Verra Mobility Corporation (VRRM) Q3 2021 Earnings Call Transcript

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Verra Mobility Corporation (VRRM -0.53%)
Q3 2021 Earnings Call
Nov 4, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Please standby. Good day and welcome to the Verra Mobility Third Quarter 2021 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Rob Abraham [Phonetic]. Please go ahead, sir.

Unidentified Speaker

Thank you. Good afternoon, and welcome to Verra Mobility's third quarter 2021 earnings call. Today, we'll be discussing the results announced in our press release issued after the market closed. With me on the call are David Roberts, Verra Mobility's Chief Executive Officer; and Tricia Chiodo, our Chief Financial Officer. David will begin with prepared remarks followed by Tricia, and then we'll open the call up for Q&A.

During the call, we'll make statements related to our business that maybe considered forward-looking, including statements concerning our plans to execute on our growth strategy, our ability to maintain existing and acquire new customers, and other statements regarding our plans and prospects. Forward-looking statements may often be identified with words such as we expect, we anticipate, or upcoming. These statements reflect our view only as of today, November 4, 2021 and should not be considered our views as of any subsequent date. We undertake no obligation to update or revise any forward-looking statements. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our Annual Report on Form 10-KA and quarterly report on Form 10-Q, which are available on the Investor Relations section of our website at ir.verramobility.com and on the SEC's website at sec.gov.

Finally, during the call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release issued after the close today, located again on our website at ir.verramobility.com and on the SEC's website at sec.gov.

With that, let me turn the call over to David.

David Roberts -- Chief Executive Officer

Thanks you, Ralph [Phonetic]. And thank you to everyone for joining us on the call today. Q3 was yet another strong quarter for Verra Mobility this year. We are proud of the great results our team delivered with their consistent execution and both of our business segments have continued to perform well.

As Tricia will discuss in more detail later, our third quarter revenue grew 67% year-over-year to $162 million, and our adjusted EBITDA was $82 million, which is up 53% year-over-year. The primary drivers for these results include the ongoing expansion of the school zone speed program in New York City, and a continued strong recovery in travel in the U.S. which has had a positive impact on our rental car tolling business. We've also made excellent progress this quarter in collecting $87.5 million in receivables from our automated enforcement contract with the New York City Department of Transportation.

Q3 was a strong affirmation of our capital allocation strategy and our approach to deploying our cash on behalf of our shareholders. The Redflex acquisition which closed at the end of Q2 is fully aligned with our strategy to use M&A to both, expand our portfolio and solidify our position in core markets. As we highlighted previously, the Redflex acquisition strengthens our leadership position in photo enforcement in North America, by providing an enhanced technology portfolio to our customers and creating cost synergies and new revenue opportunities for the business. In addition, we gained access to new markets such as Australia and Europe, which is consistent with our vision in becoming the leader in smart transportation globally. I'll discuss more about the integration efforts later in my remarks.

We also completed $100 million stock repurchase this quarter, as we explained at the time, we believe that our stock is trading at a discount to it's full potential and redeploying our excess capital by investing in the company enhances long-term shareholder value; this again underscores our strong free cash flow capacity and our strategy of returning capital to shareholders at appropriate times. We're confident in our ability to maintain momentum throughout 2021, given the strength of our core business and our long-term strategy. Now, let's move on to discuss the highlights from our two business segments.

In Q3, our government solutions business delivered 61% revenue growth year-over-year to $85 million with an adjusted EBITDA of $31 million, which is up 37% year-over-year. These Q3 numbers include $22.8 million of Redflex revenue. Success in the third quarter was primarily driven by the ongoing expansion of the school zone speed program in New York City for which we installed 236 speed cameras in the quarter, bringing the total number through the year to 394. We have made strong progress with the program and we are confident that we will complete the installations of the full 720 camera order early in first quarter of 2022. In addition, we are proud of our continued customer service excellence by renewing or extending 100% of all of our contracts that were up for renewal in the quarter. We also added new business by winning two new school zone speed camera customers in Virginia and for the City of Atlanta.

