Verra Mobility Corporation

Good afternoon, ladies and gentlemen, and welcome to Vera Mobility's third quarter 2025 earnings conference call. My name is Tawanda, and I will be your conference operator today. This call is being recorded. 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 the question during the session, you will need to press start 11 on your telephone. you would then hear an automated message advising your hand is raised. To withdraw your question, please first start one again. I would like to turn the presentation over now to your host for today's call, Mark Zindler, Vice President of Investor Relations for Vera Mobility. Please go ahead, Mr. Zindler.

Thank you. Good afternoon and welcome to Vera Mobility's third 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, Veramobility'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 and expectations, 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 our cautionary note on forward-looking statements. 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. Before I dive into our consolidated financial results, I'll start with an update on our automated photo enforcement contract with the New York City Department of Transportation. which will help contextualize our third quarter financial performance and our revised guidance for the year. We are actively working with the New York City Department of Transportation to finalize the new automated enforcement contract, which was announced at the end of March 2025. As we work to finalize the new contract, we are now in a position to share the key financial expectations. We expect that the new contract will have a five-year term with an option for a five-year renewal and an estimated total contract value of $963 million. We expect annual service revenue to grow from about $135 million in 2024 to a range of $165 to $185 million by 2027. Furthermore, the New York City Department of Transportation has elected which is expected to add $20 to $30 million in product revenue in both 2026 and 2027. Craig will cover additional financial details in his prepared remarks. In parallel with working to finalize the new contract, the New York City Department of Transportation has instructed Vero Mobility through a change order process to install up to 250 red light cameras by year-end 2025 as a part of the legislatively authorized expansion. The new red light cameras are expected to generate approximately $30 million of revenue in 2025, of which about $10 million is expected to be product revenue and $20 million is expected to be installation services revenue. The red light camera expansion program started in the third quarter, and consequently, we generated $17 million of revenue in conjunction with the red light camera installations in the third quarter, of which approximately $6 million was product revenue and about $11 million was installation services revenue. We look forward to continuing to serve the New York City Department of Transportation and the citizen safety priorities of Vision Zero. This program has been demonstrated to improve safety on New York City's roads as evidenced by the data showing reduction in crashes and fatalities. Based on 2024 reports published by the New York City Department of Transportation, daily violations at speed camera locations have decreased 94% since the start of the program in 2014. Additionally, the average daily number of red light running violations issued at camera locations has declined by 73% since the program began in 1994. We look forward to continuing to support New York City's safety mission. The contract is strategically important, and we believe a source of long-term value creation for bearable buildings. Shifting now to our third quarter consolidated financials, we delivered a strong quarter, with all of our key financial measures ahead of our internal expectations. Total revenue for the quarter increased 16% over the same period last year to $262 million, with all three business segments meeting or exceeding their respective internal plan. The aforementioned New York City red light expansion change order was a key catalyst contributing $17 million in revenue for the quarter. Moreover, adjusted EPS increased 16% over the prior year period, driven by our operating performance, prior period share repurchases, and the reduction in our interest rate on our term loan debt. Moving on to segment level financials. Commercial services third quarter revenue and segment profit increased about 7% respectively over the prior year period. Rental car or rack tolling increased 7% over the prior year period. driven by increased travel volume and product adoption, as well as higher tolling activity compared to the third quarter of last year. The growth in rack tolling was partially offset by a decline in fleet management revenue of about 3% compared to the third quarter of 2024, due to the customer churn that we had discussed on our second quarter earnings call. Next, moving on to the macro environment and the implications for our commercial services business. As we discussed on our second quarter earnings call, travel demand stabilized and grew modestly in Q3 over the prior year quarter. Third quarter TSA volume increased about 1% over the third quarter of last year, and year to date TSA volume is about the same as 2024. Based on the commentary from the major airlines, we anticipate solid fourth quarter travel demand at levels slightly ahead of our guidance provided during our second quarter earnings call. Moving on to government solutions, total revenue increased 28% over the third quarter of 2024. Total revenue from New York City, our largest government solutions customer, increased 46% over the third quarter of 2024, driven by the new red light camera