Verra Mobility(VRRM) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Third quarter revenues reached $109 million, an 11% increase year-over-year, with adjusted EBITDA of$ 105 million, reflecting an 8% increase compared to the previous year [6][33] - Net income for the quarter was $35 million, with GAAP EPS at$ 0.21, up from $0.18 in the prior year, and adjusted EPS at$ 0.32, a 10% increase from $0.29 [34][33] - Free cash flow for the quarter was a record$ 85 million, contributing to a trailing twelve-month adjusted free cash flow of $172 million, representing a 44% conversion of adjusted EBITDA [24][36] Business Line Data and Key Metrics Changes - Commercial Services segment revenue grew 11% year-over-year, driven by a 6% increase in RAC tolling revenue and a 9% increase in Fleet Management revenue [6][37] - Government Solutions Service revenue, which constitutes 95% of total revenue, increased by 7% year-over-year, with a notable 12% growth outside of New York City [8][39] - T2 Systems generated approximately$ 21 million in revenue, slightly below expectations, with a segment profit of $4 million [19][41] Market Data and Key Metrics Changes - TSA passenger volumes for the year-to-date stood at about 106% of 2023 levels, indicating strong consumer and business travel demand, although a deceleration was noted in September and October due to hurricanes [4][5] - The demand for automated photo enforcement is at an all-time high, with contract awards in the third quarter representing about$ 22 million in incremental annual recurring revenue [10][9] Company Strategy and Development Direction - The company is focused on stabilizing the T2 Parking business and rejuvenating its growth trajectory while continuing to generate robust free cash flow for capital allocation [3][24] - The long-term outlook remains intact, with anticipated revenue growth at the low end of the 6% to 8% long-term guidance for 2025, driven by travel demand and backlog conversion in Government Solutions [25][52] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in travel demand remaining solid, despite a slight deceleration, and highlighted a strong bid pipeline for automated enforcement [27][25] - The company anticipates that the financial infrastructure investments and TAM execution costs will impact margins in 2025, but expects to maintain a low 30% margin profile in the Government Solutions business [54][93] Other Important Information - The company has approximately $50 million remaining under its existing share buyback authorization and is actively evaluating M&A opportunities [24][58] - A successful repricing of the$ 700 million term loan B was completed, resulting in a 50 basis point reduction in the coupon rate, yielding significant cash savings [46][45] Q&A Session Summary Question: Update on New York City RFP and competitive advantages - Management highlighted confidence in their technology and support capabilities, with the RFP response expected in Q2 of next year [61][62] Question: 2025 growth cadence and Government Solutions outlook - Management indicated that Government Solutions is expected to see sequential growth in the back half of 2025, with flat revenue from New York City [66][64] Question: Growth expectations for different business segments - Management expects Commercial Services to grow at the lower end of the long-term guide, while Government Solutions may exceed that due to strong bookings [68][69] Question: Installation costs and margin mix for new contracts - Management noted that installation costs will precede revenue, but they expect to maintain margins similar to previous years [90][92] Question: Impact of Florida toll disruptions due to hurricanes - Management estimated a headwind of $1 million to$ 2 million from the disruptions [104] Question: Importance of international business - Management emphasized the significance of international markets, particularly in Government Solutions, with ongoing growth in Australia and Europe [105][107]