VRRM - NASDAQ

Greetings, and welcome to the Verra Mobility Third Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark

Thank you. Good afternoon, and welcome to Verra Mobility’s Third Quarter 2023 Earnings Call. Today, we’ll be discussing the results announced in our press release issued after the market closed along with our earnings presentation, which is available on the Investor Relations section of our website at ir.verramobility.com. With me on the call are David Roberts, Verra Mobility’s Chief Executive Officer; and Craig Conti, our Chief Financial Officer. David will begin with prepared remarks, followed by Craig, and then we’ll open up the call for Q&A. Management may make forward-looking statements during the call regarding future events, anticipated future trends and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These factors are described in our SEC filings. Please refer to our earnings presentation or excuse me, please refer to our earnings press release for Vera Mobility’s complete forward-looking statement disclosure. We do not undertake any obligation to update forward-looking statements. Finally, during today’s call, we’ll refer to certain non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is included in our earnings release which can be found on our website at ir.verramobility.com and on the SEC’s website at sec.gov. With that, I’ll turn the call over to David.

Thank you, Mark, and thanks, everyone, for joining us. We delivered a strong third quarter, highlighted by 11% year-over-year recurring service revenue growth. Moreover, we delivered adjusted EBITDA growth of 7% over last year and converted 53% of adjusted EBITDA to free cash flow for the quarter. Additionally, we are pleased to report we renewed the tolling contract with Enterprise Mobility for a 3-year term with terms and conditions that are materially consistent with the prior agreement. Enterprise has been a terrific long-time partner, and we look forward to continued shared success in the future. I’m incredibly pleased to point out that we are 100% fully de-stacked with all warrants now exercised and all earn-out shares issued. This comes as we celebrate our 5-year anniversary as a publicly traded company, a significant milestone in our incredible journey to become a leader in smart mobility solutions. Additionally, we executed our previously authorized $100 million share repurchase program, the details of which Craig will further elaborate in his remarks and our Board of Directors has also authorized a new 18-month $100 million share repurchase program. Lastly, we are again increasing our financial guidance due to our strong year-to-date performance and our outlook for the fourth quarter. Moving on to our operations and starting with Commercial Services. We delivered 14% revenue growth, driven in large part by an exceptionally strong summer travel season. Year-to-date, TSA volume is about 101% of 2019 and about 113% of 2022 volume. RAC tolling revenue increased 18% over the prior year quarter due to increases in adopted rental agreements, the increased adoption of all-inclusive pricing plans, a durable trend of longer rentals, and the secular tailwinds related to increased toll roads and cashless toll lanes. We believe the sentiment from the major airlines, hotel chains and rental car companies suggest no signs of slowing domestic travel demand through the remainder of this year. And as we head into 2024, in the near to midterm, we believe sentiment and bookings suggest that domestic travel demand will see steady growth underpinned by an increase in business travel driven by return to office mandates and hybrid work schedules increasing weekend leisure travel. We continue to experience strong growth from the FMC business generating 20% over -- generating 20% over the same period last year. This was higher than our internal expectations, driven by several factors. The expansion of our sales team and the purposeful intent and focus in this market area. Second, we are enhancing brand awareness outside of our core customer base and building new distribution channels. And lastly, we have capitalized on the near-term opportunity to market the value of our solutions to a customer base that has historically performed these activities internally. On a go-forward basis, we expect the FMC business growth to moderate and to grow in line with the overall Commercial Services growth rate. The key factors influencing our conviction in the high single-digit growth rate are low market penetration levels, particularly among small and medium-sized fleets, and the value-added tools we offer that reduce costs and improve the customer experience. Moving on to Government Solutions. Recurring service revenue, which reflects 94% of the total revenue for the quarter, grew 10% over the same period last year. Government Solutions sales growth is benefiting from the prior year completion of the New York City build-out and the city’s decision to transition to 24/7 monitoring as well as program expansion with existing customers and new camera installations with new customers. As we look toward the future, we are anticipating significant growth in our Government Solutions TAM. We continue to experience a favorable legislative environment as states are increasingly turning towards enhanced automated enforcement to increase traffic safety for their citizens. In October, California signed into law legislation for a speed safety pilot program in 6 major cities including Los Angeles, San Jose, Oakland, Glendale, Long Beach and the City and County of San Francisco. We currently estimate the potential annual recurring revenue opportunity associated with this pilot program to be greater than $10 million per year. However, as the program demonstrates its efficacy, we anticipate that additional legislative authority may expand the scope of the speed program in future years. We estimate the total recurring revenue opportunity could be greater than $100 million annually within the next few years, if legislation allows. Additionally, in Pennsylvania, we’re seeing continued positive momentum for the automated enforcement. The legislation is seeking to enable new use cases, including school zone speed and school bus stop arm as well as extend and expand existing use cases for work zone speed and highway speed enforcement. As we previously discussed, Florida Pass schools on speed and school bus stop arm legislation in May, and we are actively monitoring how cities seek to operationalize the new legislation and subsequent RFP announcements. We continue to anticipate generating -- we continue to anticipate generating revenue from initial awards and deployments in the back half of 2024, and we’ll provide more color when we provide 2024 guidance on our fourth quarter earnings call. I’m also pleased to report that we were awarded a contract with the city of Yonkers, New York and the Yonkers Public School system in which nearly 500 school buses will be equipped with our school bus stop arm safety cameras. This is a great example of purpose-built safety program that will protect our children in the spirit of Vision