While the government solutions segment is still encountering some COVID-related impacts, particularly for school bus solutions, we are beginning to see increased opportunities and potential RFPs that bode well for 2022. We also achieved key wins outside of the U.S. this quarter, which furthers our global strategy underpinning the acquisition of Redflex. These wins included deployable speed enforcement solutions for additional cities in Ontario, Canada where Redflex has a strong footprint; these cities include Oakfield, Pickering in London. We continue to pursue regulatory approvals for our technology solutions around the globe. In the third quarter we obtained approval on The Netherlands, which expand our ability to solve more client used cases and our addressable market opportunities in Europe.

With regard to the Redflex integration, our government solutions teams have been focused on executing a successful integration efforts. They are working diligently and have made steady progress in achieving the anticipated $8 million to $12 million in synergies that we targeted as a part of the investment thesis. Integration process is going well and we are adopting new ways of collaborating with our team members in Australia and Europe. As you can imagine as within the acquisition, there were some unforeseen challenges, but overall, we are on course and excited about the impact of the Redflex technology and it's global footprint will continue to our future growth. Like most businesses in the current environment, the Government Solutions segment is not immune to the global supply exchange challenges. For example, we are beginning to see longer lead times for certain components for our camera systems. However, we have placed a strong focus on supply chain management and made some smart early risk investments to avoid impacts to our revenue this year.

Switching now to our commercial services business; we delivered strong third quarter revenue of $77 million, which was a 75% year-over-year increase. Adjusted EBITDA was $51 million, which was 65% year-over-year. The continued recovery travel, which leads to increased total road usage was a primary driver for the business this quarter. We are continuing to monitor the reflating occurring within our rack [Phonetic] customers and -- as fleet levels are still down from where they were in 2019. However, we are seeing consumers offer a longer rental agreements resulting in more billable days; this helped offset the decline in total number of vehicles. Overall, we continue to see some good tailwinds in the market.

For our European business, we are excited to announce that in Q3 we signed an agreement with Enterprise to launch a pilot tolling program in Ireland. We are currently enrolling more than 2,200 vehicles at multiple pilot locations across the country. This is an exciting opportunity to position ourselves for a significant sized fleet in the country. We will monitor and adjust the program based on the data and we will collect in coming months. As we have discussed in the past, our goal this year and next is to establish as many pilot toll programs as we can in strategic countries across Europe such as Ireland, Spain, and Portugal; this helps prove the value proposition for our customers. We are enthusiastic about the Ireland pilot as it is a significant step on this journey, and we hope to announce additional pilot programs soon.

Finally, I would like to provide some additional clarity -- commentary about the big announcement we issued this week regarding the acquisition of T2 Systems. We are thrilled about this fantastic new addition to the Verra Mobility portfolio of smart mobility solution that make transportation safer and easier. We have been consistent about our desire to enter the parking management business which is natural adjacency to many of our existing solutions. T2 Systems is a leader in parking and curbside management for universities and municipalities in North America and features best-in-class SaaS Solution. By some estimate, the U.S. parking sector has a $13 billion total addressable market, is expected to grow as cities and municipalities face greater curbside management challenges due to factors like increased e-commerce deliveries and ride-sharing. T2 Systems hardware and software solutions are perfectly suited to address today's market needs as well as evolving challenges.

Parking is a new space for us; so we envision if T2 Systems will operate as a third leg of the stool for our company, we will manage it as a portfolio company and will operate as a distinct business unit rather than being fully integrated as we did with Redflex and HGA [Phonetic]. However, it will remain strong connections to both of our business units to help shape sales opportunities and product development. This acquisition is yet another example of how we are putting our significant cash flow back to work for our investors, all along growing revenue and diversifying our customer base. We don't anticipate any issues associated with closing the deal. We are targeting and closing before at the end of the year. We are excited to welcome T2 Systems talented team to the Verra Mobility Family.