installations. Additionally, service revenue increased 11% outside of New York City, driven by expansion from existing customers and new cities implementing photo enforcement programs. International product sales increased $4 million over the third quarter of 2024, rounding out the year-over-year growth in revenue. Next, I'd like to highlight two important pieces of legislation that were passed during the quarter. First, California passed a work zone speed pilot that is expected to deploy up to 35 camera-based systems on state highway construction or maintenance areas. California also reformed its red light camera enforcement program by shifting the violation from criminal to civil reducing the fine amount and easing certain program operating requirements. These reforms bring California's program more in line with other state safety programs, and we believe they will create additional positive momentum for automated enforcement. We estimate that these two legislative authorizations add an incremental $140 million in total addressable market, the majority of which is driven by the red light hammer reform legislation. This additional addressable market opportunity increases our incremental TAM to approximately $365 million, with the potential to expand to $500 million if California passes additional enabling legislation. Contracted bookings in government solutions continue to be a source of strength. In the third quarter, we entered into bookings of about $14 million of incremental annual recurring revenue based on a full run rate. bringing the trailing 12 months total to about $51 million. Notable third quarter bookings include a school bus stop farm program in Seattle, Washington, a speed program in Phoenix, Arizona, expansion of the school zone speed program in Auburn, Washington, and a new red light safety program in Modesto, California. Additionally, subsequent to the end of the quarter, we were notified by San Jose, California, of the intent to award the city's speed safety program to Bear Mobility, We are incredibly honored to partner with the City of San Jose to bring this critical safety technology to the community. This award marks our third California Speed Enforcement Award following San Francisco and Oakland. We anticipate the three remaining pilot cities, Los Angeles, Glendale, and Long Beach, to launch their respective procurements over the next several quarters. We're pleased to report that the San Francisco Speed Pilot Program is demonstrating its intended effects. Through the first four months of operations, A San Francisco Municipal Transportation Agency study that tracks vehicle speeds along 15 of the corridors where the cameras have been installed found an average 72% reduction in speeding, based on data captured before and after the cameras went into effect. Moving on to T2 Systems, our parking solutions business, total revenue increased about 7% for the quarter, driven by a 3% increase in SAS and services revenue, and a 30% or $1 million increase in product revenue, and these results were in line with our internal expectations. Moving on to our full-year outlook, we are increasing our full-year 2025 revenue guidance driven by the New York City red light camera expansion. We expect this expansion will generate an incremental $30 million of total revenue this year. Additionally, note that our expectations for the remainder of the business remain unchanged As we believe the market for automated enforcement is strong, our parking business turnaround is ahead of our internal plan, and we expect stable travel demand. Today, we're also going to provide a preliminary outlook for 2026. As you may recall, our 2025 guidance to date assumed New York City revenue would be flat in 2025 compared to 2024. Our outlook assumes that our new contract with New York City is effective in January 2026. Driven by the change order to our existing contract and the red light camera installation shifting from 2026 into 2025, we expect total consolidated revenue to moderate to mid single digit growth in 2026. At the second level, we anticipate government solutions growing high single digits on strong service revenue. Additionally, we expect commercial services to grow mid single digits on modest TSA volume growth combined with the impact Finally, T2 is expected to grow low to mid-single digits next year on moderate staff and equipment sales growth. Additionally, we expect adjusted EBITDA margins to decline 250 to 300 basis points on portfolio mix and impacts from the New York City renewal contract. Craig's going to walk through this detail along with the path to margin expansion as we capitalize on the growth opportunities and cost reduction initiatives currently In my view, 2026 represents a year of transition between the investments made in the business over the past two years and the benefits we expect to realize. Over a multi-year period beginning in 2027, we are poised to deliver strong growth and margin expansion, driven in large part by the growth and forward momentum in government solutions and our ability to execute at scale the business as well as the continued growth opportunities in commercial services and T2. Moving on to capital allocation, due to the conviction in our long-term growth outlook and margin expansion initiatives, our board of directors authorized a $150 million increase to our existing stock repurchase program that is available through November of 2026. This brings the available repurchase authorization to $250 million, and we expect to commence the buyback in the near term, subject to market conditions and other facts. Craig, I'll turn it over to you to guide us through our financial results, the New York City contract update, our revised 2025 financial outlook, and our preliminary perspectives for 2026.