Via (VIA) Q1 2026 Earnings Call Transcript

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DATE

Tuesday, May 12, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer and Co-Founder — Daniel Ramot
• Chief Financial Officer — Clara Fain
• Chief Corporate Communications Officer and Head of Investor Relations — Gabrielle McCaig

TAKEAWAYS

• Revenue -- $127 million, reflecting 29% year-over-year growth, with 74% of revenue generated in the United States, and a 68% year-over-year increase in the United Kingdom segment.
• Annual run rate revenue -- $510 million, exceeding $0.5 billion for the first time, and reflecting 29% growth year over year.
• Platform customers -- 838 at quarter-end, up 23% year over year, with 94 added from the Downtowner acquisition.
• Adjusted EBITDA margin -- Negative 4.6%, narrowed from negative 8.4% in the prior-year quarter, driven by cost leverage and progress toward profitability.
• Sales and marketing expenses -- Represented 13% of revenue, down from 14%; management cited "very attractive ROI," and attributed improvements to AI-driven automation.
• R&D expenses -- 16% of revenue versus 20% in the prior-year quarter, with more than 75% of code now written by or with AI, offset by a $2 million negative impact from Israeli shekel strength.
• Cash balance and debt -- $348 million in cash, and no outstanding debt as of March 31.
• New network wins -- Four full network deals won year-to-date, representing over $40 million in annual contract value; these build on a Sioux Falls contract that drove citywide ridership growth of nearly 40%.
• Pipeline opportunity -- $650 million at quarter-end, a record high and nearly double year over year, with sizable contributions from "flywheel states" like California.
• Q2 2026 guidance -- Revenue expected between $132.5 million and $134 million (22.7%-25.1% growth), with adjusted EBITDA margin expected between negative 3% and negative 2.2%.
• Full-year 2026 guidance -- Revenue raised to $547 million-$550 million (26%-26.6% growth), and adjusted EBITDA reaffirmed at negative $12.5 million to negative $7.5 million, despite a $2 million annual FX headwind.
• AI and AV initiatives -- Multiple management statements position Via (NYSE:VIA) and autonomous vehicle (AV) partnerships as drivers for future gross margin expansion, operational efficiency, and new offering development.

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RISKS

• Clara Fain said, "we continue to face headwinds in Germany as our customers continue to navigate a sustained constrained budgetary environment," which has led to slower growth and elevated churn in the German segment.
• Clara Fain stated, "The strength of the shekel had about $2 million of negative impact to adjusted R&D expenses when compared to Q1 2025," with ongoing FX headwinds at a 30-year high for the Israeli shekel versus the U.S. dollar.
• Fuel cost volatility affected gross margin, with Fain reporting, "Fuel is about $3 million a quarter of spend in our COGS. So that can call 2% to 3% of revenue. We saw a spike in fuel costs towards the end of," resulting in a modest negative impact, and expectations for continued pressure into Q2.

SUMMARY

Management introduced broader commercialization expectations around AI Labs, highlighting a "front-end engineer model" intended to support gross margin accretion and scalable city solutions beyond transit. Expanding integration opportunities in network contracts now involve multi-mode orchestration, which is expected to enhance customer lifetime value and strengthen Via’s pipeline in key U.S. states. Management confirmed no material elongation in procurement cycles for government contracts, while spotlighting California as a major pipeline contributor, with an 85% annual revenue increase and $100 million currently in active opportunities. Downturns in the German market did not affect growth trajectories in other EU regions, as the U.K., Nordics, Benelux, and France each exhibited positive trends and accelerated platform adoption. Partnerships with Beep and Waymo to provide AVs in municipal networks illustrate Via’s strategy of embedding AVs as integral fleet components, not just overflow supply, enhancing both customer innovation strategies and operational efficiency.

• Ramot emphasized, "We are in the early stages of transforming an enormous market," reflecting current SAM penetration of under 2%, and significant expansion potential in North America and Western Europe.
• Management reported that greater use of AI in engineering—over 75% of code written by or with AI—has driven efficiency, despite external currency pressures from R&D conducted in Israel.
• The company's exposure to commodity price risk is being offset by customer pass-through provisions, with Clara Fain explaining, "We do have contractual mechanism to pass through some of these increases to our customers, and we are working on these pass-throughs as we speak. So we don't have to bear the cost of the higher cost of fuel."
• Via intends to achieve its "first quarter of profitability in Q4 2026 with positive adjusted EBITDA," according to Fain, maintaining its disciplined investment balance between internal AI-enabled leverage and external expansion.
• The acquisition of Downtowner primarily contributed "the number of customers," adding 94 to the platform and initiating cross-sell opportunities, rather than providing near-term revenue uplift.

INDUSTRY GLOSSARY

• Flywheel state: A U.S. region where Via's local success and referenceability drive accelerated customer adoption, higher win rates, and increased pipeline contribution due to network effects.
• Pipeline opportunity: The aggregate annual contract value of potential, yet-to-be-signed deals in Via's business development funnel, encompassing various stages of maturity.
• Run rate revenue: An annualized metric calculated as the current quarter’s revenue multiplied by four, intended to illustrate the revenue pace if current performance persists.
• Network win: A contract in which Via assumes responsibility for managing entire transit networks—covering multiple modes—on behalf of municipalities or agencies, embedding both software and operational services.
• Adjusted EBITDA: A Non-GAAP earnings measure excluding interest, taxes, depreciation, amortization, and certain other expenses deemed non-recurring or not reflective of ongoing operations.

Full Conference Call Transcript

Gabrielle McCaig: Good morning, and welcome everyone to Via's First Quarter 2026 Earnings Call. I'm Gaby McCaig, Via's Chief Corporate Communications Officer and Head of Investor Relations. With me today are Daniel Ramot, Via's Co-Founder and CEO; and Clara Fain, Via's Chief Financial Officer. During today's call, Daniel will review our first quarter 2026 business update before handing it off to Clara to discuss financial results and our guidance for the rest of the year. We will then open the call to Q&A. In addition to prepared remarks on this call, additional information can be found in our investor presentation, press release and SEC filings on our Investor Relations website at investors.ridewithvia.com.

