Earnings call transcript: Verra Mobility beats Q4 2024 EPS and revenue forecasts

Verra Mobility Corp (NASDAQ:VRRM) reported its financial results for the fourth quarter of 2024, surpassing analyst expectations with an earnings per share (EPS) of $0.33 compared to the forecasted $0.31. Revenue also exceeded projections, coming in at $221.5 million against an expected $220.51 million. Despite this positive performance, the company’s stock fell 1.35% in after-hours trading to $25.6. According to InvestingPro data, the company maintains impressive gross profit margins of 60.95% and has shown strong year-to-date returns of 7.32%.

Key Takeaways

• Verra Mobility’s Q4 2024 EPS and revenue surpassed forecasts.
• The stock saw a slight decline in after-hours trading.
• The company continues to expand its electronic tolling and safety programs.
• Financial management improvements, including debt repricing, were highlighted.

Company Performance

Verra Mobility demonstrated robust performance in Q4 2024, with a 5% increase in consolidated revenue and a 12% rise in adjusted EBITDA year-over-year. The company continues to strengthen its market position in government solutions and commercial services, driven by innovations in electronic tolling and enforcement technologies. InvestingPro analysis indicates the company operates with moderate debt levels and maintains liquid assets exceeding short-term obligations, with a healthy current ratio of 2.61.

Financial Highlights

• Revenue: $221.5 million, up 5% year-over-year.
• Earnings per share: $0.33, a 38% increase year-over-year.
• Adjusted EBITDA for the full year 2024: $412 million, with a 46% margin.
• Free cash flow for 2024: $153 million, representing a 38% conversion of adjusted EBITDA.

Earnings vs. Forecast

Verra Mobility’s Q4 2024 EPS of $0.33 exceeded the forecast of $0.31 by approximately 6.45%. Revenue also surpassed expectations by nearly $1 million, continuing the company’s trend of outperforming market predictions.

Market Reaction

Despite the positive earnings results, Verra Mobility’s stock declined by 1.35% in after-hours trading, settling at $25.6. This modest decline may indicate a cautious investor stance, possibly due to profit-taking or tempered enthusiasm over the company’s growth projections. InvestingPro analysis suggests the stock is slightly overvalued at current levels, though analyst targets range from $25 to $32, indicating potential upside. The stock generally trades with low price volatility, earning it a solid Financial Health Score of 2.96 out of 5.

Outlook & Guidance

Verra Mobility has provided guidance for 2025, projecting revenue between $925 million and $935 million, a growth of about 6%. The company anticipates adjusted EBITDA of $410 million to $420 million, with adjusted EPS expected to be between $1.30 and $1.35. While commercial services are expected to grow in the high single digits, parking solutions are projected to remain flat.

Executive Commentary

CEO David Roberts emphasized, "Our business fundamentals are strong and intact," reflecting confidence in the company’s strategic direction. CFO Craig Conti added, "We remain confident in achieving the 2026 revenue and adjusted EBITDA targets," highlighting long-term growth prospects.

Risks and Challenges

• Potential flat performance in the parking solutions segment could impact overall growth.
• Macro-economic pressures and legislative changes may affect market conditions.
• The need to continuously innovate in technology to maintain competitive advantage.
• International expansion efforts, particularly in cashless tolling, present both opportunities and risks.

Q&A

During the earnings call, analysts inquired about the company’s pipeline for speed camera and enforcement technologies, to which executives expressed confidence in its strength and execution potential. Additional questions focused on potential mergers and acquisitions and share repurchase strategies, areas where the company remains actively engaged.

Full transcript - Verra Mobility Corp (VRRM) Q4 2024:

Craig Conti, Chief Financial Officer, Varo Mobility: Good day,

Liz, Conference Operator: and thank you for standing by. Welcome to Varo Mobility’s Fourth Quarter twenty twenty four Earnings Conference Call. My name is Liz, and I will be your conference operator today. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session.

Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Mark Zindler, Vice President, Investor Relations. Please go ahead.

Mark Zindler, Vice President, Investor Relations, Varo Mobility: Thank you. Good afternoon and welcome to Vero Mobility’s fourth quarter twenty twenty four earnings call. Today, we’ll be discussing the results announced in our press release issued after the market close along with our earnings presentation, which is available on the Investor Relations section of our website at ir.veramobility.com. With me on the call are David Roberts, Veramobility’s Chief Executive Officer and Craig 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.

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 risk factors. These factors are described in our SEC filings. Please refer to our earnings press release and our investor presentation for Vero Mobility’s complete forward looking statement disclosure.

Any forward looking statements that we make on this call are based on our beliefs and assumptions today, and we do not undertake any obligation to update forward looking statements. Finally, during today’s call, we’ll refer to certain non GAAP financial measures. A reconciliation of these non GAAP measures to the most directly comparable GAAP measure is included in our earnings release, quarterly earnings presentation and investor presentation, all of which can be found on our website at ir.veromobility.com. With that, I’ll turn the call over to David.

