Verra Mobility - Earnings Call - Q3 2020

Transcript

Speaker 0

Good day, everyone, and welcome to the Verra Mobility Third Quarter twenty twenty Financial Results Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Mark Griffin. Please go ahead, sir.

Speaker 1

Thank you. Good afternoon, and welcome to Verra Mobility's third quarter twenty twenty earnings call. Today, we'll be discussing the results announced in our press release issued after the market closed. With me on the call this afternoon is David Roberts, Verra Mobility's Chief Executive Officer and Trista Chito, our Chief Financial Officer. David will begin with prepared remarks, and then we'll open up the call for Q and 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 views only as of today and should not be considered our views as of any subsequent date. We undertake no obligation to update or revise these forward looking statements. Forward looking statements are not promises or guarantees of 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 factors that could affect our actual results, please refer to those contained in our annual report on Form 10 ks or our quarterly report on Form 10 Q, which are available on the Investor Relations section of our website at ir.verramobility.com and on the SEC's website at sec.gov. Finally, during today's call,

Speaker 2

we will refer to certain

Speaker 1

non GAAP financial measures. A reconciliation of GAAP to non GAAP measures is included in the press release issued after the market closed today, which is located again on our website at ir.verramobility.com and the SEC's website at sec dot gov. With that, let me turn the call over to David. Yes.

Speaker 3

Thanks, Mark, and thank you to everyone joining us on the call today. As you are all aware, the global pandemic continues to evolve. And while we believe we are most likely through the worst of it, the residual effects on part of our business are still present. Our third quarter performance showed modest signs of improvement in our Commercial Services segment, continued strength in our Government Solutions segment and was highlighted by a return to profitability, strong cash generation and EBITDA margin levels that are consistent with our historical average. Overall, the trends across the business during the quarter were similar to what we experienced in the latter part of the second quarter.

That said, signs of optimism are appearing as travel related activity continued to trend up throughout the quarter, a good sign for tolling activity in our Commercial Services segment as well as for variable rate photo enforcement in our Government Solutions segment. While it's too early to tell if this trend will continue, we are certainly encouraged by the upward trajectory. While our business is facing extreme challenges like most of the global economy, we continue to believe we have built a highly resilient business that has incredible upside. Moreover, our ongoing commitment to serving our customers at the highest point of their need, alongside strong fiscal discipline, helped deliver Q3 results that were above our internal plan. Third quarter revenue came in at $96,900,000 and our adjusted EBITDA came in at $53,500,000 or 55% of revenue.

As we described in detail last quarter, we took aggressive action to right size our cost structure, and we were pleased to be able to return the business to profitability. Additionally, I would like to highlight that we ended the quarter with $129,200,000 of cash on the balance sheet without the use of our lines of credit and anticipate remaining cash flow positive for the year, demonstrating our prudent use of capital. Now I will move on to our Q3 results by segment. Our Commercial Services segment reported $44,200,000 and adjusted EBITDA of $31,000,000 both healthy improvements sequentially. We continue to see month over month revenue increases throughout the quarter.

As a reminder, the largest portion of revenue in the Commercial Services segment is highly correlated to rental car volume. And while we are optimistic in the trend line we are seeing, we still anticipate ongoing pressure to this business segment until late twenty twenty one, a view that is widely shared by many companies in travel related industries. That said, traction with our fleet management customers remains strong. In our U. S.

Rental car business, we continue to work with our rental car partners to optimize our offerings as they navigate the COVID crisis. On the fleet management side, we renewed a number of contracts, including one of the largest automotive retail chains and another with one of the largest specialty commercial trucking operators. Similar to The U. S, the European rental car market has been negatively impacted by COVID-nineteen. The result of this has been slower decision making and a lack of resources for our partners to help accelerate the implementation of our tolling solutions.

Last quarter, we announced the rollout of a rental car toll management program with Rent A Car in France, and we are very pleased with the progress and look forward to providing more detail as this program develops. Additionally, we are continuing active discussions with a number of large rental car companies and expect to sign another tolling program by contract by year end. That said, we are not expecting to launch any more pilots in 2020, but instead queue up commitments for 2021 when the industry has a better line of sight into a post COVID world. During the quarter, we continued to expand the capabilities of Pagatelia, and we renewed an important agreement with Via Iberca, a toll road operator in Spain and Portugal for seven years. Our Government Solutions segment reported revenues of $52,800,000 and adjusted EBITDA of $22,500,000 both solid improvement sequentially as well as year over year.