Before we get started today, we want to draw your attention to the safe harbor statement included in our press release and investor presentation. Items we discuss today will include forward-looking statements about topics, including, but not limited to, our future financial performance, projections and management's plans and objectives for future operations. Actual results may differ materially from those presented in the forward-looking statements and are subject to risks and uncertainties described more fully in our SEC filings, including our quarterly report on Form 10-Q. Any forward-looking statements that we make on this call are based on our assumptions as of today, May 12, 2026.

Unless required by law, we undertake no obligation to update or revise these statements as a result of new information or future events. We would also like to point out that our discussion today will include certain non-GAAP financial measures in addition to, not as a substitute for, financial measures calculated in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures, along with reconciliations of non-GAAP to GAAP financial measures are provided in our press release and our investor presentation. And without further ado, I'll now hand it over to Daniel.

Daniel Ramot: Thanks, Gaby, and thank you, everyone, for joining us today. We're delighted to report another outstanding quarter for Via with results that exceeded both top and bottom line expectations. In Q1, our revenue grew 29% year-over-year to $127 million. This was our first quarter with over $0.5 billion in run rate revenue, an important milestone for the company. The number of customers on our platform grew in Q1 to 838, up 23% year-over-year. We continue to make significant strides towards our profitability target with adjusted EBITDA margin of negative 4.6% in Q1. The basis for our rapid and durable growth is twofold.

We are in the early stages of transforming an enormous market, and we offer a unique and differentiated solution that customers increasingly recognize as superior. In our core geographies of North America and Western Europe, our serviceable addressable market is estimated at $82 billion based on a report we commissioned from a major consulting firm. Both by customer count and by revenue, our penetration of our SAM is less than 2%. This presents a tremendous opportunity for continued growth for Via. The key to our ability to rapidly transform this enormous market is our unique product and go-to-market strategy. Via is the only company that offers an end-to-end unified platform for optimizing and operating entire transit systems.

At the core of our platform is our purpose-built AI-powered software, which leverages proprietary data and expertise we amassed over more than a decade. When customers adopt our software, they can leapfrog decades of technology neglect and rapidly break down technological and operational silos, driving immediate ROI. But crucially, our platform extends well beyond software. We are a full stack transit provider with a broad suite of technology-enabled services that allow us to directly participate in the delivery of transit services to end customers. When customers select Via to provide these services, we become the real-time orchestrator and optimizer of their transit network, assuming control and accountability for service levels, cost and passenger outcomes.

Our software and services are deeply integrated, creating a virtuous cycle. Our software is embedded in every aspect of our services, driving significant efficiency over legacy transit providers who make limited use of technology in their operations. And our services create a powerful feedback loop that supports continuous improvement of our software and provide proprietary data for our AI models. Consistent with the unique nature of our platform, our revenue model is predominantly based on usage and outcomes. When customers select Via to orchestrate the delivery of transit services to their passengers, the increased control and accountability can drive operating leverage and enhance our ability to scale with these customers.

Our revenue model minimizes friction for expansion and allows us to seamlessly capture this upside. We believe our platform to be the most extensive integrated solution available in the market, enabling customers to seamlessly plan, schedule, operate and optimize their system across transit modes. Within our platform, microtransit remains Via's founding innovation. It is a new paradigm for mass transit, utilizing dynamically routed, flexible shuttles in place of rigid fixed route and fixed schedule buses. Our analysis of large U.S. transit systems for which we have data by bus route indicates that between 15% and 65% of bus routes for those systems operate at lower efficiency than microtransit.

These routes are prime candidates for replacement by microtransit and represent strong expansion opportunities for Via. And while microtransit remains a major catalyst for adoption, our focus today has expanded to managing entire transit networks on behalf of our customers, including paratransit and buses. The focus on providing the orchestration layer for entire transit networks is a major contributor to recent acceleration in the growth of our pipeline. Last quarter, we reported that our pipeline grew more than 50% year-over-year. This trend has continued in Q1, and we ended the quarter with a record $650 million in pipeline opportunity. We first took on management of an entire transit network in Sioux Falls, South Dakota.

Winning the contract in late 2023 and launching in January 2024, this highly successful partnership with Sioux Falls is the foundation of our expertise and credibility as an orchestrator of full transit networks. After assuming responsibility for the transit network in Sioux Falls, we launched microtransit citywide, modernized and integrated the previously siloed air transit system and redesigned the bus network in close collaboration with the city and the community. This transformation produced outstanding results, reversing a multiyear trend of rising operating costs and declining ridership, driving ridership growth close to 40%. Building on our outstanding results in Sioux Falls, we were able to secure 2 additional network wins in the second half of last year.

And so far in 2026, we have already been awarded 4 network deals, representing over $40 million in total annual contract value. We are very encouraged by these recent network wins and believe they may represent an inflection point in our ability to win these opportunities. In our view, there are 3 key factors behind our recent success with network opportunities. First, while some customers have historically procured transit operations and software separately, in some cases, even independently procuring services for each transit mode, we are increasingly seeing integrated opportunities that combine transit services and software across multiple modes. Now that we have set the precedent, customers recognize the value of an integrated transit system.

When they choose to procure such a system, we are well positioned to capture the opportunity. Second, having established Via as a successful provider of integrated network solutions with strong results and references, we are now able to credibly pursue and win these opportunities. The third important factor is AI. Thanks to AI, we're able to build solutions at a faster pace than ever before. This allows us to enter new verticals such as buses more rapidly. It also means the gap between our offering and those of existing competitors is expanding, allowing us to deliver superior ROI to our customers.

