five-year term post-Dec 2025) and a robust Government Solutions bookings pipeline; management will withhold further details until contract finalization.
- Risk watch: commercial travel demand showed modest deceleration exiting April/into May; management now assumes flattish-to-slightly lower TSA volumes through 2H25, which would bias Commercial Services growth lower and guidance toward the low end.
What Went Well and What Went Wrong
What Went Well
- Broad-based growth: total revenue +6% YoY to $223.3M, with Commercial Services +6% and Government Solutions +8%; Parking Solutions +2% on stronger product sales.
- Strong profitability and cash conversion: Adjusted EPS up to $0.30; Adjusted EBITDA $95.4M (43% margin); Free Cash Flow $41.7M more than doubled YoY, aided by improved working capital dynamics.
- Pipeline/strategic positioning: “We delivered a strong first quarter with all key financial measures ahead of our internal expectations,” and NYC DOT identified VRRM as vendor for a five-year automated enforcement program; bookings added ~$6M incremental ARR in Q1, $52M TTM, with ~97–98% renewal rates.
What Went Wrong
- Macro exposure: management highlighted uncertainty in travel demand and consumer confidence; TSA volumes were ~+1% in Q1, flattish in early Q2, and trending “a bit lower” in May; guidance reaffirmed but skewed to the lower end if travel softens further.
- Segment margin pressure: Government Solutions margins fell to ~29% (vs 31% prior year) on increased marketing/business development, project implementation, and ERP implementation costs.
- Credit expense and ERP costs in Commercial Services: segment profit +4% lagged revenue +6%, reflecting ERP-related expense and a nonrecurring write-down of aged receivables.
Transcript
Operator (participant)
Thank you for standing by. Welcome to Verra Mobility's first quarter 2025 earnings conference call. My name is Michelle, and I'll be your conference operator today. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that our next speaker today, Mark Zindler, has a request for relations. Please go ahead.
Mark Zindler (VP of Investor Relations)
Thank you. Good afternoon and welcome to Verra Mobility's first quarter 2025 earnings call. Today, we'll be discussing the results announced in our press release issued after the market closed, along with our earnings presentation, which is available on the investor relations section of our website at ir.verramobility.com. With me on the call are David Roberts, Verra Mobility's Chief Executive Officer, and Craig Conti, our Chief Financial Officer. David will begin with prepared remarks, followed by Craig, and then we'll open up the call for Q&A. Management may make forward-looking statements during the call regarding future events, anticipated future trends, and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of 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 Roberts (CEO)
Thank you, Mark, and thanks everyone for joining us. We delivered a strong first 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 $223 million, driven by outperformance in all three business segments relative to our internal plan. Adjusted EPS increased 11% over the prior year period given our operating performance, recent share repurchases, and the reduction in our interest rate on our term loan debt. Before I elaborate further on our financial performance, I am pleased to report that the New York City Department of Transportation identified Verra Mobility as the vendor to manage New York City's automated enforcement safety programs for what is expected to be a five-year period after the company's current contract expires in December 2025.
We are honored by the opportunity to continue serving as New York City's trusted technology provider on a world-class transportation safety program. This remains an active procurement as we are currently engaged in contract negotiations with the New York City Department of Transportation. As such, we do not intend to make any additional disclosures about the program until the contract is finalized. Moving on to the segment-level financials, Commercial Services' first quarter revenue and segment profit increased about 6% and 4% respectively over the prior year period. RAC tolling increased 6% over the prior year period, driven by a modest 1% increase in TSA travel volume, increased product adoption, and higher tolling activity compared to the first quarter of last year. Additionally, FMC revenue grew 12% compared to the first quarter of 2024, primarily due to the increased vehicle enrollment as well as higher tolling activity.
Looking ahead, we anticipate that FMC growth rates will moderate due to tougher comps over the balance of 2025. Government Solutions Service revenue increased 4% over the first 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 aforementioned contract. Service revenue increased 7% outside of New York City, driven by expansion from existing customers and new cities implementing photo enforcement programs. Total revenue, including international product sales, was up about 8% over the prior year quarter, fueled by a $4 million increase to product sales compared to the first quarter of 2024. Moving on to T2, our Parking Solutions business, total revenue increased about 2% for the quarter, driven by increased revenue from SaaS product offerings and a modest increase in product sales, partially offset by lower professional services revenue.
