Q3 2021 Verra Mobility Corp Earnings Call
Okay, and then we'll open up the call for Q&A.
During the call we will make statements related to our business that may be considered forward looking including statements concerning our plans to execute on our growth strategy, our ability to maintain existing and acquire new customers and other statements regarding our plans and prospects forward looking statements may often be identified with words, such as we expect we anticipate or upcoming.
These statements reflect our view only as of today November 4th 2021, and should not be considered our views as of any subsequent date, we undertake no obligation to update or revise any forward looking statements.
Forward looking statements are not promises or guarantees a future performance and are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations for a discussion of material risks and other important factors that could affect our actual results. Please refer to those contained in our annual report on Form 10-K a.
And quarterly report on Form 10-Q, which are available on the Investor Relations section of our website at I R. Dot Vero mobility dot com and on the SEC's website and S E C Dot Gov.
Finally during today's call, we will refer to certain non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in our press release issued after the close today located again on our website at I R. Dot Vera mobility Dot com and on the SEC's website at S. E C Dot Gov with that let me turn the call over to David.
Thank you rack and thank you to everyone for joining us on the call today.
Q3 was yet another strong quarter provera mobility. This year, we're proud of the great results our team delivered with their consistent execution in both of our business segments have continued to perform well.
Is tricia will discuss in more detail later, a third quarter revenue grew 67% year over year to $162 million in our adjusted EBITDA with $82 million, which is up 53% year over year.
Primary drivers for these results include the ongoing expansion of the schools on the program in New York City, and it continued strong recover recovery and travel in the US which has had a positive impact on a rental car colon business.
We've also made excellent progress this quarter and collecting 87.
$87.5 million in receivables from our automated enforcement contracted with the New York City Department of Transportation.
Q3, with a strong affirmation of our capital allocation strategy and our approach to deploying our cash on behalf of our shareholders Redflex acquisition, which closed at the end of Q2 was fully aligned with our strategy to use emanate to both expand our portfolio and solidify our position and core markets as we highlighted previously the Redflex acquisition string.
According to new schools on speed camera customers in Virginia and for the city of Atlanta.
While the government solutions segment is still encountering some COVID-19 related impacts, particularly for school bus solutions. We are beginning to see increased opportunities and potential rfps that bode well for 2022.
We also achieve key went outside of the U S. This quarter, which furthers our global strategy underpinning the acquisition of Redflex. These wins included deployable speed enforcement solutions for additional cities in Ontario, Canada, where Redflex has a strong footprint. He said he's include hotel Pickering in London.
We continue to pursue regulatory approvals for our technology solutions around the globe in the third quarter, we obtained approval in the Netherlands, which expand our ability to solve more client use cases, and our addressable market opportunities in Europe.
With regard to the Redflex integration our government solutions teams have been focused on executing a successful integration effort.
Are working diligently and it made steady progress at achieving the anticipated $8 million to $12 million and synergies that we targeted as a part of the investment thesis integration process is going well and we are adopting new ways of collaborating with our team members in Australia and Europe.
As you can imagine as with any acquisition there are some unforeseen challenges, but overall, we are on course and excited about the impact of the Redflex technology and its global footprint will continue to our future growth.
Like most businesses in the current environment. The government solution statement is not immune to the global supply chains challenges. For example, we are beginning to see longer lead time for certain components for a camera systems. However, we have placed a strong focus on supply chain management and made some smart early risk investments to avoid impacts of our revenue this year.
Yeah.
Switching now to our commercial services business, we delivered strong third quarter revenue of $77 million, which was a 75% year over year increase adjusted EBITDA was $51 million, which is about 65% year over year.
The continued recovery travel, which leads to increased total road usage was a primary driver for the business. This quarter. We are continuing to monitor the reef bleeding occurring within a rack customers as well as fleet levels are still down from where they were in 2019.
However, we are seeing consumers offer longer rental agreements, resulting in more billable days.
It's helped offset the decline in total number of vehicles overall, we continue to see some good tailwind in the market.
However, it will remain strong connections to both of our business units to help shape sales opportunities and product development.
This acquisition is yet. Another example of how we're putting our significant cash flow back to work for our investors all while growing revenue and diversifying our customer base.
We don't anticipate any issues associated with closing the deal we are targeting a closing before the end of the year. We are excited to welcome T. Two systems talented team to the verra mobility families.
Overall 2021 had been a strong year, so far for verra mobility and our results. This quarter demonstrate the success of our strategic initiatives and consistent execution, we remain committed to updating our updated guidance.
Yeah.
And before I turn it over Tricia to walk us through the financial results in more detail I wanted to share that Tricia has announced her intention to retire and as a result will be leaving verra mobility sometime in Q2 of next year.
We'll immediately begin efforts to identify her successor and are fortunate that Tricia will continue to serve as CFO during the search process and to assist during the subsequent transition Tricia.