David Roberts, Chief Executive Officer, Varo Mobility: Thank you, Mark, and thanks to everyone for joining us. We delivered a solid fourth quarter with consolidated revenue growth of 5%, adjusted EBITDA increased 12% and adjusted EPS increased 38% over the prior year period. Fourth quarter free cash flow of $22,000,000 was slightly ahead of our expectations and we ended the year with net leverage of 2.4 times while investing nearly $150,000,000 to repurchase about 5,000,000 shares in the fourth quarter. Moving on to the segment level financials. Commercial services fourth quarter revenue and segment profit increased about 4% over the prior year period.

Both revenue and segment profit in commercial services were negatively impacted by a prior year period adjustment of approximately $3,000,000 related to tolling activity. RAC tolling, which includes this $3,000,000 prior period adjustment increased 3% over the prior year period and FMC (NYSE:FMC) revenue grew 5% over the fourth quarter of twenty twenty three. Government solutions service revenue increased 5% over the fourth quarter of twenty twenty three. Revenue from New York City, our largest government solutions customer was essentially flat year over year as we await the outcome of the competitive request for proposal for automated Enforcements. Service revenue increased 9% outside of New York City driven by expansion from existing customers and new cities implementing photo enforcement programs.

Total (EPA:TTEF) revenue including international product sales were up about 10% over the prior year quarter, fueled by a $5,000,000 increase in product sales compared to the fourth quarter of twenty twenty three. Government Solutions segment profit increased 44% or seven ninety basis points over last year driven by a $4,000,000 non cash charge in the fourth quarter of twenty twenty three and a reduction in credit loss expense in the current year quarter. Moving on to T2, our Parking Solutions business, total revenue declined about 13% for the quarter driven by lower professional services and one time hardware sales. Segment profit declined to $3,000,000 for the fourth quarter. I’ll provide more commentary about what operational improvements we have planned for parking solutions later in my remarks.

Next (LON:NXT), I’m going to focus on the key trends shaping our portfolio of businesses and what makes me so excited about the future growth trajectory. Starting with travel demand, which directly impacts our commercial services business, full year 2024 TSA passenger volume increased about 5% over 2023 volume, driven by strong leisure and business travel demand. While that sets up a challenging comparable for 2025, we continue to anticipate resilient travel volume consistent with forecasted GDP growth over the prior year. The travel trends to start the year have been volatile due to winter storms and the California wildfires. However, based on the positive sentiment from the major airlines and our customers coupled with other industry data we’ve evaluated, we remain comfortable with our expectations for 2025 TSA volume.

Additionally, the number of toll roads and the penetration of electronic tolling infrastructure, two secular tailwinds that positively impact the long term growth profile of commercial services continue to demonstrate ongoing strength. Over the course of 2024, ’14 new cashless toll roadways were converted or opened covering nearly 600 miles of roadways across The United States. Moreover, cashless toll penetration increased from 67% to about 70% in full year 2024, demonstrating that the secular trend to all electronic infrastructure is is steady with room for further expansion. Next, I’ll move on to the demand for automated photo enforcement, the key driver for our government solutions business. In 2024, ’30 bills were enacted at the state and local levels to authorize, expand or positively reform automated photo enforcement programs, including recent legislation in Massachusetts authorizing school bus stop arm and fixed and mobile bus lane enforcement.

We anticipate these new authorizations in Massachusetts to result in over $30,000,000 of addressable market opportunity. In total, the enabling legislation passed over the prior two years across The United States has approximately 185,000,000 of total addressable market or TAM with the potential to expand over $300,000,000 as further legislation allows in California. Our execution against this TAM has been strong. In the fourth quarter, we won contract awards representing about $11,000,000 of incremental annual recurring revenue at full run rate, bringing the full year incremental ARR totaled to $56,000,000 Notably as we have previously announced the San Francisco Speed Safety program will be the first speed program in the state of California and it is expected to start issuing warnings by the end of the first quarter of twenty twenty five. Additional fourth quarter awards including a new School Bus Stop Bomb award in Upstate New York and an expansion of our existing speed program in Toronto.

Our government solutions ARR bookings typically materialize into revenue over a twelve to eighteen month period. In conjunction with an approximate 97% contract renewal rate, we believe demonstrates a strong and predictable recurring revenue stream. Moving on to New York City, we are awaiting the outcome of the competitive RFP for the city’s automated enforcement program. The New York City Department of Transportation recently published their annual report quantifying the efficacy of their automated photo enforcement programs and we’re incredibly pleased and proud of the findings which include daily violations at speed camera locations have decreased 94% since the start of the program in 2014, ’70 ’4 percent of drivers received no more than one or two violations per year. Locations with camera installed in 2022 showed 14% fewer injuries and fatalities between 2021 and 2023 compared to control corridors without cameras.

Violations in the overnight and weekend hours decreased 40 in the two years since 2022 when expanded hours first went into effect. Following the expansion to overnight and weekend enforcement locations with speed cameras saw 9% fewer injuries compared to control locations without cameras during the overnight and weekend hours. We believe that these findings demonstrate the importance of implementing automated enforcement and the positive impact it can have on traffic safety for our communities. Next, I’ll discuss T2 Parking Solutions business, which we acquired in December 2021. T2 is the industry leader delivering parking solutions to universities, municipalities and private parking operators across The United States.

