Verra Mobility Corporation

Good day, and thank you for standing by. Welcome to Vera Mobility's second quarter 2025 earnings conference call. My name is James Reyes, 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 will need to press star 11 on your telephone. You will then hear an automated message advising that 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 over the conference to your speaker today, Mark Zindler, Vice President of Investor Relations.

Thank you. Good afternoon, and welcome to Vero Mobility's second quarter 2025 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.veramobility.com with me on the call are david roberts vera mobility's chief executive officer and craig conti 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 filings. 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, everyone, for joining us. We delivered a strong second quarter with all key financial measures ahead of our internal expectations. Total revenue for the quarter increased 6% over the same period last year to $236 million. with all three business segments meeting or exceeding their respective internal plan. Adjusted EPS increased 10% over the prior year period, driven by our operating performance, recent share repurchases, and the reduction in our interest rate on our term loan debt. Moving on to segment-level financials, commercial services second quarter revenue and segment profit increased about 5% and 4%, respectively, over the prior year period. RAC tolling increased 4% over the prior year period, driven by increased product adoption and higher tolling activity compared to the second quarter of last year. The growth in RAC tolling was partially offset by a decline in FMC revenue of about 2% compared to the second quarter of 2024, primarily due to a combination of customer churn as well as a modest weakness related to enrolled vehicles and tolling activity in the early 2Q attributable to macroeconomic factors. We expect incremental weakness in the third quarter and to stabilize and grow from that new level. FMC continues to be a core focus area, and we remain very optimistic about solid growth prospects in this business area. Additionally, as we noted in our press release in early July, Stacey Moser has joined our executive leadership team and will lead commercial services. Stacy is a commercially focused executive, bringing strong experience in sales leadership, product development, and international expansion, and will be instrumental in leading commercial services into its next phase of growth. Next, moving on to the macro environment and the implications for our commercial services business. With consumer confidence levels improving amidst increasing clarity on the economic environment, travel demand is stabilizing. albeit at lower levels than our prior forecast. Second quarter TSA volume declined about 1% over the second quarter of last year, and year-to-date TSA volume is about the same as last year. As a result of these trends and the commentary from the major airlines on expected demand, we have further reduced our travel volume assumptions for the remainder of 2025 relative to the levels discussed in our first quarter call. This is subject to further change, and we are closely monitoring the airline industry. which has historically been a good indicator of trends that impact the commercial services business. Moving on to government solutions, service revenue increased 7% over the second 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 renewal contract. Service revenue increased 11% outside of New York City, driven by expansion from existing customers and new cities implementing photo enforcement programs. Total revenue, which includes international product sales, was up about 10% over the prior year quarter, fueled in part by a $3 million increase in product sales compared to the second quarter of 2024. And a note regarding New York City, we are earnestly working toward finalizing the renewal contract. Upon executing the contract, we will hold an update call to discuss the new contract, key economic terms, and the planned red light expansion program. Next, I'll discuss the demand for automated photo enforcement, the key driver for our government solutions business. We continue to see positive support for photo enforcement programs across the United States. During the second quarter, both Colorado and Nevada passed legislation authorizing school bus stop arm enforcement, adding about $40 million in total addressable market. In total, enabling legislation passed over the past two and a half years across the United States has added approximately $225 million of TAM, with the potential to expand to over $350 million as further enabling legislation allows in California. Our recent execution against this TAM has been strong. In the second quarter, we entered into contracted bookings of about $21 million of incremental annual recurring revenue at full run rate, bringing the trailing 12 months total to about $60 million. Notable second quarter bookings include the Chicago-Illinois Speed Camera Expansion and a five-year renewal, Cobb County-Georgia School Bus Stop Arm Expansion, Mesa-Arizona Speed Expansion Program, and several Florida School Zone Speed Awards. We believe automated enforcement continues to demonstrate its intended effects. We see proof points that drivers are improving their driving behaviors and traffic fatality rates are slowing decreasing. For example, for our own data, our own data reveal positive indicators when we compare 2024 to 2023 4th of July holiday travel. Key findings included a 26% decrease in total violations from 2023, 24% fewer speeding tickets, and 31% fewer red light violations. Most importantly, the data shows that pedestrian deaths were down 4.3% year over year, making the second consecutive annual decline. But with over 7,700 pedestrian fatalities last year, it's a stark reminder that more work needs to be done to improve road safety. Moving on to T2, our parking solutions business. Total revenue declined about 4% for the quarter, driven by a reduction in product sales as well as professional services revenue. This result was in line with our internal expectations. Moving on to our full-year outlook, we are maintaining our full-year 2025 financial guidance. While travel demand appears to be stabilizing, we remain cautious that a further modest decline in travel volume may cause us to trend toward the lower end of the financial ranges as previously provided. 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 some early signs of success. We believe these businesses areas are largely unaffected by economic sensitivity. Moving on to capital allocation, during the second quarter, our Board of Directors authorized a $100 million stock repurchase program that is available through November 2026. As of the end of second quarter, no repurchases have been made under the new stock repurchase program. Finally, before I close, a reminder that with summer nearing its close, please drive safely as kids start going back to school this month. Craig, I'll turn it over to you to guide us through our financial results and additional details on our 2025 financial outlook.