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Wednesday, October 29, 2025 at 5:00 p.m. ET Call participants Chief Executive Officer — David Roberts Chief Financial Officer — Craig Conti Need a quote from a Motley Fool analyst? Email [email protected] Government Solutions Margin Pressure — Craig Conti stated, "Government Solutions segment profit margins are expected to dip in 2026 to the low to mid-20% range on repricing and primarily due to the contract requirement that at least 30% of the total contract value was invested in minority and women-owned subcontractors." Recurring Cost Increases — The New York City contract will incur a recurring $20 million to $25 million annual cost from minority and women‑owned subcontractor requirements, not present in prior contracts. Commercial Services Fleet Churn — Management indicated that "that fleet thing is gonna show up in the fourth quarter. A little bit more than it did this quarter." signaling an anticipated mid-teens year-over-year decline in fleet business revenue in Q4 2025 compared to Q4 2024, due to customer churn discussed in Q2. Revenue -- $262 million in the third quarter of 2025, up 16% year over year, with contributions from all three business segments meeting or exceeding internal plans. Adjusted EBITDA -- $113 million in the third quarter of 2025, up 8% year over year, with trailing twelve-month adjusted EBITDA of $416 million (non-GAAP) and a 44% adjusted EBITDA margin. Adjusted EPS -- Adjusted EPS was $0.37 per share in the third quarter of 2025, up 16% year over year, driven by operating performance, share repurchases, and lower interest expense. Free cash flow -- $49 million in the third quarter of 2025 and $153 million in free cash flow for the trailing twelve months, representing a 37% conversion of adjusted EBITDA over the trailing twelve months. Government Solutions revenue growth -- Segment revenue rose 28% year over year, highlighted by a 46% rise from New York City and 11% service revenue growth outside New York City. New York City contract and expansion -- Final contract in process for a five-year $963 million total value with five-year renewal option; 1,000 incremental cameras planned over the next two-plus years; 250 red light cameras being installed in 2025 contributing $30 million to 2025 revenue ($10 million product, $20 million installation service). Commercial Services segment -- Revenue and segment profit grew 7% year over year, with rental car tolling revenue increased 7% year over year and a 3% year-over-year decline in fleet management revenue due to prior period churn. Parking Solutions (T2 Systems) -- Revenue grew 7% year over year for Commercial Services, comprised of a 3% year-over-year increase in SaaS and services revenue, and a 30% year-over-year increase ($1 million) in product revenue. Full-year 2025 guidance update -- Revenue is now expected at $955 million to $965 million (9% mid-point year-over-year growth) for full-year 2025; adjusted EBITDA (non-GAAP) of $410 million to $420 million for full-year 2025 (3% mid-point growth); adjusted EPS of $1.30 to $1.35 for full-year 2025; and free cash flow of $175 million to $185 million for full-year 2025. 2026 outlook -- Revenue growth is expected to moderate to the mid-single digits in 2026, with a 250- to 300-basis-point decline in adjusted EBITDA margin (non-GAAP) is expected in 2026 due to contract portfolio mix and New York City renewal service pricing and subcontractor requirements; adjusted EPS is expected to rise in the low to mid-single digits year over year in 2026. Legislative tailwinds -- Two California laws passed in Q3 2025: a work zone speed pilot for up to 35 camera systems and a red light camera enforcement reform, together expanding total addressable market by $140 million and raising incremental TAM to about $365 million. Contracted bookings -- $14 million in incremental annual recurring revenue booked in Q3 2025 (full run rate), bringing trailing twelve months total bookings to $51 million. Stock repurchase program -- Board authorized an additional $150 million, increasing available repurchase authorization to $250 million, with buyback expected to commence soon. Balance sheet and leverage -- Net debt $843 million, net leverage at two times in Q3 2025, expanded undrawn $150 million revolver (potentially $225 million with accordion feature) in Q3 2025, and term loan maturity extended to October 2032 with a 2% interest spread. One-time readiness investments -- $5 million to $10 million in one-time readiness costs for the New York City contract transition in 2025, impacting earnings but excluded from 2026 recurring costs. Verra Mobility Corporation (VRRM 0.67%) reported significant year-over-year growth in revenue and profitability in Q3 2025, underpinned by accelerated execution in all business segments and a major contribution from the expanded New York City red light camera program. Management presented detailed long-term visibility on the imminent New York City contract, outlining predictable, recurring service revenues and a five-year, $963 million contract scope, while explicitly quantifying the impact of new recurring costs and margin headwinds driven by minority and women-owned subcontractor requirements, which are expected to be $20 to $25 million per year beginning in 2026. Legislative advancements in California further augmented the total addressable market, with management identifying $140 million in incremental total addressable market potential, and booking $14 million in new annual recurring revenue in Q3 2025 across several jurisdictions. Strategic priorities include the imminent $250 million buyback authorization, a multi-year smart mobility platform consolidation (Mosaic) for margin expansion post-2026, and proactive refinancing initiatives to sustain liquidity and extend debt maturities. Roberts emphasized accelerating market wins in California and other government segments, projecting a transition to higher revenue growth in 2027 as recent bookings convert to recognized revenue. Conti explained that "minority and women-owned business requirements is a recurring cost. And that will be to the tune of $20 to $25 million per year that we did not have previously," specifically impacting Government Solutions margins in 2026. The upcoming Mosaic IT platform is positioned to deliver "a point and a half to two points of margin" expansion in Government Solutions by 2028, as described