Growth in the Government Solutions segment continues to be driven primarily by the expansion of the school zone speed program in New York City, which included additional product revenue and subsequent service revenue associated with the newly installed cameras. Our work with the New York City Department of Transportation to execute on the city's expansion of its number of school zone speed enforcement areas continues ahead of pace, and we are pleased to be able to bring this important public safety initiative to fruition even during these challenging times. During the third quarter, we installed 180 cameras and expect to install the remaining 127 in the fourth quarter, which would fulfill the entire order of seven twenty cameras. We also maintained our consistently high renewal rates again in Q3. During the quarter, we renewed a dozen contracts, including key customer programs in San Francisco, White Plains, New York and Austin, Texas, to name a few.

In addition to the renewals, we had a number of program expansions, including an increase in the number of speed cameras in Baltimore, Maryland. Finally, last month, we announced a partnership with three counties in the state of New York to deploy CrossingGuard, our automated stop arm photo enforcement solution for school buses. We are pleased to announce that a number of contracts have moved out of the RFP process and some have been executed. And overall, these contracts cover approximately 2,000 school buses. As we mentioned earlier in the year, we pulled our guidance given the uncertainty of the ongoing impacts to the overall business caused by the pandemic.

As noted in our last earnings call in Q2, we engaged a third party to help us better assess and align our internal forecast to critical macroeconomic drivers. We are pleased to be performing ahead of our internal forecast in both business segments, and we will continue to employ this more data driven view as we navigate the uncertainties caused by COVID. In summary, the foundation for a thoughtfully constructed and accurate forecast is still challenging, and therefore, we will refrain from our offering guidance in the near term, but we can offer some qualitative thoughts on our business going forward. We continue to anticipate a slow recovery in our Commercial Services segment and expect a return to 2019 service revenue levels by late twenty twenty one or possibly early twenty twenty two. The primary cause of this is the reduction in air travel and related rental car volume decreases, both for personal and business purposes.

But as these industries return to pre COVID levels, we should see a correlating increase in our tolling revenue. Additionally, the school environment remains challenged with some schools physically closed while most others are online or hybrid, and so we would anticipate an ongoing reduction in revenue associated with the school bus programs and variable rate schools on speed programs. We continue to believe our balanced product portfolio provides stability in these uncertain times and for growth in the future. Before I hand it over to Tricia to walk through the financials in more detail, I want to welcome Patrick Byrne to the Board. Mr.

Byrne is currently the CEO of GE Digital, the software division of the General Electric Company. He previously served as the Senior Vice President of Ford Corporation and previously served as an Independent Director of Micron Technology from 2011 until earlier this year. Mr. Byrne's significant technological and operational experience makes him well qualified to serve as a member of the company's Board. With that, I'll turn it over to Tricia.

Speaker 4

Thanks, David, and good afternoon, everyone. I'll provide a more detailed overview of our third quarter financial performance, and then we'll open up the call for questions. We've provided a short earnings deck on our website that provides some insights into the quarter and has some reconciliations from GAAP to the non GAAP results. If you're following along in the earnings deck, I'm on Slide two, which outlines revenue and adjusted EBITDA performance for our Commercial Services segment. Total revenue for this segment declined 43% to $44,200,000 in the third quarter of twenty twenty from $77,600,000 in the same quarter of the prior year.

This business segment derives the majority of its revenue from tolling services provided to rental car companies, which continue to feel the effects of reduced travel due to COVID-nineteen. Although we are still experiencing the impact of COVID-nineteen on the underlying industries we serve, you can see from the graph on Slide two that we have seen increasing month over month revenue from April through September. The revenue for September of $16,200,000 was more than double the revenue at the April trough. In response to the revenue decline, we took decisive actions to reduce costs, decreasing operating expenses and SG and A by $10,500,000 in Q3 of twenty twenty compared to the same quarter in the prior year. There are two discrete items that impact Commercial Services results in the quarter.

