Verra Mobility Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 10 speakers on the call.

Operator

Greetings, and welcome to the Verra Mobility Third Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Zindler, Vice President of Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

Thank you. Good afternoon, and welcome to Vero Mobility's Q3 2023 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, VeriMobility'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 and A.

Speaker 1

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 factors. These factors are described in our SEC filings. Please refer to our earnings presentation excuse me, please refer to our earnings press release for Vero Mobility's complete forward looking statement disclosure.

Speaker 1

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, which can be found on our website at ir.veramobility.com and on the SEC's website atsec.gov. With that, I'll turn the call over to David.

Speaker 2

Thank you, Mark, and thanks everyone for joining us. We delivered a strong Q3 highlighted by 11% year over year recurring service revenue growth. Moreover, we delivered adjusted EBITDA growth of 7% over last And converted 53 percent of adjusted EBITDA to free cash flow for the quarter. Additionally, we are pleased to report we renewed the tolling contract with Enterprise Mobility for a 3 year term with terms and conditions that are materially consistent with the prior agreement. Enterprise has been a terrific long time partner and we look forward to continued shared success in the future.

Speaker 2

I'm incredibly pleased to point out that we are 100% fully de SPAC'd With all warrants now exercised and all earn out shares issued, this comes as we celebrate our 5 year anniversary as a publicly traded company, A significant milestone in our incredible journey to become a leader in smart mobility solutions. Additionally, we our previously authorized $100,000,000 share repurchase program, the details of which Craig will further elaborate in his remarks And our Board of Directors has also authorized a new 18 month $100,000,000 share repurchase program. Lastly, we are again increasing our financial guidance due to our strong year to date performance and our outlook for the Q4. Moving on to our operations and starting with commercial services, we delivered 14% revenue growth driven in large part by an exceptionally strong summer travel season. Year to date TSA volume is about 101% of 2019 And about 113 percent of 2022 volume.

Speaker 2

RAC tolling revenue increased 18% over the prior year quarter Due to increases in adopted rental agreements, the increased adoption of all inclusive pricing plans, a durable trend of longer rentals And the secular tailwinds related to increased toll roads and cashless toll lanes. We believe the sentiment from the major airlines, Hotel chains and rental car companies suggest no signs of slowing domestic travel demand through the remainder of this year. And as we head into 2024 in the near to mid term, we believe sentiment and bookings suggest that domestic Travel demand will see steady growth underpinned by an increase in business travel driven by return to office mandates and hybrid work We continue to experience strong growth from the FMC business generating 20% Over the generating 20% over the same period last year. This was higher than our internal expectations driven by several factors: The expansion of our sales team and the purposeful intent and focus in this market area second, we are enhancing brand awareness moderate and to grow in line with the overall commercial services growth rate. The key factors influencing our conviction in the high single digit growth rate are Low market penetration levels, particularly among small and medium sized fleets and the value added tools we offer that reduce costs and Moving on to Government Solutions, recurring service revenue which reflects 94% of the total revenue for the quarter Grew 10% over the same period last year.

Speaker 2

Government Solutions sales growth is benefiting from the prior year completion of the New York City build out And the city's decision to transition to 20 fourseven monitoring as well as program expansion with existing customers and new camera installations with new customers. As we look toward the future, we are anticipating significant growth in our government solutions TAM. We continue to experience a favorable environment as states are increasingly turning toward enhanced automated enforcement to increase traffic safety for their citizens. In October, California signed into law legislation for a speed safety pilot program in 6 major cities, including Los Angeles, San Jose, Oakland, Glendale, Long Beach and the City and County of San Francisco. We currently estimate the potential annual recurring revenue opportunity associated with may expand the scope of the speed program in future years.

Speaker 2

We estimate the total recurring revenue opportunity could be greater than $100,000,000 annually within the few years if legislation allows. Additionally, in Pennsylvania, we're seeing continued positive momentum for the automated enforcement. The legislation is seeking to enable new use cases including school zone speed and school bus stop arm as well as extend and expand Existing use cases for work zone speed and highway speed enforcement. As we previously discussed, Florida passed school zone speed and school bus stop arm legislation in May, We are actively monitoring how cities seek to operationalize the new legislation and subsequent RFP announcements. We continue to anticipate generating revenue from initial awards and deployments in the back half of twenty twenty four and we'll provide more color when we provide 2024 guidance on our 4th quarter earnings call.