by Conti. Management clarified no incremental CapEx burden is anticipated from the New York City contract equipment sales, as the customer will purchase its own hardware. Conti noted that CapEx as a percent of service revenue peaked in 2025, with estimates for 2026 similar to 2025 and a directional view of stable or lower CapEx in subsequent years. Industry glossary RAC Tolling: Automated service to manage and process toll charges for rental car fleets, reflecting usage-based toll revenues. FMC: Fleet Management Company; provides vehicle management services and is a revenue segment mentioned in commercial services. SaaS: Software-as-a-Service; recurring revenue generated from cloud-based software subscription offerings. TAM: Total Addressable Market; the aggregate revenue opportunity available from the segments or geographies targeted by Verra Mobility Corporation. Mosaic: The proprietary, cloud-based smart mobility software platform being developed by Verra Mobility Corporation to streamline enforcement processing and improve operating efficiencies. Full Conference Call Transcript David Roberts, Verra Mobility Corporation'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&A. Management may make forward-looking statements during the call regarding future events and expectations, 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 investor presentation for our cautionary note on forward-looking statements. 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.verramobility.com. With that, I'll turn the call over to David. David Roberts: Thank you, Mark, and thanks everyone for joining us. Before I dive into our consolidated financial results, I'll start with an update on our automated photo enforcement contract with the New York City Department of Transportation, which will help contextualize our third quarter financial performance and our revised guidance for the year. We are actively working with the New York City Department of Transportation to finalize the new automated enforcement contract, which was announced in March 2025. As we work to finalize the new contract, we are now in a position to share the key financial expectations. We expect that the new contract will have a five-year term with an option for a five-year renewal and an estimated total contract value of $963 million. We expect annual service revenue to grow from about $135 million in 2024 to a range of $165 to $185 million by 2027. Furthermore, the New York City Department of Transportation has elected to purchase its own equipment, which is expected to add $20 million to $30 million in product revenue in both 2026 and 2027. Craig will cover additional financial details in his prepared remarks. In parallel with working to finalize the new contract, the New York City Department of Transportation has instructed Verra Mobility Corporation through a change order process to install up to 250 red light cameras by year-end 2025 as a part of the legislatively authorized expansion. The new red light cameras are expected to generate $30 million of revenue in 2025, of which about $10 million is expected to be product revenue and $20 million is expected to be installation services revenue. The red light camera expansion program started in the third quarter, and consequently, we generated $17 million of revenue in conjunction with the red light camera installations in the third quarter, of which approximately $6 million was product revenue and about $11 million was installation services revenue. We look forward to continuing to serve the New York City Department of Transportation and the citizen safety priorities of Vision Zero. This program has been demonstrated to improve safety on New York City's roads, as evidenced by the data showing a reduction in crashes and fatalities. Based on 2024 reports published by the New York City Department of Transportation, daily violations at speed camera locations have decreased 94% since the start of the program in 2014. Additionally, the average daily number of red light running violations issued at camera locations has declined by 73% since the program began in 1994. We look forward to continuing to support New York City's safety mission. The contract is strategically important, and we believe a source of long-term value creation for Verra Mobility Corporation. Shifting now to our third quarter consolidated financials, we delivered a strong quarter with all of our key financial measures ahead of our internal expectations. Total revenue for the quarter increased 16% over the same period last year to $262 million, with all three business segments meeting or exceeding their respective internal plans. The aforementioned New York City red light expansion change order was a key catalyst, contributing $17 million in revenue for the quarter. Moreover, adjusted EPS increased 16% over the prior year period, driven by our operating performance, prior period share repurchases, and the reduction in our interest rate on our term loan debt. Moving on to segment level financials, Commercial Services third quarter revenue and segment profit increased about 7% respectively over the prior year period. Rental car or RAC tolling increased 7% over the prior year period, driven by increased travel volume and product as well as higher tolling activity compared to the third quarter of last year. The growth in RAC tolling was partially offset by a decline in fleet management revenue of about 3% compared to 2024, due to the customer churn that we had discussed on our second quarter earnings call. Next, moving on to the macro environment and the implications for our commercial services business. As we discussed on our second quarter earnings call, travel demand stabilized and grew in Q3 over the prior year quarter. Third quarter TSA volume increased about 1% over the third quarter of last year, and year-to-date TSA volume is about the same as 2024. Based on the commentary from the major airlines, we anticipate solid fourth quarter travel demand at levels slightly ahead of our guidance provided during our second quarter earnings call. Moving on to Government Solutions, total revenue increased 28% over 2024. Total revenue from New York City, our largest government solutions customer, increased 46% over 2024, driven by the new red light camera installations. Additionally, service revenue increased 11% outside of New York City, driven by expansion from existing customers and