As you may recall, last quarter, we reserved nearly $3,000,000 in credit loss losses associated with the Hertz bankruptcy. We're happy to report that in October, we negotiated a cure amount with Hertz on the pre petition receivables, whereby they assumed all our contracts and paid $7,800,000 of the $9,500,000 past due receivable. The $1,700,000 loss was lower than we anticipated and the reversal of our credit reserve is reflected in SG and A. Hearst has been paying post petition receivables timely and we continue to perform services under our contract. This is a fantastic outcome and highlights the importance of the program to our large rental customers.

Additionally, we recorded a $2,800,000 benefit to other income relating to rep and warranty settlements associated with the 2018 acquisition. The settlement repays expenses we incurred in prior years and should be considered one time in nature. The combination of these sequentially improving revenue, reductions in cost and one time settlement resulted in adjusted EBITDA for the quarter of $31,000,000 and adjusted EBITDA margins of 70%. Faced with uncertain demand, this business segment has done a great job of creating flexibility in their cost structure preserving margin. Turning to the next slide, you see the results of the Government Solutions business.

This segment operates photo enforcement programs for municipalities and school districts with end to end solutions. Total revenue for this segment was $52,800,000 in the third quarter and grew 4% year over year from $50,600,000 in the third quarter of twenty nineteen. As a reminder, total revenue was comprised of service revenue, that's the monthly fees that we generate from the operation of photo enforcement programs, and product revenue, which results from selling and installing camera systems. I think it's important that we talk about these two sources of revenue separately. The service revenue for the quarter was $38,800,000 and grew 17% year over year from $33,100,000 in the third quarter of twenty nineteen.

Service revenue growth is driven by our expansion of the school zone speed program, which increased by $7,300,000 over the same quarter in the prior year. Expanding our Speed portfolio will continue to be our focus for the remainder of 2020. And during the third quarter, Speed surpassed Red Light as our largest product line, representing 45% of the service revenue for the quarter. This growth was offset by the impact of COVID-nineteen, which has halted virtually all of the revenue from school bus stop on programs. As school returned to in person learning, revenue should return to this program.

We also see lower impact on the number of paid citations for our variable rate clients. Product revenue of $13,900,000 for the quarter declined 3,600,000 or 20% from $17,500,000 for the same period of last year. We installed 180 cameras in this quarter compared to 176 in the same quarter of the prior year. The decreased revenue resulted from price concessions provided to New York City. Adjusted EBITDA of $22,500,000 increased $2,700,000 or 14% from $19,800,000 for the same period in the prior year.

Adjusted EBITDA margins for this business increased to 43% from 39% in the prior year. We're very proud of the performance of the Government Solutions business during these difficult times. Their work in installing cameras in the back half of twenty nineteen and throughout this year will drive service revenue growth to the high single digits for the full year 2020. We continue to execute against existing order of seven twenty camera systems. COVID-nineteen has not impacted our supply chain or installation cycle, and we've installed five ninety three camera systems in this year and expect to do the remaining 127 in the fourth quarter.

Turning to the next slide, we show our consolidated results for the quarter. The combined results of the business segments we just discussed generated total revenue of $96,900,000 for the third quarter, a decline of $31,300,000 or 24 from $128,200,000 in the same period in the prior year. Adjusted EBITDA of $53,500,000 decreased by $17,300,000 or 24% from $70,800,000 in the prior year. Third quarter adjusted EBITDA margins were 55.2%. Earlier in the year, we initiated cost cutting measures.

We halted investments, cut discretionary spending and reduced our staffing levels to align with demand. These cost control measures, recovering revenue and two discrete events in our Commercial Services segment allowed us to be producing best in class margins during the worst of time. The company reported net income of $6,700,000 in the quarter compared to $17,800,000 in the same period in the prior year. Adjusted EPS, which excludes amortization, stock based compensation and TRA revaluation, was $0.15 per share for the current quarter compared to $0.22 per share in Q3 of twenty nineteen. Tax expense for the quarter was $4,000,000 representing an effective tax rate of 37%.

