On Tuesday, Via Transportation (NYSE:VIA) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Via Transportation Inc reported a 29% year-over-year revenue growth in Q1 2026, reaching $127 million and achieving a milestone of over half a billion dollars in run rate revenue.
The company expanded its customer base to 838, marking a 23% increase, while continuing progress towards profitability with an adjusted EBITDA margin of -4.6%.
Via Transportation Inc highlighted significant growth potential in its $82 billion serviceable addressable market, with less than 2% penetration, and emphasized its unique AI-powered platform.
The company secured four new network deals in 2026, totaling over $40 million in annual contract value, and expressed confidence in future network opportunities.
Via Transportation Inc raised its full-year 2026 revenue guidance to $547-$550 million, representing 26-26.6% growth, and reiterated its goal of achieving positive adjusted EBITDA by Q4 2026.
Strong growth was noted in the UK market, with revenue up 68% year-over-year, while challenges persisted in Germany due to budget constraints.
The company is actively exploring AI and autonomous vehicle opportunities, with partnerships such as those with Waymo and BEAP, and launched Via AI Labs to address civic challenges.
Management expressed confidence in overcoming current headwinds in Germany and emphasized the strategic importance of integrated transit solutions.
Full Transcript
Kate (Operator)
Thank you for standing by. My name is Kate and I will be your conference operator today. At this time I would like to welcome everyone to the Via Transportation Inc Q1 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star followed by the number one on your telephone keypad. If you would like to requeue your question, press Star one again. Thank you. We will now start the presentation. Journeys for everybody. Homes for everybody. Jobs for everybody.
Gabby McCaig (Chief Corporate Communications Officer and Head of Investor Relations)
Good morning and welcome everyone to Via's first quarter 2026 earnings call. I'm Gabby McCaig, Via's chief corporate communications Officer and Head of Investor Relations. With me today are Daniel Remote, Via Transportation Inc's co founder and CEO and Clara Fain, Via Transportation Inc'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 and 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 [email protected] 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
Daniel Remote (Co-founder and CEO)
over to DanIel Thanks Gabby and thank you everyone for joInIng us today. We're delIghted to report another outstandIng quarter for VIa TransportatIon Inc 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 half a bIllIon dollars 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 contInued to make sIgnIfIcant strIdes towards our profItabIlIty target wIth adjusted EBITDA margIn of -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 serviceable addressable market (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 provIdes 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 on the market, enablIng customers to seamlessly plan, schedule, operate and optImIze theIr system across transIt modes wIthIn our platform. MIcrotransIt remaIns VIa TransportatIon Inc'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 US 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 TransportatIon Inc 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 paratransIt system and redesIgned the bus network In close collaboratIon wIth the cIty and the communIty. ThIs transformatIon produced outstandIng results, reversIng a multI year trend of rIsIng operatIng costs and declInIng rIdershIp, drIvIng rIdershIp growth of close to 40%. BuIldIng on our outstandIng results In SIoux Falls, we were able to secure two addItIonal network wIns In the second half of last year and so far In 2026, we've already been awarded four 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 three 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 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 autonomous vehicles (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 BEAP 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 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 total addressable market (TAM) beyond transIt. Lastly, before I hand It over to Clara, I would be remIss not to mentIon our podcast Mode ShIft. Mode ShIft Is a thought provokIng, fast paced conversatIon led by Andre GrIndelwald, our ChIef PolIcy OffIcer, about mobIlIty hIstory, polIcy and technology. If you aren't already lIstenIng to ModeshIft, It's a go to for anyone Interested In transportatIon recently reachIng as hIgh as number two In the Government category on Apple's podcast chart. Season two 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 (Chief Financial Officer)
Thank you Daniel. I'm happy to report that Q1 was another very strong quarter for revenue and profitability, with demand for Via Transportation Inc's platform reaching a record high. We exceeded half a 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 leaped 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 four, 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 UK where revenue was up 68% year over year. At the same time, we continued 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 General and Administrative (G&A) which was consistent year over year. Our General and Administrative (G&A) expenses were driven by public company costs and increase insurance costs from higher premium and claims expenses in the quarter as we continue to scale the business. Finally, Research and Development (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 Research and Development (R&D) center and currently stands at a 30 year high versus the US dollar. The strength of the shekel had about $2 million of negative impact to adjusted Research and Development (R&D) expenses when compared to Q1 2025. We wrapped up Q1 2026 with negative 4.6% adjusted EBITDA margin compared to minus 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 and $134 million representing 23.7 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 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 trend 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 launched 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 and $550 million, representing 26 to 26.6% year over year growth. We are reiterating our adjusted EBITDA guidance at negative 12.5 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
At this time I would like to remind everyone in order to ask a question, press Star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q and A roster. Your first question comes from the line of Adam Hotchkiss with Goldman Sachs. Your line is open.
