Verra Mobility Corporation

Good afternoon, ladies and gentlemen, and welcome to VERA Mobility's fourth quarter 2022 earnings conference call. My name is Julie, and I will be your conference operator today. This call is being recorded. I would like to turn the presentation over now to your host for today's call, Mark Zindler, Vice President of Investor Relations for VERA Mobility. Please go ahead, Mr. Zindler.

Thank you. Good afternoon and welcome to VeriMobility's fourth quarter 2022 earnings call. Today we'll be discussing the results announced in our press release issued after the market closed. With me on the call are David Roberts, VeriMobility's chief executive officer, and Craig Conte, our chief financial officer. David will begin with prepared remarks, followed by Craig, and then we'll open up the call for Q&A. During the call, we'll make statements related to our business that may be considered forward-looking, including statements concerning our expected future business and financial performance, our plans to execute on our growth strategy, the benefits of our strategic acquisitions, our ability to maintain existing and acquire new customers, expectations regarding key operational metrics, and other statements regarding our plans and prospects. Forward-looking statements may often be identified with words such as we expect, we anticipate, or upcoming. These statements reflect our view only as of today, March 1, 2023, and should not be considered our views as of any subsequent date. We undertake no obligation to update or revise any forward-looking statements. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our annual report on Form 10-K and our Form 10-Qs filed during 2022, which are available on the investor relations section of our website at ir.veramobility.com and on the SEC's website at sec.gov. Finally, during today's call, we'll refer to certain non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measure is included in our earnings release, which can be found on our website at ir.veramobility.com and on the SEC's website at sec.gov. With that, I'll turn the call over to David.

