VERRA MOBILITY Corp Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Overall Performance: Delivered solid fourth quarter with consolidated revenue growth of 5%, adjusted EBITDA increased 12%, and adjusted EPS increased 38% year-over-year. Fourth quarter free cash flow was $22 million, and $150 million was invested in share repurchases.
• Commercial Services: RAC tolling grew 3% year-over-year, FMC revenue grew 5%, but was negatively impacted by a $3 million prior period adjustment. Government Solutions service revenue grew 5%, with revenue outside New York City up 9%, and segment profit grew 44%.
• T2 Parking Solutions: Total revenue declined 13% for the quarter, with segment profit at $3 million. Plans for operational improvements, with 2025 expected to be flat revenue relative to 2024 and 2026 aiming for growth after stabilization.
• Trends: Travel demand saw 2024 TSA passenger volume up 5%, with resilient expectations for 2025. Government Solutions benefited from 30 bills authorizing automated enforcement, adding market opportunity. T2 Parking Solutions market for SaaS-enabled parking solutions is strong, with new leadership and sales pipeline development.

Segment Performance

• Commercial Services: Fourth quarter revenue and segment profit increased about 4% year-over-year. RAC tolling (including a $3 million prior period adjustment) grew 3% year-over-year, and FMC revenue grew 5%. Full-year 2024 Commercial Services revenue was $408 million, a 9% increase, with segment profit of $268 million and a margin of approximately 66%.
• Government Solutions: Service revenue increased 5% year-over-year. Revenue from New York City, the largest customer, was essentially flat, while service revenue outside New York City grew 9%. Full-year 2024 Government Solutions total revenue was $391 million, a 9% increase, with segment profit of $122 million, a 6% increase over the prior year.
• T2 Parking Solutions: Total revenue declined about 13% for the quarter, with segment profit at $3 million. Full-year 2024 revenue was $81 million, a 6% decline.

Guidance

• 2025 Outlook: Total revenue expected in the range of $925 million to $935 million, representing ~6% growth. Adjusted EBITDA expected in the range of $410 million to $420 million, with an adjusted EBITDA margin of ~45%. Adjusted EPS expected in the range of $1.30 to $1.35 per share. Free cash flow expected in the range of $175 million to $185 million. CapEx expected at ~$90 million, with net leverage expected to reduce to ~2x by year-end 2025.
• Segment-Specific: Commercial Services expects high single-digit revenue growth driven by travel demand and product adoption. Government Solutions expects mid-single-digit total revenue growth, with New York City revenue flat and other regions growing low double digits. T2 Parking Solutions expected to be flat with 2024 levels, with SaaS revenue growing low to mid-single digits.

Risks

• Travel Volatility: Winter storms and California wildfires may impact 2025 comparable travel volume.
• RFP Uncertainty: Uncertainty in outcomes of RFPs for government solutions, such as NYC RFP.
• Parking Execution: Operational execution risks in the T2 Parking Solutions business.
• M&A Competition: Competitive M&A market may affect capital allocation for share repurchases.

Question and Answer

• Q: About the quarterly cadence and travel trends for Commercial Services A: Craig explained the expected sequential revenue pacing by quarter for Commercial Services in 2025, with first quarter down sequentially, second quarter up low double digits, third quarter up high single digits, and fourth quarter down high single digits.
• Q: RFP status for other California cities and NYC RFP outcome timing A: David stated San Jose RFP has been responded to, others like Oakland, L.A., etc., expected in 3-6 months; NYC RFP outcome expected in Q2.
• Q: Confidence in Parking Solutions business turnaround A: David mentioned market growth, M&A activity, and new leadership bringing sales pipeline development as reasons for confidence.
• Q: International cashless adoption trends A: David noted some European countries like France and Italy have toll roads going cashless, and renewals of customers in Spain and Portugal.
• Q: Market confidence in Government Solutions' speed camera pipeline A: Craig stated the pipeline remains strong, with low double-digit service revenue growth expected outside New York City requiring continued bookings.