Verra Mobility (VRRM) Q2 2026 Earnings Call Transcript

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DATE

Wednesday, Aug. 5, 2026 at 5:00 p.m. ET

CALL PARTICIPANTS

• Vice President of Investor Relations - Mark Zindler
• Interim Chief Executive Officer - Jon Keyser
• Chief Financial Officer - Craig C. Conti
• Chief Customer Officer - Stacey Moser

TAKEAWAYS

• Total Revenue -- $263.6 million, increasing 12% year over year driven by double-digit growth in the Government Solutions segment and improved collection performance in Commercial Services.
• Government Solutions Revenue -- $128.5 million, representing 20% growth primarily due to a $12 million increase in New York City revenues from new camera installations.
• Commercial Services Revenue -- $115.1 million, growing 6% year over year as increased product adoption and tolling activity offset a 1% decrease in U.S. travel volume.
• Parking Solutions Revenue -- $20.0 million, up 1% year over year on higher software-as-a-service (SaaS) product offerings despite declines in professional services.
• Net Loss -- $48.2 million, compared to a $38.6 million profit in the prior year period, reflecting a $104.4 million non-cash impairment charge.
• Adjusted EBITDA -- $110.7 million, increasing 5% year over year with an adjusted EBITDA margin of 42%.
• Adjusted EPS -- $0.38 per share, compared to $0.34 per share in the second quarter of 2025, supported by higher adjusted EBITDA and a reduction in shares outstanding.
• Free Cash Flow -- $32.6 million for the quarter, down from $40.3 million in the prior year period due to increased working capital use.
• Impairment Charges -- $104.4 million, consisting of a $64.0 million goodwill impairment and a $40.4 million intangible asset impairment related to the T2 Systems unit.
• Avis Budget Group Contract -- 7-year extension signed following a previously rescinded termination notice, including revised pricing and fleet modulation options.
• Hertz Contract -- 5-year extension executed early, establishing revised commercial terms and volume modulation rights.
• Los Angeles Contract Award -- $10 million in expected annual recurring revenue once operational, representing California's largest speed enforcement program.
• Cost Reduction Program -- $20 million in annualized target savings through workforce reductions and third-party procurement optimization, with a full run rate expected by 2027.
• New Bookings -- $25 million in new annual recurring revenue and contract awards for Government Solutions, primarily in work zone speed and school bus programs.
• Full Year Revenue Guidance -- $945 million to $965 million, updated to reflect lower pricing associated with recent rental car contract renewals.
• Full Year Adjusted EBITDA Guidance -- $360 million to $370 million, representing an anticipated adjusted EBITDA margin of 38%.
• Full Year Adjusted EPS Guidance -- $1.11 to $1.17 per share, based on a weighted average fully diluted share count of 153 million shares.
• Capital Expenditures -- $135 million for the full year 2026, accelerated to support implementation for the Los Angeles Metro and school bus stop arm awards.
• Net Debt and Leverage -- $993.2 million in net debt with a net leverage ratio of 2.4 times as of June 30, 2026.

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RISKS

• Conti stated, "the recently completed Avis Budget and Hertz renewals include revised commercial terms that are materially less favorable to us than the prior agreement and affect our financial outlook," noting that these changes will decelerate growth in the second half of the year.
• The company's earnings release warned that "fluctuations in fleet volume under these arrangements could cause our revenue, results of operations, and cash flows to vary from period to period," potentially impacting financial stability.

SUMMARY

Management at Verra Mobility Corporation (NASDAQ:VRRM) reported increased revenue across all three business segments for the second quarter, though total performance was significantly impacted by non-cash impairment charges in the Parking Solutions unit. The company secured long-term contract extensions with major rental car partners Avis Budget Group and Hertz, albeit under revised commercial terms that will weigh on margins through the remainder of 2026. Management has initiated an organizational realignment to centralize key functions such as engineering and product management while pursuing a $20 million annualized cost-reduction initiative. Strategic expansion continues in the Government Solutions segment, where the company has secured a major speed safety contract in Los Angeles and additional pilot programs in California.

• CEO Keyser emphasized a new leadership focus, stating his intent "to make this company more focused more efficient, and more of a transportation technology leader."
• The company reported it now holds 6 out of 6 contracts for speed safety programs authorized under California's Assembly Bill 645 pilot legislation.
• Management is utilizing a data set of over 10 petabytes of proprietary transportation data to integrate AI into products for improved sensor interpretation and operational forecasting.
• CFO Conti indicated that the company is evaluating a potential shift to a single operating and reportable segment structure to align with how the executive team now reviews financial performance.
• The Government Solutions segment margins are expected to contract by 450 to 500 basis points for the full year due to the New York City renewal contract and new subcontractor requirements.
• Keyser noted that the company operates more than 28,000 intelligent edge sensors and processes 230 million toll transactions annually.