The year to date tax rate is 277%, which takes our pretax net income of $1,100,000 to a net loss of $2,000,000 Although the book income is low, there are several large permanent differences such as our TRA expense, disallowed executive comp and disallowed lobbying expenses, which are driving the unusually high year to date tax rate. I want to spend some time discussing our liquidity position. The company generated $21,700,000 in cash flow from operating activities during the quarter and $44,400,000 for the nine months ended September 30. This is compared to $95,600,000 for the same period in the prior year. The change resulted from the reduction in net income and was further impacted by increased AR.

Our current year installations of cameras are under a new contract, which due to administrative hurdles has not generated payment. We are hopeful that we will have cleared this process and will start receiving payments in late twenty twenty or early twenty twenty one. Given this headwind, we are pleased with the cash flow generation in the quarter. Free cash flow, defined as cash flow provided by operating activities less CapEx, was $26,000,000 in the year to date period. As of September 30, we had debt of $867,900,000 net of $129,200,000 of cash on hand.

Our net debt was $738,800,000 which was 3.8x trailing twelve months adjusted EBITDA of $195,600,000 We anticipate being free cash flow positive for the year and will have sufficient liquidity to operate the company for the next twelve months and beyond. As we turn to the future, uncertainty surrounding the global outbreak of the COVID-nineteen virus, its duration and overall business impact makes it difficult to provide guidance. Our ability to predict travel and rental car demand is limited. However, we believe that our Q4 service revenue will be in line with Q3. Considering that Q3 has historically been our seasonally high quarter, this is a strong ending to a difficult year and reflects continued recovery from COVID-nineteen impact.

We are very close to completing the New York camera installation and would expect to record product revenue on the final 127 units in Q4. We installed 180 units in Q3, so you should see lower product revenue in the sequential quarter. In summary, we're pleased with our free cash flow generation despite net working capital headwinds and very pleased with our EBITDA margins of 55%. We continue to believe that Vero Mobility remains well positioned for the long term and has the operating discipline to manage through the current volatility in our business. And with that, I'll open the line up for questions.

Speaker 0

Well, thank you. We'll take our first question from Stephen Wall with Morgan Stanley.

Speaker 5

Great. Thanks for taking my question and good evening. Maybe a good place to start is, Tricia, you sort of left off there talking about the trends coming into fourth quarter and expecting to be even with the seasonally stronger third quarter. I'm curious, you can't provide specific guidance, but it sounds like you guys are using some internal work there. And what you're seeing in terms of, I guess, what mechanically drives that?

Are we seeing an uptick or behavior shift towards rental cars? Are we seeing a gap out in outperformance relative to the rental car industry? I know you were outperforming examples like Avis Budget. And so could you maybe talk us through how you're thinking about that and the potential for that to maybe not quite come to fruition if we have the second wave impact, how are you thinking about the sensitivity there?

Speaker 4

Yes. So what we've done is we've looked at both we had a third party come out and sort of do their predictions of where rental car demand would come out in relation to airline travel or revenue passenger miles. We've taken that along with the fact that, you know, David said, we used that forecast for our q three and we overperformed that. We've taken those trends and what we see are, what, you know, rental agreements from our customers. It's to sort of get a look to what the next two months are really gonna hold.

You know? And based on that, that's where we're coming out. When you think about the the overall impact of COVID and closures, you know, you see a lot of Europe closing, but not a lot of closures within The US, and and we don't think that that's going to have a huge impact at least in the next two months in relation to that. You know, we have done some analysis over sort of the top 25 airports and what they look like. And and when we look at our adoption rate at the combined, you know, the combination of those airports, it's right around this sort of, call it, 46 ish mark, which we think is very strong and actually fairly consistent with where we were in 2019.

So we're holding our fair share of the rental agreements that are coming in. Our product is still being adopted at the same rate, which we view as positive.

Speaker 5

Got it. Okay. That's very helpful to hear. Maybe switching gears to the government side. It sounds like you had some renewals.

You had some incremental ones, and you did announce the Upstate New York Counties and pointed to the amount of school buses that, that affects. Any thoughts around some of the other or, I guess, where we're trending in terms of states like Georgia? I think you guys had previously mentioned some parts of California looking at expanding their map in school zone, and I believe D. C. Had passed a mandate, I wasn't sure if you guys were bidding for that.