Overall, 2021 has been a strong year so far for Verra Mobility, and our results this quarter demonstrate the success of our strategic initiatives and consistent execution, we remain committed to updating to our updated guidance.

And before I turn over Tricia to walk us through the financial results in more detail, I wanted to share that Tricia has announced her intention to retire and as a result will be leaving Verra Mobility sometime in Q2 of next year. We will immediately begin efforts to identify her successor, and are fortunate that Tricia will continue to serve as CFO during the search process and to assist during the subsequent transition. Tricia has served as Verra Mobility CFO since 2015 and has played an essential role in the enterprisewide transformation that has enabled us to deliver outstanding financial performance to our shareholders. I have deeply valued her strong financial acumen and her strategic insights, as well as her friendship. We are thankful for her enormous contributions to our company and are excited for her to take this wonderful and well deserved next step in her life.

With that, I'll turn over to Tricia. Thank you, David, and good afternoon, everyone. I'll provide a detailed overview of our second quarter financial performance, and then we'll open up the call for questions. We've provided a short earnings deck on our website that provide some insights to the quarter and has reconciliations from GAAP to any non-GAAP results. If you're following along in the earnings deck, I'm on Slide 2, which outlines revenue and adjusted EBITDA performance for our commercial services segment. This business segment offers tolling, violation processing, and title and registration services for rental car companies and fleet management companies in the United States, and a subset of those products in Europe. Our commercial services segment delivered revenue of $77.3 million, an increase of $33.1 million over the same quarter in the prior year, but more importantly, it's in line with the service revenue generated in Q3 of 2019. The recovery in leisure travel that we saw in Q2 continued into Q3 driving this strong performance. The rental patterns that we have recently seen remained prevalent this quarter with leisure travelers driving demand, creating more billable days for rental agreement, more toll usage and higher toll fees than in previous years. These trends have improved revenue without the full recovery of rental volumes. We continue to believe that business travel will return in 2022, albeit at a lower level and anticipate rental volumes to return to their more traditional seasonal patterns in Q4, which should pull back from the Q3 level. Adjusted EBITDA for the quarter of $51.3 million increased from $31 million for the same quarter of the prior year and generated adjusted EBITDA margins of 66%. The strong flow through is a function of strategic actions taken last year and into this year, and as we're ramping up some cost to capture revenue cycles as it returns, we expect that margins would be a little lower in the fourth quarter as revenues return to more seasonal patterns. Turning to the next slide; you see the results of the Government Solutions business. This segment operates photo enforcement programs for counties, municipalities, and school districts. Our Government Solutions business delivered revenue of $84.8 million in the second quarter, improving $32 million year-over-year. As a reminder, the total revenue for this segment is comprised of service revenue. Now, that's the monthly fee that we generate from the operations of photo enforcement programs and product revenue from selling and installing camera systems and software. I think it's important that we talk about these two sources of revenue separately. The service revenue for the third quarter was $64.6 million, which grew $25.7 million or 66% year-over-year. There's several components of this growth, $15.9 million came from the acquisition of Redflex, and $9.8 million came from organic growth in our core business. I want to pause for a minute and just let that sink in. Our organic growth in this segment is 25% over Q3 of 2020, and 47% over the same period in 2019. The largest driver for this growth is the expansion of school zone speed programs, primarily in New York City, where we installed 720 cameras throughout the 2020 year and we're now seeing the impact of service revenue as we operate and maintain those systems. We're also in the process of installing additional 720 cameras in the back half of this year, which will contribute to our growth in 2021 and well into 2022. Product revenue of $20.3 million grew $6.4 million or 46% from the $13.9 million for the same period in the prior year. We installed 236 school zone speed cameras under the New York City emergency contract this quarter, bringing the total installations to 394. The result saw $3.6 million as a product revenue that came from the Redflex Acquisition. As David mentioned, supply chain issues have made headlines impacting many industries. We are proud of our ability to navigate this difficult situation adapting to the ever changing landscape. We are working very closely