Next, I will move on to the macro environment and the implications to our business. We monitor domestic travel demand as it directly influences our commercial services business. We are experiencing a broader pullback in consumer confidence levels and the impact on travel demand, as evidenced by the U.S. air carriers cutting their forecasts. As I mentioned, first quarter TSA volume increased about 1% over the first quarter of last year, and second quarter to date is about 100% of the same period last year. In this uncertain economic environment, we anticipate that discretionary spending may be impacted and travel demand may soften as a result. Consequently, we have incorporated a modest deceleration of travel volumes in the second half of 2025 in our current assumptions.
This is subject to further change, and we are closely monitoring the airline industry, which is often a good indicator of trends that impact the commercial services business. Next, I'll discuss the demand for automated photo enforcement, the key driver for our government solutions business. We continue to see positive support of photo enforcement programs across the United States. In total, the enabling legislation passed over the prior two and a half years across the United States adds approximately $185 million of TAM, with the potential to expand over $300 million as further legislation allows in California. Our execution against this TAM has been strong. In the first quarter, we booked about $6 million of incremental annual recurring revenue at full run rate, bringing the trailing 12-month total to $52 million.
Notable first quarter bookings include Windsor, Colorado, red light, excuse me, Windsor, Colorado red light, and Ontario, Canada speed expansion programs, along with Carroll County, Georgia school bus stop arm expansion. Moreover, our pipeline for Q2 is attractive as we have a number of awards awaiting contract execution. Our government solutions annual recurring revenue bookings typically materialize into revenue over a 12- to 18-month period. In conjunction with an approximate 97% contract renewal rate, we believe this demonstrates a strong and predictable recurring revenue stream. Moving on to our full-year outlook, we are maintaining our full-year 2025 financial guidance. However, recognizing that there is a risk with uncertain travel demand, we may trend towards the lower end of the ranges previously provided.
Our guidance ranges factor in a level of travel demand variability, and we will continue to reevaluate as the summer travel season kicks off in earnest. Additionally, note that our growth and margin expectations for government solutions in T2 remain unchanged as the market for photo enforcement is strong and our parking business turnaround is showing early signs of success. We believe these businesses are areas that are largely unaffected by economic sensitivity. Craig, I'll turn it over to you to guide us through our financial results and additional details on our 2025 financial outlook.
Craig Conti (CFO)
Thank you, David, and hello, everyone. Appreciate you joining us on the call today. Let's turn to slide four, which outlines the key financial measures for the consolidated business for the first quarter. Our Q1 performance exceeded internal expectations, which included 5% Service revenue growth and 6% total revenue growth year-over-year. The Service revenue growth, which consists primarily of recurring revenue, was driven by a modest increase in travel volume, increased product adoption, and higher tolling activity 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 grew 6% year-over-year, government solutions service revenue increased by 4% over the prior year, and T2 Systems SaaS and services revenue was essentially flat compared to the first quarter of 2024. Total product revenue was $11 million for the quarter.
Government Solutions contributed roughly $8 million, and T2 delivered about $3 million in product sales overall for the quarter. Additionally, our consolidated adjusted EBITDA for the quarter was $95 million, an increase of approximately 3% versus last year. We reported net income of $32 million for the quarter, including a tax provision of about $12 million, representing an effective tax rate of 28%. GAAP-diluted EPS was $0.20 per share for the first quarter of 2025 compared to $0.17 per share for the prior year period. Adjusted EPS, which excludes amortization, stock-based compensation, and other non-recurring items, was $0.30 per share for the first quarter of this year compared to $0.27 per share in the first quarter of 2024, representing 11% year-over-year growth.
The adjusted EPS growth was driven by an increase in adjusted EBITDA, a sustained reduction in interest expense driven by our prior year debt repricing efforts, and our share repurchases in 2024. Cash flows provided by operating activities totaled $63 million, and we delivered $42 million of free cash flow for the quarter ahead of our internal expectations. Turning to slide five, we generated $404 million of adjusted EBITDA on approximately $893 million of revenue for the trailing 12 months, representing a 45% adjusted EBITDA margin. Additionally, we generated $174 million of free cash flow, or a 43% conversion of adjusted EBITDA over the trailing 12 months. Next, I'll walk through the first quarter performance in each of our three business segments, beginning with commercial services on slide six. CS year-over-year revenue growth was 6% in the first quarter.