We offer an end to end suite of software, professional services and hardware to meet our customers’ evolving needs to manage parking. As you can see in the fourth quarter results, we recorded a non cash impairment of goodwill attributed to the T2 business to better align the current environment and the carrying value with historic environment when we acquired the business. Craig will elaborate on the financial impact of the goodwill impairment in a moment, but I’ll take a few moments to comment on the trend shaping the business. We believe the market for SaaS enabled solutions to manage the complexities of parking in universities, municipalities and private parking operations are strong and growing. And as I noted on third quarter call, Lynn Vogt joined our executive leadership team in August and brings tremendous experience in leading organizations, driving sales growth and enhancing operations.

Since joining the organization this summer, Lynn has brought in new sales leadership and we are seeing early signs of stabilizing our operations. We have visibility into a strong sales pipeline for our SaaS enabled permit management solutions and we are in the very early innings of our sales and marketing of our e commerce platform, which is designed to create new revenue streams through transactional pricing. Our goals for 2025 were to stabilize the business first by addressing the challenges that led to elevated customer churn and simultaneously rejuvenating the sales and continuing to deliver broad suite solutions. We anticipate flat revenue in 2025 relative to 2024 and our focus is on exiting 2025 with strong velocity with the goal of getting back to growth in 2026. We expect the demand for parking permitting and enforcement for cities and universities to continue to increase over the long term given the unique challenges related to urbanization and curb management.

And we believe the market opportunity for T2 is significant. We’re taking steps needed to drive long term execution and performance. Moving on, we had an active year from a capital allocation perspective over the full year in 2024. We deployed $200,000,000 to repurchase over 7,000,000 shares. Additionally, we refinanced our term loan debt twice lowering our borrowing rate by 100 basis points over the course of the year.

Additionally, we were active in evaluating M and A opportunities, but ultimately redirected capital to share repurchases based on valuations and price discipline. Craig will provide a detailed commentary on our 2025 financial outlook, but I’ll hit the highlights. As we indicated during our third quarter call, we expect to deliver revenue growth consistent with our long term 6% to 8% outlook, albeit at the low end of that range in 2025. Moreover, we anticipate adjusted EBITDA to grow at a slower pace than revenue due to investments in sales and product installs in government solutions. One time costs related to our ERP implementation and lastly revenue mix as commercial services revenue is expected to reflect lower anticipated travel volume.

We expect adjusted EPS growth will outpace adjusted EBITDA due primarily to capital allocation efforts I just discussed, lower borrowing costs and reduce share count driven by the 2024 share repurchases. Our business fundamentals are strong and intact. Travel demand appears resilient and a source of ongoing strength for commercial services. We expect that our strong sales bookings and government solutions will drive solid revenue growth over the foreseeable future. And finally, we expect T2 to exit 2025 with a strong velocity.

Based on these factors, we anticipate that our long term outlook remains intact relative to the 2026 revenue and adjusted EBITDA targets that we provided at our twenty twenty two Investor Day. Craig, I’ll turn it over to you to guide us through our financial results, capital allocation and 2025 financial outlook.

Craig Conti, Chief Financial Officer, Varo Mobility: Thank you, David, and hello, everyone. Appreciate you joining us on this call today. Let’s turn to Slide four, which outlines the key financial measures for the consolidated business for the fourth quarter. Our Q4 performance was on plan, which includes 4% service revenue growth and 5% total revenue. The service revenue growth, which consists primarily of recurring revenue, was driven by solid fourth quarter travel demand in commercial services business and service revenue growth outside of New York City in the government solutions business.

At the segment level, commercial services revenue grew 4% year over year, government solutions service revenue increased by 5% over the prior year, while T2 systems SaaS and services revenue declined 4% over the fourth quarter twenty twenty three. Product revenue was $12,000,000 for the quarter, GS contributed $8,000,000 and T2 delivered about $4,000,000 in product sales overall for the quarter. Additionally, our consolidated adjusted EBITDA for the quarter was $102,000,000 an increase of approximately 12% versus last year. We reported a net loss of $67,000,000 for the quarter, which reflects the goodwill impairment charge of $97,000,000 for the carrying value of P2 systems. The tax provision of about $11,000,000 after adjusting for the goodwill impairment expense represents a normalized full year effective tax rate of about 30.

The GAAP EPS loss of $0.41 per share for the fourth quarter of twenty twenty four compares to a profit of $0.02 for the prior year period. The delta between these two results was driven primarily by the $97,000,000 goodwill impairment for D2 Systems. Adjusted EPS, which excludes amortization, stock based compensation, goodwill impairment and other non recurring items was $0.33 per share for the fourth quarter of this year compared to $0.24 per share in the fourth quarter of twenty twenty three, representing 38% year over year growth. The increase in adjusted EPS was driven by the increase in adjusted EBITDA, a sustained reduction in interest expense driven by our 2024 repricing efforts and our ongoing share repurchase activities. Cash flows provided by operating activities totaled $40,000,000 and we delivered $22,000,000 of free cash flow for the quarter, slightly ahead of our expectations.