new cities implementing photo enforcement programs. International product sales increased $4 million over 2024, rounding out the year-over-year growth in revenue. Next, I'd like to highlight two important pieces of legislation that were passed during the quarter. First, California passed a work zone speed pilot that is expected to deploy up to 35 camera-based systems on state highway construction or maintenance areas. California also reformed its red light camera enforcement program by shifting the violation from criminal to civil, reducing the fine amount, and easing certain program operating requirements. These reforms bring California's program more in line with other state safety programs, and we believe they will create additional positive momentum for automated enforcement. We estimate that these two legislative authorizations add an incremental $140 million in total addressable market, the majority of which is driven by the red light camera reforms and legislation. This additional addressable market opportunity increases our incremental TAM to approximately $365 million, with the potential to expand to $500 million if California passes additional enabling legislation. Contracted bookings in Government Solutions continue to be a source of strength. In the third quarter, we entered into bookings of about $14 million of incremental annual recurring revenue based on a full run rate, bringing the trailing twelve months total to about $51 million. Notable third quarter bookings include a school bus stop arm program in Seattle, Washington, a speed program in Phoenix, Arizona, expansion of the school zone speed program in Auburn, Washington, and a new red light safety program in Modesto, California. Additionally, subsequent to the end of the quarter, we were notified by San Jose, California of the intent to award the city's speed safety program to Verra Mobility Corporation. We are incredibly honored to partner with the city of San Jose to bring this critical safety technology to the community. This award marks our third California speed enforcement award following San Francisco and Oakland. We anticipate the three remaining pilot cities, Los Angeles, Glendale, and Long Beach, to launch their respective procurements over the next several quarters. We're pleased to report that the San Francisco Speed Pilot program is demonstrating its intended effects through the first four months of operations. A San Francisco Municipal Transportation Agency study that tracks vehicle speeds along 15 of the corridors where the cameras have been installed shows an average 72% reduction in speeding based on data captured before and after the cameras went into effect. Moving on to T2 Systems, our Parking Solutions business, total revenue increased about 7% for the quarter, driven by a 3% increase in SaaS and services revenue and a 30% or $1 million increase in product revenue. These results were in line with our internal expectations. Moving on to our full-year outlook, we are increasing our full-year 2025 revenue guidance driven by the New York City red light camera expansion. We expect this expansion will generate an incremental $30 million of total revenue this year. Additionally, note that our expectations for the remainder of the business remain unchanged as we believe the market for automated enforcement is strong, our parking business turnaround is ahead of our internal plan, and we expect stable travel demand. Today, we're also going to provide a preliminary outlook for 2026. As you may recall, our 2025 guidance to date assumed New York City revenue would be flat in 2025 compared to 2024. Our outlook assumes that our new contract with New York City is effective in January 2026. Driven by the change order to our existing contract and the red light camera installation shifting from 2026 into 2025, we expect total consolidated revenue to moderate to mid-single-digit growth in 2026. At the segment level, we anticipate Government Solutions growing high single digits on strong service revenue. Additionally, we expect commercial services to grow mid-single digits on modest TSA volume growth combined with the impact of the customer churn we discussed in the second quarter of this year, which impacts FMC revenue through 2026. Finally, T2 is expected to grow low to mid-single digits next year on moderate SaaS and equipment sales growth. Additionally, we expect adjusted EBITDA margins to decline 250 to 300 basis points on portfolio mix and impacts from the New York City renewal contract. Craig's gonna walk through this detail along with the path to margin expansion as we capitalize on the growth opportunities and cost reduction initiatives currently underway across our businesses. In my view, 2026 represents a year of transition between the investments made in the business over the past two years and the benefits we expect to realize over a multiyear period beginning in 2027. We are poised to deliver strong growth and margin expansion, driven in large part by the growth and forward momentum in Government Solutions, and our ability to execute at scale that business as well as the continued growth opportunities in commercial services and T2. Moving on to capital allocation, due to the conviction in our long-term growth outlook and margin expansion initiatives, our Board of Directors authorized a $150 million increase to our existing stock repurchase program that is available through November 2026. This brings the available repurchase authorization to $250 million. We expect to commence the buyback in the near term, subject to market conditions and other factors. Craig, I'll turn it over to you to guide us through our financial results, the New York City contract update, our revised 2025 financial outlook, and our preliminary perspectives for 2026. Craig Conti: Thank you, David, and hello, we appreciate you joining us on the call today. Let's turn to Slide four, which outlines the key financial measures for the consolidated for the third quarter. Our Q3 performance, which included 12% service revenue growth and 16% total revenue growth year over year, exceeded our internal expectations. Service revenue growth, which consists primarily of recurring revenue, was driven by the change order for New York City red light expansion program and service revenue growth outside of New York City in the Government Solutions business as well as increased revenue from RAC tolling in