Tricia has served verra mobility at Verra mobility CFO since 2015 and has played a central role in the enterprise wide transformation that has enabled us to deliver outstanding financial performance to our shareholders I have deeply valued her strong financial acumen and her strategic insights as well as her friendship. We are thankful for her enormous contributions to our company and are excited for her to <unk>.
This wonderful and well deserved next step in parallel with that I'll turn it over to Patricia.
Thank you David and good afternoon, everyone.
I will provide a detailed overview of our second quarter financial performance and then I'll open up the call for questions. We've provided a short earnings deck on our website to provide some insights to the corner and has reconciliations from GAAP to any non-GAAP results.
If youre following along in the earnings deck I'm on slide two which outlines revenue and adjusted EBITDA performance for our commercial services segment.
This business segment offers tolling violation processing and title and registration services for rental car companies and fleet management companies in the United States and a subset of those products in Europe. Our commercial services segment delivered revenue of $77 $3 million, an increase of $33 $1 million over the same quarter in the prior year.
But more importantly, it's in line with the service revenue generated in Q3 of 2019 the recovery in leisure travel.
And the operation of photo enforcement programs and product revenue from selling and installing camera systems and software I think it's important that we talk about these two sources of revenue separately. The service revenue for the third quarter was $64.6 million, which grew $25.7 million or 66% year over year there.
Several components of this growth $15.9 million came from the acquisition of Redflex Ah nine $8 million came from organic growth in our core business.
I'd Wanna paused for a minute and just let that think N. R. O Gannett growth in this segment is 25% over Q3 of 2020 and 47% over the same period in 2019.
The largest driver.
For this growth is the expansion of school, but don't speed programs, primarily in New York City, where we installed 720 cameras throughout the 20th 20 year and we're now seeing the impact of service revenue as we operate and maintain the system. We're also in the process of installing an additional 720 cameras in the back half of this year.
Which will continue which will contribute contribute to our growth in 2021 and well into 2022.
Product revenue of $23 million grew six $4 million or 46% from the $13.9 million for the same period in the prior year, we installed 236 schools on speed cameras under the New York City Emergency contract this quarter I'm, bringing the total installations to 394. There was also three six.
A product revenue that came from the Redflex acquisition as David mentioned supply chain issues have made headlines impacting many industries. We're proud of our ability to navigate this difficult to sit situation adapting to the ever changing landscape. We are working very closely with our suppliers and monitoring <unk> upstream stream product Bill.
Our operational teams have gotten creative in working around challenges and while we are targeting to install the balance of the cameras in the current year calendar year, we were modeling approximately 25 cameras to be in the first quarter of 2022.
Quarter of 2020.
The tax provision for the quarter was $11 5 million, representing an effective tax rate of 29, 6%.
Our effective tax rate is impacted by permanent differences related to market to market adjustments for both our private placement warrants as well as our tax receivable agreement.
The company generated $129 $3 million of cash flow from operating activities. During the year to date period in large part due to changes in networking capital we've talked a lot about our outstanding receivable with New York City, and we're very pleased with the progress that we're making.
At the end of September the city of New York D O T Otis just over $80 million.
We built New York City $41 million in the quarter for products and services and collected $87 million on aged receivables based on the current pace of payments, we anticipate being current in relation to the contract terms by the end of the calendar year.
But were very strong R.
Our very strong anticipated cash position lettuce is decision of our board to buy back shares at a rate of $100 million and we executed that in the third quarter, even with the $100 million repurchase our leverage decreased from four one times at the end of Q2 to three seven times as of September 30.
We're excited about the acquisition of <unk> and anticipate using the accordion feature on our term loan b along with cash on hand to close the transaction in late Q4, assuming that we use the full $250 million of the accordion, our leverage on a pro forma basis after giving consideration to the acquisition would be four seven times, we said in the past but.
Given our cash flow generation of the company that we'd be willing to increase leverage for the right acquisition and we believe that this is the right acquisition at the right time, and we're confident that the cash flow generation over the next few quarters will delever the company very quickly.
Given the strength of the Q3 results, we're raising our full year guidance. We are expecting total revenue in the range of 525 million to $540 million, which includes contributions for redflex and represents growth of 17% to 20% over the pre pandemic year in 2019 included in this growth.
We expect product sales to be unchanged in the range of $55 million to $60 million.
We expect adjusted EBITDA to be in the range of $250 million to $260 million or an adjusted EBITDA margin of 48% based on the midpoint of our guidance. We are outperforming our expectations and have returned to 2019 revenue and EBITDA levels, we continue to grow and invest a significant cash flow back into the business.
To generate positive shareholder returns and we'll continue to do so and with that I'll open the line for questioning.
Oh.
If you would like to ask a question. Please make note by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again, Please press star one to ask a question.
Well pause for just a moment to vote, everyone an opportunity signal for questions.
And we will take our first caller, Daniel Mora with C. J F Securities.
Good afternoon, David and Trish, Thanks for taking the questions.
So many directions to go and so sorry to hear of Trish. Thank you for all of your help but.
Gratulation.
Maybe quickly talk talk about the the acquisition process for T to assume it was in <unk>.
<unk>.