Turning to Slide five, we generated $4.00 $2,000,000 of adjusted EBITDA on approximately $879,000,000 of revenue for the full year 2024, representing a 46% adjusted EBITDA margin. Additionally, we generated $153,000,000 of free cash flow for the year or a 38% conversion of adjusted EBITDA. Please note that this free cash flow total includes the one time 22,000,000 tax adjusted plus past legal settlement costs we incurred during the first quarter of twenty twenty four. Next, I’ll walk through the fourth quarter performance in each of our three business segments beginning with Commercial Services on Slide six. CS year over year revenue growth was four percent in the fourth quarter.

Rack tolling revenue increased 3% or about $2,000,000 over the same period last year, driven by solid travel demand and increased rental volume. As David mentioned earlier, we incurred an approximate $3,000,000 charge impacting both revenue and segment profit due to prior period tolling activity. This $3,000,000 impact was historical in nature and non recurring. However, it was not added back to our segment profit. Our FMC business grew 5% or about $1,000,000,000 year over year driven by the involvement of new vehicles and tolling growth from existing and newly enrolled FMC customers.

Additionally, the combination of title and registration, violations management, Europe and other revenue contributed approximately $2,000,000 of year over year revenue growth for the quarter. Commercial services segment profit margin declined about 40 basis points in the fourth quarter to 65% driven primarily by the prior period adjustment mentioned earlier. For the full year, commercial services generated $4.00 $8,000,000 of revenue or 9% growth over last year. Segment profit of $268,000,000 resulted in margins of about 66%, a 70 basis point improvement over the prior year driven by volume based operating leverage. Turning to Slide seven, Government Solutions had solid service revenue growth in the quarter, driven by 9% growth outside of New York City.

Total revenue grew 10% over the prior quarter, benefiting from about $8,000,000 in product sales, a $5,000,000 increase over the same period last year. Government Solutions segment profit was $35,000,000 for the quarter representing margins of approximately 34%. The increase in margins versus the prior year is primarily due to a prior period $4,000,000 expense adjustment in the fourth quarter of last year as well as lower credit loss expense in the current year quarter. For the full year, government solutions generated $391,000,000 of total revenue, a 9% increase over 2023, driven primarily by 12% service revenue growth outside of New York City. Segment profit was $122,000,000 for the year, an increase of 6% over the prior year.

Let’s turn to Slide eight for a review of the results of T2 Systems, which is our Partner Solutions business segment. We generated revenue of $20,000,000 in segment profit of approximately $3,000,000 for the quarter. SaaS and service sales were down 4% or $700,000 from the prior year quarter, while product revenue was down 35% or 2,000,000 compared to last year. Breaking down the SaaS and services revenue a bit further, recurring SaaS revenue grew about 4% over the prior year. However, offsetting this increase was a decline in installation and other professional services due to the reduction in product sales over the past four quarters.

For the full year, T2 delivered revenue of $81,000,000 a decline of approximately 6% versus last year and setting the profit of $12,000,000 As David discussed, we recorded $97,000,000 non cash impairment of the goodwill to better align the current better align the current environment and the carrying value of T2. This does not change our view of the strength of the end market in which T2 competes. We highly value the recurring nature of the SaaS business where we see strong demand and we anticipate significant potential for our nascent e commerce platform, which creates new revenue streams through transactional pricing. Okay, let’s turn to Slide nine and discuss the balance sheet and take a closer look at leverage. As you can see, we ended the quarter with a net debt balance of $968,000,000 which reflects about $150,000,000 used for share repurchases in the fourth quarter.

We ended the quarter with net leverage of 2.4 times and we’ve maintained significant liquidity with our undrawn credit revolver. Our gross debt balance at year end stands at about $1,000,000,000 of which approximately $700,000,000 is floating rate debt. At the end of the third quarter and based on the SOFR forward yield group, we opted to utilize our early termination option and cancel the entirety of our full fixed rate swap. Consequently, the term loan is now full floating. In addition, in the fourth quarter, we completed a successful repricing of our $700,000,000 Term Loan B.

The repricing was oversubscribed and we achieved a 50 basis point reduction in the coupon rate, lowering it to SOFR plus 2.25%. This repricing will yield about $10,000,000 in cash savings, net of fees over the remaining life debt. On our total debt stack, this lowers our weighted average cost of debt to a little over 6% at current sulfur levels. This was our second successful debt repricing this year, the cumulative effect being a reduction in our spread of a full 100 basis points over the course of 2024. Closing out our discussion on 2024, I’m pleased to report that we successfully remediated the IT general controls material weakness identified in our twenty twenty three audit through a combination of the implementation of enhanced IT oversight, system enforced segregation of duties and the hiring of new and experienced personnel.

Now let’s turn to Slide 10 for a discussion on full year 2025. We expect total revenue in the range of $925,000,000 million dollars

David Roberts, Chief Executive Officer, Varo Mobility: to $935,000,000

Craig Conti, Chief Financial Officer, Varo Mobility: representing approximately 6% growth at the midpoint of guidance over 2024, consistent with the preliminary outlook we provided on our third quarter earnings call. We expect adjusted EBITDA in the range of $410,000,000 to $420,000,000 representing approximately 3% growth at the midpoint over 2024, again, consistent with the preliminary outlook on our Q3 call. This represents an adjusted EBITDA margin of about 45% down about 100 basis points compared to last year. As we previously discussed, the combination of TAM execution costs, financial infrastructure investment and portfolio mix are expected to drive the temporary reduction in margins. Let me provide a refresher on each of these margin drivers.