INDUSTRY GLOSSARY

• ARR: Annual Recurring Revenue, a metric tracking the predictable and recurring revenue components of subscription-based or long-term contracts.
• FMC: Fleet Management Company, an organization that manages a fleet of vehicles for corporate or government clients.
• LiDAR: Light Detection and Ranging, a remote sensing technology that uses laser pulses to measure ranges to objects, used in traffic sensors.
• MOSAIC: The company's internal transformation and system implementation project aimed at improving operational efficiency.
• RAC: Rental Car Company, referring to major partners like Hertz and Avis Budget Group.
• SaaS: Software as a Service, a software licensing and delivery model in which software is licensed on a subscription basis.
• T2 Systems: The brand name for Verra Mobility's parking management software and hardware subsidiary.

Full Conference Call Transcript

Operator: 1. Good day, and welcome to the Verra Mobility Second Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Mark Zindler, Vice President of Investor Relations. Please go ahead.

Mark Zindler: Thank you. Good afternoon, and welcome to Verra Mobility's second quarter 2026 Earnings Call. Today, we will be discussing the results announced in our press release issued after the market close along with our earnings presentation, which is available on the Investor Relations section of our website at ir.veramobility.com. With me on the call are Jon Keyser, Verra Mobility's interim chief executive officer and Craig C. Conti, our chief financial officer. John will begin with prepared remarks, followed by Craig, and then we will 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 due to a variety of risk factors. These factors are described in our SEC filings. Please refer to our earnings press release and earnings presentation for our cautionary note on forward looking statements. Any forward looking statements that we make on this call are based on our beliefs as of today, and we do not undertake any obligation to update forward looking statements. 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 measures is included in our earnings release and quarterly earnings presentation. Both of which can be found on our website at ir.veramobility.com. With that, I will turn the call over to John.

Jon Keyser: Thanks, Mark, and good afternoon, everyone. This is my first earnings call as interim CEO of Verra Mobility. I want to start by saying thank you to our shareholders. I appreciate the opportunity to speak with you today. Having served Verra Mobility in several leadership roles, I know our business, our people, and the value we provide to our customers. I also recognize the responsibility that comes with leading the company at this important moment. And my approach to leading Verra Mobility is straightforward. Establish clear priorities, act decisively, communicate candidly, and deliver on our commitments. These principles have guided me throughout my career.

From my service as a military officer in which I served in combat in wars in Iraq and Afghanistan, Through my extensive legal career as a mergers and acquisitions attorney, and roles at large multinational corporations, my time as Verra Mobility's chief legal officer, and also leading market expansion for our government safety business via our government relations function. And my experience as Verra Mobility's chief transformation officer. My leadership has been developed and battle tested in times of crisis when the stakes are high. And although the ultimate stakes in business are clearly not the same as they are in war, some leadership principles transcend military service and leadership in business.

On my first day as CEO, I set up a series of leadership principles and I discussed them with our employees. Those included integrity first, customer centricity, acting with urgency, and the belief that technology, like AI, is a force multiplier. I shared these principles as a guide to how our leaders will lead, how we will make decisions, and how we will hold ourselves accountable. And I am very pleased to say that over the last few months, we have been building momentum. We have achieved great wins and we have been putting those principles into action. So I have 3 immediate priorities for our company. First, we are working hard to broaden and deepen our customer relationships.

Second, we are spending a lot of time realigning our cost structure and improving how we operate. And third, positioning Verra Mobility for future growth and long term value creation.

Stacey Moser: We have already made tangible progress against each of these priorities since I stepped into the interim CEO role at the end of May.

Jon Keyser: So let me start with customer relationships. Beginning with our tolling and large fleet customers. Verra Mobility operates at the center of a complicated multi jurisdictional mobility ecosystem. We connect rental car companies, large fleet operators, governmental tolling authorities, and millions of drivers. We manage vehicle identification, toll transactions, violations, payments, data, and customer service, across a large number of locations. And that capability has been developed over decades. And we believe it is very difficult to replicate at scale. The clearest example of our focus on customer relationships is our new agreement with Avis Budget Group. Following ABG's termination notice in May, we listened carefully to their concerns and strategic priorities.

And we rapidly deployed teams from across our organization to develop a path forward. And I am pleased to report as we said in our press release on July 28, we have reached an agreement with ABG on the key contractual terms for a new 7 year tolling and violation services contract extending a relationship that had already spanned nearly 2 decades. I believe this is a really important outcome for Verra Mobility. It demonstrates the value of our technology for our customers and our ability to listen to our customers and adapt to their needs.

And I want to say thank you to Avis Budget Group for their renewed faith in us and the new relationship we are building together, including at the most senior levels of both companies. Now I also realized there have been many questions about the approaching expiration date from our contract with Hertz. Today, I am also pleased to announce that we have entered into a new 5 year agreement with Hertz that provides long term visibility for both companies and establishes a strong foundation for the next phase of our relationship. Hertz is an important and long standing customer with highly engaged and a very talented team that is modernizing, strengthening, and building Hertz's business.