Thanks, David. Good afternoon, and thanks to everyone for joining us on the call. I’ll start out today by providing an overview of our third quarter results followed by our updated 2023 financial guidance, and I’ll conclude with a discussion on capital allocation. Before I dive into third quarter results, I want to briefly mention that we appointed Deloitte as our independent registered public accounting firm during the third quarter. The move to a new public accounting firm requires tremendous effort, and I’m pleased to report the transition is going well. I want to personally thank the teams of Verra Mobility and Deloitte who are all hard at work making this happen. Now let’s turn to our operating results, beginning on Slide four, which outlines revenue and adjusted EBITDA performance for the consolidated business. Total revenue increased more than 6% year-over-year to $210 million for the quarter, driven by strong recurring service revenue growth. Excluding domestic Government Solutions product sales in the third quarter of last year, total revenue grew 11% year-over-year. Recurring service revenue grew 11% over the prior year quarter, driven by a strong trouble -- a strong summer travel season and the prior year expansion of the New York City school zone speed program. At the segment level, Commercial Services revenue grew 14% year-over-year, Government Solutions service revenue increased by 10% over the prior year and T2 Systems SaaS and Services revenue grew 4% over the third quarter of last year. Product revenue was $9 million for the quarter, about $4 million of this total was from T2 Systems, while $5 million was from Government Solutions, the majority of which were international product sales. From a total profit standpoint, consolidated adjusted EBITDA of $97 million increased by approximately 7% over last year. The core business, defined as excluding onetime domestic Government Solutions product sales, generated adjusted EBITDA growth of approximately 11% versus the third quarter of 2022. Turning to Slide five. We’ve generated about $364 million of adjusted EBITDA on approximately $792 million of revenue on a trailing 12-month basis, representing a 46% adjusted EBITDA margin. Over the same term, we’ve generated about $187 million of free cash flow or a 51% conversion of adjusted EBITDA, representing $1.19 of free cash flow per share. Moving to Commercial Services on Slide six. We delivered revenue of $98 million in the third quarter, which is a 14% year-over-year increase. RAC tolling revenue increased 18% over the same period last year, driven by robust travel volume and increased rental volume. Additionally, our FMC business grew 20% year-over-year as our growth initiatives continue to produce the intended results. As David mentioned, FMC revenue exceeded internal expectations driven by the success we’ve experienced in rolling small and medium-sized business fleets. Third quarter adjusted EBITDA in Commercial Services was $65 million, representing 16% year-over-year growth. Adjusted EBITDA margins of about 67% reflected normal seasonality and were up about 1% compared to the third quarter of last year due primarily to the strength of RAC tolling. Let’s turn to Slide seven, and we’ll take a look at the results of the Government Solutions business. Driven primarily by New York City’s photo enforcement expansion efforts, service revenue increased by $8 million or 10% over the same period last year to $85 million for the quarter. Product revenue was about $5 million for the quarter and was driven primarily by international programs. Adjusted EBITDA was $29 million for the quarter, representing margins of 32%. The reduction in margins versus the prior year is primarily due to increased spending on platform investments and business development efforts. Now turning to Slide eight. We have mixed results for Parking Solutions. Revenue of $21.5 million and adjusted EBITDA of about $3.6 million were slightly below internal expectations. SaaS and services revenue slightly exceeded expectations, which is the primary value driver, but approximately $2 million in onetime product sales shifted into the fourth quarter. We have made several process improvements in our forecasting process, but we’ll need to continue to evaluate given the choppiness of the university purchasing cycle. Moving to Slide nine, we’ll take a look at reported income and leverage. We’ve reported net income of $30 million for the quarter, including a tax provision of about $11 million, representing an effective tax rate of 28%. Having fully de-stacked this quarter, this will be the last quarter that our tax rate is impacted by permanent differences related to mark-to-market adjustments for our private placement warrants. Adjusted EPS, which excludes amortization, stock-based compensation and other nonrecurring items, was $0.29 per