Please stand by. Good day and welcome to the Verra Mobility Corporation, First Quarter 2022 earnings call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Mark Zindler. Please go ahead.

Thank you. Good afternoon and welcome to Verra Mobility's first quarter 2022 earnings call. Today we'll be discussing the results announced in our press release issued after the market close. With me on the call are David Roberts, Verra Mobility'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. During the call, we will make statements related to our business that may be considered forward-looking, including statements concerning our expected future business and financial performance, our plan's to execute on our growth strategy, the benefits of our strategic acquisitions, our ability to maintain existing and acquire new customers, expectations regarding key operational metrics, and other statements regarding our plans and prospects. Forward-looking statements may often be identified with words such as we expect, we anticipate or upcoming. These statements reflect our view only as of today, May 9, 2022 and should not be considered our views as of any subsequent date. We undertake no obligation to update or revise any forward-looking statements. Forward-looking statements are not promises or guarantees 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 important factors that could affect our actual results, please refer to those contained in our annual report on Form 10-K, which are available on the Investor Relations section of our website at ir.verramobility.com, and on the SEC's website at sec.com. Finally, during today's call, we will 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, which can be found on our website at ir.verramobility.com and on the SEC's website at sec.gov. With that, I'll turn the call over to David.

Thank you, Mark. And thanks for everyone for joining the call today. I'll start with general commentary on the business as a whole, including several exciting announcements and then turn to the trends that are influencing our strong results in each of our business segments. I'm very pleased with a great start to the year, it was driven by strong performance across the company and notably commercial services delivered exceptional results driven by significant increase in travel in the U.S. throughout the first quarter. We experience healthy bookings in both government and parking, both in terms of new contracts and contract renewals. And we're seeing healthy increases to our business development pipelines in both of these segments. Greg will elaborate further in his remarks about our financial performance, but I'm very pleased with the results to date. Based on our first-quarter performance and our outlook for the remainder of the year, we expect to generate revenue and adjusted EBITDA at the high end of our guidance range. I'm also pleased to report that our Board of Directors has approved a stock repurchase program which authorizes the company to repurchase up to $125 million of its Class A common stock over the next 12 months. The share repurchase program follows the completion of the share repurchase program announced in August 2021, through which we repurchased approximately $6.8 million shares for $100 million through a privately negotiated transaction, representing about 4% of the outstanding shares. The new stock repurchase program demonstrates the confidence that management and the Board of Directors continue to have at our strong fundamentals and the free cash flow generation of the business and the growth opportunities we see over the long term. Our strong free cash flow generation provides us with the financial flexibility to invest simultaneously across…

Thanks, David. Good afternoon, and thanks to everyone for joining us on the call. I'd like to provide an overview of our first quarter 2022 results, followed by a discussion of 2022 guidance. I'll start on Slide 4, which outlines revenue and adjusted EBITDA performance for the consolidated business. Total revenue increased approximately 90% year-over-year to about $170 million for the quarter driven by strong operating performance across the company in the inclusion of Redflex and T2 Systems in our financial results. Service revenue grew about 80% over the same period last year of which 45% was organic growth. This growth was attributable to several factors. Commercial Services revenue grew 61% year-over-year, and Government Solutions service revenue increased by 66% over the prior year of which 28% was organic growth. Redflex and T2 Systems contributed $17 million and 14 million of service revenue respectively. Product revenue was $9.2 million for the quarter, of which $6 million was from Redflex and T2 Systems. Adjusted EBITDA of $75 million also increased by approximately 87% over last year for the same reasons as revenue. Moving to commercial services on Slide 5, we delivered revenue of about $73 million, increase in $28 million or 61% year-over-year. The improvement was driven by increased demand for travel, particularly in the U.S. and the resulting increase in demand for rental cars. As David mentioned, rental car companies experience a significant increase in demand in the first quarter relative to both the fourth quarter of 2021 and the first quarter of last year. While rental car volumes remain below pre -pandemic levels, the percentage of cashless tolls, toll rates, billable days and customer adoption trends are all increasing. Adjusted EBITDA was $47 million for the quarter leading to an overall commercial services margin of 63%. Turning to Slide…

Thank you. [Operator Instructions] And our first question will come from Daniel Moore with CJS Securities.