And more to the point, what type of revenue and our cost synergies should we be thinking about.
Yes, Dan it's David so with US here today, we have Mike Mcmillan as well Mike is our.
FCC of Corp development and he led the transaction from start the business finished so I'll, let him answer that question for yoga.
Perfect. Thank you.
This is Mike so it was a competitive process it wasn't necessarily an auction, but it was a competitive process.
So and we were we were we were very happy to two.
Including the long term opportunity associated with curbside management. So the focus for US for this acquisition is really on the revenue and growth side in order to strengthen their position and our collective position in the parking market.
Super helpful, Mike and forgive me, because I'm not as familiar with their business model, but that 70% to 80% that services.
How do we think about that is that is that SaaS type visits recurring revenue, maybe just to help understand the revenue model there. Thank you.
It's both of those things and they have a portion of that which is the SaaS revenue licensing and then they have maintenance agreements associated with equipment as well.
Got it very good okay.
I will jump back in queue with any follow ups. Thank you very much.
Thank you.
Okay.
Next we'll take Keith.
With North Coast research.
Hey, good morning, guys and congratulation on the quarter and and Tricia I Echo that sentiment sorry to see you go but congratulations on that decision.
On the building out of T. Two acquisition, if I may just kind of at.
Obviously any kind of acquisition you guys can do is going to be dilutive to your margins, but what kind of scale or incremental margins came this company deliver as it grows.
Certainly our hope is to work with them to bring them up at a higher level and using our relationships and expand our capabilities on our government solutions side with over 220 customers here in North America, but that would be advantageous as they look to kind of drift up market, a little bit and give them that entre.
If I could just quick one more in here is there an opportunity to take these guys international as well leveraging your red flags relationships.
No. They they would be disconnected from that point I think perhaps.
Perhaps the technology, but if you were going to do this internationally, you would probably need a different asset and a different whatever country, you're going to go to.
Alright, Thanks, guys I appreciate it.
Yes, Thanks, Greg.
Thank you and next we'll move on to Dave <unk>.
<unk> with Baird.
Yeah, Hey, guys great job.
Thank you.
Yeah, and maybe maybe first of all just looking at the progression like when we look at your percent of 19, you've like far outpaced basically any data point, we can find on travel or avis or any of those you just consistently kind of crushed those.
This quarter your step up it wasn't quite as big in my guess is that's a function of last quarter being so big with registration work, but maybe you can just kind of walk through that and then how we should see a progress as long as travel keeps going better should that keep moving kind of above that 100% in Q3.
Yeah. So I think on the on the commercial services side I think when we what we really saw was that the summer driving season opened up a little bit earlier than it normally does so Q2 was a little stronger than it normally would be.
Normally your summer driving season is sort of bookmark by Memorial day, and Labor day, which is linked to exit and restart school.
So I think we found more in April that's why we really had a really strong quarter in Q2 and as you mentioned, we did have an uptick and that was happening and title and registration in Q3.
<unk> you.
You know startup cost and other things that we're seeing here. So I would expect those numbers to grow overtime.
Alright, great great job.
Thanks, and we did add some really nice little chart in our earnings does that lay out some of these items.
Oh, Thank you got you.
Yeah.
Thank you and once again, if you would like ask a question today you may do so by pressing star one.
And we'll move on to our next question from James <unk> with Morgan Stanley.
Yeah.
James are you there.
Sir your line is open and active.
And we are not getting a response from them.
Okay.
We'll move on to Daniel Moore.
With C J S Securities.
Very good I'll go again.
Just talk a little bit as key to us is sort of a new platform or leg to the stool.
What do you see the opportunity roll ups, not the right word but.
Should we see this as a platform for further expansion via M&A.
Overtime.
Yes, I think so.
I think what you would look at the parking business as a whole is.
Theres not a lot of assets like <unk> that are sort of the size and scale with the level of cash flow and profitability, but they haven't been unique market. There is some real big players and then there is a lot of tiny small players so.
Certainly there could be some other opportunities there I think are the.
The real strategic imperative here as I think everyone in the category of Smart transportation would say the curbside management as they are going to be a big challenge for municipalities going forward.
And we want to be a part of that future and we think it's going to be important to our customers as well as other customers. So.
<unk> serves as a great platform for us to do that while at the same time diversifying our some of our revenue into.
Adjacent market.
Got it and switching gears, David you touched on this but.
Any commentary around your rack customers willingness and more to the point ability to re fleet or expand their fleets as we think about 2022 in light of you know pretty well documented supply chain challenges et cetera.
Yes, I mean, I think overall I would definitely listen to the public CEO comments around that versus relying on my commentary, but I think what they would tell you is that they are working hard to get their fleets back to where they were I mean hurts, even announce they're going to buy 100000 tussles I'm not.
Hmm.
Thank you once again that is star one if you would like to ask a question.
Yeah.
Thank you there are no further questions. So this will conclude today's teleconference. We do appreciate your participation at this time you may now disconnect.
Okay.
Thank you. Thank you.
Yeah.
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