share for the current quarter, which is $0.02 per share higher than the third quarter of 2022. On the right-hand side of the page, you can see that we ended the third quarter with a net debt balance of $942 million, resulting in net leverage of 2.6 times for the third quarter. The primary drivers were strong free cash flow, debt repayments and the cash exercise of warrants, which yielded approximately $56 million of cash proceeds during the third quarter. As of the end of the third quarter, we have paid down approximately $180 million of floating rate term loan debt on a year-to-date basis. Our gross debt balance at quarter end stands at about $1.1 billion, of which approximately $700 million is floating rate debt. With a notional hedge of approximately $675 million, we have hedged about 95% of our current floating debt total with a float for fixed rate swap. This hedging instrument fixes the SOFR portion of our SOFR plus 325 basis point Term Loan B at a rate of 5.2% for 3 years with a monthly option to cancel beginning in December of this year that we can execute in the event that interest rates move in our favor. From a cash standpoint, we generated approximately $62 million in cash flow from operating activities, resulting in $52 million of free cash flow for the quarter. Okay, let’s turn to Slide 10 and have a look at full year 2023 guidance. Based on our year-to-date results and our outlook for the remainder of the year, we are increasing our revenue guidance from the prior range of $800 million to $810 million to the higher end of that range. We are increasing our adjusted EBITDA guidance from the prior range of $365 million to $370 million to the higher end of that range. We are increasing our guidance for adjusted EPS to an updated range of $1.05 to $1.10 per share despite our increased share count. And lastly, there is no change to our prior free cash flow guidance of $145 million to $155 million. Our revenue guidance incorporates a modest reduction in RAC tolling that we typically experience in the fourth quarter, which is consistent with historical trends. Government Solutions service revenue is expected to be up slightly in the fourth quarter, representing a lower rate of year-over-year growth due to the anniversary of the completion of the New York City camera installs and the transition to 24/7 monitor. In addition, our Parking Solutions business is expected to generate solid sequential revenue growth due to the normal university spending cycles and continued strength in SaaS and services revenue. Additionally, based on achieving the adjusted EBITDA and free cash flow guidance ranges, we expect net leverage to be around 2.5 times by year-end 2023. The expected net leverage target reflects a reduction of nearly a full turn of net leverage over the past year, driven by the strong free cash flow generation capabilities of our company, along with the year-to-date proceeds from the exercise of warrants. Moving now to our capital allocation plans for the remainder of the year. As David and I previously mentioned, we are now fully de-stacked with the remaining warrants converted to shares at a cashless basis during the third quarter. In addition, as we discussed on our second quarter call, we paid down an additional $100 million of floating rate debt in the third quarter, bringing our total debt paydown for the year to about $180 million. Next, I’d like to give you a brief update on the share repurchase program, the company’s Board of Directors authorized in November of last year for up to an aggregate amount of $100 million over an 18-month period. Primarily using an accelerated share repurchase program, we’ve repurchased about 4.5 million shares through the end of the third quarter. The final settlement of the ASR is expected to occur during the first quarter of 2024 at which time a volume-weighted average price calculation over the term of the ASR agreement will be used to determine the final number and average price of the shares repurchased and retired. At this time, we expect the final outcome of the full $100 million share buyback program to result in the repurchase of approximately 5 million shares. As David briefly mentioned, our Board of Directors also authorized a new 18-month $100 million share buyback program. We remain committed to delivering value to our shareholders through a disciplined and flexible capital allocation strategy. This new buyback authorization highlights our balanced capital allocation approach focused on the tremendous cash flow capacity of our business. In summary, we are in a fantastic financial position, and we believe the operating trends in our business are favorable and durable. This concludes our prepared remarks. Thank you for your time and attention today. At this time, I’d like to invite Irene to open the line for any questions. Take it away, Irene.

