Verra Mobility Corporation

Ladies and gentlemen, and welcome to the Vero Mobility first quarter 2024 earnings call. At this time, all lines are in a listen only mode. Following the presentation, you will 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, 2nd of May 2024. I would now like to turn the conference over to Mark Zindler, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to VeriMobility's first quarter 2024 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, Vero Mobility'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 press release for VeriMobility'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 had a strong start to the year with revenue, adjusted EBITDA, and earnings exceeding our internal expectations for the first quarter. Moreover, all three business units met or exceeded our internal expectations for adjusted EBITDA for the quarter. Through our customer-oriented solutions and execution strength guided by the VeriMobility Operating System, or VMOS, we are consistently delivering strong financial performance. Consolidated revenue growth was 9%, adjusted EBITDA increased 6%, and adjusted free cash flow increased 57% over the prior year period, demonstrating the predictable strength of our portfolio businesses. Based on the first quarter financial performance and our outlook for the remainder of the year, we're increasing our full year 2024 guidance, which Craig will elaborate on in his remarks. Now moving on to our business unit operations. The commercial services team delivered outstanding results driven by strong and durable domestic travel trends and our continued strong performance in the fleet management business. First quarter revenue of $96 million grew 12% over the prior year quarter and adjusted EBITDA margins of 63% were up about 90 basis points over last year due primarily to the strength of RAC tolling. First quarter TSA throughput volume was about 106% of 2023, driving strong growth in adopted rental agreements and tolls incurred, all of which resulted in a 10% increase in RAC tolling revenue. Additionally, our FMC business generated revenue of 17 million for the quarter, representing 25% growth over the prior year period, primarily driven by enrollment of new vehicles and increased tolling from FMC customers. Looking ahead over the course of 2024, we expect continued strength in rack tolling revenue due to strong travel bookings based on commentary from the major airlines and hotel chains. In our FMC business, we are anticipating a modest pullback in relative growth rates over the balance of the year due primarily to tougher comps this year. The underlying strength of commercial services, and particularly the strong travel outlook, were the key factors influencing the decision to raise full-year guidance. Moving on to government solutions, recurring service revenue, which reflects 96% of total revenue for the quarter, grew 8% over the same period last year. The recurring service revenue growth was driven by program expansion from existing customers and new cities implementing photo enforcement efforts to improve road safety. To this point, outside of New York City, we drove 15% revenue growth due to our existing customers' efforts to expand their safety programs. Total revenue, including international product sales, were up about 10% over the prior year quarter. As we discussed in our last earnings call, we are seeing RFPs and award activity continue to ramp up in Florida. I am pleased to report that year to date, we've executed contracts for schools on speed, school bus stop arm, and red light programs that in the aggregate represent potential recurring revenue of up to $7 million per year. Additionally, on the international side of the GS business, we were awarded an extension of our national highways maintenance contract in the United Kingdom for our variable speed and lane closure systems. This contract award will drive an approximately $2 million of ARR increase in the current revenue run rate. We're also very pleased to report that in the state of Washington, legislation was passed for the expansion of speed programs, bus lane automated enforcement, and other beneficial reforms. Overall, we had a strong first quarter from an awards perspective. We're highly competitive in the market and winning our fair share of deals, which for the quarter represented up to $10 million of incremental full run rate ARR potential. Moving on to the New York City automated enforcement renewal contract, The city recently published a notification indicating its intention to release the RFP in fiscal year 2024, potentially late in the second quarter of this year. We expect this to be a competitive procurement and believe we have a strong combination of best-in-class technical solutions and market experience to compete effectively for this program. Next, a brief update on T2 Systems. We generated total revenue of approximately $20 million for the first quarter As we anticipated, one-time product revenue declined by about $1 million compared to the prior year quarter due to a structural transition away from hardware and towards software and mobile solutions. As product revenue decelerates, we also experienced a decline in one-time ancillary installation and maintenance services revenues. growth. For the full year, we continue to expect T2 Systems to deliver mid-single-digit revenue growth and return to high single-digit revenue growth over the long term, driven by the strength and focus on SaaS and the introduction of transactional revenue pricing opportunities. Turning to capital allocation, we further reduced net leverage to 2.4 times, providing optionality for future capital deployments. With respect to M&A, the pipeline is growing. We've been disciplined around valuation, but remain active in our evaluation of opportunities. Additionally, we have an open authorization for a $100 million stock buyback. Through the first quarter, we have sought to increase cash on the balance sheet, but the open buyback continues to be a viable option for capital deployment. Lastly, I'll provide a brief update on the company-wide implementation of a bare mobility operating system, or VMOS. Two years ago, we set out to build the future of air mobility. We knew that to deliver unparalleled value to our customers, empower our employees, and maximize returns for shareholders, we needed a unified and standardized approach to continuously improve the critical areas of our business. We established the air mobility operating system, a dynamic set of mechanisms and tools designed to drive operational excellence and spark continuous improvement across all parts of air mobility. Since then, we have deployed VMOS mechanisms in core focus areas, including operating reviews, strategic planning and deployment, problem solving, and sales funnel management. As an organization, we are building the muscle memory around leveraging VMOS to drive operational excellence across these areas. Finally, as we announced in our press release last month, I'd like to formally welcome and congratulate Kate Prescott on her appointment as Executive Vice President and Chief People Officer. Kate's HR experience and HR strategy. Welcome to the team, Kate. Craig, I'll turn it over to you to guide us through our financial results and the 2024 guidance update. Thank you, David.