Speaker 2

I'm also pleased to report that we were awarded a contract with the City of Yonkers, New York and the Yonkers Public School System in which nearly 500 school buses will be equipped with our school bus stop arm safety cameras. This is a great example of purpose built safety program that will protect our children in the spirit of Vision Zero. We see a continued demand nationwide for our solutions and according to NHTSA, an estimated 19,500 People died in motor vehicle traffic crashes in the first half of this year, which represents a 3% decrease compared to over 20,000 fatalities in the first half of twenty twenty two. At the same time, people are driving more and preliminary data shows vehicle miles traveled in the first half of twenty twenty three increased By more than 35,000,000,000 miles, roughly 2% higher than the same time last year. While it's promising to see some safety improvements, there's still much work to Moving on to T2 Systems, total revenue was effectively flat year over year.

Speaker 2

SaaS and services revenue, the key value driver was up 4% Over the prior year quarter, slightly ahead of expectations. However, one time hardware sales We're down about $1,000,000 compared to last year due to customer requested installation timing considerations. We anticipate Solid sequential revenue growth in the 4th quarter due to continued strength in recurring SaaS and services. In summary, this was an incredible quarter highlighted by a Key customer contract renewal, exciting new enabling legislation, executing our capital allocation initiatives, Strong financial performance and increasing our financial guidance. With that, Craig, I'll turn it over to you to guide us through our financial results and our revised current year outlook.

Speaker 3

Thanks, David. Good afternoon and thanks to everyone for joining us on the call. I'll start out today by providing an overview of our Q3 results, followed by our updated 2023 financial guidance and I'll conclude with a discussion on capital allocation. Before I dive into 3rd quarter results, I want to briefly mention that we appointed Deloitte as our independent registered public accounting firm during the Q3. The move to a new public accounting requires tremendous effort and I'm pleased to report the transition is going well.

Speaker 3

I want to personally thank the teams at Vero Mobility and Deloitte Who are all hard at work making this happen. Now let's turn to our operating results beginning on slide 4, which outlines revenue and adjusted EBITDA For the consolidated business, total revenue increased more than 6% year over year to $210,000,000 for the quarter driven by Strong recurring service revenue growth. Excluding domestic government solutions product sales in the Q3 of last year, Total revenue grew 11% year over year. Recurring service revenue grew 11% over the prior year quarter driven by A strong summer travel season and the prior year expansion of the New York City School Zone Speed Program. At the segment level, commercial services revenue grew 14% year over year, government solutions service revenue increased by 10% over the prior year In T2 Systems SaaS and services revenue grew 4% over the Q3 of last year.

Speaker 3

Product revenue was $9,000,000 for the quarter, About $4,000,000 of this total was from T2 Systems, while $5,000,000 was from government solutions, the majority of which were international product sales. From a total profit standpoint, consolidated adjusted EBITDA of $97,000,000 increased by approximately 7% over last year. The core business defined as excluding one time domestic government solutions product sales generated adjusted EBITDA growth of approximately 11% Versus the Q3 of 2022. Turning to slide 5, we've generated about 364,000,000 Adjusted EBITDA on approximately $792,000,000 of revenue on a trailing 12 month basis, representing a 46% adjusted EBITDA margin. Over the same term, we've generated about $187,000,000 of free cash flow or a 51% conversion of adjusted EBITDA, representing $1.19 of free cash flow per share.

Speaker 3

Moving to Commercial Services on slide 6, We delivered revenue of $98,000,000 in the 3rd quarter, which is a 14% year over year increase. RAC tolling revenue increased 18% over the same period percent year over year as our growth initiatives continue to produce the intended results. As David mentioned, FMC revenue exceeded internal expectations driven by the We've experienced enrolling small and medium sized business fleets. 3rd quarter adjusted EBITDA in commercial services was $65,000,000 representing 16% year over year growth. Adjusted EBITDA margins of about 67% reflected normal seasonality and were up about 1% compared The Q3 of last year due primarily to the strength of Rack Tolling.