And I am honored that they have chosen to extend their relationship with us And I believe this is a vote of confidence in Verra Mobility's technology operating capabilities, integrations and scale, as well as the work that our teams have done to develop a more flexible and customer focused partnership. And I want to thank the senior leadership at Hertz for their collaboration and trust in Verra Mobility as a technology partner for years to come. So together, ABG and Hertz agreements represent meaningful progress towards stabilizing our commercial services customer base. We are thrilled to continue to provide Verra Mobility's capabilities and expertise at scale to help our customers mitigate risk and achieve success.

Respect to some key developments in our government safety business, I would like to highlight that we announced that we were recently selected as the automated speed safety vendor for the city of Los Angeles, California. And as we zoom out for a moment, we are negotiating and hope to finalize that contractual agreement And once completed, I will be proud to say that with the passage of Assembly Bill 645 in California, which authorized speed enforcement in the state Verra Mobility will have been selected as the technology partner for 6 out of the 6 cities that were authorized by that legislation.

Verra Mobility is honored to serve these customers and help them achieve their goals for safer, more efficient transportation, and our shared mission of saving lives. And as we discussed in our national stop on red press release on Monday, 1 of the most important rewarding, aspects of our work is seeing the real world impact of our technology. Across the communities we serve, we are seeing measurable improvements in driver behavior and roadway safety, including a 28% reduction in red light violations within the first 60 days of San Jose's program and a nearly 50% decline in traffic fatalities in Merced.

Reinforcing that automated safety enforcement is 1 of the most effective tools available to make roads safer to help save lives. And our focus on customers extends well beyond individual contract negotiations In June, we appointed Stacey Moser as chief customer officer and unified our sales, account management, and marketing leadership across our largest commercial and government businesses. This change creates a stronger, more consistent voice of the customer within Verra Mobility and allows us to identify issues earlier, respond more quickly, and bring the full breadth and capabilities of our company to every customer relationship.

Because to me, customer centricity also requires that our leadership team responsible for product and engineering, operations, and our unified customer facing organization be as close as possible to the CEO So we are dramatically improving our customer centricity and that is gonna be 1 of the primary measures of success for this new organization. Our structure going forward. Over the past several months, our board's trans transformation advisory committee has also worked with management on a review of our organization, our operating model, and strategic priorities. That work reinforced an important conclusion. While Verra Mobility has historically been organized around separate business units, we increasingly operate as 1 integrated mobility technology company.

And doing so is a far more efficient way to operate. Our customers do not think in terms of reporting segments. They come to Verra Mobility to help solve problems related to-- regardless of whatever product, technology, or service delivers the solution. Increasingly, our competitive advantage comes from a combination of our technologies, our customer relationships, and our operational capabilities, not from individual business lines. So that reality is reflected in how we are managing the company. We are confident in our continued transformation and that it will enable faster decision making greater operational leverage, and even stronger customer experience.

So after increasing our customer focus, the second major priority we identified in our leadership transition has been furthering our transformation efforts by realigning our cost structure and improving how we operate. Consistent with the leadership principle I discussed earlier, our organization acted with urgency. We completed the principal labor and certain nonlabor cost out cost takeout efforts in a rapid fashion that was made possible by the transformation of work that we started months prior. This was also benefited by the interaction between management and the transformation advisory committee. These decisions are always difficult. They affected capable colleagues who made meaningful contributions to Verra Mobility and we did not take these decisions lightly. But the actions were necessary.

They were necessary to help us align our organization and cost structure more with our current priorities speed decision making and accountability, and to ensure we have an organization that is poised for future growth and success. We have now moved into the next phase of the program with an increased focus on non labor spending, third party costs, procurement, organizational complexity, and opportunities to further improve the efficiency of our processes. And while we transform to reduce lower value and duplicative activity, we believe strongly in investing in technology. Investing in product development, and investing in customer service and implementation capabilities. To me, transformation cannot be a series of isolated cost actions.

It must be a disciplined, sustained effort to improve how we allocate resources how we prioritize, and how we serve our customers and generate returns and new growth. And that is exactly what we are doing. Now I want to spend a moment on AI. In the last couple of months, our transformation has been pursuing 2 principal bodies of work related to AI. The first is using AI to improve how variability operates. We are now evaluating, experimenting with using AI that can help us accelerate software development, automate repetitive work, improve forecasting, identify operational abnormalities, and help employees analyze information more quickly.