Thank you, Mark, and thanks, everyone, for joining us today. For today's call, I'm going to first provide a high-level discussion on our outstanding fourth quarter results and key drivers. I'll move on to a discussion of several key trends that are shaping the smart mobility market, foreclosing with our strategic priorities that will influence our 2023 operating plan, and build upon the foundation for the long-term outlook we outline at our investor day in July 2022. We delivered fantastic fourth quarter results highlighted by robust revenue and adjusted EBITDA generation and strong free cash flow. Fourth quarter revenue of $186 million exceeded our expectations and was primarily driven by strong tolling trends in our commercial services segment. Adjusted EBITDA of $84 million for the fourth quarter also exceeded our forecast, driven by volume-based operating leverage in both commercial services and government solutions. Our strong results are aligned with two macro trends across our operating segments. First, we're seeing continued strong travel demand by both consumers and businesses, particularly in the U.S. The major U.S. airlines have cited strong or significant bookings in their recent quarterly earnings announcements. The second macro trend is the continued push for safer roads and communities, which drives the need for investments in automated safety enforcement. Traffic fatalities in the U.S. reached a 16-year high in 2021, and while early estimates are showing a very slight improvement in 2022, these numbers are simply unacceptable. Transportation officials, elected officials, and safety advocates will be looking for technology solutions that can save lives and make transportation more efficient for everyone. Starting with commercial services, the team, again, delivered strong performance. Revenue of approximately 82 million for the quarter represented a 14% increase over the same period last year. And compared to pre-pandemic levels, we achieved 20% growth over the fourth quarter of 2019. There were several factors driving this performance. First, TSA throughput continued to approach pre-pandemic volume, reaching 94% 2019 levels for the fourth quarter. In addition, key performance indicators included adopted rental agreements and rental duration experience growth over the same period last year. Lastly, the secular trends underpinning these business drivers continued conversion to cashless tolling, rack reflating, and new toll roads continue to positively impact our business. Cashless tolling reached 64% this past year, and six new U.S. toll roads were implemented in 2022 as well. In addition, Florida and Georgia recently announced significant investment plans to expand toll lanes over the next 3 to 5 years. Moving to our government solutions business, we generated total revenue of $85 million, with $82 million being recurring service revenue. Service revenue increased 19% over the fourth quarter of the last year, driven by the completion of the New York City school zone speed installation. Government solutions margins were about 36% in the fourth quarter, basically flat with the prior year. T2 Systems delivered revenue of $20 million with adjusted EBITDA of $4 million for the full year, revenue of $79 million, and adjusted EBITDA of $14 million. Full year revenue growth was about 11%, which was slightly below our expectations. SaaS and service revenues were in line, however, hardware sales were slightly below expectations for both the fourth quarter and the full year due to customer requested installation timing. Craig will further elaborate, including the actions being taken in his prepared remarks. In summary, the fourth quarter was another outstanding quarter of top line growth, strong adjusted EBITDA and free cash flow generation. The secular trends driving our performance are durable, and we continue to experience strong operating momentum in each of our business segments. Turning to the balance sheet and capital allocation, I'm pleased to report that we lowered net leverage a full turn over the course of 2022, ending the year at 3.3 times adjusted EBITDA. In addition, we repurchased 125 million of our shares over the course of 2022. And in November, as we previously reported, our board of directors authorized a new share repurchase plan of $100 million. Furthermore, we also remediated all material weaknesses reported in our 2021 Form 10-K. This is a significant accomplishment by the entire organization. Thank you to all the employees that drove this change and implementation of our new controls and processes. Compliance is critical to our company, our customers, and our shareholders, and we take it very seriously across the organization. Overall, 2022 was a record year in Bear Mobility's history, setting new all-time highs in revenue, adjusted EBITDA, adjusted EPS, and free cash flows. We entered 2023 with significant business momentum in each of our segments underpinned by strong secular trends. Travel demands remain strong and durable. TSA throughput in the first quarter of 2023 is currently exceeding 2019 levels, and forward-looking travel demand as communicated by major U.S. airlines remains strong. Second, we continue to experience a shift in cashless tolling across the U.S. in an effort to improve efficiencies and reduce congestion. For example, in the second half of 2022, both the Lincoln Tunnel and George Washington Bridge transitioned completely to cashless tolling. With that, all bridge or tunnel crossings into New York City have eliminated toll booths for payments. We expect the automated payments trend to continue on more toll roads across the country. Third, we expect to see cities place a renewed focus on Vision Zero safety programs, which includes investments in automated enforcement to reverse a troubling trend of traffic-related fatalities. And lastly, over the longer term, We expect to see cities make efforts to improve urban mobility in their communities through investments in curb management solutions and automated bus lane enforcement, which our parking and government platforms are well positioned to serve. With that as a background, I will turn to our top strategic priorities in 2023. Over the past year, we have implemented what we call the Vero Mobility Operating System, or VMOS. It's a robust standard business system that drives growth, efficiency, and talent development. At the heart of BMOS are three strategic pillars, drive core business outcomes, build the VeriMobility of the future, and create an engaging and fulfilling workplace. As you'll see on slide six, in 2023, we have established key objectives for each of these three pillars, focusing on financial execution of the 2023 annual plan, furthering our position in core markets, pursuit of accretive expansion of opportunities, accelerating our portfolio model adoption, and making VeriMobility a best place to work. Through execution of our three strategic pillars, we are poised to deliver superior long-term value creation for all stakeholders. Next, I'll drill down a layer and focus on key priorities for each of our business segments, as described in more detail on slide seven, eight, and nine. In commercial services, where we benefit from strong secular tailwinds, including increased adoption of cashless tolling, new toll roads, and rack refleeting, we are focused on growing the core while simultaneously capitalizing on numerous expansion opportunities. Our top priorities are renewing our agreement with enterprise, adjacent expansion opportunities primarily focused on fleet management expansion and European growth, and laying the foundation to capitalize on next generation connected fleet opportunities. In government solutions, where we benefit from a strong and growing interest in automated enforcement for road safety and improved traffic flow, our top priorities are opening new cities and states through enabling legislation, continued investments in our industry-leading software platform, and pursuing emerging opportunities across urban mobility through strategic M&A and partnerships. And finally, in T2 systems, where we have significant runway for continued growth and profitability in the university segment, as well as our focused efforts to penetrate the municipality segment, our focus is on the following priorities. Pursuit of new logo business and increasing share of wallet with existing customers, expansion into mid and large scale municipalities, and investments in platforms to drive new revenue streams with dynamic pricing as an example. These are our top priorities as we execute our strategy in 2023, and I'm incredibly excited about the business. The fundamentals are strong and durable. We have the right management team in place and a proven operating model to create significant value. Before I turn things over to Craig, I want to close with a message about our July 22 investor day and the long-term outlook we provided. I'm pleased to report that the fundamentals we contemplated in our long-term outlook have not changed, and we remain upbeat about meeting or exceeding the financial forecast we provided. Craig will further elaborate in his prepared remarks. Craig, I'll turn it over to you to guide us through our financial results and 2023 guidance.