Adam Hotchkiss (Equity Analyst)
Great. Thanks so much for taking the question. Daniel. 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 reference ability starting to actually catalyze incremental Request for Proposal (RFP) activity. I'm thinking as you launch some of these autonomous vehicle (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 Request for Proposal (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? Thanks so much. Thanks so much. I would say it's a great question regarding the effect of the flywheel states and how they're impacting our feeds 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, you know, somewhat higher, which is, which is very encouraging. And we are seeing increased activity for, you know, for via in those states. If we look at the, at our pipeline, across our pipeline, we are seeing that, you know, 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 are, you know, 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 five mill states where we're getting the reference ability, where our offerings 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. Okay, great. Thanks for taking the question, Daniel. Thank you.
Operator
Your next question comes from the line of Josh Baer with Morgan Stanley. Your line is open.
Josh Baer (Equity Analyst)
Great, thanks for the question. I wanted to ask one on the via artificial intelligence (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 artificial intelligence (AI) labs and what we should expect from a monetization perspective over time. Hey Josh, thanks for the question. For artificial intelligence (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. You know, I just want to remind everybody that our customers, there's a whole range, there's some that are incredibly sophisticated with artificial intelligence (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, you know, they're not your typical Silicon Valley company that's sort of knee deep in artificial intelligence (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, you know, often not very easy to access data into one place that they can look at together in a, in a very organized fashion can be incredibly helpful and frankly transformative. So, you know, 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 artificial intelligence (AI) would actually be very hard to do just the way that the data set up. What we're finding is with artificial intelligence (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 if you need to go out and fix potholes. Just the ability to schedule that in a limited resource, schedule that in a more useful way. Just bringing data together from different sources, whether you know, they have in law enforcement, 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 caseloads 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 (Chief Financial Officer)
Thanks Josh. From a gross margin perspective, we expect these initiatives to be accretive to overall gross margin. We're adopting the front end engine 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 targets.
Josh Baer (Equity Analyst)
Excellent. Thank you both. Thank you.
Operator
Your next question comes from the line of Michael Turin with Wells Fargo. Your line is open.
Michael Turin (Equity Analyst)
Hey, great. Thanks very much. Appreciate you taking the question. This is a two parter up front for me. Daniel. The network win commentary stood out throughout your remarks. I think you mentioned four win is 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. Thank you. Thanks, Michael. Yeah, 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 a, you know, this is, we believe, also tied to VIA going public and the higher profile that we have, you know, more credibility in the market and just the general growth. The 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 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 adopting these solutions where before they were procuring these in a silo software potentially separate from operations serving, you know, 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 a different category. They're relatively new for us. We are trying to be very focused and 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, you know, 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. You know, the last few months have been very encouraging. So I don't, you know, 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. 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 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 (Chief Financial Officer)
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 one time revenue which drove slightly higher gross margin for the quarter. This year in Q1, one time revenues by 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.
Michael Turin (Equity Analyst)
Thanks very much.
Operator
Your next question comes from the line of Patrick Willravens with Citizens Share Alliance.
Patrick Willravens (Equity Analyst)
Oh, great. Thank you, Clara. I guess a couple for you. So how much did Downtowner contribute this quarter?
Clara Fain (Chief Financial Officer)
Hey Pat, 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. A perspective is that the material contribution from downtown is the number of customers. That's what we believe and we're very pleased with that. So we've added 94 customers from downtown and already starting to see some cross sells there.
Patrick Willravens (Equity Analyst)
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 (Chief Financial Officer)
No, Pat, I really appreciate your question and I'm trying to answer it. You know, 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. You know, 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 at a. We shared this quarter that we have about 650 million of pipeline opportunity, which is, you know, a very strong increase year over year and at the highest we've ever seen our pipelines. So I believe that our potential for organic growth is very strong and has not slowed down at all.
Pat
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? Yeah, Pat, I 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 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 talked a lot on this call and in the past about the importance for us of deploying the entire platform. You know, in the US we started, obviously, microtransit, then added pair transit. 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 there 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. And we're not seeing that in the uk obviously, the US We've talked about Canada. The dynamics are. Are much more moving towards integration. And for us, an opportunity to deploy our whole platform. That then coupled with just the headwinds, or macro headwinds, if you will, around funding that exist in Germany, across the entire country, combine 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 that the strength of our product and our solution will allow us to move beyond that and, you know, 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. Okay, great. Thank you for all that perspective. Thanks, Beth.