with our suppliers and monitoring upstream product build. Our operational teams have gotten creative and working around challenges. And while we are targeting to install the balance of the cameras in the current calendar year, we are modeling approximately 25 cameras to be in the first quarter of 2022. Adjusted EBITDA of $30.7 million increased $8.2 million from the prior year quarter. Adjusted EBITDA margins for this business were 36.2%. The margin compression in the quarter is related to the inclusion of Redflex in the quarterly results. We've previously stated that Redflex had much lower adjusted EBITDA margins than the government solution business. We are making good headway on synergies and have taken actions that will achieve run rate synergies of about $5 million. Over time, we will see that the margin profile with the combined North American businesses returning to a more historical level. Turning to the next slide; we show consolidated results for the quarter. These are just the combined results of the two business segments that we just discussed, where there's total revenue of $162.1 million for the third quarter, an increase of $65.2 million from the same period in the prior year. This is the largest quarterly revenue generated by the company and it demonstrates the strength and resiliency in it's business model and the hard work of our team. Now, we know that product revenue is episodic, which is just my fancy word for saying that it's lumpy, but the service revenue is the recurring year after year, following our long-term contracts and our deep customer relationships. Service revenue for the quarter was $141.8 million. If we strip out the growth from the acquisition, it's $125.9 million. Now, let me just put that in perspective. Organic service revenue grew 51% over 2020 and 14% over 2019. Verra Mobility isn't just recovering, we are thriving and that's also reflected in our profitability. Our adjusted EBITDA of $82.1 million increased by $28.5 million for the same quarter in the prior year, and adjusted EBITDA margins were 50% in the quarter. The company reported net income of approximately $27.3 million in the quarter compared to net income of $11.1 million in the same period in the prior year. Adjusted EPS, which excludes amortization for stock-based compensation and non-cash items was $0.27 per share for the current quarter, compared to $0.17 per share for the third quarter of 2020. The tax provision for the quarter was $11.5 million representing an effective tax rate of 29.6%. Our effective tax rate is impacted by permanent differences related to market to market adjustments for both, our private placement warrants, as well as our tax receivable agreement. The company generated $129.3 million of cash flow from operating activities during the year-to-date period, in large part due to changes in networking capital. We've talked a lot about our outstanding receivable with New York City and we're very pleased with the progress that we're making. At the end of September, the city of New York DoT owed us just over $80 million. We billed New York City $41 million in the quarter for products and services and collected $87 million on aged receivables. Based on the current pace of payments, we anticipate the encouraging relation to the contract terms by the end of the calendar year. Our very strong anticipated cash position led us to the vision of our Board to buyback shares at a rate of $100 million and we executed that in the third quarter. Even with the $100 million repurchase, our leverage decreased from 4.1x at the end of Q2 to 3.7x as of September 30. We're excited about the acquisition of T2 and anticipate using the accordion feature on our Term Loan B along with cash-on-hand to close the transaction in late Q4. Assuming that we used the full $250 million of the accordion, our leverage on a pro forma basis after giving consideration to the acquisition would be 4.7x. We've said in the past that given our cash flow generation of the company that we'd be willing to increase leverage for the right acquisition, and we believe that this is the right acquisition at the right time. And we're confident that the cash flow generation over the next few quarters will delever the company very quickly. Given the strength of the Q3 results, we're raising our full year guidance. We are expecting total revenue in the range of $525 million to $540 million, which includes contributions for Redflex and represents growth of 17% to 20% over the pre-pandemic year in 2019. Included in this growth, we expect product sales to be unchanged in the range of $55 million to $60 million. We expect adjusted EBITDA to be in the range of $250 million to $260 million or an adjusted EBITDA margin of 48% based on the midpoint of our guidance. We are outperforming our expectations and have returned to 2019 revenue and EBITDA level. We continue to grow and invest a significant cash flow back into the business to generate positive shareholder returns and we'll continue to do so. And with that, I'll open the line for questioning.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And we'll take our first caller Daniel Moore with CJS Securities.

