Traffic solutions company Verra Mobility (NYSE:VRRM) reported Q2 CY2024 results beating Wall Street analysts' expectations, with revenue up 8.8% year on year to $222.4 million. On the other hand, the company's full-year revenue guidance of $872.5 million at the midpoint came in slightly below analysts' estimates. It made a non-GAAP profit of $0.31 per share, improving from its profit of $0.29 per share in the same quarter last year.
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Verra Mobility (VRRM) Q2 CY2024 Highlights:
- Revenue: $222.4 million vs analyst estimates of $220.4 million (small beat)
- EPS (non-GAAP): $0.31 vs analyst estimates of $0.30 (4.3% beat)
- EPS (non-GAAP) guidance for the full year is $1.17 at the midpoint, missing analyst estimates by 2.2%
- EBITDA guidance for the full year is $400 million at the midpoint, below analyst estimates of $404.3 million
- Gross Margin (GAAP): 94.4%, in line with the same quarter last year
- EBITDA Margin: 45.9%, in line with the same quarter last year
- Free Cash Flow of $25.98 million, up 29.6% from the previous quarter
- Market Capitalization: $4.55 billion
"We delivered an outstanding second quarter, highlighted by strong revenue and earnings growth," said David Roberts, President and CEO, Verra Mobility.
Managing over 165 million tolling transactions per year, Verra Mobility (NYSE:VRRM) is a leading provider of smart mobility technology that enhances safety, efficiency, and convenience on roadways.
Electrical Systems
Like many equipment and component manufacturers, electrical systems companies are buoyed by secular trends such as connectivity and industrial automation. More specific pockets of strong demand include Internet of Things (IoT) connectivity and the 5G telecom upgrade cycle, which can benefit companies whose cables and conduits fit those needs. But like the broader industrials sector, these companies are also at the whim of economic cycles. Interest rates, for example, can greatly impact projects that drive demand for these products.
Sales Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Luckily, Verra Mobility's sales grew at an incredible 15.7% compounded annual growth rate over the last five years. This is encouraging because it shows Verra Mobility's offerings resonate with customers, a helpful starting point. 
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Verra Mobility's annualized revenue growth of 11.2% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.
This quarter, Verra Mobility reported solid year-on-year revenue growth of 8.8%, and its $222.4 million of revenue outperformed Wall Street's estimates by 0.9%. Looking ahead, Wall Street expects sales to grow 7.1% over the next 12 months, a deceleration from this quarter.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Verra Mobility has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 21.4%. This result isn't surprising as its high gross margin gives it a favorable starting point.
Looking at the trend in its profitability, Verra Mobility's annual operating margin rose by 6.4 percentage points over the last five years, as its sales growth gave it immense operating leverage.
In Q2, Verra Mobility generated an operating profit margin of 27.5%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPS
We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Verra Mobility's EPS grew at an unimpressive 7.1% compounded annual growth rate over the last five years, lower than its 15.7% annualized revenue growth. However, its operating margin actually expanded during this timeframe, telling us non-fundamental factors affected its ultimate earnings.
We can take a deeper look into Verra Mobility's earnings to better understand the drivers of its performance. A five-year view shows Verra Mobility has diluted its shareholders, growing its share count by 4.1%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals. 
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Verra Mobility, its two-year annual EPS growth of 3.9% was lower than its five-year trend. This wasn't great, but at least the company was successful in other parts of the business.
In Q2, Verra Mobility reported EPS at $0.31, up from $0.29 in the same quarter last year. This print beat analysts' estimates by 4.3%. Over the next 12 months, Wall Street expects Verra Mobility to grow its earnings. Analysts are projecting its EPS of $1.11 in the last year to climb by 16.6% to $1.30.
Key Takeaways from Verra Mobility's Q2 Results
It was good to see Verra Mobility beat analysts' revenue expectations this quarter. We were also glad its EPS outperformed Wall Street's estimates. On the other hand, its full-year revenue guidance was underwhelming and its EBITDA guidance for the full year fell short of Wall Street's estimates. Overall, this was a mixed quarter for Verra Mobility, and the outlook could weigh on shares. The stock remained flat at $27.66 immediately following the results.
So should you invest in Verra Mobility right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.