Speaker 3

Let's turn to slide 7 and we'll take a look at the results of the Government Solutions business, Driven primarily by New York City's photo enforcement expansion efforts, service revenue increased by $8,000,000 or 10% Over the same period last year to $85,000,000 for the quarter. Product revenue was about $5,000,000 for the quarter and was driven primarily by international programs. Adjusted EBITDA was $29,000,000 for the quarter, representing margins of 32%. The reduction in margins versus the prior year is primarily due to increased Now turning to slide 8, we had mixed results for parking solutions. Revenue of $21,500,000 and adjusted EBITDA of about $3,600,000 were slightly below internal expectations.

Speaker 3

SaaS and services revenue slightly exceeded expectations, which is the primary value driver, but approximately $2,000,000 in one time product sales Shifted into the Q4. We have made several process improvements in our forecasting process, but we'll need to continue to evaluate given the choppiness of the university purchasing cycle. Moving to slide 9, we'll take a look at reported income and leverage. We've reported net income of $30,000,000 for the quarter, including a tax provision of about $11,000,000 representing an effective tax rate of 28%. Having fully de SPAC this quarter, this will be the last quarter That our tax rate is impacted by permanent differences related to mark to mark adjustments for our private placement warrants.

Speaker 3

Adjusted EPS, which excludes amortization, stock based compensation and other non recurring items was $0.29 per share for the current quarter, which is $0.02 per share higher than the Q3 of 2022. On the right hand side of the page, you can see that we ended the 3rd quarter With a net debt balance of $942,000,000 resulting in net leverage of 2.6 times for the 3rd quarter. The primary drivers were strong free cash flow, debt repayments and the cash exercise of warrants which yielded Approximately $56,000,000 of cash proceeds during the 3rd quarter. As of the end of the 3rd quarter, we have paid down Approximately $180,000,000 of floating rate term loan debt on a year to date basis. Our gross debt balance at quarter end stands at about $1,100,000,000 of which approximately $700,000,000 is floating rate debt.

Speaker 3

With a notional hedge of approximately $675,000,000 We have hedged about 95% of our current floating debt total with a float for fixed rate swap. This hedging instrument fixes the SOFR portion Of our SOFR plus 3 25 basis point term loan B at a rate of 5.2% for 3 years with a monthly option to cancel Beginning in December of this year that we can execute in the event that interest rates move in our favor. From a cash standpoint, We generated approximately $62,000,000 in cash flow from operating activities resulting in $52,000,000 of free cash flow for the quarter. Okay, let's turn to slide 10 and have a look at full year 2023 guidance. Based on our year to date results In our outlook for the remainder of the year, we are increasing our revenue guidance from the prior range of $800,000,000 to $810,000,000 to the higher end of that range.

Speaker 3

We are increasing our adjusted EBITDA guidance from the prior range of $365,000,000 to $370,000,000 to the higher end of that range. We are increasing our guidance for adjusted EPS to an updated range of $1.05 to $1.10 per share despite our increased share count. And lastly, there is no change to our prior free cash flow guidance of $155,000,000 Our revenue guidance incorporates a modest reduction in RAC tolling that we typically experience in the 4th quarter, which is consistent with historical trends. Government solution service revenue is expected to be up slightly in the 4th quarter, representing a lower rate of year over year growth due to the anniversary of the completion of the New York City camera installs and the transition to 20 four by 7 monitor. In addition, our parking solutions business is expected to generate solid sequential revenue growth due to the normal university spending cycles and continued strength in SaaS and services revenue.

Speaker 3

Additionally, Based on achieving the adjusted EBITDA and free cash flow guidance ranges, we expect net leverage to be around 2.5 times by year end 2023. The expected net leverage target reflects a reduction of nearly a full turn of net leverage over the past year, driven by the strong free cash flow generation capabilities of our company, along with the year to date proceeds from the exercise of warrants. Moving now to our capital allocation plans for the remainder of the year. As David and I previously mentioned, We are now fully de specked with the remaining warrants converted to shares at a cashless basis during the Q3. In addition, as we discussed on our Q2 call, we paid down an additional $100,000,000 of floating rate debt in the 3rd quarter, bringing our total debt pay down for the year to about $180,000,000 Next, I'd like to give you a brief update on the share repurchase program the Company's Board of Directors authorized in November of last year for up to an aggregate amount of $100,000,000 over an 18 month period.

