David Roberts, Verra Mobility CEO: Fortt Knox Earnings

First of all, thanks for having me, John. Great to be here. So very quickly, Vera Mobility is a global leader in smart transportation. We work with fleets around mobility issues related to things like tolling and violations. We work with cities around their safety initiatives through automated enforcement. And we work with universities, hospitals, and other entities around parking, getting people in and out of parking lots, how they pay for those and reserve them, things like that. It's a great business, and we had a really strong year. We have not been as affected, although obviously today we're getting slightly affected. I think we're just getting caught up in some other aspects of what's going on in the economy right now. But overall, we had a strong end of the year. Our forecast for this year, for 2020, was still maintaining consistent with our investor guide from 2023, so we feel very good about how the year is going to play out for us.

No, yeah, it is. I would say especially for state and local, the efficiency that we create through the technology is that through automated enforcement for things like speeding or red light, police officers don't have to go do that. It's a problem. There's over 40 to 50,000 deaths a year related to speeding at intersections per year across the country. So it's a problem that cities deal with, and this technology allows them to change behavior. There are measurable results. We talked about that on our earnings call, what we've seen at New York City as an example related to the deployment of cameras there. And it allows us to use those few and precious police officers to go do the things that they really need to do. So from that regard, it is an efficiency plan.

Yeah, it is. For them, really the benefit or the efficiency is for the drivers. So when they rent a car and they want to get someplace quicker, many times depending on where you are in the country, a toll road is the most efficient way to do that. And to be able to one, access those toll roads, and two, to not have to stop to pull over to pay, and just to be able to drive through and it's an automated experience, and you don't have to worry about it, and we take care of all the billing, is definitely an efficiency play for them.

The key marker for that business is related to TSA. So we check the TSA throughput every single day, and we also pay a fair amount of attention to the airlines. So when the public airlines, United, American, and Delta, report earnings and they talk about how they see travel demand, we kind of correlate the two of those to say what are we going to look like. So for this year, coming out of COVID, we've had some really robust recovery in travel demand, and it has remained unbelievably durable. Despite anything going on with consumer confidence or anything else, people are still traveling. And through the TSA throughput as well as through what we hear from the airlines, we say it's a GDP grower. It's currently going to be maybe two to two and a half percent over last year, which is kind of the core basis for that Commercial Services business.

Yeah, so we generate really good cash flow, and we ended the year at 2.4 times leverage, which for us, our standard or what we've communicated to the market is really three times. And again, that goes to the level of cash flow that the business generates on a regular basis. So candidly, we're a little under-levered right now. We did about $150 million of share repurchases last year related to deploying that capital and excess cash. But we want to remain optimistic and active on the M&A front, which is how we look to step-change the growth in the business as well.

Right now, the home runs are when you can buy things that are very specific to the markets that you're in. So things that are in automated enforcement, or in tolling, or violation servicing, fleets. But we have really strong market positions there, so we look at adjacency. We've looked at a lot of things like telematics businesses because those are interesting. Connected vehicle is an area that we've been exploring ourselves through how do we take the technology that we provide today and turn that into something that's embedded in the vehicle versus through a transponder or through a license plate. And there's a lot of new, up-and-coming targets there. And we talked about last year in one of our earnings calls where we've started to look at government software and government safety more broadly, not just within the mobility space, because we're already servicing those customers. So it's a great area for us to kind of expand the footprint with the customers that we have today.

Yeah, so we operate in 17 countries around the world. We operate today in Europe. We have a violations business that works with cities like London, TFL, Transport for London, and people that come in and out of London are violating whether that's through a congestion charge or parking or what they call the Low Emissions Zone. And we also are beginning the phases of working with rental car partners around Europe, so places like Ireland, France, Italy, Spain, Portugal. And helping them, they're solving the same problem for them there that we have here around tolling. It's a bit more of what I would call an emerging or incubation phase because so many of the toll roads still have the ability for a consumer to go and pay there. So they can put their credit card in and pay, they don't necessarily need it. But as those go cashless, which they will more like here in the US, then the value proposition of our program really comes through.

We looked a lot at EV charging, in particular for our rental car partners when they were struggling with this. But really what you've seen is kind of a pullback on that. Not that EV charging isn't something that needs to happen, but the rental car companies in particular have really shed those assets because people weren't renting them. They had a little phobia about running out. And Hertz in particular has been very public about getting rid of some of the Teslas that they had bought. We look at EV charging now as more of a service that we can provide to fleets from when they run out of a charge or when a vehicle needs a tow. So again, potential new services, not things that we do at this time.

Yeah, we've done some. Historically, the business has been created through a fair amount of M&A. Some of this happened prior to being public. The most recent acquisition we did was T2, which was the parking business. So that was really, think of it as a third leg of the stool where we have our Commercial Business, our Government Business, and now a Parking Business, more broadly in the context of what we call Urban Mobility. So we haven't really done one recently, but we have a team that's fully dedicated to looking at deals. The market pricing of some of these deals over the last couple years has been pretty high, which is why you haven't seen a lot of deals get done, in my opinion. But with interest rates kind of not coming down more, at least that's what the views of the banks are, and private equity needing to dispose of some of these assets, I think we're pretty confident that deals will start to get done, including for us this year.

Here's what I would say, John. I hope so. We want to deploy capital, but we have to maintain price discipline. And I know that we're not the only strategic buyer out there that's had to sort of sit on the sidelines with unrealistic valuation expectations.

Yeah, so the way we look at AI today is twofold. One, internally, how can we just be more efficient as a company and run? Which we do today through things like we respond to hundreds and hundreds of RFPs. And we've been doing that for 20 years, so we have a large language model related to RFPs, and we're deploying AI to make our responses much faster, to reduce the time to market on those. But we use AI and have been using AI, in particular machine learning, in our cameras and our automated enforcement business. And the way that we do that is that the AI helps us to detect a false positive. And it's very expensive to pull all that video back over the network, and so it has reduced our cost and increased our efficiency on behalf of our customers. Those are some simple areas that we're looking today to use it. I think in the future, the cameras are going to be multi-function, and AI will detect a lot more than just a red light runner or a speed runner, but be able to do a lot of different things inside of a singular camera.

Yeah, absolutely. And you can even put them on other devices. You could put them on a bus, you could put them on a garbage truck. You can have these cameras rolling around that are completely ingesting information, so you can look for things like the road is damaged here, or there's an accident on the side of this road, and they can notify responders. So there's a lot of things that AI can do because we have so many cameras out there. And they can even look at the video after the fact to help us get more information that we could deploy back to our customers as well.

Yeah, great to be here.