Or maybe just more generally, could you comment about what you're seeing in terms of movement towards more cameras as states start to look at their budgets coming through the pandemic?

Speaker 3

Yes. I don't think we're really, our primary focus has been in Georgia and Virginia, which have the newer legislation related to school zone speed. I think what we've noticed is consistent with what we shared in the previous call, which is related to the implementation of school zone speed is not the number one priority for these schools right now, given the pandemic. They're going to be continuing to focus on the safety of their kids, especially if there is an uptick in their particular area, and that we would anticipate that, that's going to keep things slower than we would like probably until the first of the year.

Speaker 1

Got it. Okay. That's helpful. And if I

Speaker 5

could just squeeze in one quick one, one last one. On the margins, I know you mentioned that it was helped out a little bit by some of the timing or, I guess, reversals on some of the receivables that were owed of bad expense. Obviously, even without that, it would have been somewhat elevated relative to what I think it was back in sort of 2Q or where we were kind of troughing out. I'm just kind of curious how you're thinking about the normalized margin here. Obviously, you took a lot of cost out of the business.

But as you think about 4Q, that could be even to 3Q. Are we sort of back towards thinking closer to the low 50s than the sort of 40 low 40s range that it looks like at the at the

Speaker 1

worst of the pandemic condition?

Speaker 4

Yeah. You know? So I you know, where you're you're talking company as a whole or the segment?

Speaker 5

Yeah. I'm speaking more on a consolidated basis.

Speaker 4

Yes. If you think about on a year to date basis, that really is only that one discrete item that matters, which was the settlement that we had for $2,800,000 That's really only like two percentage points on the overall margin when you look at the year to date basis. So I would think from the I'm sorry, in the quarter. It's at two percentage points in the quarter. So I think we could move out in the sort of 54% to 55% range as we move into the fourth quarter would be still be a strong result for us.

Speaker 5

Great. I appreciate it. Thank you.

Speaker 3

Thank you.

Speaker 0

And we'll move next to David Tungning with Baird.

Speaker 2

Hey, guys. Nice job.

Speaker 4

And I guess yes, I guess, first of all, when we look at

Speaker 2

the commercial business, can you give us kind of a mix of Q3 revenue by the RACs and then the FMC? And maybe how close did the RACs kind of mirror the PSA type volumes through the quarter and into October, just as we think of that segment?

Speaker 4

Well, I think the well, the RACs are by far and away the majority of the revenue that we have within that quarter. So they're the strongest player within the Commercial Services segment. As we look, I think what we're seeing is that we are still outperforming the underlying downturn in rental agreements that our customers are seeing, and that sort of bolstered us a wee bit from the FMC business that we have there as well. The FMC business is generally fairly a small percentage of our overall business.

Speaker 2

Okay. Yes, that's helpful. And then when we just think about the cost in the commercial segment,

Speaker 5

it was about $14,000,000 or something around there, which

Speaker 2

benefited obviously from the items. But when we look at Q4, like, if revenue is just flat sequentially, give or take, that $14,000,000 goes up by how much were those two items in total? I mean, is that a good way just to think about just elevate expenses sequentially by those two items?

Speaker 4

Yeah. The two items. One was one of them was 2,800,000.0. One of them was, closer to 1,500,000.0. So those those two items would be not reflected in the cost structure again.

One of them was in SG and A and the other one was in other income. Sorry, what was the other part of your question?

Speaker 2

Well, I guess, is it fair if in Commercial Services, if the reported expenses were about $14,000,000 and sequentially, if revenue is flattish, let's just say, give or take, I mean, does expenses just go from 14,000,000 up by that $2,800,000 that was in the segment? Like, obviously, you don't get the reversal again. So do we just move it up by that amount sequentially?

Speaker 4

Yes. Yes. You could do that. I'm not expecting any other unusual items coming through in the cost structure.

Speaker 2

And

Speaker 0

we'll move next to Justin Forsyth with Credit Suisse.

Speaker 2

Hey, David. Hey, Trish. How's it going? Good.