Thank you.[Operator Instructions] The first question we have is from Faiza Alwy of Deutsche Bank. Please go ahead.

Yes, hi thank you so much. So first, actually, I wanted to talk about the California legislation that you referenced. I think I heard you say that it can drive incremental annual revenues of $10 million that can then go up to $100 million over time. So just curious if you can give a bit more color around that. Do you need incremental legislation? Or are there certain outcomes that would drive that increase? And just that $10 million just seems a bit low. So curious in terms of what your assumptions are there.

Yes. This is David. Great question. The way to think about it was similar to other states, the state of California decided to do a pilot program with a fixed number of cameras that they would allow. So it’s dispersed across the cities that I mentioned on the call, but they decided to start with a fixed number. And what -- in terms of milestones, what I would anticipate is they’ll look for proof from the program in terms of how is it impacting speed in certain sites, certain school zones and different areas within the state. And then based upon that and the benefits we anticipate from that, that’s when the -- they would go back to the legislation or go back to the legislative body rather and look for an expansion and a more permanent status of the legislation. We have had other states that started in the same way.

Got it. Okay. Understood. And then secondly, you made some comments around 2024. We’re at the point in the year where we’re looking at refining our models for 2024. So I’m curious if -- I know you’re probably still in your planning process, but how should -- what are some of the things that we should keep in mind as we look ahead to 2024?

Yes, Faiza, it’s Craig, thanks. And you’re right. We are still in the planning process, but it’s starting to become at least a little clearer as we get deeper into the fourth quarter here. I think for the total company level, organic revenue, I expect to land in the same range that we talked about at Investor Day, right? So I expect to see that organic growth year-over-year in that same range. If I look at it from a margin standpoint, my best guess today is that we would be flattish to have a modest margin growth next year, still doing a little bit of investment, and I think that will be clear when I talk about how we’re thinking about cash and notably how we’re thinking about CapEx. So if you take what David said in his prepared remarks, and I think what we’ve been talking about for quite some time, the expansion in TAM in the Government Solutions space domestically is kind of unprecedented. So in order for us to play our part, we have to lead with CapEx, right? So we will see the draw on our CapEx, which will be all growth CapEx next year. I’m expecting it to be somewhere in the range of $25 million to $30 million of additional CapEx year-over-year as we look to capitalize on that growth. So in summary, I expect the organic growth will look a lot like Investor Day. I do expect margins. I’d love to say it’s going to be a bit accretive, but flattish to a bit accretive, and we will have increased CapEx. And again, the majority of the thrust of that is going to -- in Government Solutions where you’d hope it would.

Got it. Thank so much. I appreciate it.

Sure.

The next question we have is from Nik Cremo of UBS. Please go ahead.

Hi, David and Craig. Congrats on the strong quarter. First, I just wanted to ask about what’s driving the continued outperformance in the FMC business, such as the new distribution channels you’re building out and the types of new customer bases that you’re gaining traction with?

Yes, sure. So traditionally, we have looked at really -- if you look at commercial fleet as a whole, we’ve obviously focused a lot on rental car and then through channel distribution through FMC. One is we sort of -- what I would say is we’ve doubled our efforts to an increased amount of sales resources into that traditional channel with FMC. And then in addition, we’ve been working on looking at smaller fleets outside of those that don’t necessarily have a fleet management company. And that’s an area that we’re looking to continue to grow. And we’re investing this year, and we would anticipate growth from that what you might call a small fleet view going into next year. So I would just call it a real commercial execution and traction within the core and then some expansion as we look at a different channel distribution.

Yes. Just to add on to that, the growth this quarter surprised us. When we talked about this last quarter, we said we thought the back half of the year would look a lot like the overall consolidated growth rate. So -- and if you break this business down, it’s somewhere between $12 million and $15 million a quarter. So 10% more growth while its material, it’s not exactly huge. We do expect that growth to look more like the consolidated Commercial Services growth rate here in the fourth quarter, but we’re really, really pleased with the performance.

Got it. Thanks for the additional color.

The next question we have is from Daniel Moore of CJS Securities. Please go ahead.

Yes, good afternoon. Dan and Craig, thanks for the color. Maybe start with -- on the Government Solutions side. As you just described, margins ticked a little bit lower, increased operating expenses associated with enhancing customer-facing programs. It sounds like, David, that’s -- or Craig, that’s maybe some of the expenses that linger into fiscal 2024, keeping margins a little bit flatter? Or maybe any additional color on sort of what’s onetime versus recurring there would be really helpful. Thank you.

