Q2 2020 Verra Mobility Corp Earnings Call
We're currently holding for today's conference call at this time, we're committing additional participants and will be underway. Shortly thank you for your patience and please continue to standby.
[music].
Please standby good everyone and welcome to Vietnam Mobility second quarter 2020 financial results Conference call.
This conference is being recorded I'd like to now from the conference to Mark Orphan. Please go ahead Sir.
Thank you good afternoon, and welcome to their inability second quarter 2020 Onek. So.
We'll be discussing the results announced a press release issued after the market close this chemicals afternoon, It's Dave Roberts from abilities, Chief Executive Officer interest you she financial.
Well begin with some prepared remark and they want the calls cuda.
During the call were mixed enjoy tour business and maybe considered forward looking for these things getting their plan actually together, which drives you are going each meet you just see in acquiring new customers mother statements regarding your cancer.
Forward looking statements may often be identified with words, such as we expect you anticipate or coming.
Statements reflect a you only as of today and you don't see consider can you just any subsidy.
It takes no obligation to update or revise its forward looking statements forward looking statements is well got sponsors will guarantees of future performance and are subject to a variety of risks and uncertainties.
Actual results to differ materially from March vacations.
Got you material risks and other important factors that could affect your actual results. Please refer to those teaching them.
On form 10-K quarterly report on form 10-Q.
Which are available on the Investor Relations section of our websites that are very mobility dot com and on the fccs outside of that she she Duncan.
Finally during the course of today's call you refer to certain non-GAAP financial measures reconciliation of GAAP to non-GAAP measures is included in especially since you got physicals today, which is located again on their website <unk> dot com ability dotcom and on the actually she shops.
She does go.
With that let me turn call over to David.
No.
Thank you Mark thanks, everyone for joining us on the call today.
If you were only where the situation with the cool 19 pandemic remains even if you will continue to be work that's to me Balky insurance parents and sharing as much as we can.
See you know business.
The challenges presented by the current 19th and then next during the quarter one precedent in terms of overall effect on the economy into our portfolio businesses specifically.
Well, we were most certainly impacted by the Diamond guard business and employees remain healthy and the strength of our core business and our longer term growth initiatives give us confidence about our future global leader in smart transportation.
We're pleased with our execution in the second quarter, that's resulting in a football internal expectations based on slightly higher cooling activity and better than expected execution on the New York City schools and speed humor installations.
Second quarter revenue came in at $79.8 million declined 27% year over year, and our adjusted EBIT documents, we $7.6 million coin, 54% year over year.
As a reminder, when widespread closures travel bans in children's place orders first started reacting quickly and decisively to repair business for being seen tremendous these orders from cabinet business. Those measures that we spoke included the elimination of discretionary spending enormous central corporate travel.
Oh, no Austin for positions the elimination of all discretionary capital expenditures.
Two we continue to pay cuts for many of our executive as well as cash compensation. So we're.
Finally, before with approximately 34 cents of our employees for 90 days. After the 90 day period. The majority of the for with employees were formally laid all these employees work was were highly correlated to volumes from our customers, which we believe will take time to recover as domestic and international travel continues to run.
Yeah.
Oh, sorry, our business and speaking to extreme challenges like most of the global economy. We continue to believe we feel this highly resilient business that has incredible upside.
Certainly I would like to highlight that we ended the quarter was $130.2 million cash on the balance sheet.
Okay. So I wanted to credit our current model, which includes the implementation of the cost saving initiatives. You previously outlined shows this would mean cash flow positive for the remainder nothing here no one will move onto our Q2 results by segment.
The commercial services segment revenue declined 16% year over year to $27.3 million in reported adjusted EBITDA was $7.3 million down 84% year over year.
This decline is consistent with the preliminary results highlighted for April on our last earnings call for Q2, we saw a month over month revenues increases from April through June and this momentum continued into July.
Jim was still down approximately 50% on a year over year basis.
In Europe, we launched the first ever rental car cold management programs rent a car friends or initial rollout begins in Paris, nice, but we're seeing into additional regions and expect to have over 50% of their fleet installed by the end of Q3.