Speaker 6

Glad to hear it. A couple for you here. So first one, I wanted to dig in a little deeper. And I know you mentioned, and I appreciate this, that talks in the government segment, related to speed, have slowed due to schooling at home or hybrid, as you mentioned. But I just wanted to dig in a little bit more on the RFP process broadly and potential for new wins there kind of out into 2021.

I know in the past, you've noted RedFlex and Conduent as competitors that you would come up against every now and again.

Speaker 2

Maybe you could compare and contrast what they do.

Speaker 5

Are they even any speed? Or are

Speaker 6

you competing with them solely in red light? Who do you come

Speaker 2

up against? Why do

Speaker 6

you win? Is it your violation rate? Or is it something else that drives that maybe on

Speaker 2

the cost side? Or if you could just unpack that a little more.

Speaker 3

Yes, sure. So when we compete no, both of those competitors offer the capability to do programs like we do. There are other companies as well, smaller companies that operate in the category in photo enforcement. When you win an RFP, it's going to be a combination of a couple of different things. One is your reputation and your ability to deliver and the ability to have referenceable clients that can say that you do a good job.

Two is going to be the efficacy of your technology, as well as the price value equation. So I think, in general, we have a great reputation with our clients. We deliver really strongly. Our speed cameras are best in class. And so that often wins as well, meaning that we have a higher violation throughput than some of our competitors.

And those would be the kind of the standard reasons that we would win.

Speaker 6

Got it. Super helpful. And on length of those contracts, are they typically three years? I'm trying to remember.

Speaker 3

They could be three to five years. It just depends on the municipality. They will often have sort of automatic renewals if the city chooses to use them. So they could be a little bit longer. But three to five years is kind of the average across our portfolio.

Speaker 6

Got it. Got it. And I know you said that there a lot of talks have stalled, and you mentioned some renewals, some new wins. Is there despite that, is there anything in the pipeline that you see coming whether it's in Virginia or Georgia? Or is that largely put off until sometime in 2021?

Speaker 3

Yes. There are several RFPs that we've responded to, primarily in Georgia because that's been it's a little older than the other. But again, I think the decision making on terms of when they're going to install and or perhaps complete RFP process have been delayed. And again, right now, it's just not there it's not top of it's not the top of their priority list to finish those off given the challenges that they're facing in terms of operating schools.

Speaker 6

Perfect. No, that's great. And just one more if I could squeeze it in on the government segment here. You know, given the election and and all of the stuff that's happening over the last few days, just wanted to ask if there's anything on the ballot. I know a red light in Miami and and Texas had seen some uphill.

I don't know if there's anything that's specifically on the ballot with regards to any of your government programs or if there's any, call it, flipping of, state houses or things that you might have on the radar that could go either in your favor, like a speed legislation bill or maybe additional toll roads or something like that, or negatively?

Speaker 3

Yeah. In general, the code enforcement legislation doesn't happen during a primary election. It's going to be usually connected to once a session is in. Haven't fully vetted the given that the election was just Tuesday, we haven't sort of looked at the shift of members in each one. But we don't anticipate any material changes to our relationships with each of the states with which we work.

So we would imagine pretty much steady as she goes.

Speaker 1

Got it. Got it.

Speaker 6

And one final one. I know you mentioned something regarding the Hertz relationship and them paying off that receivable. That's obviously amazing news for you guys.

Speaker 4

Think I

Speaker 6

heard you mention that you know, the lag in payment was impacting revenue. Can you unpack that a little bit? Because I would be thinking kind of once you recorded the revenue, meaning once the the rental agreement happened that that would hit revenue. So I was thinking that would maybe just be a cash movement thing instead of a revenue thing. But I'd love to hear a little more on that.

Speaker 4

Yes. No. So there's nothing that is happening with Hertz that's impacting revenue. So we've recorded the revenue. We had pre petitioned receivables that were caught up in the bankruptcy.

We were able to negotiate a cure through the bankruptcy court on that, where they assumed our contracts and assuming they have the option to assume or reject contracts during bankruptcy court. And one of ours is the ones that they assumed and they assumed early. And I just think that that proves out the value proposition that we have to these large rental car companies. What you may be talking about is that we have a headwind in our networking capital where we have a large contract where we're not currently getting paid due to some administrative hurdles, once again, that's not impacting revenue, it's impacting cash flow.