Looking ahead to the rest of 2026 and beyond, we are excited by the number of network opportunities in our pipeline and the potential to further accelerate and drive growth in our business. We are in the very early phases of realizing the potential of AI to drive increased automation and efficiency across every aspect of our operations, from routing efficiency to dispatch productivity, lower customer service costs and improved fleet uptime. As the network orchestrator, we are in a position to translate these service cost reductions into expanded margins, especially as volume scales. As their economics continue to improve, autonomous vehicles represent one clear such avenue for cost reductions in the delivery of public transit services.

We've seen strong interest from our customers who seek to integrate AVs into their public transit fleets. And we've seen strong interest from AV developers who are seeking to partner with us to provide the deep vertical stack required to serve public transit customers. Building on our partnership with Waymo, we recently partnered with Beep to provide a fleet of autonomous shuttle buses for the city of West Palm Beach, and we're actively discussing opportunities with other AV developers. We view these partnerships as further proof that Via is rapidly becoming the operating system for future cities. We are also continuing to explore the opportunity to extend our platform beyond transit by leveraging our strong local government relationships and AI.

Our new Via AI Labs division will leverage forward deployed engineers using AI to rapidly explore and productize solutions to cities' most pressing civic challenges, including waste management, road maintenance and data optimization. While still early days, we're seeing strong initial interest from cities, indicating that Via AI Labs has the potential to be a meaningful catalyst to expand our platform and grow our TAM beyond transit. Lastly, before I hand it over to Clara, I would be remiss not to mention our podcast, ModeShift. ModeShift is a thought-provoking fast-paced conversation led by Andrei Greenawalt, our Chief Policy Officer, about mobility history, policy and technology.

If you are already listening to ModeShift, it's a go-to for anyone interested in transportation, recently reaching as high as #2 in the government category on Apple's podcast chart. Season 2 is now out, and I would encourage you to subscribe. And with that, I'll pass it over to Clara to review the financial highlights for the quarter and our guidance for the year.

Clara Fain: Thank you, Daniel. I'm happy to report that Q1 was another very strong quarter for revenue and profitability, with demand for Via's platform reaching a record high. We exceeded $0.5 billion in annual run rate revenue for the first time in the company's history, nearly doubled our pipeline of opportunities compared to the same period last year, accelerated on several fronts, thanks to AI and last but not least, laps closer to profitability. As we have in all our prior quarters as a public company, we also exceeded our revenue and adjusted EBITDA guidance. Let's start with top line.

In Q1 2026, our annual run rate revenue, which is defined as our quarterly revenue multiplied by 4, was $510 million, representing a year-over-year increase of 29%. Our growth was fueled by the United States, which represented 74% of our revenue and where we grew 36% year-over-year. Internationally, we saw strong momentum in the U.K., where revenue was up 68% year-over-year. At the same time, we continue to face headwinds in Germany as our customers continue to navigate a sustained constrained budgetary environment. These results reinforce the benefits of our geographical diversification strategy. We closed the quarter with 838 customers at a record high.

We're continuing to benefit from flywheel effects in multiple states where the success of existing customers drives referenceability and allows us to rapidly grow revenue without a corresponding increase in sales and marketing investment. For example, in California, we saw an 85% increase in revenue year-over-year in Q1 2026 and are pursuing close to $100 million in active pipeline in the state. Now let's dive into our margins and expenses presented on an adjusted basis. In Q1 2026, we spent 13% of our revenue on sales and marketing compared to 14% in Q1 2025.

We see very attractive ROI from our investment in sales and marketing and are taking advantage of several internal AI initiatives, including automation of sales outreach and design. We believe these initiatives will yield measurable upside. We also spent 15% of revenue on G&A, which was consistent year-over-year. Our G&A expenses were driven by public company costs and increased insurance costs from higher premium and claims expenses in the quarter as we continue to scale the business. Finally, R&D expenses represented 16% of revenue compared to 20% in Q1 2025, demonstrating very effective leverage. Our engineering team continued to gain efficiency by extensively leveraging the most advanced AI coding tools.

Over 75% of our code is now written by and with AI, allowing us to effectively reduce costs year-over-year. Efficiency savings were offset by the unprecedented strength of the Israeli shekel, which is the currency of our largest R&D center and currently stands at a 30-year high versus the U.S. dollar. The strength of the shekel had about $2 million of negative impact to adjusted R&D expenses when compared to Q1 2025. We wrapped up Q1 2026 with negative 4.6% adjusted EBITDA margin compared to negative 8.4% in Q1 2025, continuing to make significant progress on our path to profitability. Finally, our balance sheet remains strong with $348 million of cash and no outstanding debt as of March 31.

Over the past few years, we have been able to drive significant operating leverage while generating rapid revenue growth with adjusted operating expenses going up by only $10 million since Q1 2023, while quarterly revenue grew by $74 million in the same period. We believe that we can continue to execute with the same level of discipline in 2026. Now let's turn to guidance. Based on our Q1 results and early traction with full network opportunities with several deals that we have won and will begin to recognize revenue from in the second half of the year, we are raising our guidance for the year.

For the second quarter of 2026, we expect revenue to be between $132.5 million and $134 million, representing 22.7% to 25.1% year-over-year growth. We also expect adjusted EBITDA margin to be between negative 3% and negative 2.2%, with adjusted EBITDA between negative $3 million and negative $4 million. There are several factors driving our Q2 guidance. First, we're experiencing continued headwinds in Germany with slower growth and higher churn than normal. Second, consistent with historical revenue patterns, our market has a certain cadence to it with new deals launching when existing contracts expire.

This year, we are seeing many large deals that are already contracted or won launch later in the year, which informs our Q2 guidance and our full year revenue guidance. For the full year 2026, we are raising our revenue guidance to $547 million and $550 million, representing 26% to 26.6% year-over-year growth. We are reiterating our adjusted EBITDA guidance, a negative $12.5 million to negative $7.5 million despite about $2 million of annualized impact from the strength of the Israeli shekel as of end of Q1.

