Sign in

VERRA MOBILITY (VRRM)

VRRM Q1 2024: 106% TSA Throughput Drives Guidance Raise

Reported on May 2, 2024 (After Market Close)
Pre-Earnings Price$24.09Last close (May 2, 2024)
Post-Earnings Price$25.80Open (May 3, 2024)
Price Change
$1.71(+7.10%)

What went well

  • Strong Travel Demand and TSA Throughput: In the Q&A, management noted that TSA volumes were about 106% of 2023 levels and that stronger domestic travel demand is driving improved revenue outlook, which supports the raised full‑year guidance.
  • Disciplined Capital Allocation and Lower Leverage Target: Executives emphasized a long‑term net leverage target of 3x and maintained an open stock buyback authorization, highlighting financial flexibility and the potential for enhanced shareholder returns.
  • Robust Future Revenue Pipeline in Government Solutions: Management discussed incremental recurring revenue potential, including recent contract awards and a strong pipeline, which underpins future growth despite revenue timing delays.

What went wrong

  • Delayed revenue realization in Government Solutions: Despite receiving incremental contract awards, many government-related revenues are expected to materialize late in 2024 or even in 2025, raising concerns about near-term revenue contributions.
  • Elevated bad debt expense risk: The Q&A revealed a $5 million bad debt expense in Q1—significantly higher than the historical range of $1.5–$3 million per quarter—which may signal potential issues in credit quality or collection processes.
  • Ongoing cost pressures from platform and SG&A investments: The continued consolidation and migration to a new operating system—with completion expected in 2025—along with increased SG&A spending for market expansion, could exert pressure on margins in the near term.

Q&A Summary

  1. Guidance Increase
    Q: Raised guidance; impact on recurring revenue?
    A: Management noted that the raised guidance of an additional $5–10M is driven mainly by stronger travel demand in Commercial Services, with Government Solutions expected to grow at low high-single digit rates later, not affecting 2024 numbers.

  2. Capital Allocation
    Q: Buybacks vs target leverage?
    A: They plan to maintain balanced capital allocation with an open $100M buyback authorization while targeting a long-term 3x net leverage, not strictly waiting to hit that target before acting.

  3. Commercial Services
    Q: What drives outperformance?
    A: Strong travel trends, evidenced by a 10% TSA volume increase, along with secular trends like enhanced cashless tolling and robust attachment rates, are fueling high-single digit growth in the segment.

  4. CapEx Seasonality
    Q: CapEx Q1 and seasonality?
    A: Q1 CapEx was $15 million, with expectations to ramp up in the back half to hit a full-year target near $90 million, as anticipated by management.

  5. Bad Debt Expense
    Q: Why was Q1 bad debt higher?
    A: The Q1 bad debt expense of $5 million was attributed to a one-time transactional issue, not reflecting broader credit concerns, and is not expected to continue.

  6. Platform Migration
    Q: When completes system migration?
    A: The migration to the new Operating System is slated for completion in 2025, with only modest expense increases due to additional SG&A tied to market expansion.

  7. Gov Solutions International
    Q: How’s international growth performing?
    A: International initiatives form a smaller part of Government Solutions, with a primary focus on North America and select opportunities in Europe and Australia.

  8. Gov Platform Investment
    Q: Is there ongoing platform expense?
    A: Investments are underway to consolidate and modernize customer-facing platforms, with incremental costs concentrated over this year and possibly extending into early next year.

  9. Gov Segment Outperformance
    Q: What drove Gov’s outperformance?
    A: The segment benefited from a mix of expanded contracts, legislative support, and international wins, leading to an 8% revenue uplift and margin pressures offset by recent benefits.

  10. Traffic Enforcement
    Q: Update on red light camera demand?
    A: Demand for red light cameras remains largely flat with a slight uptick, as focus shifts towards more impactful enforcement measures like school zones.

  11. Travel vs FMC
    Q: How do travel and FMC compare?
    A: Travel revenue saw about a $6 million uplift, while FMC grew by around $3 million, with travel expected to stay steady and FMC to pick up across subsequent quarters.

Analyst Coverage

Research analysts covering VERRA MOBILITY.