Brad Zelnick (Equity Analyst)
Your next question comes from the line of Brad Zelnick with Deutsche Bank. Your line is open.
Daniel Remote (Co-founder and CEO)
Great. Thank you so much for taking the question. And 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? Yeah, Brad, thanks. I don't know that churn or lower growth, one or the other in Germany. 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. We see that market's probably staying fairly stable as far as revenue for a while. That's about where it's been. I believe we had 3% growth. So just relative to our 29% growth overall, 36 in the US 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, funny to say, and we saw it 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 uk 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 has the 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. Thank you for that Daniel. 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? Thanks.
Clara Fain (Chief Financial Officer)
Thanks Brad. Yeah, we're facing some large volatility and some of the elements here with the macro, that challenging macro, we have some exposure to fuel. Fuel is about 3 million a quarter of spend in our cogs that can include 2 or 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 unmaterial, but some impact to gross margins. We continue to see higher costs coming through Q2 and are expecting some, some impact there which, which we factored into into our guidance. We do have contractual mechanism to pass through some of these increases to our customers and we are working on this pass through 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.
Brad Zelnick (Equity Analyst)
Thanks Clara and thanks again for taking the questions.
Operator
Your next question comes from the line of John Deputy with Guggenheim Securities. Your line is open.
John Deputy
Thank you. 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 in the annual guide raised by just a little bit more than the beat. But the second quarter revenue guidance was just below the streets numbers and given typical seasonality for 3Q being, you know, 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, 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 (Chief Financial Officer)
Thanks, John. And you know, 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 two factors drive the Q2 results. One is, I think we've discussed in the past 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, but they're launching later in the year. And that's driving some of our Q2 results. 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 onto 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 direct 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'd be some seasonality in Q3. It will be more than offset by the launches.
John Deputy
Great. That's really helpful. Thank you, Clara and Daniel. Clara talked about R and 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 and 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 and D, especially as it, I guess, pertains to new things like AVs and AI labs. Yeah, John, thanks. I think you're seeing exactly right. We are seeing some really promising and frankly exciting leverage on R and 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 it's 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 100 customers, of course, to provide to each of them. All of you 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. 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's great, Great to hear and nice job, guys. Thank you. Thanks so much.
Operator
Your next question comes from the line of Scottberg with Didha Mint company. Your line is open.
Ian Blackgown
Hi, this is Ian Blackgown for Scottsburg. With the elevated oil prices, are you seeing any impact on end customer demand?
Clara Fain (Chief Financial Officer)
Yeah, that's a really good question actually. And you're right that you're right to point it out. There's several layers of the commodity price impact. The first one is obviously we just discussed in our cost structure, but the second one is that we are starting to see signs that actually 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.
Daniel Remote (Co-founder and CEO)
And customers, 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 become, especially in the US 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. And then a lot of your microtransing 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? That's a good question. I think there is probably you may end up seeing less of customers going from call it a million dollars 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. But you know, 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, you know, these are related but different departments oftentimes so the cross sell is not as straightforward. So I think when we actually those are coming, you know, the example thinking of 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 school's win. So you know, 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, you know, from a small micron deal to an entire chain. That makes sense.
Clara Fain (Chief Financial Officer)
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. You know, I believe expand expands the time.
Ian Blackgown
Awesome. Thank you so much.
Brian Schwartz (Equity Analyst)
Your next question comes from the line of Brian Schwartz with Oppenheimer. Your line is open.
Daniel Remote (Co-founder and CEO)
Yeah. Hi. Thank you for taking my questions this morning. 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 timelines or the approval processes versus what you've seen in the recent past? Brian, we haven't seen much of a change in our overall sort of sales cycle timeline that has remained as it has throughout this period on average. So it is average, fairly constant. It is something we're watching carefully to try to understand if these larger opportunities, do they take longer? Is the decision, if so, which part could take longer again, on average? 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 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 the whole on the government side, especially in the US there's not much of a change from the last few years that we're seeing. So dynamics continue to be fairly similar other than what I described earlier, which is we are really starting to shape the ERFPs 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 I said earlier, but from a kind of government macro perspective, we haven't seen any major change. Thank you. And then my follow up question for Clara. Just wanted to ask you about the timeline 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 timeline standpoint, when should we expect those efficiencies to start to play off and have a positive impact to the gross margin? Thanks,
Clara Fain (Chief Financial Officer)
thanks, Brian, and thanks for the question. Some of the, there's several layers of your question. I think some of the internal efficiencies that we're seeing with AI are going to continue to help drive the operating leverage that we're seeing. And we commented earlier on the R and D line, so you can see some of that, some of that there already. And we expect to continue to deliver and we've been delivering despite, you know, a very strong shackle which had about $2 million of year over year impact and kind of $2 million for the year at this point. So it kind of gives you a sense for the level of, of efficiency that, that we're, 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 timeline 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, you know, hopefully we get a little bit, you know, by the end of the year and then, and then some next year. But that's kind of the type of timeline we're looking, we're looking at. And you know, we'll share more as we have more visibility into this.