Daniel Moore -- CJS Securities -- Analyst

Good afternoon, David and Trish. Thanks for taking the questions. So many directions to go in, so sorry to hear it, Trish. Thank you all of your help, but congratulations. Maybe quickly, talk about the acquisition process for T2. I assume there's an auction and more to the point, what type of revenue and our cost synergies should we be thinking about?

David Roberts -- Chief Executive Officer

Yes. Dan, it's David. So, with us here today, we have Mike McMillin as well. Mike is our SVP of Corporate Development and he led the transaction, come start the business. I'll let him answer that question for you, OK. Perfect. Thank you.

Mike McMillin -- Senior Vice President of Corporate Development

Hi, this is Mike. So, it was a competitive process. It wasn't necessarily an option but it was a competitive process. So -- and we were very happy to complete the acquisition or announce the signing of the acquisition. As we think about the business in general, in our press we had $80 million of expected revenue in 2021 with EBITDA of around $21 million. As we look at that, historically, we've seen revenue in this business on the services side which represents about 70% to 80% of their total revenue growing the 5% to 10% range. And we would expect that the revenue in the future to grow at near the top half of that range for services. And they also had hardware sales, which represents around 20% to 30% of their revenue, and similar to us, their hardware sales are lumpy from year to year; but on average we'd expect more modest growth there, maybe in the 2% range. So, overall, we would expect total revenue combining services and hardware to grow in the high single digits over the next few years.

Patricia Chiodo -- Chief Financial Officer

And on the synergy side?

Mike McMillin -- Senior Vice President of Corporate Development

On the synergy side; so what we are focusing on in this acquisition is growing and emphasizing the core business and leveraging our existing government relationships to really help accelerate their revenue with cities and municipalities. We -- so our plan really is to focus on the growth and revenue synergies in order to grow the long-term strategic position of T2 and our own position in the parking ecosystem, including the long-term opportunity associated with curbside management. So, the focus for us for this acquisition is really on the revenue in growth side in order to strengthen their position and our collective position in the parking market.

Daniel Moore -- CJS Securities -- Analyst

Super helpful, Mike. And forgive me because I'm not as familiar with their business model, but that 70% to 80% of services, how do we think about that? Is that SaaS type? Is it recurring revenue? Maybe just help understand the revenue model there? Thank you.

David Roberts -- Chief Executive Officer

It's both of those things, Dan. They have a portion that which is their SaaS revenue licensing and then they have maintenance agreements associated with the equipment as well.

Daniel Moore -- CJS Securities -- Analyst

Got it, very good. Okay, I will jump back in queue with any follow-ups. Thank you very much.

Patricia Chiodo -- Chief Financial Officer

Thank you.

Operator

Thank you. Next we'll take Keith Housum with Northcoast Research.

Keith Housum -- Northcoast Research -- Analyst

Good morning, guys. And congratulations on the quarter and Tricia, I echo that statement; sorry to see you go, but congratulations on that decision. Building on a T2 acquisition, as I may just kind of add, obviously, any kind of acquisition you can do is going to be dilutive to your margins, but what kind of scale or incremental margins can this company deliver as it grows?

Patricia Chiodo -- Chief Financial Officer

You mean, just for T2 by itself?

Keith Housum -- Northcoast Research -- Analyst

Correct.

Mike McMillin -- Senior Vice President of Corporate Development

Yes, maybe if we speak to the EBITDA margin on this. What we actually expect as the services and specifically the software to services grows greater than the hardware sales over time, we would expect a natural, sort of natural uplift in margin over time as the higher margin software of the services business takes over more of the revenue mix. So, we would actually expect EBITDA from a margin perspective to outpace revenue growth. So, we have revenue growing in the high single digits, we would actually expect EBITDA over the next years to grow in the low double digits, just due to the natural shift in mix over time.