RAC tolling revenue increased 6%, or about $4 million over the same period last year, driven by modest travel demand growth and increased product adoption and tolling activity. Our FMC business grew 12%, or about $2 million year-over-year, driven by the enrollment of new vehicles and tolling growth from existing and newly enrolled FMC customers. As David mentioned, we anticipate that FMC growth rates will moderate over the balance of 2025 due to tougher comps. Commercial Services segment profit increased 4% over the prior year. Revenue growth was partially offset by ERP implementation costs as well as higher bad debt expense driven by a non-recurring write-down of aged receivables. Turning to slide seven, Government Solutions had solid service revenue growth in the quarter, driven by 7% growth outside of New York City.
Total revenue grew 8% over the prior year quarter, benefiting from about $8 million in product sales, which was a $4 million increase over the same period last year. Government solutions segment profit was $29 million for the quarter, representing margins of approximately 29%. The reduction in margins versus the prior year is primarily due to increased marketing and business development costs, project implementation costs for newly awarded programs, and ERP implementation costs. Let's turn to slide eight for a review 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, SaaS and services sales were essentially flat compared to the prior year, while product revenue was up 13%, or $400,000 compared to 2024.
Breaking the T2 SaaS and services revenue down a bit further, recurring SaaS revenue grew about 5% over the prior year. However, offsetting this increase was a decline in installation and other professional services due to the reduction in product sales over the prior quarters. Okay, let's turn to slide nine to discuss the balance sheet and take a closer look at leverage. We ended the quarter with net debt balance of $935 million, which reflects the strong free cash flow we generated in the first quarter. Net leverage landed at 2.3x, and we've maintained significant liquidity with our 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, now let's turn to slide 10 and have a look at full-year 2025 guidance.
Based on our first quarter results and our outlook for the remainder of the year, we are reaffirming all guidance measures. As David discussed, our primary consideration is the uncertain economic environment and potential impact to travel demand. Ultimately, based on our strong first quarter performance and our ability to withstand some level of travel volume variability, we are reaffirming guidance. Recognizing that there is a risk of moving to the lower end of guidance, the guidance ranges if travel demand continues to worsen from current levels. In the event that the U.S. economy enters a recession and we see a material move downward in TSA volume, we will reassess and update the market accordingly. Additionally, we have evaluated potential tariff exposure, and we expect the direct impact to be immaterial to our business in the near term.
However, as we've discussed, the indirect impact to consumer and business spending may impact travel demand in our commercial services business. 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-$935 million, representing approximately 6% growth at the midpoint over 2024. We expect adjusted EBITDA in the range of $410 million-$420 million, representing approximately 3% growth at the midpoint. We anticipate adjusted EPS in the range of $1.30-$1.35 per share. Free cash flow is expected to be in the range of $175 million-$185 million, representing a conversion rate in the low to mid-40% of adjusted EBITDA.
Moving on to the segment level, we are reaffirming that Government Solutions is expected to generate the high end of mid-single-digit total revenue growth driven by the expansion of camera installations with existing customers and new customers awarded in fiscal year 2024. Recall that this growth includes an expectation of flat service revenue from New York City in 2025 under the legacy contract while we work through the contract negotiations. Additionally, we expect product revenue to be largely flat with 2024 levels. Taken together, both New York City service and global product sales comprise nearly 40% of total Government Solutions revenue. The remaining 60% of government solutions revenue is expected to grow low double digits 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 installation and professional service revenue on roughly flat product sales. Any variability is expected to come from commercial services and specifically RAC tolling, contingent on TSA volume. Historically, in the combined CS business, the first quarter is forecast to be our lowest revenue-generating quarter, followed by sequential revenue increases in the second and third quarter, followed then by a revenue decline in the fourth quarter as the summer driving season comes to a close. However, given the current economic uncertainty, these trends may play out differently in 2025. Other key assumptions supporting our adjusted EPS and free cash flow outlook can be found at 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 going well and the vast majority of processes are now live in the new platform, and the implementation is on schedule and on budget. In closing, we're very pleased with our first quarter performance. We exhibited solid execution across the board, and we're delivering strong free cash flow and earnings. As we head into the back half of 2025, we remain cautiously optimistic about our outlook and will be monitoring the economic environment and travel demand very closely. This concludes our prepared remarks. Thank you for your time and attention today. At this time, I'd like to invite Michelle to start the Q&A session. Michelle, over to you.