European operations and the commercial service. At the segment level, Government Solutions service revenue grew 19% year over year, Commercial Services revenue increased by 7% over the prior year, and T2 Systems SaaS and services revenue increased 3% compared to 2024. Total product revenue was about $19 million for the quarter, Government Solutions contributed roughly $14 million with $6 million coming from the New York City red light expansion and $8 million from international product sales. T2 delivered about $4 million in product sales overall the quarter. On the profitability side, our consolidated adjusted EBITDA for the quarter was $113 million, an increase of approximately 8% versus the same period last year. We reported net income of $47 million for the quarter, including a tax provision of about $18 million representing an effective tax rate of approximately 28%. GAAP diluted EPS was $0.29 per share for 2025 compared to $0.21 per share for the prior year period. Adjusted EPS, which excludes amortization, stock-based compensation, and other nonrecurring items, was $0.37 per share for the third quarter this year, compared to $0.32 per share in 2024, representing 16% year-over-year growth. The adjusted EPS growth was driven by the increase in adjusted EBITDA, a sustained reduction in interest expense driven by our prior year debt repricing efforts, and our share repurchases in 2024. Cash flows provided by operating activity totaled $78 million, and we delivered $49 million of free cash flow for the quarter in line with our internal expectations. Turning to Slide five, we generated $416 million of adjusted EBITDA on approximately $943 million of revenue for the trailing twelve months, representing a 44% adjusted EBITDA margin. Additionally, we generated $153 million of free cash flow or a 37% conversion of adjusted EBITDA over the trailing twelve months. Next, I'll walk through the third quarter performance in each of our three business segments, beginning with Commercial Services on Slide six. CS year-over-year revenue growth was 7% in the third quarter. RAC tolling revenue increased 7% or about $5 million over the same period last year, driven by increased product adoption and tolling activity, which benefited from a 1% increase in US travel volume over the prior year quarter. Our FMC business declined 3% or about $500,000 year over year, driven by prior period customer churn. Additionally, our European operations contributed $2 million of growth compared to 2024. Commercial Services segment increased 7% over the prior year, representing a 67% segment profit margin. The margin improvement was largely driven by operating leverage, created by improved travel volume and increased product adoption. Turning to Slide seven, Government Solutions saw strong service revenue growth driven by $11 million of installation service for the new red light camera expansion in New York City as well as 11% service growth outside of New York City. The growth was broad-based across all customer use cases, but particular strength in speed, bus lane, and school bus stop arm enforcement programs. Total revenue grew 28% over the prior year quarter, benefiting from above $14 million in product sales, of which $6 million were generated from New York City red light camera sales and $8 million from international product sales. In total, product sales increased by $9 million over the same period last year. Government Solutions segment profit was $31 million for the quarter, representing margins of approximately 26% compared to 29% in the prior year period. The reduction in margins versus prior year was primarily due to readiness investments made to prepare the company for execution on the pending New York City contract. Let's turn to Slide eight for a view of the results of T2 Systems. We generated revenue of $22 million in segment profit of approximately $4 million for the quarter. SaaS and services sales increased 3% compared to the prior year, while product revenue increased 30% or $1 million compared to 2024. Included within SaaS and services, recurring SaaS revenue increased low single digits compared to 2024. Okay. Let's turn to Slide nine for a view of the balance sheet and take a look at net leverage. We ended the quarter with a net debt balance of $843 million, which reflects the strong free cash flow we generated over the first nine months of the year. Net leverage landed at two times, and we've maintained significant liquidity with our newly expanded $150 million undrawn credit revolver. Our gross debt balance at year-end stands at about $1 billion, of which approximately $690 million is floating rate debt. Subsequent to the end of the quarter, we executed a successful refinancing of both our ABL revolver and our term loan. The market for institutional debt is strong relative to recent historical levels, so we took action well in advance of our term loan going current. We increased the revolver limit from $125 million to $150 million and also added an accordion feature to provide an additional $75 million of liquidity if ever needed in the future, resulting in a potential limit of $225 million. Additionally, the maturity on the revolver was extended five years to October 2030. Given the current favorable institutional debt market conditions, we proactively refinanced our term loan, extending the maturity seven years to October 2032, and lowered the interest spread by 25 basis points to 2% flat. Okay. Now let's turn to Slide 10 and have a look at full-year 2025 guidance. Based on our year-to-date results and our outlook for the fourth quarter, we are increasing full-year 2025 revenue guidance and affirming all other guidance measures. As David discussed, New York City has authorized the installation of up to 250 additional red light cameras in 2025 under our existing contract, which is expected to deliver about $30 million of revenue, of which about $10 million is expected to be product revenue and $20 million expected to be installation service revenue. The adjusted EBITDA generated from these camera sales is expected to be offset by one-time readiness investments to support the new contract requirements in New York City. The readiness investments include the development of a world-class real-time camera health dashboard, cloud migration activities for certain legacy data, and minority and women-owned business enterprise subcontractor ramp-up costs. As a result