Brian Schwartz (Equity Analyst)
Okay, thanks for taking my questions.
Clara Fain (Chief Financial Officer)
Thanks. Brian.
Operator
Your next question comes from the line of Bryan Peterson with Raymond James. Your line is open.
Bryan Peterson (Equity Analyst)
Thanks for taking the question, Daniel. Maybe one for you. You've mentioned a couple 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. We just love to understand that a bit. Yeah, thanks. This is 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 beach, is that's an opportunity where we are going to deploy the AVs as fixed route shuttles. Essentially. It's 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 two 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 Chandler, 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, you know, the right price, frankly, because right now obviously they're very expensive and how quickly that will develop. So our views, 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, you know, and kind of being part of that cutting edge, or because they're thinking about, okay, the economics, as the price of these AVs 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 two core reasons. Thanks. Thanks.
Jonathan Ho (Equity Analyst)
Your next question comes from the line of Jonathan Ho with William Blair. Your line is open.
Daniel Remote (Co-founder and CEO)
Hi, good morning. I just wanted to understand, first of all, like, what helped drive some of the strong growth in the uk, and do you expect that to sort of persist over time as well? Thanks, Jonathan. I could take that one. UK Dynamics, as we mentioned, are very favorable. I'd say there are probably two 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. The adoption of microtransit, I think you saw the video at the beginning of earnings, all from the uk. 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 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 their. So there's a whole dynamic in the UK that I won't get into that's been around you 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. 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 uk. 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? Thank you very much. Thanks, Jonathan. Funding is a very important topic and kind of Very diverse. So as we talked about funding in Germany, I won't belabor, in the US across the federal government, what we're seeing is that funding is pretty consistent. If anything, the sorts of funds that are going into our services, we're typically purchase 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, you know, 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, you know, that's something that the government will consider in some of the new funding bills. 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 we talked about the fuel prices, but there are other dynamics that are, I think, putting real pressure on Americans, on your 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. A recent study from MIT showed for every dollar invested in Chicago and public transit, there's an $11 return in economic activity. So I think that understanding, you know, our sense is that the local level, the state level is starting to grow. And, you know, of course we're encouraging that and we think that that's a potential positive as we look forward. Thank you.
Alex Zukin (Equity Analyst)
Your next question comes from the line of Alex Zukin with Wolf Research. Your line is open.
Clara Fain (Chief Financial Officer)
Hey, guys, thanks for asking. Taking the time to ask the question, or take the question, rather. 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.
Alex Zukin (Equity Analyst)
Thanks, Alex. Last of all, I really appreciate your question on the fx. I'll start with that. On the fx, we are seeing about you know, quarter to quarter, half a million dollars. So if you analyze that $2 million, that's at the Q1 rate. And there's some 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 those are the same 2 million, but they cumulate. 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. Overall there is some impact to revenue and to gross profit from what we're seeing from the headwinds in Germany. Also 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 work that the team has done there and it supports our strategy of continuing to diversify revenue and get just diversified geographical exposure as we continue to grow the business.
Clara Fain (Chief Financial Officer)
Got it. And maybe just one more. Clara, what drove receivables up sequentially?
Alex Zukin (Equity Analyst)
Oh, thanks, Alex. So on receivables last quarter, if you remember, we had close to break even operating cash flow as we saw several customers somehow pay before Christmas. I will say that's very unusual. But they ended up, you know, submitting payment before Christmas. We, 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 the government payment timeline. I mean, nothing fundamental, it's just really a timing issue.
Operator
Perfect. Thank you.
Daniel Remote (Co-founder and CEO)
I'll now turn the call back over to Daniel Ramit for closing remarks. Well, thanks everybody for joining the call. We really appreciate it and look forward to the next call.
Operator
Thank you.
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