Finally, we reiterate our goal to deliver our first quarter of profitability in Q4 2026 with positive adjusted EBITDA, which we believe will be a major milestone for Via and an important step on our path to delivering great returns to our shareholders. With that, I wanted to thank you all again and turn it back to the operator so we can take some questions.

Operator: [Operator Instructions] Your first question comes from the line of Adam Hotchkiss with Goldman Sachs.

Adam Hotchkiss: Daniel, I appreciate all the detail around flywheel states, and I know these brand network effects are something we've talked a lot about in the past. Wondering if you're seeing your referenceability starting to actually catalyze incremental RFP activity. I'm thinking as you launch some of these AV partnerships and build out some of these adjacent offerings like student transit, and I think you even mentioned waste management on the call, do we, at some point, go from an RFP environment where customers are proactively looking to replace an existing process to one where Via's brand in the market is actually pulling forward some of these decisions by governments?

Daniel Ramot: Thanks so much. I'd say it's a great question regarding the effect of the flywheel states and how they're impacting RFPs we're seeing in the market. Overall, I think we're seeing a very positive trend in these flywheel states across a number of factors. So one, we're seeing generally win rates higher in these flywheel states, somewhat higher, which is very encouraging. And we are seeing increased activity for Via in those states. So if we look at the -- across our pipeline, we are seeing that a large percentage of the pipeline is coming from these flywheel states and starting to see a dynamic.

And I think I mentioned this in the prepared remarks that we're really transitioning more and more into opportunities that are well suited to via these integrated opportunities that combine the services and the software where we think we believe we have a strong advantage in winning those opportunities. So across a number of dimensions, win rates, the contribution to our pipeline and then the types of opportunities we're seeing in those flywheel states where we're getting the referenceability, where our offering is quite familiar to our customers, you're starting to see them shift towards creating opportunities and seeking opportunities that are better suited for Via. So for us, that's a very encouraging direction.

Operator: Your next question comes from the line of Josh Baer with Morgan Stanley.

Josh Baer: I wanted to ask one on the Via AI Labs and the commercialization of those efforts. Maybe for Daniel, if you could talk a little bit about specific products or use cases that are being developed? And any update on how that opportunity is developing here? And then for Clara, a follow-up would be on the economic side, how you think about how much to invest in AI labs and what we should expect from a monetization perspective over time?

Daniel Ramot: Josh, thanks for the question. For AI Labs, we're seeing some really interesting dynamics. Just as far as -- maybe just try to get your question directly as far as the specific products, I just want to remind everybody that our customers -- there's a whole range. There are some that are incredibly sophisticated with AI and are only trying to kind of deploy it internally across their city hall, but that is very rare. For the most part, our customers, they're not your typical Silicon Valley company that's sort of me deep in AI, and that's all they think about.

And so even simple things like just trying to help them get all of their disparate dispersed, often not very easy to access data into one place that they can look at together in a very organized fashion can be incredibly helpful and frankly, transformative. So very basic just trying to help them put all their data together into one dashboard in a very simple way. I think previous -- prior to AI would actually be very hard to do just the way that the data is set up. What we're finding is with AI, we can create tools for them that are incredibly helpful, very, very fast.

And that those tools, once we create them, can then be taken to other cities, which in the past would have been hard. They've been very bespoke and difficult to translate and scale. So that's one -- just to give a sense of something that I think in a company or in a bank, you would think is trivial in a municipality may not be and may actually be quite transformational. Beyond that, I think we're seeing some really interesting early use cases around sanitation, things like just scheduling, this is a sort of core Via capability, scheduling of resources.

So if you need to go out and fix potholes, just the ability to schedule that in limited resource, schedule that in a more useful way, just bringing data together from different sources, whether they have -- in law enforcement and public safety, there are a lot of very advanced tools that other companies are providing, but connecting that data to other parts of the organization is relatively limited. And so being able to bring, again, data together in that area. We've seen some interesting use case around social worker case loads and being able to help them manage that and being able to schedule. So a pretty diverse set of use cases.

We're still at the exploration stage of trying to figure out what are the best products for us to build, and we're in the process of partnering with order of a dozen municipalities to really dig into this and figure out the right way to build out this offering. Early days, but very exciting from our perspective.

Clara Fain: Thanks, Josh. From a gross margin perspective, we expect these initiatives to be accretive to overall gross margin. We're adopting the front-end engineer model. So there are lots of comps there, so you can get a sense for the gross margin profile. In terms of balancing the investment, you can see that we've implemented AI internally and truly transformed how the organization works. And that has generated -- helped us generate operating leverage and quite a lot of savings. And in a way, we're reinvesting some of that into our AI capabilities and AI labs. So we expect to continue to balance that investment with our profitability target.

Operator: Your next question comes from the line of Michael Turrin with Wells Fargo.

Michael Turrin: Just a 2-parter upfront for me. Daniel, the network win commentary stood out throughout your remarks. I think you mentioned 4 wins an inflection point. Can you just frame more broadly what those mean for Via and how you'd expect some of the successes there to scale more broadly? And for Clara, it looks like you were guiding for it, but gross margin down a touch year-on-year. Just remind us if there's anything seasonal or near time impacting that line and if you're still confident in the path towards longer-term expansion there.

Daniel Ramot: Thanks, Michael. Yes, it'd be great to talk a little bit about the network opportunities and wins. I think maybe to tie this back to some of what we've been saying in the previous calls, -- we've seen -- this is, we believe, also tied to Via going public and higher profile that we have, more credibility in the market and just the general growth of flywheel states has put us in a position over the last couple of quarters where we've been able to really expand our pipeline in a very meaningful way by adding to the pipeline effectively these much larger network opportunities. This also ties into a maturity of our product.