of these investments, we are not increasing adjusted EPS or free cash flow guidance for the balance of 2025. Excluding the New York City camera installations, our perspective on guidance remains unchanged. The updated full-year 2025 guidance ranges are as follows. We now expect total revenue in the range of $955 to $965 million, representing approximately 9% growth at the midpoint of guidance over 2024. The remainder of the financial guidance remains unchanged and is as follows. We expect adjusted EBITDA in the range of $410 million to $420 million, representing approximately 3% growth at the midpoint over 2024. We anticipate an adjusted EPS range of $1.30 to $1.35 per share. Free cash flow is expected to be in the range of $175 million to $185 million, representing a conversion rate in the low to mid-forties percentile of adjusted EBITDA. Moving on to the segment level, Government Solutions is expected to generate low to mid-teens total revenue growth for 2025, driven by the new camera installations for New York City along with the expansion of camera installations with existing customers and new customers awarded in prior quarters. We continue to anticipate that parking solutions revenue will be about flat with 2024 levels. We expect SaaS revenue to grow low single digits, offset by a decline in installation of professional service revenue on roughly flat product sales. Based on the assumption that travel volume will be only slightly elevated in 2025 compared with 2024, we anticipate commercial services growing at the high end of mid-single digits. We anticipate CS revenue, adjusted EBITDA, and margins to decline sequentially in the fourth quarter consistent with historical norms based on travel trends. Our key assumptions supporting our adjusted EPS and free cash flow outlook can be found on Slide 11. Turning next to Slide 12, I wanted to share the key financial assumptions for the New York City contract we're in the process of finalizing along with some updated perspective on the overall Government Solutions business. On March 31, New York City announced that Verra Mobility Corporation was selected as the vendor for their automated enforcement program with an initial term of five years with a five-year extension option. The estimated total contract value for the first five years is $963 million, and we are currently in final contract negotiations with New York. We anticipate that New York City will again purchase its own equipment from Verra Mobility Corporation, with all installation and relocation services included in service revenue and additive to the scope of the contract relative to our existing contract. We expect to sell and install about 1,000 incremental new red light fixed bus lane cameras over the next two-plus years. New York City service revenue is expected to grow high single to low double digits through 2027 and to level off in 2028 and beyond. New York City product sales post-2027 are expected to be less than $5 million per year. Total Government Solutions service revenue is expected to grow high single to low double digits over the next several years, leveling at the low end of high single digits following the completion of the New York City installations. And lastly, Government Solutions segment profit margins are expected to dip in 2026 to the low to mid-20% range on repricing and primarily due to the contract requirement that at least 30% of the total contract value was invested in minority and women-owned subcontractors. We anticipate that beginning in 2027, productivity improvements and platform consolidation will drive margin expansion and approach 30% in 2028 and beyond. Now let's move on to a brief preview of how we expect 2026 will play out, incorporating preliminary estimates for commercial services and T2 on Slide 13. I'll remind you that our annual operating plan is not yet complete, so these estimates may change. At the consolidated level, due to the New York City red light camera installations shifting forward into 2025, we're anticipating mid-single-digit revenue growth overall in 2026. Additionally, we're anticipating a 250 to 300 basis point reduction in adjusted EBITDA margins due to a combination of portfolio mix and the New York City renewal contract, partially offset by a year-over-year reduction in ERP implementation costs. Let me drill down a layer on both of these items. First, on the portfolio mix, this is simply the impact of Government Solutions outpacing commercial services growth, which has an approximate 25 basis point impact on consolidated adjusted EBITDA margin. More importantly, the New York City renewal contract is expected to result in an approximate 250 to 300 basis point decline in margins driven by service pricing changes established through the competitive procurement process and the minority and women-owned subcontractor requirements. Adjusted EPS is expected to increase low to mid-single digits year over year despite the investments in ramp-up costs in Government Solutions largely due to the expanded stock repurchase plan announced today. Rounding out the business segments, we expect Commercial Services to grow mid-single digits due to our expectation that TSA volume will grow approximately 1 to 2% over 2025, just as it has year to date so far this year. Additionally, we expect the fleet business growth to moderate to low single digits due to the prior period churn in our FMC business, which will anniversary in 2026. Segment profit margins for Commercial Services are expected to be up about 25 to 50 basis points due to volume leverage and the reduction of the ERP spend in 2026. Finally, we anticipate that T2 Systems will grow low to mid-single digits with segment profit margins up 50 to 100 basis points over 2025. Looking out beyond 2026, we expect that the Government Solutions platform consolidation that we've discussed over past several quarters will be a catalyst for margin expansion and productivity enhancements in 2027 and beyond. This platform, which is highlighted on Slide 14, is an IT initiative to deploy our latest smart mobility platform termed Mosaic internally. Mosaic is a cloud-based, fully secure application intended to streamline the end-to-end processing of traffic incident events. The platform is expected to provide numerous benefits such as flexible architecture that improves project deployment timelines, enhanced automation processing, and other productivity