Speaker 3

Primarily using an accelerated share repurchase program, we've repurchased about 4,500,000 shares through the end of the third quarter. The final settlement of the ASR is expected to occur during the Q1 of 2024, at which time a volume weighted average price calculation Over the term of the ASR agreement will be used to determine the final number and average price of the shares repurchased and retired. At this time, we expect the final outcome of the full $100,000,000 share buyback program to result in the repurchase of approximately 5,000,000 shares. As David briefly mentioned, our Board of Directors also authorized a new 18 months $100,000,000 share buyback program. We remain committed to delivering value to our shareholders through a disciplined and flexible capital allocation strategy.

Speaker 3

This new buyback authorization highlights our balanced capital allocation approach focused on the tremendous cash flow capacity of our business. In summary, we are in a fantastic financial position and we believe the operating trends in our business are favorable and durable. This concludes our prepared remarks. Thank you for your time and attention today. At this time, I'd like to invite Irene to open the line for any questions.

Speaker 3

Take it away, Irene.

Operator

Thank you. We will now be conducting a question and answer session. The first question we have is from Faiza Agha of Deutsche Bank. Please go ahead.

Speaker 4

Yes. Hi. Thank you so much. So I first actually wanted to talk about the California legislation that you referenced. I think I heard you say that it can drive incremental annual revenues of €10,000,000 that can then go up to €100,000,000 So just curious if you can give a bit more color around that.

Speaker 4

Do you need incremental legislation? Or are there certain outcomes That would drive that increase. And just that, dollars 10,000,000 just seems a bit low. So curious In terms of what your assumptions are there?

Speaker 2

Yes. This is David. Great question. The way to think about it was Similar to other states, the state of California decided to do a pilot program with a fixed number of cameras that they would allow. So, it's dispersed across the cities that I mentioned on the call, but if they decided to start with a fixed number And what I would in terms of milestones, what I would anticipate is they'll look from proof from the program in terms of how is it impacting Speed in certain sites, certain school zones in different areas within the state.

Speaker 2

And then based upon that and the benefits we anticipate from that, That's when they would go back to the legislation or go back to the legislative body rather and look for an expansion in a more permanent status Of the legislation. We have had other states that started in the same way.

Speaker 4

Got it. Okay, understood. And then secondly, you made some comments around 2024. We're at the point in the year where we're looking at refining our models for 2024. So I'm curious if I know you're probably still in your Planning process, but how should what are some of the things that we should keep in mind as we look ahead to 2024?

Speaker 3

Yeah, Faiza, it's Craig. Thanks. And you're right, we are still in the planning process, but it's starting to become to land in the same range that we talked about at Investor Day, right. So I expect to see that organic growth year over year in that same range. If I look at it from a margin standpoint, my best guess today is that we would be flattish to have a modest margin growth next year, Still doing a little bit of investment and I think that will be clear when I talk about how we are thinking about cash, notably how we are thinking about CapEx.

Speaker 3

So If you take what David said in his prepared remarks and I think we've been talking about for quite some time, The expansion in TAM in the government solution space domestically is kind of unprecedented. So in order for us to play our part, we have to lead with CapEx, Right. So we will see the draw on our CapEx, which will be all growth CapEx next year. I'm expecting it to be somewhere in the range of $25,000,000 to $30,000,000 of additional CapEx year over year as we look to capitalize on that growth. So in summary, I expect the organic growth to look a lot like Investor Day.

Speaker 3

I do expect Margins, I'd love to say it's going to be a bit accretive, but flattish to a bit accretive And we will have increased CapEx and again the majority of the thrust of that is going to an end government solutions where you'd hope it would.

Operator

The next question we have is from Nick Grimeau of UBS. Please go ahead.

