Verra Mobility Corporation

Good afternoon ladies and gentlemen and welcome to the VERA Mobility first quarter 2023 earnings conference call. At this time, all lines are in a lesson only mode. Following the presentation, we'll conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, May 4th, 2023. I will now turn the conference over to Mark Sindler, Vice President, Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to VeriMobility's first quarter 2023 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, May 4, 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 risk and other important factors that could affect our actual results, please refer to those contained in our 2022 annual report on Form 10-K, which is 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.barrelmobility.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 for everyone for joining the call today. For today's call, I'll start with an overview of our excellent first quarter results and provide an update on key business drivers. I'll move on to a discussion of the industry trends that are driving our results and influencing our future views of the business. And I'll close with a recap of our strategic priorities across each of our business segments and share a summary tracking our progress. We delivered exceptional first quarter results highlighted by strong revenue and adjusted EBITDA and solid free cash flow generation. We delivered $192 million of revenue in the first quarter, representing 13% growth over the prior year quarter. This was primarily driven by strong tolling trends in commercial services and increased recurring service revenue in government solutions. Adjusted EBITDA of $88 million for the first quarter increased 17% over the prior year and was driven by volume-based operating leverage in both commercial services and government solutions. As a note, we had a catch-up entry in government solutions that benefited revenue and adjusted EBITDA by about $2 million. Craig will provide the details in his remarks. Starting with commercial services, I'll provide an overview of the first quarter performance for each of our segments. The CS team again delivered strong performance. Revenue of approximately $86 million for the quarter represented a 17% increase over the same period last year. The primary factor driving this performance was increased volume. TSA throughput reached 100% of pre-pandemic 2019 volume, driving an increase in adopted rental agreements. We're also experiencing strong adoption rates from renters for our all-inclusive tolling product offering. I'm pleased to announce that we recently entered into a partnership with Telepass for rental car tolling in Italy. This partnership effectively allows Vero Mobility to offer our toll management solutions in Italy for our rental car partners and allows for interoperability across Italy, Spain, France, and Portugal by utilizing Telepass's integrations with the tolling authorities in Italy and existing integrations in the other markets. While we do not anticipate current year revenue from the partnership, this is another important milestone in building our European tolling business. Moving to our government solutions business, we generated total revenue of $86 million, with $83 million being recurring service revenue. Service revenue increased 14% over the first quarter of last year, driven by the transition from product sales to recurring service revenue. Government solutions margins were about 37% in the first quarter and up about 430 basis points over the prior year quarter, primarily due to increased annual recurring revenue that I mentioned. T2 Systems delivered revenue of $20 million, representing growth of about 12% over the prior year quarter, and adjusted EBITDA of $3 million, all of which were directly in line with our expectations. SAS services and hardware sales were all in line with expectations, with the latter benefiting from a push of several sales from the fourth quarter due to customer request and installation timing. With regard to first quarter sales activity in T2, we had a strong booking for a large tier one university in the mid-Atlantic region to extend their T2 solutions to include our parking access and control systems. On the municipal side, Ashland, Kentucky was a great example of a multiple solution sale that included our permits and enforcement software, T2 pay stations, mobile pay, license plate recognition technology, and citation and collection services. Turning to the macro perspective, I'm very pleased with the demand outlook across all of our segments. Despite market sentiment that a U.S. recession remains quite possible, we have not seen any evidence that travel demand is waning. The major U.S. airlines are all reporting strong bookings through the second quarter, and the outlook from our rental car partners remains strong as well. In fact, while leisure travel appears to have returned to pre-COVID levels, there is still more opportunity for business travel. According to a recent survey by Deloitte, Corporate travel spend in the U.S. and Europe is projected to be about 60% of 2019 levels in the first half of 2023 and rise to about 70% by the end of the year. The report projects full recovery of business travel by late 2024 or early 2025. A second macro trend is the continued push for safer roads and communities, which drives the need for investments in automated safety enforcement. The latest national highway traffic safety data from earlier this year estimated just a 0.2% decrease in U.S. traffic fatalities in 2022, so there's still much work to do to address this trend. In addition, U.S. traffic volumes are increasing. According to the Federal Highway Administration, U.S. travel on all roads and streets increased by 2%, which equates to 4.5 billion additional vehicle miles for February 2023, as compared with the same month last year. The need for road safety technology remains strong as evidenced by recent legislative activity in the states of Florida, Colorado, and Washington, which I'll address later in my remarks. Lastly, we provided our top three strategic priorities for each business during our fourth quarter call. On slide five of our earnings overview presentation, you'll see a summary of each of these, on each of these priorities. While several are ongoing and difficult to quantify on a quarterly basis, we're tracking well against each of our priorities, and I'll hit a few highlights here. In commercial services, we are earnestly working toward renewing our agreement with Enterprise. Regarding adjacent expansion opportunities, we continue to execute well in the fleet management space with FMC revenue growing 13% over the same period last year. We ultimately see FMC growing to a comparable growth rate with the overall commercial services business. In government solutions, we're seeing positive momentum on photo enforcement legislation in several states, including Florida, Colorado, and Washington, with the state of Washington recently signed into law. Florida is evaluating school zone speed, and Colorado is looking at both expanding current programs and authorizing new photo enforcement use cases. All of these states represent attractive opportunities for future growth and will keep the market apprised as new details emerge. In addition, the investments we're making in our software platform and related projects are tracking toward our plan from both the timing and budget perspective. We expect to complete these initiatives in the second quarter of 2024, no change from our initial expectations. And finally, in T2 Systems, all priorities remain on track. Our bookings and our core business are in line with our annual plan, and we expect continued growth in the municipal market in the second half of the year. In summary, our operating results and trends are all positive. Business fundamentals are durable, and our outlook has not changed and remains very positive. Craig, I'll turn it over to you to guide us through the financial results and the current year outlook.