improvements and operating efficiencies. David Roberts: Efficiency. Craig Conti: And as such, is expected to be a key driver of Government Solutions margin expansion in 2027 and beyond. As David discussed, our Board authorized the expansion of our existing stock buyback plan by an incremental $150 million, bringing the total authorization up to $250 million. We expect to commence the stock repurchases in the near term, subject to market conditions and other factors. We are incredibly excited about the future trajectory of the business. As David noted, finalizing the updated New York City contract provides financial predictability and a source of value creation. Additionally, we are poised for growth and profitability across our businesses as the benefits of investing in our platforms yield the intended scale and margin benefits. This concludes our prepared remarks. Thank you for your time and attention. At this time, I'd like to invite Towanda to open the line for any questions. Towanda, over to you. Operator: Thank you. Ladies and gentlemen, as a reminder to ask a question, please press 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press 11 again. Our first question comes from the line of Faiza Alwy with Deutsche Bank. Your line is open. Faiza Alwy: Yes. Hi. Thank you. Thank you so much for giving us, you know, all that detail around the New York City contract, really helpful and just giving us a longer-term view there. I guess I wanted to double click on the margins as you can imagine. So, Craig, you pointed to a few different things. It sounded like there were some start-up costs. That, you know, you're incurring this year. And then it sounds like there were there are some continuing costs next year and beyond, and you mentioned the subcontract with the minority and women-owned businesses. So I guess just parse that out to the extent you can further quantify you know, how much of this might be one-time versus continuing. That would be really helpful. Craig Conti: Yeah. You bet. So let me let me start first with 2025. When we talk about those one-time readiness costs, that truly is one-time. And the scope of that is approximately $5 to $10 million depending on where it shakes out. That's all baked into the guidance. But I think the proxy of your question is let's move into 2026. So at the total Verra Mobility Corporation level, I expect margins to come down about 250 to 300 basis points. Okay? And there's three buckets I want you to think about there. The first bucket is the portfolio mix, which simply means that the GS business, which is a lower margin business than CS, as you well know, is growing faster than CS in 2026 as compared to '25. That's about 25 basis points at the consolidated level. That's negative. Then we pick up about 25 to 50 basis points on the positive, between two things. Number one is our CS business. We'll still have volume leverage in accrete margins as we've talked about. Don't see any change there. And, also, the ERP spending, as we've discussed in the past, that's the thrust of that spend will be behind us. We'll get some benefit there. So I get 25 to 50 basis points back. And then the New York City renewal in totality, I expect to be a 250 to 300 basis point reduction in 2026 and that's really two pieces. The first is the price normalization. This was a competitive contract, as everyone well knows. And then the second piece is the cut in of the minority and women-owned business required. Now those minority and women-owned business requirements is a recurring cost. And that will be to the tune of $20 to $25 million per year that we did not have previously. As we look out for the life contract. Faiza Alwy: Okay. Understood. And just a clarification, are you gonna see is there an incremental CapEx spend that's maybe coming from you know, purchase of these cameras, or does that go through the income statement? Craig Conti: Let me be really clear on this one, Faiza. It's a great question. Absolutely not. Absolutely not. So the expectation here that New York is once again going to purchase their own capital as they have in the past. Faiza Alwy: Okay. Got it. And then, like, just to follow-up on this point right around the competitive process and you know, the margin dilution that you're seeing from this contract. I know you have previously talked about, you know, as the TAM has increased, you've made some investment in the business. Like, are you seeing a similar outcome with some of these other contracts that you're signing with, you know, other municipalities? Or district or jurisdictions And, like, how should we think about you know, margins overall beyond just the New York City impact in the government solutions business? David Roberts: Yeah. I would say this is David. I would say that you know, New York City, obviously, given its size and scale, makes it a the impact there is significantly higher. Two, I would say that in general, you know, we are competing at very similar levels across the board that we have in the past. And then what I would say is outside of New York, only a few other major areas at this time have the same level of requirements. Around the use of for example, for minority women-owned. So we're not seeing that pop up, all across the country or anything like that. So I would look at New York City as a bit of a as it always has been a bit of a unique one. Craig Conti: And I would add on to the end of that as you asked about go forward margins. You know, I think we've said on this call a couple times that the GS business is a know, high twenties, 30% margin business. Clearly, it's not gonna be that. In 2026, and we know that. But I that has not changed. That has not changed. So the investments that we've made in previous years and a little bit this year to consolidate our platform, we wanted to give some updated perspective on what that is today called Mosaic. Will get us back to that level of profitability. So we feel very good about that. Faiza Alwy: Understood. Thank you. Thank you. Operator: Our next question comes from the line of Keith Housum with Northcoast Research. Your line is open. Keith Housum: Thanks, guys. Appreciate it, and I appreciate the color on your City here. Any color you can provide on 26 for the cadence of the cameras? Will they be pretty even throughout the year or you guys need to build up throughout the year? David Roberts: I you know, it's we don't know yet. I mean, we'll