We've been investing across multiple verticals around transit, of course, for quite a number of years and are now in a position where we have a solution that we believe can really address the entire network very effectively, both with software and services. So it positions us very well to go after these larger full network opportunities. And tied into that, tied to my response to one of the previous questions, the market itself is also increasingly open to sort of adopting these solutions where before they were procuring these in a silo, software potentially separate from operations, different operational kind of verticals separately in a silo. These were less suitable for us.

So all of these are coming together and driving this pipeline increase. And I think we mentioned this last time, one of our key questions for us was, well, these are larger opportunities, they're different categories. They're relatively new for us. We are trying to be very focused in going after ones we think we have a good chance of winning that are well suited to our offering that are in flywheel states. As I mentioned before, we're trying to really be focused on where we can win. But we don't know what the win rates are going to look like. Are they going to be similar to our historical win rate?

That's really, I think, probably -- this is probably the most important point for us as a company that we're very focused on. The last few months have been very encouraging. So I don't -- it's still early days. I don't want to overstate, but we're very encouraged by the trend. We think there's a potential to see this inflection point with these recent wins. And our government customers tend to like to pick companies that have been picked by others already. So they don't love to take a ton of risk understandably. And so we believe that these wins are a good sort of initial step to start to turn that flywheel in this area as well.

So very encouraging. It is a core focus area for us as a company. It's what I'm very focused on. We're all very focused on. Very, very large opportunity if we can convert it. Still early, but we're encouraged.

Clara Fain: Michael, thanks for the question on gross margin. Good question on the year-over-year. So last year in Q1, we had about 5% of onetime revenue, which drove slightly higher gross margin for the quarter. This year in Q1, onetime revenue is about 1% of revenue, which gets us to where we are. That's kind of the larger driver of the change year-over-year. So nothing different, just slightly different mix on this front. Going forward, as we said last quarter, we expect gross margin to be consistent in the near term as we continue to execute on our very large $650 million pipeline opportunity at the moment, but we are committed to achieving 50% long-term gross margin.

And we believe we can get there by continuing to optimize the cost of our services, now leveraging AI labs and new technologies like AI and AVs and making accretive acquisitions.

Operator: Your next question comes from the line of Patrick Walravens with Citizens.

Patrick Walravens: Clara, I guess a couple for you. So how much did Downtowner contribute this quarter?

Clara Fain: Thanks for the question. We're very pleased with the Downtowner acquisition and how it's turning out and the level of integration that we've been able to reach. Our perspective is that the material contribution from Downtowner is the number of customers. That's what we believe, and we're very pleased with that. So we've added 94 customers from Downtowner and already starting to see some cross-sells there.

Patrick Walravens: Okay. Do you want to share what the -- people are just asking what the organic growth rate was? That's what I'm trying to get at.

Clara Fain: No. Pat, I really appreciate your question, and I'm trying to answer it. As you can see in our numbers, I'll take a step back. We increased guidance for the year and our growth opportunity for the year, and we feel very good about the general opportunity we're seeing. And when -- I understand your question about organic growth and what I'm seeing when I look forward to 2026 and 2027, I feel very positively. Demand for the platform is -- we shared this quarter that we have about $650 million of pipeline opportunity, which is a very strong increase year-over-year and at the highest we've ever seen our pipeline.

So I believe that our potential for organic growth is very strong and has not slowed down at all.

Patrick Walravens: Okay. And then Daniel, can you talk a little bit more about what's going on in Germany? And maybe compare that to like California or something? What's the dynamic in Germany?

Daniel Ramot: Yes, Pat, I can take this one. Thanks. Germany is, for us, obviously presenting some real headwinds as you guys are seeing. Despite the headwinds, I think we've had really nice results this quarter and are -- continue to be very positive about the year overall. Germany, we're facing some headwinds that are unusual. So it is an unusual market for our perspective. It is an area where we have not yet been able to move past microtransit being adopted in a silo. So I think we've talked a lot on this call and in the past about the importance for us of deploying the entire platform. In the U.S., we started obviously microtransit then added paratransit.

Now we're adding sort of these full network opportunities. And that is really key both to our growth and frankly, to the stickiness of the platform. As we add more and more of these services, it becomes very challenging to make any changes that don't involve working together with us. And then oftentimes, these changes actually present an opportunity. In Germany, we have not yet been able to crack it beyond the microtransit vertical. We do sell planning and scheduling and other software, but the majority of our revenue still comes from microtransit. And unfortunately, the agencies they are still treating microtransit as in a silo as a separate service.

We believe pretty strongly that Germany in that sense is very much behind other parts of the world, we're not seeing that in the U.K. Obviously, the U.S. we've talked about, Canada, the dynamics are much more moving towards integration and for us an opportunity to deploy our whole platform. That then coupled with the just the headwinds or macro headwinds, if you will, around funding that exists in Germany across the entire country combined to create some real pressure on our services and limit our growth there.

We're pretty confident that this is a temporary situation that we will be able -- the strength of our product and our solution will allow us to move beyond that and embed our other products in the market as well and the dynamic will change, but it is taking longer than it has been in other markets. So that's sort of this unusual dynamic in Germany. The funding, coupled with the fact that our services are focused in a silo.

Operator: Your next question comes from the line of Brad Zelnick with Deutsche Bank.

Brad Zelnick: Great start to the year. I actually want to follow up on Pat's question about the difficulties in Germany. You specifically called out both lower growth and higher churn. Is one of those particularly worse than the other? And how would you characterize the health of existing customers and appetite for new programs in other areas within the EU? I mean, I guess, is there any risk that what you're seeing in Germany spreads elsewhere?

Daniel Ramot: Yes, Brad, thanks. I don't know that churn or lower growth one or the other in Germany. So it's probably the lower growth, frankly, that's just my sense is the real challenge there. By the way, just to be clear, it's not that the market in Germany is collapsing. Germany today represents 16% of our revenue. It's -- we see that market probably staying fairly stable as far as revenue for us. That's about where it's been. I believe we had 3% growth. So it's just relative to our 29% growth overall, 36% in the U.S. and so forth, it's just a headwind. I think we have a real opportunity to turn it around in the coming couple of years.

