Verra Mobility Corporation

Good day and thank you for standing by. Welcome to VeriMobility's fourth quarter 2024 earnings conference call. My name is Liz and I will be your conference operator today. At this time all participants are in a listen-only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mark Zindler, Vice President, Investor Relations. Please go ahead.

Thank you. Good afternoon and welcome to VeriMobility's fourth 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, 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 risk factors. These factors are described in our SEC files. Please refer to our earnings press release and investor presentation for VeriMobility's complete forward-looking statement disclosure. Any forward-looking statements that we make on this call are based on our beliefs and assumptions today and 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, quarterly earnings presentation, and investor presentation, all of which can be found on our website at ir.veramobility.com.

With that, I'll turn the call over to David. Thank you, Mark, and thanks to everyone for joining us. We delivered a solid fourth quarter with consolidated revenue growth of 5%, adjusted EBITDA increased 12%, and adjusted EPS increased 38% over the prior year period. Fourth quarter free cash flow of $22 million was slightly ahead of our expectations, and we ended the year with net leverage of 2.4 times while investing nearly $150 million to repurchase about 5 million shares in the fourth quarter. Moving on to the segment level financials. Commercial services fourth quarter revenue and segment profit increased about 4% over the prior year period. Both revenue and segment profit in commercial services were negatively impacted by a prior year period adjustment of approximately $3 million related to tolling activity. RAC tolling, which includes this $3 million prior period adjustment, increased 3% over the prior year period and FMC revenue grew 5% over the fourth quarter 2023. Government Solutions service revenue increased 5% over the fourth quarter of 2023. Revenue from New York City, our largest Government Solutions customer, was essentially flat year over year as we await the outcome of the competitive request for proposal for automated enforcement. Service revenue increased 9% outside of New York City driven by expansion from existing customers and new cities implementing photo enforcement programs. Total revenue, including international product sales, were up about 10% over the prior year quarter, fueled by a $5 million increase in product sales compared to the fourth quarter of 2023. Government Solutions' second profit increased 44%, or 790 basis points over last year, driven by a $4 million non-cash charge in the fourth quarter of 2023, and a reduction in credit loss expense in the current year quarter. Moving on to T2, our parking solutions business, total revenue declined about 13% for the quarter, driven by lower professional services and one-time hardware sales. Segment profit declined to $3 million for the fourth quarter. I'll provide more commentary about what operational improvements we have planned for parking solutions later in my remarks. Next, I'm going to focus on the key trends shaping our portfolio businesses and what makes me so excited about the future growth trajectory. Starting with travel demand, which directly impacts our commercial services business, full-year 2024 TSA passenger volume increased about 5% over 2023 volume, driven by strong leisure and business travel demand. While that sets up a challenging comparable for 2025, we continue to anticipate resilient travel volume consistent with forecasted GDP growth over the prior year. The travel trends to start the year have been volatile due to winter storms and the California wildfires. However, based on the positive sentiment from the major airlines and our customers, coupled with other industry data we've evaluated, we remain comfortable with our expectations for 2025 TSA volume. Additionally, the number of toll roads and the penetration of electronic tolling infrastructure, two secular tailwinds that positively impact the long-term growth profile of commercial services, continued to demonstrate ongoing strength. Over the course of 2024, 14 new cashless toll roadways were converted or opened, covering nearly 600 miles of roadways across the United States. Moreover, cashless toll penetration increased from 67% to about 70% in full year 2024, demonstrating that the secular trend to all electronic infrastructure is steady with room for further expansions. Next, I'll move on to the demand for automated photo enforcement, the key driver for our government solutions business. In 2024, 30 bills were enacted at the state and local levels to authorize, expand, or positively reform automated photo enforcement programs, including recent legislation in Massachusetts authorizing school bus stop arms and fixed and mobile bus lane enforcement. We anticipate these new authorizations in Massachusetts to result in over $30 million of addressable market opportunity In total, the enabling legislation passed over the prior two years across the United States adds approximately $185 million of total addressable market, or TAM, with the potential to expand to over $300 million as further legislation allows in California. Our execution against this TAM has been strong. In the fourth quarter, we won contract awards representing about $11 million of incremental annual recurring revenue at full run rate, bringing the full-year incremental ARR total to $56 million. Notably, as we have previously announced, the San Francisco Speed Safety Program will be the first speed program in the state of California, and it is expected