We're very excited to get this program up and running Super gotten near term expectations due to cope with thinking that said, we continue to believe the geographical expansion contracts when products senior will be a meaningful growth driver for commercial services segment.
Sure.
Moreover, as could you just decided in Europe.
We have been able to before other proof of concept.
Caucus integrations, we're close to getting older fleet pilots, Washington, UK, Ireland.
Oh, yes inside we renewed our grid one of the largest happens each in the country for another three years. This is a longstanding relationship that you perform multiple services, including told me engines in violation services.
You would expect the main driver of success of the commercial services revenue highly correlated to rental car volume, while Q2 was slightly better than our internal forecast, we still anticipate ongoing pressure on the business until late 2021.
We shared his views with other companies and travel related industries and [laughter] bikes over 19, we will continue to monitor progress and provide more specific updates as information becomes available.
Our government solutions grew 27% year over year to $52.5 million reported adjusted EBITDA of $20.3 million, 31% year over year.
Growth in the government solutions segment. This quarter was primarily driven by the expansion of the schools and speak right rather than New York City, which included additional product revenue and subsequent service revenue associated with newly installed humans.
Our work with the New York City Department of transportation to expand the number it skews on speed enforcement areas continued ahead of pace, we're excited to be able to bring this important public safety initiative to fruition even during these challenging times the expansion of the schools on speed program in New York City continues to track slightly ahead of schedule.
Tumor installations running ahead of 29 teams pace, we can still 195 humorous into second quarter, an average of 65 per month. Additionally, we installed one thing you bustling camera systems.
During the quarter, we successfully renewed 100% of our contracts that are up for renewal, but he's an activity related to new opportunities, we're mostly shut down because of Copel 19.
On the Legislative front, two states pass legislation that expands booth forces in their respective state.
Commonwealth of Virginia pass legislation in April authorizes works and schools and speaking of surrounding states. We're excited about the opportunities in Virginia and believe the obtainable tends to approximately $50 million.
Georgia, It will take some time for local municipalities to pass their respective legislation increase our opinions, but momentum for this important safety initiatives continues.
Additionally, the state of Washington enacted legislation authorizing bustling WAPA box enforcement cameras in Seattle trial basis.
No. It's a fairly small opportunity is another example of the state extending their phone important programs.
As mentioned earlier in the year, we sold our guidance given the uncertainty or the ongoing impacts to our overall business. In Q2, we did engaging third party to help us better assess and align our internal forecast are critical macroeconomic drivers as we see be impacted efficacy of this more data driven view we hope.
To be in a better positions are revising guidance at some point in the future.
In summary, we continue to hit our marks in the challenging environment and believe our balance product portfolio provides stability in these uncertain times for growth into the future well remains uncertain, how long could 19 or its impact on our customers and our business will persist. We are confident the resilience of our employees customers and builds a man.
Through these turbulent times, we look forward to updating all of our stakeholders from our employees and customers to our shareholders and our continued progress with that let me hand, it over to Tricia to walk through the financials in more detail.
Instead, and good afternoon, everyone I'll provide a more detailed overview of the second quarter financial.
I suppose the question yesterday, the short term in stuck on their website provide some insight into the quarter reconciliations to GAAP to non-GAAP results will be discussions about.
This is only a long enough and while I'm on slide two which outlines revenues and adjusted EBITDA performance for nurses services segment.
Total revenue for the segment declined 60% to $27.3 million in second quarter 2020.
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For the same quarter, probably yes.
That's a majority of its revenue comes home services provided to rental.
Which has been greatly impacted by stay at home or those movies travel.
As David mentioned in response to the revenue decline, we took decisive option reduce costs decreasing operating expenses.
No one dollar 10-Q up 2020 compared to the same stated the prior year.
Similarly, we would be asciano by $2.3 million from the same called the private deal. Yes. She makes savings were offset by 2.9 billion dollar increase in charges associated with.
Even with these cost saving measures adjusted EBITDA for the quarter of $7.3 million declined $36.9 billion or 84% year over year, some $44.1 million in Qs 21 team.
Adjusted EBITDA margin to the commercial services came in at 27%.
These are margins that would be strong for most companies in the Boston.
It seems small in comparison to the historically high margins pretty focused business.