Speaker 5

Hi, David and Craig. Congrats on the strong quarter. First, I just wanted to ask about what's driving the continued outperformance And the FMC business such as the new distribution channels you're building out and the types of new customer bases that you're gaining traction with?

Speaker 2

Yes, sure. So, traditionally, we have looked at really if you look at commercial fleet as a whole, We've obviously focused a lot on rental car and then through channel distribution through FMCs. One is we sort of what I would say is we've doubled our efforts to an increased amount of sales resources into that traditional channel with FMC. And then in addition, we've been working on looking at smaller fleets outside of those that don't necessarily have a fleet managed company. And that's an area that we're looking to continue to grow and we're investing this year and we would anticipate growth from that, what you might call a small fleet view going into next year.

Speaker 2

So I would just call it a real commercial execution and traction within the core and then some expansion as we look at a different channel distribution.

Speaker 3

Yes. Just to add on to that, the growth this quarter surprised us. When we talked about this last quarter, we said we thought the back of the year would look a lot like the overall consolidated growth rate. So if you break this business down, it's somewhere between $12,000,000 $15,000,000 a quarter. So 10% more growth, while it's material, it's not exactly huge.

Speaker 3

We do expect that growth to look more like the consolidated commercial services growth rate

Operator

The next question we have is from Daniel Moore of CJS Securities. Please go ahead.

Speaker 5

Yes. Good afternoon, Dave and Craig. Thanks for the color. Maybe start with On the Government Solutions side, as you just described, margins ticked a little bit lower, increased operating expenses, It's associated with enhancing customer facing programs. Sounds like David, that's or Craig, that's Maybe some of the expenses that will linger into fiscal 'twenty four keeping margins a little bit flatter, maybe

Speaker 3

3, just for a second here. So you're right. In Q3, the margins came down quite a bit. This is some of the platform investments that we were making in the back half This year, they are really they were centered on Q3. So that I'm going to you're going to see that margin grow into Q4, Right.

Speaker 3

And I still think we're going to land somewhere in the 34% to 34.5% range for government solutions like I've been saying All year. So that's a little bit geography between the back half of the year. As we look towards next year, You're right. I think that it all comes down and the reason why I can't give you a precise number yet is it comes down to timing. As these new TAMs are opening, it depends how soon we can get our product in the ground, right.

Speaker 3

If it's going to be towards the back half of the year, we're going to be running some expense to get that done. If it's towards the front half of the year, we won't have to run some of that expense. So when we talk about being flattish Year over year, it is slightly accretive in 2024. I would expect that same rubric to apply to the GS business. That's where the investment is.

Speaker 5

Got it. Makes sense. On the parking side, T2, maybe just talk about the pipeline of RFPs and As we look into 'twenty four and more generally, where do most of the opportunities come from? Is it customers that typically been managed in house We're competing with incumbents and just say how you see that the growth in that business in 2024 and beyond. Thanks.

Speaker 2

Yes, in particular on the SaaS, the software side of the business, as we look at our products, we focus on universities and then ones for small Performance and Enforcement. I would say both of those have strong pipelines. The market is still, I think, actually continue going to be strong for those markets. Typically, we will parking has been around a while. So obviously, people are more often than not, They are either considering moving to something that they've been managing themselves where they're already using a competitor.

Speaker 2

I would say it depends on which market you're talking about as to which is You know, fifty-fifty or sixty-forty or what have you. But, the good news is, especially in university, we have such a strong reputation and That's a customer base that really talks to one another. So we feel really good about as we're going into next year, just kind of really focusing in on that university segment and

Speaker 5

Clearly being aggressive around these levels. Is the plan to continue to be aggressive or maybe be a little bit more opportunistic As it relates to the new authorization. Thanks again.

Speaker 2

Yes. Thanks, Dan. You've noticed for a while and I think The great aspect of Varemobility is our ability to sort of reevaluate capital allocation on a pretty almost on a quarter by quarter, but certainly every 6 months. And what we do is we sort of every single time we go and look at the landscape, we look at our M and A pipeline, we look at our cost Capital our debt and then we look at our the share price related to our calculation of intrinsic value and then we make a determination. So Our history shows that we've been very opportunistic on all of the above, and I would anticipate we would continue to do so.

