Verra Mobility Corporation

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 filings. Please refer to our earnings press release and investor presentation for Vero Mobility'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 for 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, everyone, for joining us. We delivered a strong first quarter with all key financial measures Total revenue for the quarter increased 6% over the same period last year to $223 million, driven by outperformance in all three business segments relative to our internal plan. Adjusted EPS increased 11% over the prior year period given our operating performance, recent share repurchases, and the reduction in our interest rate on our term loan debt. Before I elaborate further on our financial performance, I am pleased to Transportation, identified Vermobility as the vendor to manage New York City's automated enforcement safety programs for what is expected to be a five-year period after the company's current contract expires in December of 2025. We are honored by the opportunity to continue serving as New York City's trusted technology provider on a world-class transportation safety program. This remains an active procurement as we are currently engaged in contract negotiations with the New York City Department of Transportation. As such, we do not intend to make any additional disclosures about the program until the contract is finalized. Moving on to the segment level financials, commercial services first quarter revenue and segment profit increased about 6% and 4% respectively over the prior year period. RAC tolling increased 6% over the prior year period driven by a modest 1% increase in TSA travel volume. increased product adoption, and higher tolling activity compared to the first quarter of last year. Additionally, FMC revenue grew 12% compared to the first quarter of 2024, primarily due to the increased vehicle enrollment as well as higher tolling activity. Looking ahead, we anticipate that FMC growth rates will moderate due to tougher comps over the balance 2025. Government Solutions service revenue increased 4% over the first quarter of 2024. Revenue from New York City, our largest Government Solutions customer, was essentially flat year-over-year, as we await the finalization of the aforementioned contract. Service revenue increased 7% outside of New York City, driven by expansion from existing customers and new cities implementing photo enforcement programs. Total revenue, including international product sales, was up about 8% over the prior year quarter, fueled by a $4 million increase to product sales compared to the first quarter of 2024. Moving on to T2, our parking solutions business, total revenues increased about 2% for the quarter, driven by increased revenue from SAS product offerings and a modest increase in product sales, partially offset by lower professional services revenues. Next, I will move on to the macro environment and the implications to our business. We monitor domestic travel demand as it directly influences our commercial services business. We are experiencing a broader pullback in consumer confidence levels and the impact on travel demand as evidenced by the U.S. air carriers cutting their forecasts. As I mentioned, first quarter TSA volume increased about 1% over the first quarter of last year, and second quarter to date is about 100% of the same period last year. In this uncertain economic environment, we anticipate that discretionary spending may be impacted, and travel demand may soften as a result. Consequently, we have incorporated a modest deceleration of travel volumes in the second half of 2025 in our current assumptions. This is subject to further change, and we are closely monitoring the airline industry, which is often a good indicator of trends that impact the commercial services business. Next, I'll discuss the demand for automated photo enforcement, the key driver for our government solutions business. We continue to see positive support of photo enforcement programs across the United States. In total, the enabling legislation passed over the prior two and a half years across the United States adds approximately $185 million of TAM, with the potential to expand over $300 million as further legislation allows in California. Our execution against this TAM has been strong. In the first quarter, we booked about $6 million of incremental annual recurring revenue at full run rate, bringing the trailing 12-month total to $52 million. Notable first quarter bookings include Windsor, Colorado, Red Light, and Ontario Canada Speed Expansion Programs, along with Carroll County, Georgia School Bus Stop Arm Expansion. Moreover, our pipeline for Q2 is attractive, as we have a number of awards awaiting contract execution. Our government solutions annual recurring revenue bookings typically materialize into revenue over a 12 to 18 month period. In conjunction with an approximate 97% increase in contract, approximately 97% contract renewal rate, we believe this demonstrates a strong and predictable recurring revenue stream. Moving on to our full year outlook, we are maintaining our full year 2025 financial guidance. recognizing that there's a risk with uncertain travel demand we may trend towards the lower end of the ranges previously provided. Our guidance ranges factor in a level of travel demand variability, and we will continue to re-evaluate as the summer travel season kicks off in earnest. Additionally, note that our growth and margin expectations for government solutions and T2 remain unchanged as the market for photo enforcement is strong and our parking business turnaround is showing early signs of We believe these areas are largely unaffected by economic sensitivity. Craig, I'll turn it over to you to guide us through our financial results and additional details on our 2025 financial outlook. Thank you, David, and hello, everyone.