Given the uncertainty surrounding the global outside the cause of monkeys, all situation overall impossible economic condition, it's difficult to predict demand for all products.
We can show some of the football.
Some of them I, just pessimism indicated that it doesn't.
All the nearly 80% in April and 60% in June.
We carried a bit better.
And our underlying customers in April the 64% decline and in June with 50% Yeah Yeah.
As soon as an example, too.
We've seen increasing month over month, rather than some people through June and this momentum continued in such a long okay, rather than the numbers for July I have rebounded more than 75%.
Turning to the next slide we see the government the results of government solutions business.
Okay, so important programs and the problems in school district in solution.
Total revenue for the segment was $52.7 million in second quarter in 27% year over year from $41.5 million and second quarter.
As a reminder of the total RASM was comprised of service revenue. That's the most everything that we can't make them population, but they didn't take them in place.
Which is the result is.
I think it's important to talk about these two places as Evan.
Service revenue for the quarter with themselves.
No $1.80, 2% deals a year from 35.
Dolphin.
Team.
The government solutions businesses influences.
18.
With some schools on C.
He programs palms, and virtually all of our school bus stop on programs falls well schools are modeled session.
We also continue to see year over year declines in both like services, which reduced revenue by $2.8 million, primarily resulting from a loss of certain programs in Texas in June 2019.
These headwinds from one of them.
By the $4.9 million video growth in our ski portfolio expanding its the portfolio continues to be the focus in the back half of 20 to 20 and we anticipate.
It's politics by the end of this year.
Baltic CASM was $17 million for the quarter.
Okay.
From the same thing it last year. These increases were primarily driven by 195.
HM.
New York City.
Adjusted EBITDA.
We.
Increased by 4.8.
41%.
15.6 million balls in the same freedom.
The large increase in club.
One thing both itself in the bottom line prisons.
Adjusted EBITDA margins as a business doesn't increase to 30, Microsoft's them city ink consumption.
We're very proud of the performance of the government solutions business. During these difficult problems the working in selling cameras in the ballpark 20, making the first talk so much money well do watch service revenue growth to.
To the mid single digits for the full year 2020.
We continue to execute against an existing order of 720 camera system cope with Nike has not impacted on supply chain or installation cycle in Alberta babies installed an additional 66 to 60 system in Q3, bringing the full year total installations to 473.
You should see that the pace of installations and Robin will continue on the back half a year with yielding a gross adds for the product sales will decline as a crossover more difficult comps for the remainder of here.
Turning to the looks like and show our consolidated results for the quarter become wife is that the business segments and just as Paul generated total revenues of $79.8 million for the second quarter.
Finally on.
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And your 27% 401.
For the thing.
The problem.
Adjusted EBITDA of $27.6 million increased by $32.1 million, 54% from adjusted EBITDA of $59.7 million.
Yeah.
Quarter adjusted EBITDA margins was 34.6 system.
During the second quarter, we initiated cost cutting measures halting involves having discretionary spending reduced executive pay Medusa staffing levels.
With the cost control measures, we should see combined.
She has a deep sleep and nearly $6 million in the back half of 22 when compared to the.
The company reported a net loss of $15.4 million in the quarter.
Compared to net income of $2.6 million in the same trade in the prior year contributing to the false with a $4 million non cash charge associated with the devaluation. Other tax receivable thing that this deal even need to be revalued from time to time through sept talking as expected tax rate.
Adjusted NPL, which excludes amortization stock based compensation in Chile evaluation with Citi.
Yes, yes, so the whole quarter compared to 16 cents per share the Q2, that's going on.
Talk to them, but for the quarter was $4 million message.
That's true ups, 1.7%.
I want to spend a little bit of pound assessment liquidity position.
We generated $22.5 million in cash from operating activities. During the six month ended June thirtyth.
Compared to generate $45.8 million for the same period in the prior year.
The change resulted from a reduction in net income and it's better impacted by increased.
Due to high volumes of 10 solutions and play a payment processing from government customers.
It is also a reduction in liabilities as we made payments in the first quarter could certain expenses to them.
Throughout 2019.