Our objective in deploying AI is not simply to deploy new technology for the sake of technology. it is to improve the speed, consistency, and quality of our work and allow our employees to spend more time on customers, complex decisions, and innovation. The second body of work is incorporating AI into more deeply into the products and services that we provide. This is critical to how I see the future of Verra Mobility. Verra Mobility operates 1 of the largest connected transportation technology platforms in North America. Across our network, more than 28 thousand intelligent edge sensors like cameras, radars, LiDAR, and monitoring sensors capture real world transportation activity.

We process over 230 million toll transactions and 56 million traffic events annually. We issue approximately 50 million parking permits and support these operations with more than 16 thousand connected devices. So this combination of connected infrastructure and sensors proprietary transportation data, and mission critical software creates a unique foundation for AI. Unlike organizations that are just beginning to collect data, on a rolling basis, we have over 10 petabytes of transportation data, and we had years of operational intelligence generated through real world customer workflows at significant scale. Over time, we believe AI will allow us to transform this data into increasingly valuable insights.

Improving image and sensor interpretation, predicting operational conditions before they occur, understanding changes in conditions, optimizing transportation and enforcement operations, automating complex decision making, and delivering more intelligent software and edge hardware for our customers. We believe this positions Verra Mobility not only to improve the efficiency of our own operations, but also to create a new generation of AI enabled transportation solutions that strengthen customer outcomes improve roadway safety, increase the long term value of our technology platform, and ultimately help save lives. Now, before I turn it over to Craig, I want to say a heartfelt thank you to our employee population.

While I have been out on the road visiting and engaging with our customers, I have also been traveling to many of our sites across the U.S. with all levels of employees. This has been a difficult past few months, and our employees have responded with resiliency and confidence. Their hard work and dedication energizes me, inspires the rest of our executive team. And at Verra Mobility, we are 1 team. So with that, I will turn the call over to Craig to discuss our second quarter financial results our outlook and the financial implications of the actions that we have underway. Craig?

Craig C. Conti: Thank you, John, and good afternoon, everyone. As John outlined earlier, second quarter reflected strong execution across the business. I will spend the next few minutes walking through the financial results, discussing performance across each of our businesses and then updating our outlook for the balance of the year. Let's turn to Slide 4, which outlines the key financial measures for the consolidated business for the second quarter. Our Q2 performance was ahead of internal expectations with total revenue, adjusted EBITDA dollars, margin and adjusted EPS landing stronger than expected. Our results were bolstered by New York City camera installation timing, operational improvements across the enterprise, and strong advancements in commercial services collection performance.

Let me begin with our revenue performance. Government solution service revenue increased 17% in the quarter driven by New York City camera installations and 8% growth outside of New York City. Within New York City, incremental net new camera installation growth exceeded the updated contract pricing change. Generating 36% service revenue growth in the second quarter versus last year. As you may recall from our last discussion, inclement Q1 weather drove a delay in our expected installation volumes under our new expansion contract. Our team is fully caught up with the second quarter, and we are now back to where we originally expected to be by the close of the first half of 26.

Commercial services revenue returned to growth increasing 6% year over year driven by strength in both rental car tolling and fleet management. Total parking solution service revenue increased about 1% primarily on SaaS revenue Total product revenue was $17 million for the quarter, Government solutions contributed roughly $14 million and T2 delivered about $3 million in product sales overall for the quarter. Consolidated adjusted EBITDA for the quarter was $111 million stronger than our internal expectations and largely driven by the New York City camera installations I mentioned earlier.

We reported a GAAP net loss of $48 million for the quarter, which reflects a non cash goodwill and intangible asset impairment charge of $104 million for the carrying value of T2 Systems. The tax provision of about $6 million after adjusting for the impairment and other nonrecurring expenses represents a normalized effective tax rate of about 28%. GAAP diluted EPS loss was $0.32 per share the second quarter of 26 compared to $0.24 of income per share for the prior year period. Adjusted EPS, which excludes amortization stock based compensation, and other nonrecurring items, was $0.38 per share for the second quarter this year. Compared to $0.34 per share in the second quarter of 2025.

The adjusted EPS favorability versus prior year was driven by the increase in adjusted EBITDA and a reduction in shares outstanding. Partially offset by increased depreciation expense. Another point John emphasized was the resiliency of our business model. And our cash generation during the quarter continued to reflect that strength. Cash flows provided by operating activities totaled $56 million and we delivered $33 million of free cash flow for the quarter, which was in line with our internal expectations.

Stacey Moser: Next, I will step through the performance of each of our businesses, beginning with Commercial Services on slide 5.

Craig C. Conti: CES year over year revenue increased 6% in the second quarter. RAC tolling revenue increased 5% over the same period last year driven by increased product adoption and tolling activity. Despite a 1% decrease in U.S. travel volume over the prior year quarter. Our FMC business increased 3% or about $1 million year over year more than offsetting the prior period churn we experienced in the second quarter of last year. 100 basis points over the prior year, driven by operating leverage and continued success in lowering bad debt expense on improved cash collections.