I appreciate you joining us on the call today. Let's turn to slide four, which outlines the key financial measures for the consolidated business for the first quarter. Our Q1 performance exceeded internal expectations which included 5% service revenue growth and 6% total revenue growth year over year. The service revenue growth, which consists primarily of recurring revenue, was driven by a modest increase in travel volume, increased product adoption, and higher tolling activity in the commercial services business, as well as service revenue growth outside of New York City in the government solutions business. At the segment level, commercial services grew 6% year over year, government solution service revenue increased by 4% over the prior year, and P2 system SaaS and services revenue was essentially flat compared to the first quarter of 2024. Total product revenue was $11 million for the quarter, government solutions contributed roughly $8 million, and P2 delivered about $3 million in product sales overall for the quarter. Additionally, our consolidated adjusted EBITDA for the quarter was $95 million, an increase of approximately 3% versus We reported net income of $32 million for the quarter, including a tax provision of about $12 million, representing an effective tax rate of 28%. GAAP-diluted EPS was $0.20 per share for the first quarter of 2025 compared to $0.17 per share for the prior year period. Adjusted EPS, which excludes amortization, stock-based compensation, and other non-recurring items, was $0.30 per share for the first quarter of this year, compared to $0.27 per share in the first quarter of 2024, representing 11% year-over-year growth. The adjusted EPS growth was driven by an increase in adjusted EBITDA, a sustained reduction in interest expense driven by our prior year debt repricing efforts and our share repurchases in 2024. Cash flows provided by operating activities totaled $63 million, and we delivered $42 million of free cash flow for the quarter, ahead of our internal expectation. Turning to slide five, we generated $404 million of adjusted EBITDA on approximately $893 million of revenue for the trailing 12 months, representing a 45% adjusted EBITDA margin. Additionally, we generated $174 million of free cash flow for a 43% conversion of adjusted EBITDA over the trailing 12 months. Next, I'll walk through the first quarter performance in each of our three business segments, beginning with commercial services on slide six. CS year-over-year revenue growth was 6% in the first quarter. RAC tolling revenue increased 6% or about 4 million over the same period last year, driven by modest travel demand growth and increased product adoption and tolling activity. Our FMC business grew 12% or about 2 million year-over-year, driven by the enrollment of new vehicles and tolling growth from existing and newly enrolled FMC customers. As David mentioned, We anticipate that FMC growth rates will moderate over the balance of 2025 due to tougher comps. Commercial services segment profit increased 4% over the prior year. Revenue growth was partially offset by ERP implementation costs as well as higher bad debt expense driven by a non-recurring write-down of age receivables. Turning to slide 7, government solutions had solid service revenue growth in the quarter, driven by 7% growth outside of New York City. Total revenue grew 8% over the prior year quarter, benefiting from about $8 million in product sales, which was a $4 million increase over the same period last year. Government solution segment profit was $29 million for the quarter, representing margins of approximately 29%. The reduction in margins versus the prior year is primarily due to increased marketing and business development costs, project inflammation costs for newly awarded programs, and ERP implementation costs. Let's turn to slide eight for a review of the results of T2 Systems. We generated revenue of $20 million and segment profit of approximately $3 million for the quarter. SAS and services sales were essentially flat compared to the prior year, while product revenue was up 13% or $400,000 compared to 2024. Breaking the T2 SAS and services revenue down a bit further, recurring SAS revenue grew about 5% over the prior year. However, offsetting this increase was a decline in installation and other professional services during the reduction in product sales over the prior quarters. Okay, let's turn to slide 9 to discuss the balance sheet and take a closer look at leverage. We ended the quarter with net debt balance of $935 million, which reflects the strong free cash flow we generated in the first quarter. Net leverage landed at 2.3 times, and we've maintained significant liquidity with our undrawn credit revolver. Our gross debt balance at year end stands at about $1 billion, of which approximately $690 million is floating rate debt. Okay, now let's turn to slide 10 and have a look at full year 2025 guidance. Based on our first quarter results and our outlook for the remainder of the year, we are reaffirming all guidance measures. As David discussed, our primary consideration is the uncertain economic environment and potential impact to travel. Ultimately, based on our strong first quarter performance and our ability to withstand some level of travel volume variability, we are reaffirming guidance. Recognizing that there is a risk of moving to the lower end of guidance, of the guidance ranges, if travel demand continues to worsen from current levels. In the event that the U.S. economy enters a recession, and we see a material move downward in TSA value, we will reassess and update the market accordingly. Additionally, we have evaluated potential tariff exposure, and we expect the direct impact to be immaterial to our business in the near term. However, as we've discussed, the indirect impact to consumer and business spending may impact travel demand in our commercial services. As a reminder, the full year 2025 guidance ranges provided on our fourth quarter 2024 earnings call were as follows. We expect total revenue in the range of 925 to 935 million, representing approximately 6% growth at the midpoint over 2024. We expect adjusted EBITDA in the range of 410 to 420 million, representing approximately 3% growth at the midpoint. we anticipate adjusted EPS in the range of $1.30 to $1.35 per share. And free cash flow is expected to be in the range of $175 to $185 million, representing a conversion rate in the low to mid-40th percentile of adjusted EPS. Moving on to the segment level, we are reaffirming that government solutions is expected to generate the high end of mid-single-digit total revenue growth driven by the expansion of camera installations with existing customers and new customers awarded in fiscal year 2024. Recall that this growth includes an expectation of flat service revenue from New York City in 2025 under the legacy contract while we work through the contract negotiations. Additionally, we expect product revenue to be largely flat with 2024 levels. Taken together, both New York City service global product sales comprise nearly 40% of total government solutions revenue. The remaining 60% of government solutions revenue is expected to grow low double digits in 2025. We continue to anticipate that parking solutions revenue will be about flat with 2024 levels. We expect SAS revenue to grow low to mid single digits, offset by a decline in installation and professional service revenue on roughly flat products. Any variability is expected to come from commercial services and specifically rack tolling contingent on TSA volume. Historically, in the combined CS business, the first quarter is forecast to be our lowest revenue generating quarter, followed by sequential revenue increases in the second and third quarter, followed then by a revenue decline in the fourth quarter as the summer driving season comes to a close. However, given the current economic uncertainty, These trends may play out differently in 2025. Other key assumptions supporting our adjusted EPS and free cash flow outlook can be found at slide 11. Before we close out, I'd like to give you an update on our ongoing ERP implementation. I am pleased to report that the project is going well and the vast majority of processes are now live in the new platform and the implementation is on schedule and on budget. In closing, we're very pleased with our first quarter performance We exhibited solid execution across the board and we're delivering strong free cash flow and earnings. As we head into the back half of 2025, we remain cautiously optimistic about our outlook and we'll be monitoring the economic environment and travel demand very close. This concludes our prepared remarks. Thank you for your time and attention today. At this time, I'd like to invite Michelle to start the Q&A session. Michelle, over to you.