Keith Housum -- Northcoast Research -- Analyst

Great. And then maybe you can educate us a little bit more on like parking the market in terms of largest competitors. I mean, you guys obviously have a dominant share of the business where you currently do business, does T2 have the same type of dominance or is it much more diverse or fragmented competitor base?

David Roberts -- Chief Executive Officer

Yes, it's a bit of a difference. So, they don't compete as much in our market. So, they are -- traditionally they've been in universities, has been, most of their businesses has been working parking systems for large universities. They also work with some city and municipalities. So, there is a host of characters there that they would compete with, but they don't compete with traditionally with for instance, the Conduent's of the world. Conduent is more known for large city implementations for parking. And certainly, our hope is to work with them to bring them up at a higher level and using our relationships and expand our capabilities on our government side with over 220 customers here in North America that that would be advantageous as they look to kind of drift upmarket a little bit and give that entry [Phonetic].

Keith Housum -- Northcoast Research -- Analyst

If I could just stick one more in here. Is there an opportunity to take these guys international as well leveraging your Redflex relationships?

David Roberts -- Chief Executive Officer

No, they would be disconnected from that point. I think perhaps the technology, but if you were going to do this internationally, you would probably need a different asset in a different -- whatever country you're going to go to.

Keith Housum -- Northcoast Research -- Analyst

Got you. All right. Thanks, guys. Appreciate it.

David Roberts -- Chief Executive Officer

Yes, thanks.

Operator

Thank you. Next we'll move on to Dave Koning with Baird.

Dave Koning -- Baird -- Analyst

Yes. Hey guys, great job.

David Roberts -- Chief Executive Officer

Thank you.

Dave Koning -- Baird -- Analyst

And maybe first of all, just looking at the progression, like when we look at your percent of 2019 [Phonetic], you've like far outpaced basically any data point we can find on travel Avis or any of those, you just consistently just kind of crush those. This quarter, your step up wasn't quite as big, and my guess is that's a function of last quarter being so big with registration work, but maybe you can just kind of walk through that? And then, how we should see a progress as long as travel keeps going better, should that keep moving kind of above that 100% in Q3?

Patricia Chiodo -- Chief Financial Officer

Yes. So, I think on the commercial services side, I think when we -- what we really saw was that the summer driving season opened up a little bit earlier than it normally does. So, Q2 was a little stronger than it normally would be. Normally, your summer driving season is sort of booked mark by Memorial Day and Labor Day which is when kids exit and restart school. So, I think we saw more in April; that's why we really had a really strong quarter in Q2. And as you mentioned, we did have an uptick and it was happening in title and registration. In Q3, we are seeing that we are matched with rental car tolling from where we were in 2019; we are ahead of where we were with S&P tolling for the 2019. And then, we had some pullbacks in title and registration, which you can just call a quarter-over-quarter shift. I think what we're going to see as we move into Q4 is you are going to see the sort of downtick that's going to happen. That normally happens with seasonal patterns of driving, so we normally see Q4 to be lower for commercial services in Q3; we're expecting that to happen this year as well.

And for the total company, what's really driving our year-over-year growth from 2019 is that the commercial -- the Government Solutions speed program is really, really thriving. That program has really grown in the last two years.

Dave Koning -- Baird -- Analyst

Got you. Thank you. And maybe just my follow-up. Can you give us the Redflex numbers by service and product again? And then if that sort of mix or if those levels of both kind of sub-segments of Redflex are pretty normal just as we go forward?

Patricia Chiodo -- Chief Financial Officer

Yes. So, the revenue for service revenue was $15.9 million. Hang on, let me get you the other number. And then, the product revenue was $3.6 million for Redflex in the quarter.

Dave Koning -- Baird -- Analyst

And is that pretty normal? Like is that $16 million a quarter of service and $3 million to $4 million a quarter of product kind of what you'd expect over time?