Speaker 5

All right. Thanks again. I'll jump back with the follow ups.

Speaker 2

Thanks, Dan.

Operator

The next question we have is from Keith Housman of Northcoast Research. Please go ahead.

Speaker 6

Good afternoon, guys, and congratulations on the quarter. It's been obviously an active year in terms of the state legislation is adopting Favorable legislation for traffic and cameras. Is there 1 or 2 more states that perhaps are in your, I guess, you're focused that perhaps there's going to be active legislation going forward over the next few months as well? Or you think we're in a hiatus here where We just absorb what's going

Speaker 2

on. Well, there's no such thing as hiatus. We don't believe in that for sure. What I would say is we have so much incredible opportunity in front of us. We are really focused on maximizing that our teams have done such a great job of creating in places like Florida and California and others.

Speaker 2

We will continue to obviously be on offense And some of the key states and really look to do kind of what we did in Florida, which is we took a state that was only red light and then through a lot of hard work, Added other products to it, so expanding sort of think of it as a legislative share of wallet, if you will. And I would anticipate we'll continue to do that. But Between the opportunities that we have here in the U. S. Plus some of the emerging opportunities we see in Canada and in Australia and New Zealand, I think we've got so much in front of us, that's where we're going to focus our efforts.

Speaker 6

Got you. And just expanding on that, in terms of the states that perhaps had red light and they're adding speed or vice versa, I guess no one is really read that these days. But how important is that for you guys to be able to leverage your Redlight relationship already? I mean, is it almost like Surety that you get that business or is it perhaps open that someone else can walk in there?

Speaker 2

It will sometimes depend oftentimes because more the people that are making decisions on red light may not be the ones that making decision as an example on school bus stop arm. That's a totally different set. And even it could be different on speed depending on the deployment, meaning if Schools on speed or work zone speed, that might be a different decision maker. So certainly, we are able to leverage and point to the success we've had with other clients. It doesn't I mean that they're just saying, oh, let's add this to the contract already have.

Speaker 2

That would be great, but more often than not, it doesn't occur that way.

Speaker 6

Great. Thanks. Appreciate it.

Operator

The next question we have is from James Faucette of Morgan Stanley. Please go ahead.

Speaker 7

Great. Thanks. I wanted to follow-up on a couple of questions. On the trial in California, so that could be up to $10,000,000 if you're able to win those Pilots, like what's the time to pilot award and then potential time to revenue from your perspective at least?

Speaker 2

I would anticipate we there's still typically there's a period of time between the final governor signing a bill and then Citi is really working through the details of how to deploy it. I would anticipate probably sometime in the mid to late next year is when we start to see some awards coming through. They won't meaning that Altium 1,000,000 won't sort of turn on. There's multiple decision makers. There's multiple meanings of values that are making those determinations.

Speaker 2

So

Speaker 7

Got it. And then you highlighted some of The school bus and ARM related wins, I'm wondering How we should think about like the revenue curves associated with those? I know a lot of times in speed cameras or even red light cameras, you'll see An initial pickup in revenue and then as people get used to and condition to that enforcement mechanism that it will Come down and level off at some point. Is that a similar curve description? And how should we think about that as particularly on some of these new wins?

Speaker 2

Yes, we don't really, it's different for school bus stop arm. So it's typically more of a fixed fee arrangement with the customer Per camera per bus, given the high levels of variability because these things are moving around. So it's a little bit We actually used to do that many years ago. We no longer do that. But so think of it more of a fixed fee per camera per month.

Speaker 7

Oh, that's great. Appreciate that.

Operator

The next question we have is from Louis DiPalma of Wedinbla. Please go ahead.

Speaker 8

David, Craig and Mark, good afternoon.

Speaker 3

Hey, Louie. Hey, Louie.

Speaker 8

Hey, Craig, did you say that there is an additional 25 $1,000,000 of expected success based CapEx for 2024?