We also spent $14.3 million in California, compared to $14.2 million in the prior year.
Free cash flow defined as cash flow provided by operating activities less capex at $8.3 million.
In the year to date period importantly, we anticipate the remaining six gosh that's happened at Citi.
As of June Thirtyth, it total debt at $870.2 million, what a plus on hands are not dealt with $757 million, which was 2.6 times trailing 12 month adjusted EBITDA of 200 and such.
Assessment doesn't mature until 2025, and they currently have $75 million a ballpark with some John and as of today. The data. This call we have just over $130 million crushing thing.
This combined with our expectation is to be tested positive for the year provides confidence in denim as evidenced liquidity position.
As we look to the future the uncertainty slowdowns in the global outbreak of quite that much inside of installation and overall business. In fact makes it difficult pesticides said I'd say the back half of the year.
Your family insights about a dozen the discussions of each business segment to be helpful.
In summary, we continue to believe that variability than small positions in the long.
Great and discipline to manage through the volatility.
And with that.
Call for questions.
Thank you the question and answer session will be conducted electronically.
Ask a question. Please press star one on your telephone keypad.
The only speakerphone. Please make sure your mute function is for golf told all of a signal to reach our equipment.
I've done that star one to ask a question.
Our first two Steve <unk> with Morgan Stanley.
Great. Thank you for taking the question and I Hope you guys are safe and healthy.
Oh, maybe a good place to start would be the upcoming travel season, and I know you guys kind of laid out the trend is improving two on that on a commercial side down 50% June as we're coming into the summer months. It seems like some pieces. Some places are adding activity restrictions, whereas a lot of people started getting out looking to travel I'm curious what your thoughts are.
Being so far outperformed the rental car industry in terms of how you guys expect the travel season to go even if he can't give formal guidance.
Yeah, I can I couldn't take that I think in general.
What we're seeing is some you know I think a if you were just following the news and watch out there was sort of the initial shut down in a lot as they start to open up control. We started to increase which is what we've seen where you can also see a trend about sort of coming down what has been consistent as business travel remains down and we would anticipate.
Pete that to continue you know we do believe it once as many others do as well that went to win a you know appropriate treatment is available, but we'll start to see that come back and we still believe that that's going to take probably through the end of next year. So we have seen its obviously supermarket gas interest Tonight.
I've always said, where we don't play economist, but to the extent that we you know we would anticipate a very slow you didn't response on travel.
Up until the viruses, where a lot of away or that there are some sort of vaccine in place.
Completely understood and maybe just following up on that comment if I heard you say David.
Getting back to 2019 levels.
It would be something that maybe not play onto our economist, but just in terms of getting 2021 numbers like you talked about would be closer to the ended the year rather than the earlier part of the years want to make sure I had that right in that you're seeing any.
Your shift among the customers in terms of uptake of the rental car tolling product relative to the rental car days I guess I've clientele that penetration picked up.
Yeah, I think it's hard to total right now I think our our belief is that as we head into 21, moving starting to see those 2019 levels again does obviously hassane underpinning assumptions that are clear that are related to you know vaccine in place there's a struggle starting to restore itself.
Clearly you know if you follow airlines and somebody other travel related industries. They would tell you that anyone ever anticipate this is translating to the level of was given.
The sort of shock to the system and how people the downturn to using technology. So at this point I would say is we're seeing.
I would say that is I sit on the call that what we are seeing ahead of our internal models, which were you know obviously, we're trying to be as conservative as possible, but I don't think we'd have enough trend yet to say, we're gonna be outperforming are heading back specifically I think the macro environment is still pretty inconclusive.
Right no completely understand how can I squeeze one last one on M&A that need to fly continues to be common in your investor slides I'll bet earnings when do you guys referred to during the call. Just curious did you get any update in terms of how you guys are thinking about in Europe as a priority relative to M&A and if you're seeing any shifts there because of.
You know increasingly attractively priced assets in any adjacent categories you might be interested in.
Yeah.
We continue to maintain the habit, we have a good pipeline you know clearly at the beginning of the quarter you would've seen conversation swung because financing was quick questionable just didn't try not programmability necessarily yeah, we'd certainly reengaged on several of those conversations we're still bullish about getting deals done.