Stacey Moser: Turning to Slide 6, Government solutions service revenue increased 17% in the quarter driven by New York City camera installations and 8% growth outside of New York City.

Craig C. Conti: Total revenue grew 20% over the prior year quarter as product revenue increased about $4 million year over year. Government Solutions segment profit was $31 million for the quarter representing margins of approximately 24%. The decline in segment profit margins is primarily attributable to the New York City pricing change. While this represents a reduction in segment profit margins over the prior year, this performance was better than expected due to the pacing of the New York City camera installations I discussed earlier. Additionally, we generated another strong quarter of contracted bookings in Government Solutions, reflecting continued demand from municipalities seeking technology solutions that improve roadway safety and traffic management.

During the second quarter, we booked $25 million of new annual recurring revenue and contract awards.

Stacey Moser: Notable bookings were concentrated in several work zone speed and school bus stop arm programs. Over the trailing 12 months, new incremental ARR bookings totaled approximately $74 million reflecting sustained demand and stronger conversion across our pipeline. Let's turn to Slide 7 for a review of the results of Parking Solutions.

Craig C. Conti: We generated revenue of $20 million and segment profit of approximately $2 million for the quarter. SaaS and services sales increased about 1% compared to the prior year, while product revenue was effectively flat compared to 2025. Parking Solutions segment profit margins declined 65 basis points versus last year driven primarily by product sales mix and the timing of operating expenses. Okay. Let's turn to Slide 8 and discuss the balance sheet and take a closer look at leverage. We ended the quarter with a net debt balance of about $1 billion which declined sequentially due to second quarter free cash flow.

Net leverage landed at 2.4 times, which reflects the full in quarter repayment of our credit revolver which is 100% undrawn at present. Consistent with John's comments regarding disciplined capital allocation, we have $66 million available under our $250 million share repurchase authorization. However, our priority today remains strengthening the balance sheet while maintaining financial flexibility through building cash reserves. Finally, let me turn to our outlook for the remainder of 2026. As John discussed earlier, our business continues to perform well operationally. However, the recently completed Avis Budget and Hertz renewals include revised commercial terms that are materially less favorable to us than the prior agreement and affect our financial outlook.

Accordingly, we have updated our full year guidance as follows. We expect total revenue in the range of $945 million to $965 million. Expect adjusted EBITDA in the range of $360 million to $370 million or an adjusted EBITDA margin of about 38%. Importantly, as discussed earlier, the changes to our outlook are largely attributable to revised pricing associated with the Avis Budget and Hertz renewal agreements, Our underlying operating performance across the business remains consistent with our expectations. Expect 2026 non GAAP adjusted EPS to be in the $1.11 to $1.17 per share. And lastly, free cash flow is expected to be in the range of $105 million to $115 million for 2026.

The free cash flow guide anticipates higher CapEx spending versus prior guidance, driven by the accelerated timing of the Los Angeles Metro contract award and several accelerated school bus stop arm awards. The vast majority of the CapEx will be spent in government solutions to implement newly awarded photo enforcement programs. Additionally, we anticipate a $30 million use of working capital primarily related to both our recent RAC contract renewals and the timing and of expenditures and collections of our ongoing installation in New York City.

Stacey Moser: Moving on to the segment level. For total year 2026, we expect Government Solutions is expected to generate the high end of mid single digit total revenue growth. Which reflects the blended growth rate across the segment. Including low double digit revenue growth for service revenue outside of New York City, and high single digit growth for total revenue within New York City as new expansion installs and product sales more than offset price normalization. Overall product revenue for GS is expected to be roughly flat. The outlook for GS margins is unchanged. We expect segment profit margins to contract by approximately 450 to 500 basis points compared to 2025. Primarily due to the New York City renewal contract.

Including service pricing adjustments from the competitive procurement process and the inclusion of minority and women owned subcontractor requirements by the city of New York. We expect third quarter margins to contract to comparable levels as Q1 then ramp up to the mid-20s by Q4 26 fueled by volume leverage. Mosaic cost savings and school bus stop arm seasonality. We still expect GS margins to land in the low twenties overall for total year 2026 consistent with what we shared on our prior calls.

Craig C. Conti: Consistent with John's earlier comments regarding our long term customer partnerships, we are very pleased to announce both the renewed Avis Budget and Hertz agreements and look forward to expanding on our partnership with each of these long standing and highly valued customers. While the new agreements provide greater contractual visibility over term, they were executed at lower pricing levels than our existing relationship and include an option for the customers to modulate their fleet volume. Additionally, we have reduced our full year TSA assumption such that full year volume is expected to be around flat with 2025.

Stacey Moser: Representing a 1% to 1.5% reduction from our prior TSA assumption.