Yes. Great question. So let’s talk myopically about 2023 just for a second here. So you’re right. In Q3, the margins came down quite a bit. And this is some of the platform investments that we were making in the back half of this year. They are really -- they were centered on Q3. So that -- I’m going to -- you’re going to see that margin grow into Q4, right? And I still think we’re going to land somewhere in the 34% to 34.5% range for Government Solutions like I’ve been saying, all year. So that’s a little bit of geography between the back half of the year. As we look towards next year, you’re right. I think that it all comes down and the reason why I can’t give you a precise number yet is it comes down to timing. As these new TAMs are opening, it depends how soon we can get our product in the ground, right? If it’s going to be towards the back half of the year, we’re going to be running some expense to get that done. If it’s towards the front half of the year, we won’t have to run some of that expense. So when we talk about being flattish year-over-year to slightly accretive in 2024, I would expect that same rubric to apply to the GS business, and that’s where the investment is.

Got it. Makes sense. On the parking side, T2, maybe just talk about the pipeline of RFPs and opportunities as we look into 2024 and more generally, where do most of the opportunities come from? Is it customers that have typically been managed in-house or competing with incumbents and to say how you see the growth in that business in 2024 and beyond? Thanks.

Yes, in particular on the SaaS, software side of the business, as we look at our products, we focus on universities and then ones for small municipalities for permits and enforcement. I would say both of those have strong pipelines, the market is still, I think, actually continue going to be strong for those markets. Typically, we will -- parking has been around a while. So obviously, people are more often than not they are either considering moving to something that they’ve been managing themselves where they’re already using a competitor. I would say it depends on which market you’re talking about as to which is 50-50 or 60-40 or what have you. But the good news is, especially in university, we have such a strong reputation, and that’s a customer base that really talks to 1 another. So we feel really good about as we’re going into next year, just kind of really focusing in on that university segment and expanding share of wallet with the portfolio of new products as well.

Got it. And last for me, between the ASR and obviously, the new authorization clearly being aggressive around these levels. Is the plan to continue to be aggressive or maybe be a little bit more opportunistic as it relates to the new authorization? Thanks.

Yes. Thanks, Dan. You’ve noticed for a while, and I think the great aspect of Verra Mobility is our ability to sort of re-evaluate capital allocation on a pretty -- almost on a quarter-by-quarter, but certainly every 6 months. And what we do is we sort of every single time we go and look at the landscape, we look at our M&A pipeline, we look at our cost of capital, our debt and then we look at our -- the share price related to our calculation of intrinsic value and then we make a determination. So our history shows that we’ve been very opportunistic on all of the above, and I would anticipate we would continue to do so.

Thanks again. I’ll jump back and wait for follow ups.

Thanks Dan.

The next question we have is from Keith Housum of Northcoast Research. Please go ahead.

Congratulations on the quarter. It’s been obviously an active year in terms of the state legislature is adopting favorable legislation for [Indiscernible] and cameras. Is there one or two more states that perhaps are in your -- I guess your focus that perhaps there’s going to be active legislation going forward over the next few months as well? Or do you think we’re in a hiatus here where we just absorb what was going on?

Well, there’s no such thing as hiatus. We don’t believe in that for sure. What I would say is we have so much incredible opportunity in front of us. We are really focused on maximizing the opportunities that our teams have done such a great job of creating in places like Florida and California and others. We will continue to obviously be on offense in some of the key states and really look to do kind of what we did in Florida, which is we took a state that was only Red Light and then through a lot of hard work added other products to it. So expanding sort of think of it as a legislative share of wallet, if you will. And I would anticipate we’ll continue to do that. But between the opportunities that we have here in the U.S. plus some of the emerging opportunities we see in Canada and in Australia and New

Got you. And just expanding on that. In terms of the states that perhaps had Red Light and they’re adding speed or vice versa, I guess no 1 read that these days. But how important is that for you guys to be able to leverage your Red Light relationship already? I mean is it almost like a surety that you get that business? Or is it perhaps open that someone else can walk in there?

It will sometimes depend -- oftentimes because more -- the people that are making decisions on Red Light may not be the ones that are making decisions as an example on schools stop-arm. That’s a totally different set and even could be different on speed depending on the deployment, meaning if its school zone speed or work zone speed that might be a different decision maker. So certainly, we are able to leverage and point to the success we’ve had with other clients. It doesn’t necessarily mean that they’re just saying, "Oh, let’s add this to the contract where you have, that would be great. But more often than not, it doesn’t occur that way.

Great. Thanks, appreciate it.