The TAM execution cost item is largely driven by our government business as we incur incremental business development and project go live costs in advance of converting our growing backlog to revenue. The financial infrastructure item relates to the previously discussed in flight replacement of our aging ERP and HR information systems. We expect to incur about $5,000,000 of non capitalized costs in the first half of the year to complete this project. These project costs are one time in nature and will not continue past 2025. The portfolio mix is primarily in our commercial business where we expect travel growth year over year.

However, that growth will be moderated relative to other growth drivers in the business limiting margin expansion. Moving on to the segment level, in commercial services, we expect high single digit revenue growth driven by resilient travel demand and product adoption. We are modeling TSA volume at 102.5%, one hundred and two point five % for the full year and breaking that down further, we anticipate the first quarter will be modestly below that estimate, followed by a sequential ramp up in travel volume in the second and third quarters, ending with a reduction in the fourth quarter, very much in line with historical trends. In addition, we’re expecting increased FMC revenue at a growth rate generally in line with the overall CS business. For the combined CS business, the first quarter is forecast to be our lowest revenue generating quarter followed by sequential revenue increases in the second and third quarters followed then by a decline in the fourth quarter as the summer driving season comes to a close.

As a reminder, all revenue in this segment is service revenue. Government solutions is expected to generate the high end of mid single digit total revenue growth, driven by the expansion of camera installations with existing customers and new customers awarded in the fiscal year 2024. We expect annual product revenue in the GS segment to be roughly comparable to 2024 levels. To contextualize this further, we anticipate flat service revenue from New York City while we await the outcome of the competitive RFP and we expect product revenue to be mostly flat, all of which comprise of nearly 40% of total government solutions revenue. The remaining 60% of government solutions revenue is expected to grow low double digits in 2025.

Lastly, parking solutions is expected to be about flat with 2024 levels. We expect SaaS revenue to grow low to mid single digits offset by a decline in installation and professional service revenue on roughly flat product sales. For the company as a whole, we are guiding to a 2020 ’5 non GAAP adjusted EPS range of $1.3 to $1.35 per share. Free cash flow is expected to be in the range of $175,000,000 to $185,000,000 representing a conversion rate in the low to mid fortieth percentile of adjusted EBITDA. We expect to spend approximately $90,000,000 of CapEx in 2025, an increase of about $20,000,000 over 2024.

The vast majority will be spent in government solutions to implement newly awarded photo enforcement programs. Lastly, based on the adjusted EBITDA and free cash flow guidance and excluding capital allocation investments, we expect to reduce net leverage to about two times by year end 2025. Other key assumptions supporting our adjusted EPS and free cash flow outlook can be found at Slide 11. In closing, we are well positioned to deliver a strong 2025 on both the top and bottom line. Our core markets are solid and the secular growth trends are durable.

We remain confident in achieving the 2026 revenue and adjusted EBITDA targets we set back at our Investor Day in the summer of twenty twenty two. This concludes our prepared remarks. Thank you for your time and attention today. At this time, I’d like to invite Liz to open the line for any questions. Liz, over to you.

Liz, Conference Operator: Our first question comes from the line of Faiza Alwy with Deutsche Bank (ETR:DBKGn).

Faiza Alwy, Analyst, Deutsche Bank: Yes. Hi. Thank you. So I wanted to follow-up on the Commercial Services business. You mentioned maybe some volatile trends this quarter starting the year because of the weather and wildfires, etcetera.

So just want to clarify there and I know, Craig, you gave pretty good seasonality around how you’re thinking about trends, but curious if there’s sort of anything else you’d like to say about the quarterly cadence around whether it’s travel trends or commercial revenues in general?

Craig Conti, Chief Financial Officer, Varo Mobility: Yes. Okay. Thank you, Faiza. Let me take that in two parts. So first, I think as we go into 2025, no change to what we’ve discussed historically, TSA is probably a good thing to look at for our business.

So So why don’t we do a quick recap of how TSA has performed? We closed the fourth quarter of twenty twenty four at about 103%. So that’s quarter over quarter twenty four versus ’23. Coming into 2025, I expect 102.5% for the year. As I said in the prepared comment slides, I think that’s a lot slower in the beginning of the year.

It ramps to that 102 a little higher than 102.5 at the end of the year to average out to 102.5. Percent. So that kind of says, I expect 101 ish in the first quarter. Here’s what it looks like as of today. We closed January at about just shy of 102%.

February month to date as of this morning is right at 100%. So year to date, we’re at 101 The comment on the wildfires and some of the weather events is, if you look at I gave you a sixty day rolling average. If you look at individual days and weeks, there’s been quite a bit of variability from week to week because of some of the events. But in general, the year is starting to pan out volume wise as we anticipated. Let me go into the sequentials for the business because I just want to make sure that we’re clear on that one for the commercial business.