Operator (participant)
Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from Nik Cremo with UBS. Your line is open.
Nik Cremo (Analyst)
Hey, guys. Thanks for the great update and all the incremental color here. First, just a quick one on the New York City contract. I realize you guys can't share any real details, but when's the expectation as to when this contract will be finalized and when we'll have greater clarity on the impact on your business?
David Roberts (CEO)
Yeah, good question, Nik. It's David. I would say probably in the next 60-90 days is probably a reasonable bet.
Nik Cremo (Analyst)
Got it. Thanks for that. I was hoping just to get a little incremental color on the attractive pipeline that you referenced in the prepared remarks you have coming in Q2, and then also just any updates on the city-level RFPs going on in California, if there were any updates there. Thank you.
David Roberts (CEO)
Yeah, I think what we've seen is the activation of the TAM that we've worked really hard to do has translated to pipeline. We've been, I think we are well ahead of where we hope to be from a pipeline, and now it's really just the translation of that pipeline to revenue. Our bookings are running ahead of our internal plan. California is going very well. We are waiting right now for some final updates from a couple of RFPs that we've submitted for San Jose and for Oakland. Overall, we feel very good about our position there.
Nik Cremo (Analyst)
Got it. Thanks very much.
Operator (participant)
Thank you. Our next question comes from Daniel Moore with CJS Securities. Your line is open.
Daniel Moore (Analyst)
Thank you, David and Craig. Good afternoon. Thanks for taking questions. Maybe, and I think you've probably covered this, but just parsing the updated commentary around guidance, are you seeing travel and commercial services revenue slow in real time, and that's causing you to point to the low end, or is it more just the anticipation of softer volumes, perhaps in the back half of the year, given some of the revised outlooks from the airlines?
Craig Conti (CFO)
Hey, Dan, thanks for the question. This is Craig. I see exactly where you're coming from. I think it's more the latter than the former, but let me contextualize it this way. As we exited, let me tell you how we planned. We expected the year, when we talked last time, to be somewhere in the 102% to 2% growth versus last year if we look and level it over the year. As I look out today, we ended the quarter Q1 at about 101%. April was right around that level. May is trending a bit lower. The short answer, I would say, is we're starting to see a very small decline, but not big enough to anything that I would call material.
As I think about the back half of the year, though, we look at some of our peers and some of the other market participants that David mentioned in his prepared remarks, and we do not exactly know what we do not know. The way that we have thought about the guide is we are okay at, call it, flattish-type demand from this point forward to the balance of the year and maybe even a point or two worse than that. If it goes further than that, we will have to come back to you. I think that is really in line with what we have seen year to date and what we have heard from other market participants.
Daniel Moore (Analyst)
No, that helps. Certainly. Your RAC tolling revenue specifically, growth continues to comfortably outpace TSA volume growth. I recognize that travel volumes might be a little lower, but is that a trend you expect to continue for the balance of the year, that sort of outperformance versus the market?
Craig Conti (CFO)
That's always a tough one. I fully appreciate the question. I understand what you're getting at there. Here's the reason: there could be a disconnect between how our business performs versus how the TSA performs for the simple reason that the TSA covers the entire country, and the entire country doesn't have toll roads, right? I think, as I've said before, five states make up two-thirds, on some quarters as high as 80%, on other quarters of our revenue. It's all about if that travel is going to be down or up in the areas where Verra Mobility does the most business. I have to take that kind of as it comes. I can't look forward and anticipate that at this time.
Daniel Moore (Analyst)
Understood. One more, and I'll jump back into you. Government Solutions, obviously, nice to see the continued growth in RFPs and the pipeline. This has been a little bit of an investment or setup year in that business. How should we kind of think about the opportunity for margin expansion, maybe not specifically 2026? I know you don't want to get into that, but beyond over the next, call it, one, two, three years. Thanks again for the color.
David Roberts (CEO)
Yeah. I mean, I think what you see is with all of the TAM that we mentioned, and that's with just the pilot in California, it was $185 million, I think, just the last couple of years going up to $300 million. You would say that relative to a tailwind, that that is about as good of a tailwind as you can have inside of that business, which is we have a market leadership position and an expanding market with new opportunities as well as expanding use cases. I would say that the next couple of years, based upon both the pipeline as well as the work we've done to sort of lay the groundwork from a legislative perspective, sets us up really, really well in that business.