The next question we have is from James Faucette of Morgan Stanley. Please go ahead.

Great. Thanks. I wanted to follow up on a couple of questions on the trial in California. So that could be up to $10 million if you’re able to win those pilots. Like what’s the time to pilot award and then potential time to revenue from your perspective at least?

I would anticipate we -- there’s still -- typically, there’s a period of time between the final governor signing a bill and then cities really working through the details of how to deploy it. I would anticipate probably sometime in the mid to late next year when we start to see some awards coming through. They won’t -- meaning that all $10 million won’t sort of turn on. There’s multiple decision-making as there’s multiple pens values they’re making those determinations. So that’s what I would anticipate from a timing standpoint.

Got it. And then you highlighted some of the school bus and arm related wins. I’m wondering how we should think about like the revenue curves associated with those. I know a lot of times in speed cameras or even red light cameras, you’ll see an initial pickup in revenue. And then as people get used to and condition to that enforcement mechanism that it will come down and level off at some point. Is that a similar curve description? And how should we think about that as particularly on some of these new wins?

Yes. We don’t really -- it’s different for school bus stop arms. So it’s typically more of a fixed fee arrangement with the customer per camera per bus given the high levels of variability because these things are moving around. So it’s a little bit -- we actually used to do that many years ago. We no longer do that. But -- so think of it more of a fixed fee for camera per month.

Now that’s great. Appreciate that.

The next question we have is from Louie DiPalma of William Blair. Please go ahead.

David, Craig and Mark, good afternoon. Craig, did you say that there is an additional $25 million of expected success-based CapEx for 2024?

Yes. Growth CapEx. I expect $25 million to $30 million additionally over and above what we’ll review this year. And again, almost all of that increase and a large part of the base, not just the increase is in the Government Solutions business as we continue to expand into these new markets.

Awesome. Are those -- is that success-based CapEx, is that generally tied to specific contract wins that you may have won thus far this year?

We have some indications on a little bit of it. Some of that, I think, is certainly going to be on the come. But I think there’s also some platform investment in that number as well, but that is revenue-generating platform investment that isn’t necessarily tied to one specific customer, right? So the answer -- the direct answer to your question, Louie, is some of that is already on. Some of that is also in the pipeline as we speak.

Great. And one final one for me. In terms of the all-inclusive plans, are there still a large number of the RAC brand that haven’t yet offered all inclusive? And is this an opportunity for you?

I would say -- we don’t want to get too specific about that, but what I would say is it is not fully penetrated. And so yes, there’s still opportunity to grow that as we look at our portfolio across our RAC customers.

Awesome. Thanks, David, Craig and Mark.

The last question we have is from Dave Koning of Robert W. Baird. Please go ahead.

Yes hey guys. Nice job as always. In maybe my first question, it looked in the 10-Q like Enterprise kind of crushed it this quarter. It was up a time like 25% sequentially, give or take, and up 20% year-over-year, something in that range. Was that -- is that 1 starting to pick up all inclusive? Or is there something else to Enterprise right now?

Yes. So that’s off airport volume. That is purely volume what you’re seeing. That is not a new commercial contract or a new way to contract for the customer did.

Wow. So that’s just a lot of rental line. That’s great.

Yes.

We’ll take it, right? And then say, just on the -- on the share count, because of all the warrant complexity and now the buyback and stuff, what should we figure for Q4? And then Q1 is probably going to have some residual impact to like what’s the best way to think about those two quarters for diluted share count?

Yes. Okay. I was waiting for that one, Dave. So thank you. So I should have put it in my comments. That’s what that tells me. So at year-end, I expect that share count to be 160 million shares, okay? That’s year-end 2023.

Weighted average.

Weighted average. That’s a weighted average. So the number I’m giving you is going to be the base for adjusted EPS. Is that the number you’re after?

Well, yes, I was -- I mean that’s very helpful. But also the Q4 average, just so we’ve got that because that’s kind of what we’re going to use for going forward too.

Okay. Well, why don’t I move over to just -- go ahead, Mark? It will be better at this point.

For Q4, weighted average should be about 168 million.

Yes. That’s helpful. And then a little lower going forward because you’re doing some buybacks now that will kind of fall into next year, the average and stuff.

That is correct. And let’s take it all the way -- let’s take it all the way forward to 2024. When we get to the end of the year 2024, again, that leaded share count that we would expect for the full year is about 168 million shares.

That is very helpful. Thanks so much guys.

You bet.