Craig C. Conti: As a result, commercial services revenue growth is expected to decelerate over the back half of the year in each of the third and fourth quarters, and we expect the overall growth will be in the high single digit range for the year in total versus 2025. CS segment profit margins are expected to contract over the balance of the year as well with the full year total expected to be in the low 60% range. We continue to anticipate that Parking Solutions revenue will be up low to mid single digits versus 2025 levels, driven by growth in SaaS, subscription, and professional services offerings. Lastly, we expect parking solutions margins to be slightly accretive to 2025.

As John discussed earlier, we have taken action to realize the cost reduction initiatives that we committed to earlier this year. In total, this represents about $20 million of annualized cost that we expect to take out of the business. I would expect to generate full run rate savings beginning in 2027. Other key assumptions supporting our adjusted EPS and free cash flow outlook can be found on Slide 10. Before I wrap up, I would like to briefly touch on our segment reporting. As John discussed earlier, we are continuing to evolve how we manage the business.

As part of that process, we are evaluating whether changes to our organizational structure and the way our leadership team reviews financial performance could affect our operating and reportable segments. For the second quarter, nothing has changed. We continue to report our results as we have historically. This evaluation is still underway. And if it ultimately results in a change to our segment reporting, including potentially reporting as a single operating and reportable segment, we would communicate that at the appropriate time and recast prior period information as required. Before I turn it back to John for his closing comments, I will add that our second quarter results demonstrate the operational momentum John described earlier.

While we have updated our outlook to reflect the economics of 2 important customer renewals, the underlying execution across the business remains strong. Our balance sheet continues to strengthen and we remain focused on disciplined execution during the second half of the year. John? Back over to you.

Jon Keyser: Thanks, Craig. Let me close by returning to the commitments we made when I assumed the CEO role. First, we said we would broaden and deepen our customer relationships. And what do we do? Well, I would highlight that we have reached a new 7 year agreement with ABG and renewed Hertz under a new 5 year agreement. We are also awarded the new contract in the city of Los Angeles, which once operational will represent 1 of the largest speed enforcement programs that we have in Verra Mobility. Second, we said we would accelerate our transformation with urgent focus on organizational changes to make us faster and more efficient. And we have realigned the customer organization.

We have combined and catalyzed the product and engineering organizations. We completed significant cost out actions and established clear operating accountability. We are igniting the use of AI to help us improve our operations in the products and services we offer to our customers in the future, And while these are important early steps, we believe the results of these swift actions will help create stability, predictability, and shareholder value. I intend to continue to leave Verra Mobility with deliberate intent to make this company more focused more efficient, and more of a transportation technology leader. And when we do that, I believe we will create value for our shareholders. So thank you again for your time and attention today.

And at this time, I would like to invite Sheri to open the line for any questions.

Operator: Thank you. To withdraw your question, press 11 again. Our first question will come from the line of Tomohiko Sano with JPMorgan Your line is open.

Tomohiko Sano: Hello, and congratulations, Jon, on the new role Thank you very much, Tomohiko.

Jon Keyser: Appreciate that.

Tomohiko Sano: On the Avis contracts, could you please walk us through the circumstances that led to the initial termination notice and then what were the primary factors that ultimately drove Avis to resend the notice and enter into an extensions, please?

Jon Keyser: Thank you. Yeah. So, Tomohiko, what I would say is, you know, as we disclosed we received a termination notice from the customer. That was deeply disappointing, of course. And then, after a series of leadership changes, you know, I took it upon myself and the management team to get together and we reapproached Avis and we listened We have, you know, 1 mouth and 2 ears, and so we approached that long held customer with that in mind.

We better understood what they were trying to do and I am very pleased to say that we after a series of meetings and negotiations built, I think, what is a very, very strong basis for what I call a constructive long term relationship going forward that takes into account their strategic priorities, and also the values the work that Verra Mobility does, the value of our technology platform. And, the way we operate to help them, de-risk the operations that they do and deliver better services to their customers.

So I think that speaks again, you know, the value of broadening and deep deepening our customer relationships. it is a very, very large focus for me and for the organization.

Tomohiko Sano: Thank you, John. And then follow-up following the Avis and Hertz renewals, could you summarize the key economic changes versus the prior agreement like pricing, any variable components, and volume assumptions. And if you could give us any updates, with the enterprise as well. Thank you.

Craig C. Conti: Hey, Tomohiko. it is Craig. I will let John come in at the end, and give you some perspective on enterprise. But let me start with you know, everything we said was really in our prepared remarks, but I will go ahead and summarize that. You know? So Hertz is a is a 5 year extension that was obviously done early. That was not done, and it was not up for negotiation till summer of 27. As John mentioned, ABG is a 7 year deal. Look. I wanna say it again financially. We are thrilled to partner with both of these customers. And we could not be happier.