get to the end of the year and do the planning with it. But it'll probably be relatively smooth throughout the year. But there's always fits and starts depending on weather and other things that may go on with the city. And I think the only thing I would say is that is if we look across all of the years, the thrust of the installs will be done by 2027. So these are our current is where we are currently with a few trickling into 2028, but yeah, as David said, we're not at that level of detail where I could know, kinda give you a view by quarter. Keith Housum: Gotcha. And then, Craig, you might just mention it. What do you anticipate the benefit being from Mosaic in twenty seven and beyond? I think that we will for the Say twenty 2520 six. Yeah. He said '27 would be alright. It '27 and beyond you were asking? Twenty May. I am. I am. Yeah. Here's here's here's how I think about that is I'm actually gonna back it up to 2026. I think this is about a point and a half to two points of margin in the GS business alone. Until we get to I'll call it the level altitude here. Which is probably out in the 2028. So when you look at the New York City slide that I put in, kinda look in the upper right the major driver of bringing the GS margins from the low to mid twenties back up to those high twenties, approaching 30% by 2028. Is Mosaic. So I would level one across that time period. David Roberts: Okay. That's helpful. I appreciate it. Keith Housum: In terms of the share repurchases, you know, you guys have had this share repurchase outstanding, a 100,000,000 out there previously for a while. But it sounds like you guys are ready to act on the combined $250 here shortly, correct? As opposed to previously, you guys are more opportunistic, and you'd you're holding for the dry power. The short answer is yes. The slightly longer answer is we always have say, obviously, subject to market conditions. But we feel we feel pretty good about taking an active role on that team. Okay. Great. Appreciate you guys. Thank you. Operator: Thank you. Our next question comes from the line of Louis DiPalma with William Blair. David, Craig, and Mark, good afternoon. Louis DiPalma: Hey, Louie. Louie. And congrats on inching closer to the finalization of the contract. I was wondering what remains in terms of establishing the definitive contract? And do you have a sense of the timing? David Roberts: At this point, what I would call it is primarily administrative working inside of the process that the city has laid out for contract approval. There's not really any significant terms and conditions that we're working through at this point. I would expect that know, relatively short order. Louis DiPalma: Thanks, David. And for Craig, you provided great detail on the three-year government systems revenue and EBITDA outlook. I think it implies a three-year government systems EBITDA growth CAGR of approximately 7%. I was wondering what does the three-year outlook assume for CapEx? I don't think you provided any CapEx assumptions, but anything regarding CapEx or the total company free cash flow conversion in 2028 would be helpful. Craig Conti: Yeah. I won't I won't go to 2028 free cash flow conversion just yet, Louis. We're still around a potential date for an Investor Day, which would probably be a great time to do that. But as think of 2026, I think the CapEx spend looks a lot like it did in 2025. And I gotta say I'm I'm really proud of that because we're we're gonna have a another year of in 2026, for non-New York City high single-digit growth, and I think we'll have a CapEx toll that looks a lot like the one that we put in front of investors this year. So as we continue to go out, all I would say is directionally, I expect that our CapEx as a percentage of service revenue both for the company and for GS, everything I see today. We should've hit the high watermark here in 2025. That's the view I have today. Obviously, when I learn more, I can I can tell you a little bit more? Louis DiPalma: Great. And another a New York City related question for David or Craig. You both discussed installing 1,000 incremental cameras over the next two years. Does that total include all of the upgrades for the existing cameras and do you still plan on upgrading the entire fleet of existing cameras, or does that 1,000 include everything? Craig Conti: Well, Louie, I can give you most of that. It does not include the upgrades. That 1,000 does not include the upgrades. However, when I when I went into the financial you know, we kinda did the CAGR discussion just a minute ago. That does include the So those upgrades will be more terms of a number, I really wanna see a, final contract from New York because, you know, that's really at the customer's option. But the 1,000 does not include up It also doesn't include relocations of cameras from one spot to another. Louis DiPalma: Okay. And one final one. From a high level, how does the functionality of the new cameras compare to the cameras that you know, you've been you were installing five years ago? Are there like, many new features with the cameras, and is there the potential to add on like, new revenue lines and I'm not talking specifically about the New York market, but even for other markets, Like, what's the additional functionality with the latest generation of cameras? David Roberts: I would say primarily two things. One is obviously the resolution and the quality of the image detection gets much higher. So think of your iPhone 17 versus the iPhone 12 or whatever, you know, the just the quality of the images and video is significantly better. That's number one. The ability to shoot across other lanes. I would say a lot of the investment we made is into the platform that Craig had mentioned Mosaic, which is functionality that will deliver a much more seamless, much more efficient capability for our customers look at data, data dashboards, making decisions. But the third point is, yes, in the world of cameras, that is the direction which is a single camera that can do five, six, or seven things, not just one thing. That's what we would anticipate moving with that type of technology going forward. Louis DiPalma: Excellent. Thanks, everyone. David Roberts: Yep. Thank you. Operator: Our next question comes from the line of David Koning with Baird. Your line is open. David Koning: Yeah. Hey, guys. Thank you. And I guess I was wondering I was looking at the