Business Overview

Verra Mobility Corporation was founded in 2017 through the merger of American Traffic Solutions and Highway Toll Administration. The company provides integrated technology solutions and services to customers located primarily within the United States, Australia, Canada, and Europe. Since its inception, Verra Mobility has built a strong position in the commercial fleet and government solutions markets.

The Commercial Services segment, which is the company's largest, offers automated toll and violations management, as well as title and registration services, to rental car companies, fleet management firms, and other large fleet owners. Verra Mobility's deep relationships with tolling authorities and expertise in vehicle-to-account association have made it an indispensable partner for its commercial clients. Through its established relationships with tolling authorities, the company provides an outsourced administrative solution to help ensure timely payment of tolls and violations on behalf of its customers.

The Government Solutions segment provides comprehensive photo enforcement solutions to municipalities, counties, school districts, and law enforcement agencies, helping to reduce traffic violations, collisions, and fatalities through the deployment of red-light, speed, and school bus stop arm cameras. Verra Mobility's end-to-end services include system design, installation, maintenance, and data processing. The company's international government solutions operations primarily involve the sale of traffic enforcement products and recurring maintenance services.

The Parking Solutions segment, which the company acquired in 2021 through the T2 Systems acquisition, offers an integrated suite of parking management software, transaction processing, and hardware solutions to universities, healthcare facilities, and commercial parking operators. This segment leverages Verra Mobility's technological capabilities to optimize parking operations and enhance the driver experience. The integration of T2 Systems allowed Verra Mobility to expand its offerings and provide a comprehensive suite of parking management technology to its customers.

Financial Performance

Verra Mobility has demonstrated consistent financial growth over the past few years. In fiscal year 2023, the company reported revenue of $817.31 million, a significant increase from the previous year. Net income for the same period was $57.02 million, reflecting continued operational strength.

For the most recent quarter ending September 30, 2024, Verra Mobility reported revenue of $225.55 million, representing a year-over-year growth of 7.4%. The increase in revenue was primarily driven by strong travel demand in the Commercial Services segment and service revenue growth outside of New York City in the Government Solutions segment. Net income for the quarter stood at $34.73 million.

The company's performance across geographic markets shows a strong domestic presence, with international revenues accounting for $28.36 million, or 12.6% of total revenue, in the most recent quarter. Verra Mobility operates primarily within the United States, Australia, Canada, United Kingdom, and various other countries in Europe and Asia.

Liquidity

As of September 30, 2024, Verra Mobility's balance sheet remains robust. The company reported cash on hand of $206.09 million and an available credit line of $74.60 million, net of $0.40 million in outstanding letters of credit. The debt-to-equity ratio stood at 2.145 as of December 31, 2023, while the current ratio and quick ratio were 2.05 and 2.00, respectively, indicating a strong liquidity position.

The company's cash flow generation continues to be strong, with operating cash flow of $109.00 million and free cash flow of $85.00 million for the most recent quarter. For the fiscal year 2023, Verra Mobility generated $206.10 million in operating cash flow and $148.62 million in free cash flow, demonstrating its ability to convert earnings into cash.

Recent Developments and Future Outlook

In the first nine months of 2024, Verra Mobility continued to deliver strong financial results, reporting revenue of $657.71 million and net income of $98.10 million. The Commercial Services segment saw an 11% year-over-year increase in revenue, driven by strong travel demand and growth in the fleet management business. The Government Solutions segment also performed well, with a 7% increase in service revenue, excluding the impact of the company's largest customer, the New York City Department of Transportation (NYCDOT).

Verra Mobility has reaffirmed its full-year 2024 guidance, projecting revenue growth of approximately 8% and adjusted EBITDA growth of approximately 9%. The company expects adjusted EPS to be at the upper end of $1.15 to $1.20 per share. Additionally, Verra Mobility has increased its adjusted free cash flow guidance to the upper end of the $155 million to $165 million range, with lower CapEx spending of around $75 million partially offset by increased working capital usage. The company anticipates net leverage to land at approximately 2 times by the end of 2024.

Looking ahead to 2025, Verra Mobility has provided a preliminary outlook, expecting revenue growth at the low end of its long-term 6-8% guidance range. Adjusted EBITDA dollars are projected to grow in the low to mid-single digits compared to 2024. The company cites several factors contributing to the lower growth expectation in 2025, including a deceleration in travel demand growth to GDP-like levels, flat revenue from its largest customer (New York City) pending an RFP outcome, and delays in converting new Government Solutions backlog into revenue. Adjusted free cash flow conversion to EBITDA is expected to be 40-45% in 2025.

Verra Mobility's long-term growth prospects remain promising, as the company continues to benefit from favorable industry trends, such as the increasing adoption of automated traffic enforcement and the growing demand for integrated parking solutions. The company is also actively pursuing strategic acquisitions and partnerships to expand its product and service offerings and strengthen its market presence.

However, the company does face certain risks, including customer concentration, with NYCDOT accounting for a significant portion of its Government Solutions revenue. Additionally, Verra Mobility operates in a highly regulated industry, and changes in legislation or political attitudes towards automated enforcement could impact the company's business.

Conclusion

Verra Mobility's diversified business model, strong financial performance, and innovative technology solutions position the company as a leader in the smart mobility space. With its three main operating segments - Commercial Services, Government Solutions, and Parking Solutions - Verra Mobility offers a comprehensive suite of technology-driven solutions that help make transportation safer, smarter, and more connected for its customers across various industries and geographies. As the demand for safer, more efficient, and connected transportation continues to grow, Verra Mobility is well-equipped to capitalize on these trends and drive long-term shareholder value, despite the challenges and uncertainties in the near-term outlook.