If I think about kind of what we said in the script and what we said in our earnings release, you know, we talked about that they are on less favorable terms. We talked about that there may be some ability to modulate some of the volumes. that is something I think if you listen to the public statements from some of our customers, they mentioned that on their call. But here's what I would say. Is you know, we have had these customers for 20 years, as John mentioned. We are in daily contact with our customers. Fleet volumes have always been important to us, and, obviously, that is how they run their business.

So I think we will have a pretty good idea of what is going on for at least the near term And I think the other thing is as we gain experience under the new contracts, we will be able to better be positioned to give some-- you know, maybe a little further down the road, but some of that I cannot today And then I would say, total, and I can imagine that this question would come up quite a bit today is for competitive reasons.

You know, we cannot disclose, anything what is going on between our customers But, again, from our view, I think these contracts really strike the right balance of competitive pricing and, you know, pricing at a differentiated value of what we do at Verra. Scale, reliability, and innovation. The contracts are unique. They are tailored to each customer. I do not know that is necessarily new. They have always kind of been that way. And then I would say the final thing, long standing, very, very deeply integrated partnerships, which I think were really strengthened, as we had a leadership change here at Variability, and I think you can see the results.

Jon Keyser: John, you wanna say something about enterprise? Yeah. Sure. You know, I am very, very impressed by the enterprise mobility team and what they are doing. You know, I would also just mention that, you know, we are engaged in positive discussions with them. You know, and I think that, you know, for all of our large rental car customers, something that I think is rather defining is we are engaging with, these large customers at the most senior levels in their businesses. They are also recognizing that they can use us as a as an accelerator in their business, particularly with respect to technology.

We are a technology leader here, and I feel really comfortable with where we are taking these relationships. We are providing, new technology avenues for them to continue to have more success in their businesses as they are also trying to transform. They have very complex businesses to run. And, and my goal and our company's goal is to make sure that we are helping make their lives easier and, helping improve their end-customer experiences And that when we do that, we are gonna have a great degree of mutual success. So you know, really proud of, the way we are refocusing the organization here, to deliver a more customer focused and customer centric experience for our customers.

Tomohiko Sano: Thank you, Craig and Jon. Appreciate it. Thank you, Tomohiko

Operator: Thank you. 1 moment for our next question. That will come from the line of Daniel Moore with CJS Securities. Your line is open.

Daniel Joseph Moore: Thank you. Good afternoon, John. Good afternoon, Craig. Appreciate all the color this afternoon.

Stacey Moser: Wanted to I know you are limited, but maybe ask 1 or 2 more questions about the new contracts and then move on.

Daniel Joseph Moore: Are there new floors or minimums in terms of fleet volumes or percentages of customer volumes dedicated to Verra that would provide you some base level of revenue visibility from a budgeting and planning perspective?

Craig C. Conti: Yeah. I will start with that 1. I cannot disclose that, Dan. I just cannot, because we have different contracts with different customers. And, you know, we have 1 customer that we are talking to right now, and I just do not wanna speak on behalf of my customers. But here's what I would say on that is you know, we did talk about the fact that there is there is some ability to modulate fleet volume. And I would go back to saying that this is something the addition and contraction of fleets at Rax's how they run their business.

Obviously, this may be may run a bit deeper than that, but, we are in daily contact with our customers. Right? We know. We work with them on a daily basis. And I think I think we know how to-- I think we know how to forecast this. As I think about if I wanna take this out a little further, in a couple quarters time with a bit of a course of dealing, I should be able to do that. But right now, as we are in the middle of this, major news out of the company for both of these renewals in just the last couple weeks.

The third 1 that we are talking to, I just cannot get into it in an open forum yet.

Daniel Joseph Moore: But I appreciate the question. No. Understood. And the changes have gone into effect immediately. Correct? Or there is a delay? Okay. Making sure that I get the revised guide. Okay.

Stacey Moser: Maybe just in terms of the city of Los Angeles, can you talk a little bit more about the scope of the revenue opportunity? How would you think about it ramping? Are you selling them or leasing cameras as you traditionally would?

Daniel Joseph Moore: You know, and any thoughts about kind of margins relative to where government solutions is currently running?

Jon Keyser: Yeah. You bet. Well, I am really excited about what is going on in California. I think you back up for a second, the macros. The setup for the success that I expect and I believe that we will continue to have in that government business is something that started, multiple years ago when I came to this business and identified that there was a massive opportunity there if we helped unlock TAM, unlock new opportunities within the legislatures because many people do not realize this, but photo enforcement programs and automated safety programs are typically authorized or not authorized. As a matter of state statute.

So, there has to be legislative authorizing activity in order to have these lifesaving technologies available for the cities and local governments to be able to roll them out. So we work very hard at the government relations function starting many years ago to help expand a massive amount of TAM and frankly that continues to expand. Most recently in California, what I am really excited about is that Assembly Bill 645, which was the legislative authorization that allowed for speed enforcement in California was done so in a, you know, what I think was a prudent manner.