government revenue. If you take total less than New York's so total service less New York service. And Mhmm. When you do that, next year's growth is good. Seven, 8% when you just kinda take your numbers. The year out is really good. It's, like, 16%. And, you know, that acceleration okay. I guess what's what's behind that? I mean, that's that's amazing acceleration. And is that part of the EBITDA margin expansion because your higher margin work, I assuming, I assume, is going to be accelerating into '27? David Roberts: Yeah. I mean, so the growth that's exactly right. So if you think that's why we in my remarks, Dave, we talked about there's a little bit of a reset because, yeah, Because of the size and the and what's happening in New York, which is awesome, awesome stuff, it's just gonna have a bit of a drag next year. But past that, when you get past the implementation of our technology upgrades, as well as all of the winning that we have been doing in the market place. Our win rate has been significantly higher over the last twelve months than what previously We basically won all of the so far in California. We're winning great opportunities in school bus. So what I would say is but remember, there is a time to book and then a time to realize revenue, which does take a little bit. So what you're seeing is all of the winning in the back you're backlog turning into revenue as we get into early or mid part of next year. That translated into real growth in '27. David Koning: Gotcha. Okay. Well, that's great to see. Then I guess my follow-up. In commercial, you had the second tough comp of the year, yet you accelerated growth despite the fleet management headwind. So I'm wondering how you had the best growth the year so far in Q3 despite both a tough comp and the fleet management. It seems like something's going really well there. Craig Conti: Yeah. They're very good at knowing me here on fleet I'm gonna tell you again, it wasn't as bad as I thought. And, basically, what that means is, tolling activity outside of the churn that we talked about last quarter was as high as we've seen, in the last five or six quarters. So the churn didn't have as large of an impact. Let's put it that way, and I do not expect that'll be the case as we go into the fourth quarter. So if you remember when we were or all of us we remember ninety days ago, we talked about, I expect that fleet business to have a mid-teens year over year negative fee. I do expect that to come in the fourth quarter quite frankly, I expected it in third quarter. However, that tolling activity picked up. But the racks have been strong. Sitting here today, we are at we had we had we had a good solid Q3 and TSA throughput at one zero one. On a year to date basis, we're just north of a 100. And then the month of October has been really strong. Last I looked on a month to date basis, it was, you know, plus 4%. So, I feel I feel pretty good about how the business is performing. But that fleet that fleet thing is gonna show up in the fourth quarter. A little bit more than it did this quarter. David Koning: Gotcha. Great job, guys. Thank you. Craig Conti: Thank you, Nick. Operator: Please stand by for our next question. Our next question comes from the line of Chris Zhang with UBS. Your line is open. Chris Zhang: Hey, good afternoon, and thanks for taking my question. So I wanted to double click on California a little bit and pursue the registered update and the updates across different medicines, especially congrats on the San Jose award I'm just wondering from the 2026 guidance perspective, is it fair to think that anything from what you've been awarded, San Jose, has is in the guide, whereas the upcoming pilots or especially specifically Los Angeles, Glendale, and Long Beach, Those are not in the guidance yet. And can you give us a sense of what's your overall scale in California? And, what are the potential opportunities you have with the bill as to especially those private cities. Craig Conti: Yeah. Chris, first of all, welcome. Second of all Thank you. Yeah. This is Craig. I'll give you the financial piece of that, then I'll let David talk about the commercial motion that we've seen in California. So the ones that you just spoke of are pilots. Right? So those pilots, I think, in totality for state of California, all the pilots amount to about $10 million of ARR and roughly half of those have only gone out for RFP. So to the degree that we won a 100% of the pilots that have come out to RFP, as David just talked about, yes, that's in our guide, but it's not a significant amount of money. The other thing is when you're talking about a new modality, even in a state that's an existing customer, typically, the time from winning of the contract or the award of the contract to revenue is twelve to eighteen months. So even if those had been bigger numbers, the answer would be implicitly, it's in the guide, but it's not a really big number. But outside of that, with, the red light, think maybe, Dave, you wanna talk about that? David Roberts: Yeah. I mean, think, as I mentioned in my remarks, still have a couple of pending from the school zone speed program, which we can well anticipate first part of next year. The, you know, the red light is significant So we're we're the largest provider of red light in the state of California currently. But historically, it had always had some unique administrative challenges to a way that it would deploy. With multiple different challenges that I that I some in the in my remarks. That I won't go back into. But so we just look at that as an opportunity to reshape the way that we're serving customers already. And because they've removed some of the administrative barriers, we would anticipate some of those programs to expand. We feel like we're in a California is really something that we've worked really, really hard on as an organization. Enormous amount of focus partnering with our government relations as well as our local teams as well to produce what we consider is going to be a great outcome for many, many years to come. Chris Zhang: Alright. Awesome. Thanks a lot for the color, David and Craig. And really looking forward to working with you going forward. David Roberts: Yeah. Thank you. Thank you. Operator: Ladies and gentlemen, that brings our Q&A session to the end. And that concludes today's conference call. Thank you for your participation. You may now disconnect.