to start issuing warnings by the end of the first quarter of 2025. Additional fourth quarter awards, including a new school bus stop arm award in upstate New York and an expansion of our existing speed program in Toronto. Our government solutions ARR bookings typically materialize into revenue over a 12 to 18 month period. In conjunction with an approximate 97% contract renewal rate, we believe demonstrates a strong and predictable recurring revenue stream. Moving on to New York City, we are awaiting the outcome of the competitive RFP for the city's automated enforcement program. The New York City Department of Transportation recently published their annual report quantifying the efficacy of their automated photo enforcement programs, and we're incredibly pleased and proud of the findings, which include Daily violations at speed camera locations have decreased 94% since the start of the program in 2014. 74% of drivers received no more than one or two violations per year. Locations with camera installed in 2022 showed 14% fewer injuries and fatalities between 2021 and 2023 compared to control corridors without cameras. Violations in the overnight and weekend hours decreased 40%. first went into effect. Following the expansion to overnight and weekend enforcement locations with speed cameras saw 9% fewer injuries compared to control locations without cameras during the overnight and weekend hours. We believe that these findings demonstrate the importance of implementing automated enforcement and the positive impact it can have on traffic safety for our communities. Next, I'll discuss TT parking solution business, which we acquired in December 2021. T2 is the industry leader delivering parking solutions to universities, municipalities, and private parking operators across the United States. We offer an end-to-end suite of software, professional services, and hardware to meet our customers' evolving needs to manage parking. As you can see in the fourth quarter results, we recorded a non-cash impairment of goodwill attributed to the T2 business to better align the current environment and the carrying value of the historic environment when we acquired the business. Craig will elaborate on the financial impact of the Goodwill impairment in a moment, but I'll take a few moments to comment on the trend shaping the business. We believe the market for SAS enabled solutions to manage the complexities of parking in universities, municipalities, and private parking operations is strong and growing. As I noted on our third quarter call, Lynn Vogt joined our executive leadership team in August and brings tremendous experience in leading organizations, driving sales growth, and enhancing operations. Since joining the organization this summer, Lynn has brought in new sales leadership, and we are seeing early signs of stabilizing our operations. We have visibility into a strong sales pipeline for our SaaS-enabled permanent management solutions, and we are in the very early innings of our sales and marketing of our e-commerce platform, which is designed to create new revenue streams through transactional pricing. Our goals for 2025 were to stabilize the business first by addressing the challenges that led to elevated customer return and simultaneously rejuvenating the sales infrastructure continuing to deliver Broad Street solutions. We anticipate flat revenue in 2025 relative to 2024, and our focus is on exiting 2025 with strong velocity with the goal of getting back to growth in 26. We expect the demand for parking, permitting, and enforcement for cities and universities to continue to increase over the long term given the unique challenges related to urbanization and curb management, and we believe the market opportunity for T2 is significant. We're taking steps needed to drive long-term execution, and performance. Moving on, we had an active year from a capital allocation perspective. Over the full year in 2024, we deployed $200 million to repurchase over 7 million shares. Additionally, we refinanced our term loan debt twice, lowering our borrowing rate by 100 basis points over the course of the year. Additionally, we were active in evaluating M&A opportunities, but ultimately redirected capital to share repurchases based on valuations and price discipline. Craig will provide a detailed commentary on our 2025 financial outlook, but I'll hit the highlights. As we indicated during our third quarter call, we expect to deliver revenue growth consistent with our long-term 6% to 8% outlook, albeit at the low end of that range in 2025. Moreover, we anticipate adjusted EBITDA to grow at a slower pace than revenue due to investments in sales and product installs in government solutions. one-time costs related to our ERP implementation, and lastly, revenue mix, as commercial services revenue is expected to reflect lower anticipated travel volume. We expect adjusted EPS growth will outpace adjusted EBITDA due primarily to capital allocation efforts I just discussed, lower borrowing costs, and reduced share count driven by the 2024 share repurchases. Our business fundamentals are strong and intact, Travel demand appears resilient and a source of ongoing strength for commercial services. We expect that our strong sales bookings and government solutions will drive solid revenue growth over the foreseeable future. And finally, we expect T2 to exit 2025 with a strong velocity. Based on these factors, we anticipate that our long-term outlook remains intact relative to the 2026 revenue and adjusted even to targets that we provided at our 2022 Investor Day. Craig, I'll turn it over to you to guide us through our financial results capital allocation, and 2025 financial outlook. Thank you, David, and hello, everyone.