The state of California said this is new for us and we are going to roll out a pilot in 6 major cities. And what we have seen so far, you know, is that 6 out of 6 of the cities have selected Verra Mobility as the technology partner, the only credible leader that they believe has the ability to deliver the results that they would know and they would expect So when I think about Dan, when I think about, you know there is only 1 New York City only 1 Los Angeles. And I am really excited to be able to serve that customer.

And, we are expecting $10 million in ARR from that agreement once it is finalized. We are working we received a you know, the award from the city and we are working through contract negotiations etcetera, but we are really, really honored to be able to kind of move some of these efforts out west because we know the efficacy of these programs. And it is deeply meaningful to us as a company that we can continue to expand commercially, but also further our critical mission of saving lives. that is very important to us.

Daniel Joseph Moore: Really helpful. I am thinking 1 more just because, obviously, there is been a lot of change.

Stacey Moser: But maybe it is too early.

Daniel Joseph Moore: But given the write down in parking solutions, maybe just, you know, what is what is your sense of the future of that business from your perspective? Is it a vehicle for growth? Or, you know, could it maybe be a divest candidate at some point?

Jon Keyser: And, again, really appreciate the all the color to this afternoon. Yeah. Thanks, Dan. I mean, here's what I would say on parking. You know, first, I would acknowledge that, you know, over the over the past couple years, the business has not performed how, you know, I would like to have seen it perform. All that being said, it is growing. And I would say that it is also generating cash. And so, you know, that is part of our portfolio right now. And frankly, I think there is a lot of opportunity to improve that business. And, it is certainly 1 of the areas that we will be focusing on. Thank you again.

Daniel Joseph Moore: Thank you.

Operator: As a reminder, to ask a question, please press 11. Our next question will come from the line of Faiza Alwy with Deutsche Bank. Your line is open.

Faiza Alwy: Yes. Hi. Thank you. John, I wanted to get you a perspective on, you know, what do you think changed over the last few years from either a technology, competitive, or kind of end market perspective? That led to, you know, these contracts being signed at, you know, much more unfavorable terms than before. So yeah, we just love to hear kind of your thoughts on what really happened.

Jon Keyser: Yeah. I think I have shared you know, that this was a surprise to us. But here's what I can tell you since I have taken over the role. I now have engaged and our business is engaged with the very best and brightest, highest level of these organizations that we serve. And I think we have now have a much better understand their priorities, how they are making decisions, how they are trying to affect change in their business and going to be their partner, for that.

Now, I also think that it is it is really important to know from a Verra Mobility shareholder perspective that we have additional technology that we think is going to help lay basis for, you know, continued future success And truthfully, you know, the fact that we are able to renew these agreements and the fact that we are able to build back the relationship with Avis, I think, is a testament to the soundness of our technology platform and our ability to execute and de-risk what can be very, very problematic in these large fleets which are trying to have renters move through all kinds of different jurisdictions. They receive parking tickets. They receive speeding tickets.

Of course, they can go through multiple different toll authorities And when those types of things go wrong, it can be extremely disruptive for those fleets and I am really proud that the most senior levels for these large companies, they look at us and they know with certainty that we are gonna deliver and that our say will match our due when we serve them and continue to bring them to new technology. So I am really excited for our future, Faiza.

Faiza Alwy: Alright. And then, I guess, as I think about EBITDA margins for the commercial segment, like do you think that those margins are going to stay at the lower level that is implied by the back half guide? Or do you think that there are some cost initiatives? Like, can you rightsize the cost base just given these new contracts and kind of what are some of the areas of opportunity?

Craig C. Conti: Yeah. Faiza, this is Craig. I will take that 1. You know, I am not gonna go beyond 26 right now. We talked about, you know, that our margin percent is gonna be lower than we thought at the beginning of the year. But as I think about it, when we were on the phone maybe 2 months ago, we talked in theory. Right, about, about-- we are going to relook at our cost base. In a very short amount of time we were able to get that to a pretty solid number.

We think that is gonna be $20 million potentially or more as we look at our run rate for 2027 And we are not we are not done yet. What I would say is done is when we look at the, you know, the headcount of the company. I mean I think we are pretty much done there, but we are we still have a large opportunity to think about in some of the things that John listed in his prepared remarks about how we source, how we serve customers at the roadside. So there is still more cost to go. So I cannot go out beyond 2026.

What I would say is, you know, clearly, there is an impact here, Pfizer. You could see that from the guide and math. But we are not standing still on being able to further optimize the company I think in a very short time, we have put a pretty big number up, that we are continually away at. away on a daily basis.

Faiza Alwy: Great. Thank you so much.

Operator: Thank you. I am showing no further questions at this time. This concludes today's program. Thank you all for participating. You may now disconnect.

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