But for the moment, I would say the lower growth is probably a challenge. There's some churn. There's some elevated churn as well that we're contending with for all the reasons that I mentioned earlier. We really don't see -- I want to be very clear about that. We really don't see that as a model for the rest of the EU or anything that we're seeing anywhere else. It is very particular to Germany. It has to do with our roots there. Actually, Germany was a major growth driver for us earlier this decade, I need to say. And we saw it to really drive a lot of growth, very, very fast adoption.

It's now reached a relatively high level of contribution to our business relative to other EU countries. And then it's in this position that we just discussed. In the U.K., we're seeing very different dynamics, as we mentioned, really, really fast growth, adoption of our entire platform. There's a move there towards what's called franchising, which is moving responsibility for transit to local authorities, which is really driving growth for us and is -- has a potential to drive a ton of growth down the road, has been driving some of the growth we're seeing today, although a lot of the growth is actually even pre-franchising. So we're seeing some really nice results there.

And other markets don't really look anything like Germany from our perspective. France, we have very different dynamics. Italy and Spain just getting started. Nordics and the Benelux countries, we're seeing very positive dynamics. So it really is Germany is sort of a unique case and has to do with just the way that we got into the country and then the current dynamics. And then, of course, this very challenging funding with government instability and so forth that you've seen in Germany over the last couple of years, certainly not helping.

Brad Zelnick: Very, very helpful to hear. Just a quick follow-up. A lot of volatility in fuel prices of late. What -- if any impact does that have on your financials? And how are contracts structured as it relates to fuel price exposure?

Clara Fain: Thanks, Brad. Yes, we're facing some large volatility in some of the elements here with the macro that challenging macro. Fuel -- we have some exposure to fuel. Fuel is about $3 million a quarter of spend in our COGS. So that can call 2% to 3% of revenue. We saw a spike in fuel costs towards the end of Q1. So there's a little bit of impact there, not material, but some impact to gross margins. We continue to see higher costs coming through Q2 and are expecting some impact there, which we factored into our guidance.

We do have contractual mechanism to pass through some of these increases to our customers, and we are working on these pass-throughs as we speak. So we don't have to bear the cost of the higher cost of fuel. So I feel optimistic that we'll be able to pass through the bulk of it and not have to incur those costs ourselves. But that's kind of the general structure of the contract.

Operator: Your next question comes from the line of John DiFucci with Guggenheim Securities.

John DiFucci: I have a question for Clara and then a follow-up for Daniel. So Clara, it's good to see the strong results this quarter and the annual guide raised by just a little bit more than the beat. But the second quarter revenue guidance was just below the Street's numbers. And given typical seasonality for 3Q being about 2Q a little bit higher. I think this implies a little more back-end loaded than the Street had for the year. We know you have great visibility into future revenue, not only for the existing contracts, but for new ones coming online, too.

So can you give us a little more color on why this looks a little more back-end loaded than, I guess, the Street had modeled and how your business should progress through the year, especially the fourth quarter?

Clara Fain: Thanks, John. And we did our best to give a sense for where we are and really appreciate your understanding of the results. You have a good understanding of what we're seeing. So in Q2, we are seeing 2 factors drive the Q2 results. One is, I think we've discussed about the cadence of the market. There's some implicit interesting seasonality to our market where deals launch when other deals expire. And we're seeing a lot of launches in H2 that are already won and contracted could have launched in Q2 that are launching later in the year. And that's driving some of our Q2 results. So one is the cadence of the market, which we have every year.

And this year, I think Q2 is slightly lower, and then we'll see H2, we are seeing a strong H2 that you can derive from our guidance. And second, the headwinds that we just discussed in Germany are having a more pronounced effect on Q2, and that's also factored into the guide. On to your comment around last year, the Q2 to Q3 seasonality, because of that, we're not expecting to see a similar pattern. So we do expect H2, as you can derive from the numbers to be quite strong and not quite a similar dynamic to last year where we had kind of Q2 to Q3.

There will be some seasonality in Q3, but it will be more than offset by the launches.

John DiFucci: Great. That's really helpful. And Daniel, Clara talked about R&D leverage in her prepared remarks. And it would have come down even more. You would have gotten even more leverage if not for the strength of the shekel. Can you talk about from the R&D perspective, talk about that benefit, which we're seeing there, which I guess is AI related to the innovation you're doing in R&D and especially as it I guess, pertains to new things like AVs and AI labs.

Daniel Ramot: Yes, John, thanks. I think you're seeing it exactly right. We are seeing some really promising and frankly, exciting leverage on R&D. Certainly, AI is a major contributor. I want to say, I think some of it is driven by AI and some of it, frankly, I think, is driven by just very, very good work that the team has been doing over the last few years to build an infrastructure that's highly scalable, not so easy with government customers, as we've discussed before, because they do like to kind of spec out your product and create a ton of diversity that's actually quite hard to manage at scale.

So we have well over 800 customers, of course, to provide to each of them all of -- support all their requirements with all the little details and sort of the vertical nature of that across everything we do around the platform at scale and still be able to move very fast. is a really hard challenge. And that's something that we, over the last few years, have invested a ton in trying to enable, so creating that infrastructure internally. And then when you layer AI on top of that, I think we're seeing some really, really nice progress there, and that's allowing us to run very fast. So we're seeing the leverage, obviously, in the financials.

We talked about this last quarter, but this has really continued. Our delivery on product is only accelerating. And I think if you talk to our customers, you'll hear the same from them. We're just -- to me, we're really cranking on that part, and I'm very excited about it. Let's see how we can continue to accelerate that.

Operator: Your next question comes from the line of Scott Berg with Needham & Company.

Ian Black: This is Ian Black on for Scott Berg. With the elevated oil prices, are you seeing any impact on end customer demand?