Here’s how I expect revenue to pace out by quarter. Versus 2024 for commercial services only, I expect the first quarter to be down sequentially from the fourth quarter of last year low single digits. I expect the second quarter to be up low double digits, very similar as it was this year. I expect the third quarter to be up high single digits and then I expect the fourth quarter to come back down high single digits. And if you average that out, you get to a high single digit organic growth for CS overall for 25 year old.

Faiza Alwy, Analyst, Deutsche Bank: Great. That’s very helpful. Thank you. And then on the government services business, it sounds like you’re starting to build in some revenues from the new contracts coming from the new legislation. So a two part question on that.

One, maybe update us on some of these win rates as you’re bidding for these contracts. And then secondly, how would you similar question around how do you expect sort of revenue to build through the course of the year as again some of this ARR converts to revenue?

David Roberts, Chief Executive Officer, Varo Mobility: Yes, I mean, hey, it’s David. I mean, I think we don’t really talk to win rates, but I think we’re saying we’re winning more than our fair share for sure. As we talked about in terms of the total dollar amount that we’ve closed over the last six months for the end of last year was our pent up demand is exciting. And per the prepared remarks, it tends to take anywhere from twelve to eighteen months for that revenue to build. That is just kind of a I would call that an industry standard.

Sometimes we can get a little ahead of that, sometimes a little behind it, but that’s about average. So we would expect to draw down on that backlog over the next twelve to eighteen months.

Craig Conti, Chief Financial Officer, Varo Mobility: And I think, in terms of pacing, I would expect that service revenue, so if we go all the way back and we look at growth for overall government solutions, we talked about the high end and mid single digits for the business as a whole. 40% of this business is New York City, which we’re still forecasting as flat for this year and product, right, together. We were forecasting that as flat as well. So all the growth in the remaining 60% of that business, the service growth is outside of New York City, we expect that number, Faiza, to be low double digit year over year. And if I were to look at that sequentially, that number should ramp roughly sequentially.

So the service revenue should be flat to up each quarter as we go through, again timing dependent. Where that may get a little more complicated is on the total government solutions revenue line. The product, we still expect somewhere in the range of last year’s product revenue that could be a little bit more episodic. So I would always think about that, that the growth of government solution service revenue to be a sequential grower and the majority of that growth, almost all of that growth is coming from the service line outside of New York City.

Faiza Alwy, Analyst, Deutsche Bank: Great. Thank you so much.

Liz, Conference Operator: Our next question comes from the line of Nick Cremo with UBS.

Nick Cremo, Analyst, UBS: Hi, David and Craig. Thanks for taking my questions. First, I just wanted to touch on the GS business. It’s good to hear that the SF pilot remains on track for Q1. I just wanted to check on the other cities in California that are going to be having RFPs for a similar pilot program.

Have those RFPs came out yet and when can we expect to hear back on those?

David Roberts, Chief Executive Officer, Varo Mobility: Yes. The one that’s gone out that we’ve already responded to is San Jose. We’re anticipating the others to be, I would say, anytime in the next three to six months that we’ll hear a couple of others in places like Oakland, LA, Long Beach, places like that. But they’re not out yet, but those are the ones we’re expecting. But San Jose has already come out and has already been responded to.

Nick Cremo, Analyst, UBS: Okay, great. And then for my follow-up, is the second quarter still the right approximate timing for when we could get some clarity on the outcome of the NYC RFP?

David Roberts, Chief Executive Officer, Varo Mobility: Yes, it’s really not dependent on us. It’s dependent upon the city and their decision making. We would that’s a reasonable guess to say sometime in Q2, but I couldn’t tell you if it’s the first day or the last day.

Nick Cremo, Analyst, UBS: Okay, got it. Thanks a lot guys.

David Roberts, Chief Executive Officer, Varo Mobility: Yes. Thank you. Thank you.

Liz, Conference Operator: Our next question comes from Daniel Moore with CJS Securities.

Will, Analyst, CJS Securities: Hey, this is Will on for Dan. Given that 2025 is more of an investment or setup year, particularly in government solutions, how should we think about the opportunity for margin expansion looking into 2026 and beyond? Thank you.

Craig Conti, Chief Financial Officer, Varo Mobility: Yes. The way I look at this is, I’m going to give you an answer that’s probably not the perfect answer, Will, but the answer is, it depends. And here’s why it depends. We are expanding into new geographies in 2024, we did we’re doing it again in 2025 to the degree that, that accelerates or exists into 2026. I would expect margins to look a lot like they do in 2025 and 2026.

So maybe said a little better, if I think about GS margins for the year for 2024, we closed at about 31%. If I think about them next year, I think we’ve probably got somewhere in the neighborhood of 150 to 200 basis points of pressure. Now half of that pressure is coming from the fact that we’re putting in a new ERP system. So we want to think about that. So and when I have, growth of low double digits in service revenue in new geographies, that cost comes before that revenue and especially if it’s at the quantum that we’ve seen in the past, I would expect high 20s to around 30%.

But when my head hits the pillow at night, I think about this as a 30% margin business.

Will, Analyst, CJS Securities: That’s super helpful. Thank you. And then just a follow-up, where are you seeing the most potential opportunity from an M and A perspective?