Whether or not things are attractively price you sort of an identical holder perspective, so I don't it all depends on but we still remain active and while we would want to continue to expand our capabilities in Europe. We were also we're not we're not solely looking or if we're also looking having conversations with business businesses.
Well.
Very helpful. Alright, Thank you yeah yeah.
Our next question will come from Dan Moore with CJS Securities.
Good morning. This is a stefano is calling in for Dan.
In Europe.
'cause it will start to see more measurable contribution to revenue toward the later part of 21 or is it more likely to be 2022 and beyond.
Yeah right now based upon the way we're thinking about things is gonna be it's similar to those sort of broader responsive hey, what's getting run rate toward the end of next year, which could be you know start to be significantly it will probably show up in a more consistent basis and 22, but we're still pretty bullish on.
And you know second half of next year is starting to get.
Through having all the proof of concepts in the pilots and then basically moving from their sleep expansion again to challenge, it's really not been interest and or desire or access to potential customers, but many of those same customers have been severely impacted by cobot 19, which.
Subsequently exactly whether they're on furlough are available or having to switch and talking to people. So that's more of a.
Sort of an almost like a communication administrators issued its been more challenging than necessarily to the chronic working which has been working great rent a car.
And so we're just going to anticipate that's probably going to hang around for the into the year and it will start to see more acceleration hopefully in Q4 and certainly the Q1.
Got it that makes sense I mean, I've, one more point HM government services.
She is an increase in the number of opportunities sort of school in safety zone enforcement outside of New York and Georgia.
Oh, Yeah, there's definitely been I mean.
It's definitely opportunities out there, but most of them have been slow down I mean in effect. Many schools zones are not operating and many of the main on operate in the fall depending on what part of the country you live in.
And so what I would say it is that what I mentioned in the calls the legislative bodies that still seeing great value and what these programs can contribute to safety data local level and you saw in Virginia.
What's kind of think index on top of Georgia, and then what was on Washington. So we do think there's a pretty good size demand for them a little anticipating building that demand in Virginia as we go through the back half of your given that the legislation just house because if you recall it took us almost a year, probably just started getting RFP engine sales and demos.
Things going in Georgia, So we would anticipate a similar Tottenham Virginia in other places as well.
Got it thank you very much.
Yeah.
Our next question will come from 10 children with credit Suisse.
Hey, guys. This is Justin foresight on correcting shadow How's everybody doing figure for you.
Yeah.
Good good. Thanks, So I just wanted to unpack the a commercial is all the little bit and obviously it looked like a better result, there, but then street had anticipated.
Could you know.
But typically would think of it as maybe the next to potentially increase the leisure or maybe outperformance on rental days, which I think maybe we saw a little bit of both or maybe even a mix shift to contactless as.
Certain totaling boots are now pushing people through contactless, increasing the spread that could you maybe unpack that a little more from it.
Yes, I think what are the same says is that they both have dropped off significantly from the rental car companies supplemental thing.
That's fair, meaning that you know we can improve the take rate right anesthetic number of rental agreements and create <unk> increase rather there it's really hard to do on volumes that are that.
Really what you're seeing that you're saying that we're outperforming in our children services because we've got the fleet management companies are there and they're continuing to move.
So those are really driver to they're using it for them.
And so can't management companies are still performing well and our violations programs also performed fairly well during this quarter. So what we all things and the rental apartments and he said that when renters are out there, but the good because they are using.
So it's sort of like the combination not as keep minutes I get a little more popped up and what we're seeing from just the underlying.
[music].
Great now that's super helpful sense, Trish and just one more if I might yeah. We've heard now bus playing I think called out in a few consecutive.
Earning calls here and we know that the opportunity there in New York is probably the most sizable I'd say of the portfolio. I mean has there been a strategic kind of.
Over there too so potentially exploring more though is I know you mentioned that Seattle business, but is there other areas, where you could potentially expand that program and obviously, there's a benefit there with that fit the fixed services.
Oh, Yes, I mean, we are continuing to have ongoing expansion conversations with New York around the best program there.
In Seattle, its you know, it's a pretty unique program into into city is set up.
Sort of.