Operator (participant)
Thank you. Our next question comes from Louie DiPalma with William Blair. Your line is open.
Louie DiPalma (Analyst)
David, Craig, and Mark, good afternoon. Congrats on the preliminary New York City renewal.
David Roberts (CEO)
Thanks, Louie.
Louie DiPalma (Analyst)
For David, as you are well aware, one of the major autonomous vehicle fleet operators has a major facility in your neighborhood of Mesa. It seems autonomous vehicles have been making significant strides recently on different earnings calls and rollouts in different cities. For the long term, what are your thoughts on driverless fleet operators being potential tolling partners of yours?
David Roberts (CEO)
Yeah. So yes, if you drive around the city of Phoenix, you'll definitely see some unique camera-laden cars that are no driver and people in the back. I think one is, while there is certainly some, I think autonomy has actually made some nice traction the last couple of years after being really silent or not growing to what people had thought. You still have over 200 million vehicles in the United States that are being driven today that do not have any autonomy. I still think that's a longer way out relative to significant impact. In the short term, relative to partnerships, we're really focused on developing partnerships with the car manufacturers so that we can embed our technology with them. I would say that as we think about the longer-term future, it's probably in partnership with the manufacturers.
Louie DiPalma (Analyst)
That makes sense. Secondly, you have disclosed the camera photo enforcement bookings for the past five quarters. I was wondering, how should we think of how your camera backlog has built in terms of cameras that are under contract that are awaiting installation? Related to this, how should we think of any potential churn, whether temporary or permanent, that may have taken place, such as trying to connect the dots between all the ARR that you've added and your future revenue?
Craig Conti (CFO)
Yeah, Louie, this is Craig. I'll take a crack at that one. I would think of that camera backlog a lot like we talk about the ARR backlog. The one thing I would remember on that one is it takes 12-18 months for that to translate into revenue. If you take even the longer end of short term or the shorter end of medium-term view, that's a great way to think about it. I think the number that we kicked out in the prepared remarks was $52 million of ARR growth over the TTM period. If you kind of compare that to the overall consolidated revenue of government solutions, you get an idea. You get an idea of what that revenue looks like. If anything, we've continued to see that. We've continued to see that accelerate.
Louie DiPalma (Analyst)
Okay. And so is one able to just add that $52 million of ARR to your current ARR to get your future ARR?
Craig Conti (CFO)
Short answer is yes. The slightly longer answer is you can't do it for the next 90 days or for the next 12 months specifically. Over the next 12-18 months, that's what that reported number means. That is, over the last 12 months, we've signed up new customers that will generate $52 million of annual recurring revenue. I think on the second question, I want to make sure I come back to answer exactly what you asked. On the second question, in terms of churn, this is a 97%-98% renewal business. It's been that way for quite some years, and it stayed that way today. Our stick rate on these cameras is very, very high.
Louie DiPalma (Analyst)
Great. A third potential question, if I may. You mentioned how there could be a recession. A lot of analysts also think that. How does that influence your thinking on your long-term leverage target, Craig?
Craig Conti (CFO)
Yeah. I'd say the best indication of that is let's look at what happened in the past, right? So when we went out for Investor Day in, wow, I guess it was 2022. That's incredible. Four years ago.
Louie DiPalma (Analyst)
That's why.
Craig Conti (CFO)
You're telling me, Louie. We were at three and a half, we were at three and a half times net leverage was the target leverage for the company. As we looked at interest rates ran from that point, credit markets froze up a little bit. We brought that down to 3x net leverage. I still think three times net leverage for a company that generates low to mid 40% conversion of free cash flow to adjusted EBITDA still makes sense. We will absolutely re-snap that chalk line in response to wherever the macro environment is at the given time. We've done it in the past, and we would do it again. We're not in that space today, Louie, but certainly it's something that we'll keep an eye on.
Louie DiPalma (Analyst)
Great. Thanks for all the questions. Thanks, everyone.
David Roberts (CEO)
Thanks, Louis.
Operator (participant)
Thank you. Our next question comes from David Koning with Baird. Your line is open.