Speaker 3

Yes. Growth CapEx, I expect $25,000,000 to $30,000,000 additionally over and above what we'll do this year, Louis. And again, almost all of that increase and a large part of the base, not just the increase is in the government solutions business as We continue to expand into these new markets.

Speaker 8

Awesome. And are those is that success based CapEx, is that generally tied To specific contract wins that you may have won thus far this year?

Speaker 3

We have some indications on a little bit of it. Some of that I think is certainly going to be on It's certainly going to be on the come, but I think there's also some platform investment in that number as well, but that is revenue generating platform investment that isn't necessarily Tied to one specific customer, right. So the answer the direct answer to your question, Louis, is some of that has already won. Some of that is also in the pipeline as we speak.

Speaker 8

Great. And one final one for me. In terms of The all inclusive plans, are there still a large number of the Rack brands that Haven't yet offered all inclusive and is this an opportunity for you?

Speaker 2

I would say, we don't want to get too specific about that, but what I would say is, it is not fully penetrated. And so yes, there's still opportunity to grow that

Operator

The last question we have is from Dave Koenig of Robert W. Baird. Please go ahead.

Speaker 9

Yes. Hey, guys. Nice job as always. And maybe my first question, it looked in the 10 Q like enterprise kind of crushed This quarter, it was up a tonne like 25% sequentially, give or take and up 20% year over year, something in that range. Was that is that one starting to pick up all inclusive or is there something else to enterprise right now?

Speaker 3

Yes. So that's off airport volume. That is purely volume what you're seeing. That is not a new commercial contract or a new way to contract with the customer, Dave.

Speaker 9

Wow, so that's just A lot of rental line, that's great.

Speaker 2

Yes.

Speaker 9

We'll take it, right? Yes, right. And then secondly, just On the share count, because of all the warrant complexity and now the buyback and stuff, what should we Figure for Q4 and then Q1 is probably going to have some residual impact to like what's the best way to think about those 2 quarters for diluted share count?

Speaker 3

Yes. Okay. I was waiting for that one, Dave. So thank you. So

Speaker 6

I should have

Speaker 3

put in my comments. That's what that tells me. So at year end, I expect that share count to be 160,000,000 shares. Okay, that's year end 2023. Weighted average.

Speaker 3

Weighted average. That's a weighted average. So the number I'm giving you is going to be the base for adjusted EPS. Is that the number you're after?

Speaker 9

Well, yes, I mean, that's very helpful. But also the Q4 average, Just so we've got that because that's kind

Speaker 5

of what we're going to use for going forward too.

Speaker 3

Okay. Well, why don't I move over to just go ahead, Yes, Mark, we'll be better at this one.

Speaker 1

For Q4, weighted average should be about 1.60 8.

Speaker 9

Yes. That's helpful. And then a little lower going forward because you're doing some buybacks now that will Kind of fall into next year, the average and stuff?

Speaker 3

That is correct. And let's take it all the way forward to

Speaker 2

You bet. Thank you.

Operator

There are no further questions at this time. And with that, this concludes today's conference. Thank you for joining us. You may now disconnect your lines.

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Key Takeaways

  • Verra Mobility reported 11% year-over-year recurring service revenue growth in Q3, along with a 7% increase in adjusted EBITDA and a 53% conversion of EBITDA to free cash flow.
  • The company fully de-SPACed with all warrants exercised and earn-out shares issued, renewed its 3-year tolling contract with Enterprise Mobility, and authorized a new $100 million share repurchase program.
  • Commercial services revenue jumped 14%, driven by an 18% rise in RAC tolling revenue and a 20% increase in the FMC business amid an exceptionally strong summer travel season.
  • Government solutions saw 10% service revenue growth, powered by the completion of New York City’s program expansion, new speed-safety legislation in California (potentially unlocking over $100 million in annual TAM), and a 500-camera school bus stop-arm deal in Yonkers.
  • Verra ended Q3 with a strong financial position—$210 million in revenue (+6% YoY), $97 million in adjusted EBITDA, and net leverage of 2.6x (with 95% of floating-rate debt hedged), targeting 2.5x by year end.
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Earnings Conference Call
Verra Mobility Q3 2023
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