Patricia Chiodo -- Chief Financial Officer

I think the product revenue is probably lower than we would expect over time. So, I think they're experiencing some start-up cost and other things that we're seeing here. So, I would expect those numbers to grow over time.

Dave Koning -- Baird -- Analyst

All right, great.

Patricia Chiodo -- Chief Financial Officer

Thanks. And we did add some really nice little charts and our earnings stats that layout some of these items.

Dave Koning -- Baird -- Analyst

Thank you. Got you.

Operator

Thank you. [Operator Instructions] And we will move on to our next question from James Faucette with Morgan Stanley.

David Roberts -- Chief Executive Officer

James, you there?

Operator

Sir, your line is open and active. And we are not getting a response from him. We'll move on to Daniel Moore with CJS Securities.

Daniel Moore -- CJS Securities -- Analyst

Very good. I'll go again. Just talk a little bit as T2 as a sort of a new platform I like to the tool. What do you see the opportunity, rollup is not the right word, but should we see this as a platform for further expansion via M&A over time?

David Roberts -- Chief Executive Officer

Yes, I think so. I mean it's -- I think what you would look at the parking business as a whole is, there's not a lot of assets like T2 that are sort of hub-size and scale with the level of cash flow and profitability that they have; it's a unique market; there's some real big players and then there's a lot of tiny small players. So, certainly, there could be some other opportunity there. I think our -- the real strategic imperative here is, I think everyone in the category of smart transportation would say that curbside management is going to be a big challenge for municipalities going forward, and we want to be a part of that future, and we think it's going to be important to our customers as well as other customers. So, T2 serves as a great platform for us to do that while at the same time diversifying some of our revenue into an adjacent market.

Daniel Moore -- CJS Securities -- Analyst

Got it. And switching gears David, you touched on this, but any commentary around your rack customers willingness and more to the point ability to refleet or expand their fleets as we think about 2022 in light of pretty well documented supply chain challenges etcetera?

David Roberts -- Chief Executive Officer

Yes. I mean, I think overall, I would definitely listen to the public CEO comments around that versus relying on my commentary. But I think what they would tell you is that they are working hard to get their fleets back to where they were. I mean, Hertz even announced they are going to buy hundred thousand Tesla's, and Elon Musk seemed to disagree with them, so we'll find out if that's actually true or not.

Daniel Moore -- CJS Securities -- Analyst

Exactly.

David Roberts -- Chief Executive Officer

But that being said, what we're -- I would anticipate that they will continue to be below 2019 levels probably for a significant portion of next year. I think most have indicated that the end of next year or Q4 next year would when they would think the issues around the chips and the new vehicles coming out of volumes might be solved. But unfortunately, we're seeing a higher level of activity and that seems to be a durable trend.

Daniel Moore -- CJS Securities -- Analyst

Very good. And then I was typing as quick as I could, just if you could give us again the remaining receivable that you expect to bring in from New York City in Q4? Thanks.

Patricia Chiodo -- Chief Financial Officer

Yes. So, we have -- well, right now, we have about an $87 million receivable -- I'm sorry, just over $80 million is the total receivables that we have out there. We would expect to be collecting on that, but also continuing to build them for the -- about the same rate, call it $41 million in the Q4 as well; so we'll still have a healthy receivable there. But if we continue to pay on time, which they have done exactly what they said they would do, we would bring in that $80 million in Q4.

Daniel Moore -- CJS Securities -- Analyst

Very good. Thanks again for the color.

Operator

Thank you. [Operator Instructions] [Operator Closing Remarks]

Duration: 35 minutes

Call participants:

Unidentified Speaker

David Roberts -- Chief Executive Officer

Mike McMillin -- Senior Vice President of Corporate Development

Patricia Chiodo -- Chief Financial Officer

Daniel Moore -- CJS Securities -- Analyst

Keith Housum -- Northcoast Research -- Analyst

Dave Koning -- Baird -- Analyst

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