David Koning (Analyst)
Yeah. Hey, guys. Great job. I guess, first of all, Commercial Services, the presentation shows guidance still high single-digit growth. I am wondering if that does weaken towards the low end of total guidance, do you still mean for that to be the lower end of high single digits, or if it weakens, would it be a little less than high single digits?
Craig Conti (CFO)
I think it'd be a little less than high single digit, Dave, is my guess today. Right where we sit today, we're on the cusp. If travel were to slow, and it were to slow in the states that are most material to Verra Mobility, then that would likely drag that growth rate down with it.
Daniel Moore (Analyst)
Yeah. Okay. Then secondly, it seems like super high-quality earnings this quarter. You looked through the press release. You did not add hardly anything back anymore in terms of transition costs. It looks like you called out on the call something that shows up in the cash flow statement, about $8 million of bad debt expense, I think, that you included in your numbers, I believe. Just maybe talk through that and maybe what that was. It seems like next year is setting up well because you will not have the ERP, you will not have this most likely, etc.
Craig Conti (CFO)
Yeah. The one that we called out, thank you for that observation. The one that we called out in our script was simply some aged bad debt at commercial services. This was more an accounting reconciliation thing than anything else. I would not equate it to current operations in any way, shape, or form. It was relatively small. One thing we have really tried to do is we are really sparse on what we spike out here, right? We have a lot of internal processes to make sure what ends up on our adjusted list is something that is commonly adjusted for other places in the market. I appreciate you calling out that it is clean. Remind me, I am sorry, Dave, what was the second part of your question?
Daniel Moore (Analyst)
Yeah. Just next year, it seems like some things like the ERP conversion, maybe some of this bad debt expense, etc., falls off and sets up for nice expansion.
Craig Conti (CFO)
It should. It should. It all depends. We've got a contract negotiation ongoing, as David mentioned in his prepared remarks. We'll see what travel does here in the back half. Still looks like it's okay right now. For sure, we've got a handful of millions of dollars that we spent on the ERP this year, which, again, is going very well, that will not be there next year, right? All else being considered constant, I would say you're right.
Daniel Moore (Analyst)
Yeah. Great. Thanks, guys. Good job.
Craig Conti (CFO)
Thank you.
Operator (participant)
Thank you. As a reminder, to ask a question, please press star one one. Our next question comes from Keith Housum with Northcoast Research. Your line is open.
Rodney McFall (Analyst)
Hey, thanks, guys, for taking my questions. This is Rodney McFall on for Keith Housum today. I'm just curious what initial steps you guys are taking in T2 to improve that business since the management change. Did that contribute to growth at all in the quarter? Thanks.
David Roberts (CEO)
Yeah, it did. I mean, it was a small growth, but it was definitely in the right direction. I think what the management team has done has really gotten their arms around the business and the customers. We have reinvigorated our commercial leadership as well as our execution there. I think by using the Verra Mobility operating system to help to deploy some really good metrics and KPIs and kind of a cadence of discipline behind it, it's really turned into a good story, one that we're really excited about for the future.
Rodney McFall (Analyst)
Got it. Got it. And then just a quick follow-up. Looking at the potential for lower travel demand, is there any color around how exposed you are to international travel versus domestic travel? I mean, I'm assuming that most of the benefits that you guys get from travel is domestic, but just curious if you guys had any color on international travel as well. Thanks.
David Roberts (CEO)
Yeah. We probably look at just sort of gross TSA numbers as our real barometer. I mean, certainly, it coming down will have some impact, but we sort of look more domestically because principally, there are about five states where all the tolling activity is. And we really are looking at travel inside those states, not necessarily people coming from out of the country to someplace else.
Craig Conti (CFO)
That's right. Rodney, I just add one thing on that. When you're in the market listening to other market participants, a lot of times, especially airlines, I say airlines, is when they talk about international travel, a lot of times that commentary is on the outbound international travel. For Verra Mobility, it would be more on the inbound international travel, right? But at the end of the day, as we think about travelers, we're agnostic to where that traveler actually came from.
It's just our folks at the airport because that translates to folks at the car rental counter.
Rodney McFall (Analyst)
Got it. Understood. Thanks. That's all the questions I have.
Operator (participant)
Thank you. I'm just going to note further questions at this time. This does conclude the question-and-answer session. Thank you for your participation. You may now disconnect. Everyone, good day.