Speaker 6

Great. Got it. Thank you for parsing that out. Thanks again and solid quarter, guys. Really appreciate it.

Speaker 2

Thank Thank you.

Speaker 0

We'll move to Dan Moore with CJS Securities.

Speaker 7

This is Stefanos Chris calling for Dan. So first, Avis recently reported a very nice earnings. I mean I also believe they reported a 30% reduction in their fleet. So really, the question is, as demand recovers in your experience in prior downturns, how quickly are the racks willing and able to expand their fleets? And is there typically a lag between a recovery in demand and then the overall fleet?

Speaker 3

Yes. Okay. Yes, I mean, I think there's always going to be a lag because I don't think that they're going to be overly aggressive to put new cars in until they figured out what the demand curve is. And I certainly wouldn't say that we've been through a cycle that looks anything like COVID-nineteen. But you did see just recently that Hearst even acquired, I think, veteran possession financing related to expand their fleet.

So they're putting their eyes on growth and putting new vehicles in as they also dispose of older ones. So I think it's going to be a little bit of TBD, but it's probably from the time they start to say, OEM, I'd like some more vehicles, it's probably about a twelve week turnaround. And

Speaker 4

will expand their utilization of their existing fleet first. And then once that utilization hits thresholds, they'll be able to buy and get new fleet to continue to expand.

Speaker 7

Got it. Thank you. And then one more, if you don't mind. I believe on the last call, you said you expect volumes to return to pre COVID levels on a run rate basis exiting 2021. Is that still your expectation?

And what gives you that confidence?

Speaker 3

Well, as we've said, these are definitely moving targets. That's based upon kind of what we're seeing now. And it certainly has some asterisks by it, which are the availability of a vaccine, sort of overall adoption of that comfort level. And those things would be consistent. So it may, as I said earlier on the call, it could be the end of 'twenty one, but it could also be the first part of 'twenty two.

So there is some definite flexibility in there.

Speaker 4

I think a lot of those words are really just designed so that people don't have an idea that it's a V shaped recovery, that it's going look more like a Nike swoosh, right? It's going to take us a while to return.

Speaker 3

Yeah. Okay,

Speaker 2

thanks.

Speaker 0

We'll move next to Keith Alstom with Northcoast Research.

Speaker 6

Hi, this is Trevor filling in for Keith. With the European business, could you provide an update on the efforts to expand the tolling business into Spain, Portugal and Italy with the Pagatelia acquisition? And what is the current status there? And how has the COVID pandemic impacted all of that?

Speaker 3

Yes. I mean, as we said in the call, a lot of our efforts there have been slowed significantly. The if you just look currently in Europe, they're shutting it back down again, in particular in places like France and The UK, and it's starting to spread across Europe. So what we had said in the call was that it was going to be it slowed everything down. We are still in the process of expanding the frac implementation excuse me, the rack implementation inside of France as well as we're continuing to have good dialogue.

But we would not anticipate we're hoping to sign some agreements that we would do pilots in the early part of next year, preferably Q1. But that's so we don't anticipate any pilots to be launched this year.

Speaker 6

Okay, great. And then one last one. With New York City, has Veer been engaged to install any seed zone cameras in 2021? And if so, how many?

Speaker 4

Yeah. We don't we we currently don't have another, what they call, notice to proceed, which you can sort of equate that to a purchase order for the twenty twenty one cameras. I don't know that our expectation was that we'd have that before we finish the current order we're working on.

Speaker 2

Okay, great. Thanks.

Speaker 6

Thank you. That

Speaker 0

does conclude our question and answer session at this time. I'll turn the call back over to our speakers for any final additional remarks.

Speaker 3

I think we're done.

Speaker 4

Yes, think we're done.

Speaker 3

Thank you.

Speaker 0

Thank you all.

Speaker 3

Thanks, everyone.

Speaker 0

Well, thank you. That does conclude our conference call for today, everyone. Thank you all for your participation. You may now disconnect. Hi.