Clara Fain: Yes. That's a really good question, actually. And you're right that you rightly pointed out, there are several layers of commodity price impact. The first one is obviously, we just discussed on our cost structure. But the second one is that we are starting to see signs that actually the -- not our customers, but their end customers, the riders and the folks that are actually using public transit are trying to use public transit more because of rising oil prices. So to that effect, we are seeing increasing demand for the services that we provide and for our customers and customers.

Daniel Ramot: Yes. And if I may jump in too, Clara, I would also add that, that is layered on top of -- and I think this is well known you guys probably follow this, just how expensive it has become, especially in the U.S. to own a car, and there's been quite a lot written about it recently, certainly buy a new car and the cost of repairs for used cars. So if you layer on top of that, the challenge that car ownership creates financially for folks now with the higher gas prices, I think that all folds into what Clara was just saying.

Ian Black: Great. And then a lot of your microtransit customers kind of start out with trials and expand over time. As you land more system-wide deals, should we expect kind of a change in how your customers ramp?

Daniel Ramot: That's a good question. I think there is probably -- you may end up seeing less of customers going from, call it, $1 million to $10 million as you might when we start with a microtransit, a smaller microtransit service and then are able to take over the entire transit system. My feeling is that and tied in part to what we're saying and then a lot of other products that we're able to sell, including entering the schools vertical. So we're starting to see, for the first time in the last quarter, some nice cross-sell from our transit to our schools product, which previously -- these are related but different departments oftentimes. So the cross-sell is not as straightforward.

So I think when we -- and actually, those are coming -- the example I think is coming from one of those network wins where we've taken over the whole network and then our presence is so pronounced in the city that we now have an opportunity to translate that into a schools win. So our feeling is that there's still a lot more that we can sell to those customers even when we take over the entire system. But you probably will not see that same big jump from a small micro deal to an entire transit. That makes sense.

Clara Fain: I'd add that the AI Labs opportunity is coming from a totally different pocket. In the near term, you're getting from trend to school and then getting through with the AI labs opportunity truly expand, I believe, expands the TAM.

Operator: Your next question comes from the line of Brian Schwartz with Oppenheimer.

Brian Schwartz: Daniel, I want to follow up on the comments about the pipeline doubling year-over-year. It's even bigger than the size of the business right now. So my question is about the cadence of the conversion of that pipeline, how it's going to play out. And I wanted to ask you specifically about maybe procurement cycle timing. Are you seeing any meaningful changes from the government procurement time lines or the approval processes versus what you've seen in the recent past?

Daniel Ramot: Thanks, Brian. We haven't seen much of a change in our overall sort of sales cycle time line that has remained as it has throughout this period on average. So it is averaged fairly constant. It is something we're watching carefully to try to understand if these larger opportunities, do they take longer? Is the decision -- and if so, which part could take longer. Again, on average, so we need to get more data on these over the next coming quarters and really get a sense if -- hopefully, we're able to continue to scale them and as discussed earlier.

Right now, I would say we're not seeing any noticeable change, but it is something we're definitely keeping an eye on. On the whole, on the government side, there's -- especially in the U.S., there's not much of a change from the last few years that we're seeing. So the dynamics continue to be fairly similar other than what I described earlier, which is we are really starting to shape the ERFs that are coming out, particularly in our flywheel states. we're seeing greater opportunity for us to actually win those deals and so forth. So I won't repeat everything answered earlier, but from a kind of government macro perspective, we haven't seen any major change.

Brian Schwartz: And then my follow-up question for Clara. Just wanted to ask you about the time line from the benefits that you could see from these AI initiatives, whether they're internal, whether they're AI labs, specifically with gross margin? Because I assume over time, it's going to reduce your operating costs as well as your service delivery costs. But from a time line standpoint, when should we expect those efficiencies to start to play off and have a positive impact to the gross margin?

Clara Fain: Thanks, Brian, and thanks for the question. Some of the -- there are several layers of your question. I think some of the internal efficiencies that we're seeing with AI are continuing to help drive the operating leverage that we're seeing, and we commented earlier on the R&D line. So you can see some of that there already. And we expect to continue to deliver, and we've been delivering despite a very strong shekel, which had about $2 million of year-over-year impact and kind of $2 million for the year at this point. So it gives you a sense for the level of efficiency that we're getting. To the top line, I think it's still early to say for sure.

So we'll kind of reserve the time line for later. But we are seeing really nice momentum with customers and interested parties on our AI labs product. And we believe that the gross margin will be strongly accretive to our base gross margin. For it to impact the overall business, it will take a bit of time. So hopefully, we get a little bit by the end of the year and then some next year, but that's kind of the type of time line we're looking at. And we'll share more as we have more visibility into this.

Operator: Your next question comes from the line of Brian Peterson with Raymond James.

Brian Peterson: Daniel, maybe one for you. You've mentioned a couple of big AV wins over the last few quarters. I'd love to understand the nature of those wins. Are those more pilots? And as we're thinking about like the opportunity there, do you envision more kind of network-oriented arrangements with customers that are using AVs and that's a big potential unlock? Would just love to understand that a bit.

Daniel Ramot: Yes. Thanks. This is -- the AVs are definitely an area of great interest to us. We're following the developments very closely. I think just to explain kind of the wins we've talked about so far. So the one we mentioned, West Palm Beaches, that's an opportunity where we are going to deploy the AVs as 6 route shuttles, essentially as sort of small buses as part of the service that we provide to the city. It is part of what the city was interested in. And it's not coming immediately at launch, but will come in the next year or 2 as those vehicles become available. So it is very much embedded into the network and into the model.

That's one kind of opportunity. The other kind of opportunity is more in the sort of overflow, if you will, as we discussed in Chamber, what we're doing with Waymo, where we're leveraging the presence of AVs in the market as available sort of supply that we can take advantage of as part of our municipal service. Our view is that the first example where the AVs are really embedded into the service, we're utilizing them as a core part of the fleet is the right model for us and is the one that we are most interested in.