Thank you. Thank you, David. Thank you, Craig for all the color and taking the questions. Let me start with the guidance. You've just touched on this in your last couple of comments, but Q1 on commercial services, as you mentioned, was up about 17% or so versus Q1, '19. The guidance that even the high end of the range would indicate a significantly lower or a compression in growth for the remainder of the year. I'm just wondering if you're just being conservative for if there's anything that you're seeing that would cause a likely deceleration.

Thank you for the question. It's a great question and to be completely candid, we're being a little bit conservative here, but let me tell you why. So if we look at the way the market played out in the first quarter, we did see a dip into beginning of the first quarter and a very sharp acceleration in revenue and billable days at the back half of the first quarter and that could make sense when you look at how Omicron rolled through the population here. In order for us to take another look at this and potentially raised guidance forward, we want to see a couple of things. Number one, we want to see that accelerate velocity we saw in Q1 continue into Q2. We're still going through April data now to see a bet actually stock and I think the second piece is, in the advent of the summer driving season, which is just about the start, we want to see what the impact of those higher fuel costs could be on the summer driving season. So if we continue to see the short answer, if we continue to see the trends that we saw exiting the first quarter in another couple of months here, I do believe we would raise guidance for the balance of the year.

Perfect. And then maybe just one more on Parking Solutions, I think you talked when you acquired T2 about getting that business to double-digit growth, at least some the services side. Talk about the cadence you expect over the next year or two and what kind of time frame would you expect to achieve that growth overtime? Thanks.

I can tell you from a 2022 perspective, we do expect to see double-digit growth versus where we landed in 2021. And the one thing that we put in the script and hopefully we -- that came out in our comments, this business grows sequentially with 1Q being the lowest quarter and the fourth quarter being the largest quarter. So as you see those actuals come through, especially in the second quarter and the third quarter, I think that trend will make a little more sense. And David gave some facts that the pipeline for the business is even stronger than we thought when we bought the business, so I think we're in pretty good shape on T2.

Perfect. I'll jump back with any follow-ups. Thanks.

Thank you.

Thank you. Our next question will come from Keith Housum with Northcoast Research.

Good morning, guys -- actually, good afternoon, sorry. Just following up on last question there. In terms of the pipeline and the bookings for T2, could you walk us through in terms of the revenue recognition for those. You expect to turn that in the revenue this year or the carry-on in future years?

Right. Great question. So when we look at something like bookings, so when we give a bookings number, and I think we said $9 million, if I'm not mistaken in the script today. That's going to turn into booked revenue 75% of that will convert within the next quarter and then to balance by the end of the year. So the way we think about it, that bookings or that pipeline number that goes from the sales pipeline into an actual booking, will convert within about a year, call it three quarters of that number in the next 90 days.

Great. I appreciate that color. And then in terms of the New York City contract, the additional I think it was 240 is going to be rolled out, I believe in 2022. It looks like we don't have much that was done in the first quarter, can give us a little bit of a cadence of what we should expect the rest of the year on that?

Yes. Sure. The bad -- the largest part of this will be installed in the third quarter and it will be the 240 will be materially done by the end of the third quarter. I'd say a piece of it here in 2Q, the largest majority in Q3, and then no fixed speed installs, as we see a today in the fourth quarter of this year.

Great. Thanks, Craig, I will just back in queue.

Thank you.

Thank you. As a reminder, if you would like to signal with questions, please [Operator Instructions] on your touchstone telephone. Again, that is [Operator Instructions] if you would like to signal with questions at this time. We -- our next question comes from James Faucette with Morgan Stanley.

Hi this is Maryland for James. Going back to T2, I think on the opportunity you've mentioned the ability to leverage your existing government relationships to accelerate T2's revenues within cities so I'm curious what's the timeline for that is and the magnitude of got opportunity?