David Roberts, Chief Executive Officer, Varo Mobility: For M and A, I mean, we’ve obviously continued to be broad in our view, but I think what I would say the activity level of assets seems to be as hot meaning assets are coming sale from private equity owners or financial sponsors, I think has been as high as it’s ever been. We have us not closing a deal in the last year or two is not a result of us not working deals. We just want to maintain price discipline and make sure we have good line of sight. And so I would say that there’s a broad both across connected vehicle and urban mobility, a lot of assets that we’re looking at and are excited about.

Will, Analyst, CJS Securities: Thank you.

David Roberts, Chief Executive Officer, Varo Mobility: Yes. Thanks.

Liz, Conference Operator: Our next question comes from Louie DiPalma with William Blair.

Louie DiPalma, Analyst, William Blair: David, Craig and Mark, good afternoon.

David Roberts, Chief Executive Officer, Varo Mobility: Hey Louie. Hey Louie.

Louie DiPalma, Analyst, William Blair: Hey. Does the speed camera pipeline remain as elevated as it was two years ago when the legislation for Florida and California came out. And I know you mentioned the new legislation that’s pending in Massachusetts. But with the pipeline, should we expect similar bookings in 2025 relative to 2024?

Jaapali Tomaskar, Analyst, Morgan Stanley (NYSE:MS): Thanks.

Craig Conti, Chief Financial Officer, Varo Mobility: Yes. Let me take the first part first. So, if I think about in David’s prepared remarks, he talked about $185,000,000 of AM opening in the near term. Somewhere on the rounds of 20% to 40% of that is sitting in school zone speed. So I think the easy answer to the first part of your question is the pipeline looking as strong as it was two years ago is an emphatic yes, okay.

The second part of your question, will bookings look the way that they did as strong as they did in 2024? I simply don’t know. As we look at the activity year to date, we feel very good about where our funnel sits. I think you could triangulate what we think on bookings. I can’t give a booking number.

I’ll only do that in on an actual basis for obvious reasons, Louis. But if you think about the fact that we’re forecasting low double digit service revenue growth outside of New York City, we would need more bookings than we had going into 2025 to get that done. So there will be some in year revenue. So I think the overarching thing that I want to communicate is the pipeline remains as strong as it’s ever been and we’re really excited about our ability to execute it.

Louie DiPalma, Analyst, William Blair: Great. Thanks, Craig. And you discussed your CapEx associated with business development and taking advantage of this market opportunity. I was wondering what technology investments have you continued to make on the customer side in order to stay ahead of the curve in terms of the latest functionality with cameras and catering to the different needs of your very large customer base?

David Roberts, Chief Executive Officer, Varo Mobility: Yes, we have a product engineering group within the business that is always both looking and not only working with our current customers, but surveying the landscape globally as to what we can do to be more supportive and forward leaning with our customers. So we have a team that’s fully deployed to do that. I don’t have a dollar amount to share, but that’s we leverage both our internal teams as well as the several partners that we use across the different camera technologies.

Louie DiPalma, Analyst, William Blair: Sounds good. And one last one. A few years ago, David and Craig and Mark, you and your rack partners have offered all inclusive pricing and there seems to be a lot of customer satisfaction. What is the penetration now of all inclusive pricing within your customer base. Do most customers go for all inclusive or do they still use the per day pricing?

David Roberts, Chief Executive Officer, Varo Mobility: It’s very driven by the location Louis because all inclusive works better in some locations than others. So we actually look at that adoption rate basically at an airport by airport location. And so we don’t really get into any specific disclosures around customers.

Craig Conti, Chief Financial Officer, Varo Mobility: Right. The one thing on customers on that that we will see though is that this only exists technically today for two of our customers, right. So enterprise does not use this on a wide basis, which is something that we’ve thought about in the past. But this continues to be a popular product. And you’re right, we’ve got some really good feedback on it and it’s performing well.

Excellent. Thanks, everyone. Thank you.

Liz, Conference Operator: Our next question comes from David Koning with Baird.

David Koning, Analyst, Baird: Yes. Hey, guys. Thanks. Nice job. I guess in commercial, I just wanted to look at the year over year growth in Q4.

I think it was $4,000,000 but there was a $3,000,000 headwind. So it should have been $7,000,000 kind of on a core basis. But the way you’re kind of guiding Q1 is for only about one let’s say $1,000,000 or maybe even less year over year growth. What’s I guess, why the deceleration and just kind of normalized year over year growth?

Craig Conti, Chief Financial Officer, Varo Mobility: I think that you’re right on the fourth quarter, Dave. You’re right on with the $3,000,000 you would have to add that back. I don’t know that I would look at the acceleration into Q1 as being anything other than seasonal, right? And I would say that the same on a year over year basis. Remember, you’re not looking at equivalent TSA throughput in both periods, right?

So that’s going to skew your result. There was more TSA growth sequentially going into this period last year on your top period that you’re seeing today. That’s one piece. I think the other thing, if you look at it in total, right, we still expect this to be a high single digit grower. And if we remember back to how we talked about it last year, we talked about 50%, twenty five %, twenty five % to get to that high single digit growth and I talked about the three pillars.

Those same three pillars are intact today. However, it’s more like a third, a third, a third this year. So let me explain what that is. A third of that is coming from GDP type travel growth. That ties to the $102,500,000 I mentioned in my comments.