And we're trying to create -- it's unclear yet who of these AV developers, which of them is going to have the vehicles available and the right form factor, the right price, frankly, because right now, obviously, they're very expensive and how quickly that will develop. So our view is we're trying to partner with as many of them as possible. so that as soon as those vehicles become available, we can plug them into our network in a major way. And again, our preferred model is to really embed them as part of the fleet that we're using.

And we're seeing cities very interested in that, whether it's because they're motivated by innovation, appearing innovative and kind of being part of that cutting edge or because they're thinking about, okay, the economics as the price of the 80s goes down, that could represent savings and therefore, allow them to deploy more service for the same budget that they have. So those are sort of 2 cores.

Operator: Your next question comes from the line of Jonathan Ho with William Blair.

Jonathan Ho: I just wanted to understand, first of all, like what helped drive some of the strong growth in the U.K.? And do you expect that to sort of persist over time as well?

Daniel Ramot: Thanks, Jonathan. I can take that one. The U.K. dynamics, as we mentioned, are very favorable. There -- I'd say there are probably 2 factors. One, this is a market where we -- I believe we've really established ourselves as by far, the category leader. So we're not seeing a ton of competition. And we're seeing really interesting opportunities in the adoption of microtransit. I think you saw the video at the beginning of earnings all from the U.K. There's just an understanding there of the potential for microtransit, the deep understanding to really transform the market. We also have Citymapper there, which is a huge brand. We're seeing some initial nice traction with our planning software and so forth.

That's one factor, just a really nice success of some of our core products. On top of that, we are seeing this move towards franchising and just local authorities taking on more responsibility for there. So there's a whole dynamic in the U.K. that I won't get into that's been around for a few decades now. But this move towards franchising is creating a shift in how the budgets are being utilized towards efficiency, towards services that are integrated, just an approach that's very well suited to our current offering. And so that's driving a very positive dynamic.

I at least based on what we can see today, we believe that this trend should continue, and we're very hopeful about the progress in the U.K.

Jonathan Ho: Excellent. And how are you thinking about federal funding as well as some of the upcoming legislation in support for state government transit? Is there anything that's maybe in process that either you're excited about or that worries you?

Daniel Ramot: Thanks, Jonathan. So your funding is, I say, a very important topic and kind of very, very diverse. So as we talked about funding in Germany, I won't belabor. In the U.S., across the federal government, what we are seeing is that funding is pretty consistent. If anything, the sorts of funds that are going into our services are typically for just formula funds, a slight increase in that area. So nothing dramatic, but pretty consistent, continued bipartisan support for public transit, at least the sort of -- again, the sort of public transit we're providing. I know there's some debates about large infrastructure projects, obviously, that are maybe in a different place.

But when you talk about the sort of nuts and bolts, just providing public transit and the funds that are going into that, nothing very dramatic either direction on the federal front as best we can see. We would love to see the federal government move towards a funding model that encourages outcomes and sort of efficiency. We're having conversations around that front. I hope that, that would -- that's something that the government will consider in some of the new funding build. I think that would push agencies towards transforming their services in very positive ways, both for the residents and for us.

And the last thing I'd say around it is with -- and we talked about the fuel prices, but there are other dynamics that are, I think, putting real pressure on Americans and you're sort of just people trying to live their everyday lives and trying to get around mobility is critical. Cars are becoming increasingly expensive. gas is expensive and the need for public transit is a core service and the understanding of how much value that has recent study from MIT showed for every dollar invested in Chicago public transit, there's an $11 return in economic activity. So I think that understanding -- our sense is that the local level, the state level is starting to grow.

And of course, we're encouraging that, and we think that, that's a potential positive as we look forward.

Operator: Your next question comes from the line of Alex Zukin with Wolfe Research.

Aleksandr Zukin: Most of my questions have been answered. But maybe, Clara, can you quantify the actual headwinds to revenue that you're seeing this year and maybe gross profit in the model from the issues in Germany that maybe weren't in the plan initially? And then any headwind, I think you've quantified it, but maybe just remind us the headwind on profitability for the year from the FX moves.

Clara Fain: Thanks, Alex. Last but not least, I really appreciate your question. On the FX, I'll start with that. On the FX, we are we are seeing about quarter-over-quarter, $0.5 million. So if you annualize that, it's about $2 million that's at the Q1 rate, and they've seen continued strength of the shekel, if you follow, which is at a 30-year high. So we're looking at that. And year-over-year, $2 million. So these are the same $2 million, but they cumulative. So overall, a pretty significant impact from the shekel. So that's one. So you can do the math there. On the Germany impact, we've reflected that in our guidance.

So overall, there is some impact to revenue and to gross profit from what we're seeing from the headwinds in Germany. I'll say that we've been able to more than offset that with the growth and the pipeline that we've created. So I'm very pleased with the work that the team has done there and kind of it supports our strategy of continuing to diversify revenue and get just a diversified geographical exposure as we continue to grow the business.

Aleksandr Zukin: Got it. And maybe just one more, Clara. What drove receivables up sequentially?

Clara Fain: Thanks, Alex. So on receivables, last quarter, if you remember, we had close to breakeven operating cash flow as we saw several customers somehow pay before Christmas. I will say it's very unusual, but they ended up payment before Christmas. We noted last quarter that the receivables and the dynamics of working capital were very favorable. They reverted this quarter. So it's just temporary as some of those customers have paid early, and we expect that to revert next quarter. So just some interesting dynamics here as you start to follow some government payment time lines. But nothing fundamental. It's just really a timing issue.

Operator: I'll now turn the call back over to Daniel Ramot for closing remarks.

Daniel Ramot: Well, thanks, everybody, for joining the call. We really appreciate it, and look forward to the next call, next quarter. Thank you.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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