From a geography standpoint to make it work better. So we certainly believe that the concept is applicable another major cities that you would only be applicable and sort of large metropolitan areas like.
Chicago's the Seattle, San Francisco World, So, but we are in ongoing discussion with a with the into related to extension.
[noise] pretty awesome. Thanks, so much guys appreciate it.
<unk>.
Well go next to limit the PMA with William Blair.
[noise], David and Tricia good afternoon.
Hello.
Do you think Trisha good afternoon.
Gary.
Yeah, you here.
Yes.
I was wondering over the past six months have you witnessed any changes.
And that competitive environment for rental car tolling and either Europe for the U.S. and without naming names is.
Like any like emerging competitor gaining momentum from your perspective.
In that category I think the answer is still no. We you know we continue to be you know just given our size and scale, we have a very unique position in our marketplace and as we continue to expand and you talk to new potential customers in Europe, we have adds up.
Not found a kind of an emerging competitors solely dedicated and has an entire local business dedicated to the rental for tooling space. So.
None of that yes, we certainly don't rest on those wars clearly good as of yet there's no need to our knowledge at least right now there has not been the major competitive entre into that market.
Great and then a follow up on the M&A question that was asked earlier has a pandemic at all changed your your M&A strategy and regarding M&A are you looking to.
Bundled together more services that you would like to sell the rental car companies for like via M&A are you looking to diversify your customer concentration away from the rental car companies.
Yeah. So I the answer to the first part of your question Louise known to seek same strategy.
We look for it we're going to use our balance sheet to accelerate our growth than we do that but looking at.
It's agencies on categories that we think would be relevant to our future. He talks about those in the past things like parking or.
Traffic management or congestion pricing in areas like that not necessary, specifically, but you know sort of broader categories.
And then that I think generally speaking, we would like to continue to diversify and add to their fourth or fifth leg of the stool and certainly that's always the home. It doesn't mean that those are assets that are necessarily available or affordable based upon crazy or owners' expectations, but clearly this part of our strategy.
That sounds good and and one last one of the monthly chart.
And your commercial revenue.
So I definitely very helpful.
I was wondering <unk> you have any commentary about July.
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The July actually takes in each of them, though and what we said it.
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So so it didnt had a marked improvement more of these amendments Rob.
A momentary numbers because.
Thanks.
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[noise] or we have located that we'll go next to Ashish.
<unk> with Deutsche Bank.
Hi, This is all I keep on friendships. Thanks for taking my question I'm just quickly on done yet.
Well on down the program I think cameras installed worldwide. His team I'm not 65 to nine is that fair assumption going forward I know on or should we be modeling around 60 come on but any color on that.
Oh, yes, yes, we did I need to 60 in the month of July. So that's another thing, but I had said on the call. You know I think if you're sort of in that range to 60 to 65, you're right. We've been moving at a very nice and I think that you're gonna stay in the back half a year that we should make it into my weather related issues.
And that didn't have slowed it down a little bit so.
We we normally model at the 16 sort of stuff probably fair enough for you to be around the same.
Thanks.
Okay. Thanks, and then one more on how I'm thinking about on either been hurts, reducing their fleet size, how how do you think that will affect you or any color on that.
Yes.
Definitely will impact that's obviously you know the number of vehicles.
Enjoy subset of members.
We would hope that as they they said it strategically when do those fleets that they said they seem to be in places like I told him. So it really has to be with weather fleet and then how will that she'd like are triggered is not the total amount of things that they had been a subset of them and eventually.
So they have smaller fleets, but they've got improved utilization in the areas, where they have high traffic actually you know such as Orlando, whereas on the east coast all of that but said benefit.
Benefit us, but that's one of the reasons, but the thing that it's gonna take us insight to that.
It's getting 2021 to have a run rate that that's gonna look like 19, because it does take a while for them and then build those friends over time.
Okay. Thank you very much.
Oh, we have no other questions at this time I'd like to turn it back to our presenters for any additional for closing remarks.
Thank you guys both of your time and I'm looking forward to let's call it.
Yeah.
Thank you.
Thank you.
That does conclude today's conference. Thank you all for your participation you may now disconnect.
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