A third of that are the secular tailwinds. David, give some perspective on how many toll roads were added here domestically and also what happened with Castle flows toll roads, we expect that to accelerate. That’s another third of the growth. And then the remainder of the growth, the remaining third are all the other states. That’s the fleet business, that’s the title and registration business and our European business.

So if Q1 when you’re comparing nonlinear comparables year over year may look a little wacky, but I think if you look at it in total, the year kind of makes sense.

David Koning, Analyst, Baird: Yes. No, that’s a good explanation on that. And then just my follow-up. So New York, you’re assuming is flat. Would you say you have confidence like 100% confidence it’s within plusminus 5% or is this just your baseline expectation and there are all sorts of scenarios that it could be down 50% or up 30% or I’m just wondering how confident you are that flattish is kind of the right outcome?

David Roberts, Chief Executive Officer, Varo Mobility: I think where we’ve been really specific is that we’re in our P time. So we’re going to wait and see what the city does. And at whatever time they decide to expand with the program, that would be the time that we would be able to be more specific around that.

David Koning, Analyst, Baird: Got you. Okay. All right. Thanks guys. Good job.

David Roberts, Chief Executive Officer, Varo Mobility: Thank you.

Liz, Conference Operator: Our next question comes from Keith Hossam with Northcoast Research.

Liz, Conference Operator0: Good afternoon guys. Hey, in terms of the impairment charge in the parking segment, obviously, you guys have a lot of confidence in the ability to turn that business around. But I guess maybe a little bit more about what gives you that confidence there? Is that is this a market that’s growing? I mean, is there be else growing the business, but you guys aren’t?

Just want to understand a little bit more of your confidence levels.

David Roberts, Chief Executive Officer, Varo Mobility: Yes. I think one, specifically around permits and enforcement that continues to be a problem for cities, municipalities and universities that we’ve seen by watching both our competitors and maybe more uniquely the dollars of private equity capital that are flowing into this category is pretty significant. We’ve seen a lot of M and A activity, which and we can see some of the other some of our competitors and what their growth is. We’ve only just had our own sort of execution issues. So there’s a lot of data pointing to the growth and that this can be a significant contributor to the company.

So that’s part of the data that we’re using as well as our own ear to the ground and our own pipeline development since we brought in new leadership.

Liz, Conference Operator0: Okay. Appreciate that. And I can understand the challenges in the M and A environment now how competitive it is. If 2025 from an M and A perspective is much like 2024, do you anticipate another round of significant share repurchases to kind of use your free cash flow?

David Roberts, Chief Executive Officer, Varo Mobility: Yes. Our strategy for that has not changed at all. Because of the incredible cash flow generation of the company, we’re able to make those sort of decisions pretty much every quarter. We’ll look at our M and A pipeline where we are in different deal processes versus what we’re looking at in terms of our intrinsic value in the trading of stock and we’ll make the decision every time. So, it’s really most would we continue to be opportunistic on share repurchase?

Absolutely, but that’s contingent upon our M and A pipeline.

Liz, Conference Operator0: Got it. Okay. Thanks guys. Good luck.

David Roberts, Chief Executive Officer, Varo Mobility: Yes.

Liz, Conference Operator: Our next question comes from the line of James Faucette with Morgan Stanley.

Jaapali Tomaskar, Analyst, Morgan Stanley: Hi. This is Jaapali Tomaskar asking a question on behalf of James. Thanks for taking my question. I just wanted to touch on international markets. Wanted to see if you’ve seen any change in trends towards more cashless adoption in Europe specifically and if there’s anything to call out in terms of new wins there or visibility into international for 2025?

David Roberts, Chief Executive Officer, Varo Mobility: Yes. The only thing I would say is there’s definitely been several toll roads in France and a couple in Italy that have gone cashless. Those are a couple of the many toll roads that are in each of those countries. I would also say that we’ve renewed several of our customers that we started with pilots over the last course of last year, because they have found the value in the program, especially when they’re working in places that are more free flow like Spain or Portugal. So I would just say that the trend is definitely moving forward to positive and up into the right.

It’s just remain slow because the total authorities will also have to change to allow that to accelerate.

Jaapali Tomaskar, Analyst, Morgan Stanley: Okay, great. Good to hear on that. And then just in government, wanted to touch on any recent trends you’ve been seeing in terms of specific demand. I know you’ve previously called out more strength than I think what you’ve called purpose built enforcement and I want to see if that’s still the case in terms of where demand is from a legislation perspective and any change in kind of how the economics compare across like red light and the bus arm and all the different types of offerings you have?

David Roberts, Chief Executive Officer, Varo Mobility: Yes. I would say the demand is effectively the same that the real shift is still toward specific areas where there is precious cargo, which is in and around schools and school buses that those are still what I would say is by far and away the larger demand drivers. And the economics around that, sans our capabilities to increase certain things through our technology deployment remain I think effectively the same.

Jaapali Tomaskar, Analyst, Morgan Stanley: Okay, cool. Thank you.

Liz, Conference Operator: With no more questions in queue, this concludes today’s call. Thank you for participating. You may now disconnect.

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