Yeah. Good question. That's certainly part of the thesis is that we have relationships with larger municipalities and T2 has generally played in the smaller market. So that market takes a little bit of time to activate. So what I would suspect is, we're already in the process of cross-selling and what I would call pipeline development. I would anticipate that you would start to see some of those things closing ones of more significant size towards the back half of the year.

Okay. And then just [Indiscernible] update on how you're thinking about M&A and what kind of deals you guys maybe looking at after some of your recent acquisition? Thank you.

Yeah. I think we're going to -- obviously, we've always been pretty active in the market. We continue to look across the ecosystem of smart mobility. We've -- I think one is anything that we can continue to look at that would bolster our commercial fleet business in terms of -- there's more connected vehicle plays that are relevant to fleets, not only today and in the future. And then continuing to look for the next set of technologies, they're going to help cities drive safety into their community. So those are two of the broader categories, but pipeline is always active and we will -- and I think we're going to continue to do so. Obviously, the stock repurchase is something that we can do now as a part of our capital. We have a broad-based capital deployment strategy, so we're able to not only do the stock repurchase plan. We still feel confident about the ability to close deals of size this year if the opportunity presents itself.

Okay. Thank you.

And our next question will come from Daniel Moore with CJS Securities.

Thank you again, as far as Hertz concerned, great to see obviously a five-year agreement provides a lot of a ton of visibility. Just do you expect that to be the norm going forward? Do we go back to longer-term contracts in terms of renewals, I know that's crystal ball? But more importantly, I think you mentioned there was essentially no change from a revenue perspective. Is that over the five-year time frame and what kind of growth or fleet growth or overall market growth does that imply? Just trying to narrow that down a little bit -- nail that down a little bit further. Thanks.

I think as you know, Dan, each of the rental car companies has unique strategies as they look at the types of contracts that they are willing to do. Hertz doing a five-year was just a really great solidification of our relationships, so I don't know that I could use them as any way to speak to any of the other rental car companies. But obviously, our goal is having always been as to maximize the length of contracts to extent if that makes sense for both us on our partner. And two the comment was that it's materially the same in the the terms of that includes and what I would say is that just for the length of the contracts, but obviously everything comes down to volume and the as you well know, related to how the overall businesses performing. But it does obviously indicated some point that the fleet will get back to a larger fleets and they've already indicated that they are buying vehicles that they can get their fleets up to full to fulfill.

Perfect. No, that's helpful. Thanks again.

And our next question will come from Keith Housum with Northcoast Research.

Thank you, guys. David, if you can just throw a little color on the take rate. I know you guys have been talked I think the second quarter rail about the take rate at the railcar customers has been higher than what's been in the past. Any color you can provide in terms of approximate numbers or percentages that we can get a grip on the business a bit more?

Yeah. I don't know that we've ever given out the specific take rate by customer or anything like that if so, what I think what we're seeing is a trend. I guess what I can -- let me give you a color on the trend. The trend is that the vehicles are being rented longer than before 2019, and that is colliding with, if you will, it's not a good term for the car rental. Sorry about that, but regardless, it's -- there's still the opportunity for them to rent more tolls as they rent longer and renting in areas that have more tolls. So I think that trend right now seems to be holding strong. I would certainly anticipate it going through the rest of this year and obviously, as we get into next year, we'll have a better sense of load balancing the demand, but that take rate has been clearly -- and not only that, we've also done a lot of stuff on the court with our customers to increase changing some of the programs, more advertising and training at the calendar. So there's a combination, it's very difficult to pinpoint which one, but clearly, the longer rental duration is one of the major drivers of the uptake.

Got it. I appreciate it. And then just looking at the guidance for the rest of the year in terms of the impact on our adjusted EBITDA, it appears that the cadence of hiring will increase as the year goes on, as you guys make some of the targeted investments is that a correct assumption?

Yeah, that's correct.

Okay. Great. Thank you.

Yes. Thank you.

Thank you. That does conclude the question-and-answer session. I'll now hand the conference back over to you for any additional or closing remarks.

Well, thank you very much. We appreciate your support, and thanks for calling in. And if you have any questions, please reach out to the company, we're happy to help. Thank you.

Well, thank you. And that does conclude today's conference. We did thank you for your participation. Have an excellent day.