Recently, I posted on this sub explaining my thoughts on Verra Mobility. You can read my full thoughts and download my model to play with [here](https://mainstreetstocks.substack.com/p/verra-mobility-nasdaqvrrm?r=61dq9u&utm_campaign=post-expanded-share&utm_medium=post%20viewer).
TLDR: I like Verra, it's underpriced. All three of the major rental companies won't walk because they won't want to build out their own toll billing capabilities. Avis walked because they wanted to negotiate on price (they're trying to pay down large amounts of debt) to squeeze a better deal out. There's no reason to believe that government services will deteriorate; on the contrary, it's had some major successes in metro areas in the past year).
**Intrinsic Value:** $7-$8 p/s
**Uncertainty**: High (because ofc. This isn't Apple)
4.73x LTM EBITDA
5.06x NTM EBITDA
In late July, Avis and Verra announce that, lo and behold, they had reached an agreement on materially worse terms. Stock jumped \~27% in one day. Then there was the Q2
Management then guided the following for FY:
*"We have updated our full year guidance as follows: We expect total revenue in the range of $945 million to $965 million. We 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 the revised pricing associated with the Avis Budget and Hertz renewal agreements."*
If you put that into an updated projections template for the company (see below), you get an intrinsic value right between $7-$8.
A few weeks after the earnings call, the stock has plummeted \~27% back to the $4-$4.50 range. Here are my thoughts the earnings call:
After updating my scenarios, I’m keeping an intrinsic value estimate at $7-8. It’s tough to know exactly what drives stock prices in the short term; what I do know is there are two things I disliked:
Parking Services: Goodwill impairment is a black mark on a company’s capital allocation record, and Verra Mobility recorded a $104 million for the carrying value of T2 Systems.
Pricing power: “These contracts really strike the right balance of competitive pricing and pricing in the differentiated value of what we do at Verra.” Verra has a reduced negotiating position with enterprise. It’s not implausible enterprise will negotiate a renewal agreement that’s materially worse for commercial services EBITDA margins.
Disclosure: Management is considering “reporting as a single operating and reportable segment”. Revenue by service line should survive, but margins might become undisclosed. Having no clear view into three economically distinct businesses obfuscates the underlying economics.
This is not a fundamental return “buy and hold” business. Customer concentration in the long run can create events such as what happened with Avis. In the short run however, this contractually locked concentration works in the investor’s favor: the next 7 years, commercial services has a captive earnings stream. Over a 5-year time horizon, Verra retains enough runway for outsized returns.
*Not investment advice, for educational and informational purposes only. Doesn't represent my employer. My opinions only. I hold a position in the securities described in this post. The figures here are not guaranteed to be updated or checked for accuracy. Comments or replies I make to this thread should not constitute investment advice and are purely for educational and informational purposes only.*
**Projections:**
|Total Revenue|2026E|2027E|2028E|2029E|2030E|
|:-|:-|:-|:-|:-|:-|
|Commercial Services|386|378|374|370|367|
|YoY Growth %|\-11.5%|\-2.0%|\-1.0%|\-1.0%|\-1.0%|
|Parking Solutions|83|84|85|86|86|
|YoY Growth %|1.0%|1.0%|1.0%|0.5%|0.5%|
|Government Solutions|500|540|583|630|680|
|YoY Growth %|8.5%|8.0%|8.0%|8.0%|8.0%|
|Verra Mobility Total Revenue|969|1002|1042|1086|1133|
|YoY Growth %|\-1.1%|3.4%|4.0%|4.2%|4.3%|
|EBITDA|2026E|2027E|2028E|2029E|2030E|
|:-|:-|:-|:-|:-|:-|
|Commercial Services|243|224|217|215|216|
|EBITDA Margin|63.0%|59.2%|58.0%|58.0%|59.0%|
|Parking Solutions|12|12|12|12|12|
|EBITDA Margin|14.0%|14.0%|14.0%|14.0%|14.0%|
|Government Solutions|115|130|146|164|177|
|EBITDA Margin|23.0%|24.0%|25.0%|26.0%|26.0%|
|Verra Mobility Total EBITDA|370|365|375|390|405|
|EBITDA Margin|38.2%|36.4%|35.9%|36.0%|35.8%|
