Verra Mobility Corporation

greetings and welcome to the VRO mobility third quarter 2023 earnings call at this time all participants are in a listen only mode a brief question and answer session will follow the formal presentation if anyone should require operator assistance during the conference please press star then zero on your telephone keypad as a reminder this conference is being recorded it is now my pleasure to introduce your host Mark Zindler Vice President of Investor Relations. Thank you. You may begin.

Thank you. Good afternoon and welcome to VeriMobility's third quarter 2023 earnings call. Today we'll be discussing the results announced in our press release issued after the market closed, along with our earnings presentation, which is available on the investor relations section of our website at ir.verimobility.com. 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. Management may make forward-looking statements during the call regarding future events, anticipated future trends, and the anticipated future performance of the company. We caution you that such statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual results may differ materially from those projected in the forward-looking statements due to a variety of factors. These factors are described in our SEC filings. Please refer to our earnings presentation, or excuse me, please refer to our earnings press release for Vero Mobility's complete forward-looking statement disclosure. We do not undertake any obligation to update forward-looking statements. 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. We delivered a strong third quarter highlighted by 11% year-over-year recurring service revenue growth. Moreover, we delivered adjusted EBITDA growth of 7% over last year and converted 53% of adjusted EBITDA to free cash flow for the quarter. Additionally, we are pleased to report we renewed the tolling contract with Enterprise Mobility for a three-year term with terms and conditions that are materially consistent with the prior agreement. Enterprise has been a terrific longtime partner, and we look forward to continued shared success in the future. I'm incredibly pleased to point out that we are 100% fully de-SPAC'd with all warrants now exercised and all earn-out shares issued. This comes as we celebrate our five-year anniversary as a publicly traded company, a significant milestone in our incredible journey to become a leader in smart mobility solutions. Additionally, we executed our previously authorized $100 million share repurchase program the details of which Craig will further elaborate in his remarks, and our Board of Directors has also authorized a new 18-month, $100 million share repurchase program. Lastly, we are again increasing our financial guidance due to our strong year-to-date performance and our outlook for the fourth quarter. Moving on to our operations and starting with commercial services, we delivered 14% to revenue growth driven in large part by an exceptionally strong summer travel season. Year to date TSA volume is about 101% of 2019 and about 113% of 2022 volume. RAC tolling revenue increased 18% over the prior year quarter due to increases in adopted rental agreements, the increased adoption of all inclusive pricing plans, a durable trend of longer rentals, and the secular tailwinds related to increased toll roads and cashless toll lanes. We believe the sentiment from the major airlines, hotel chains, and rental car companies suggest no signs of slowing domestic travel demand through the remainder of this year. And as we head into 2024, in the near to midterm, we believe sentiment and bookings suggest that domestic travel demand will see steady growth underpinned by an increase in business travel driven by return to office mandates and hybrid work schedules increasing weekend leisure travel. We continue to experience strong growth from the FMC business generating 20% over the same period last year. This was higher than our internal expectations driven by several factors. The expansion of our sales team and the purposeful intent and focus in this market area. Second, we are enhancing brand awareness outside of our core customer base and building new distribution channels. And lastly, we have capitalized on the near-term opportunity to market the value of our solutions to a customer base that historically performed these activities internally. On a go-forward basis, we expect the FMC business growth to moderate and to grow in line with the overall commercial services growth rate. The key factors influencing our conviction in the high single-digit growth rate low market penetration levels, particularly among small and medium-sized fleets, and the value-added tools we offer that reduce costs and improve the customer experience. Moving on to government solutions, recurring service revenue, which reflects 94% of the total revenue for the quarter, grew 10% over the same period last year. Government solutions sales growth is benefiting from the prior year completion of the New York City build-out, and the city's decision to transition to 24 by 7 monitoring, as well as program expansion with existing customers and new camera installations with new customers. As we look toward the future, we are anticipating significant growth in our government solutions TAM. We continue to experience a favorable legislative environment as states are increasingly turning toward enhanced automated enforcement to increase traffic safety for their citizens. In October, California signed into law legislation for a speed safety pilot program in six major cities, including Los Angeles, San Jose, Oakland, Glendale, Long Beach, and the city and county of San Francisco. We currently estimate the potential annual recurring revenue opportunity associated with this pilot program to be greater than $10 million per year. However, as the program demonstrates its efficacy, we anticipate that additional legislative authority may expand the scope of the speed program in future years. We estimate the total recurring revenue opportunity could be greater than $100 million annually within the next few years if legislation allows. Additionally, in Pennsylvania, we're seeing continued positive momentum for the automated enforcement. The legislation is seeking to enable new use cases, including school zone speed and school bus stop arm, as well as extend and expand existing use cases for work zone speed and highway speed enforcement. As we previously discussed, Florida passed school zone speed and school bus stop arm legislation in May, and we are actively monitoring how cities seek to operationalize the new legislation and subsequent RFP announcements. We continue to anticipate generating revenue from initial awards and deployments in the back half of 2024, and we'll provide more color when we provide 2024 guidance on our fourth quarter earnings call. I'm also pleased to report that we were awarded a contract with the City of Yonkers, New York, and the Yonkers Public School System, in which nearly 500 school buses will be equipped with our school bus stop-arm safety cameras. This is a great example of a purpose-built safety program that will protect our children in the spirit of Vision Zero. We see a continued demand nationwide for our solutions, and according to NHTSA, an estimated $19,500 people died in motor vehicle traffic crashes in the first half of this year, which represents a 3% decrease compared to over 20,000 fatalities in the first half of 2022. At the same time, people are driving more, and preliminary data shows vehicle miles traveled in the first half of 2023 increased by more than 35 billion miles, roughly 2% higher than the same time last year. While it's promising to see some safety improvements, there's still much work to do to make our roads safer, we are confident that our technology can play a key role in addressing public safety. Moving on to T2 systems, total revenue was effectively flat year over year. SaaS and services revenue, the key value driver, was up 4% over the prior year quarter, slightly ahead of expectations. However, one-time hardware sales were down about 1 million compared to last year due to customer requested installation timing considerations. We anticipate solid sequential revenue growth in the fourth quarter due to continued strength in recurring SaaS and services. In summary, this was an incredible quarter highlighted by a key customer contract renewal, exciting new enabling legislation, executing our capital allocation initiatives, strong financial performance, and increasing our financial guidance. With that, Craig, I'll turn it over to you to guide us through our financial results and our revised current year outlook.