Verra Mobility (VRRM)

High QualityTimely Buy
We’re firm believers in Verra Mobility. Its rare ability to win market share while pumping out profits is a feature many competitors envy. StockStory Analyst Team
Anthony Lee, Lead Equity Analyst
Max Juang, Equity Analyst

1. News

2. Summary

High QualityTimely Buy

Why We Like 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.

  • Offerings are difficult to replicate at scale and result in a best-in-class gross margin of 62.3%
  • Disciplined cost controls and effective management have materialized in a strong operating margin, and its profits increased over the last five years as it scaled
  • Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its growing cash flow gives it even more resources to deploy
We’re optimistic about Verra Mobility. The price seems fair based on its quality, so this might be an opportune time to buy some shares.
StockStory Analyst Team

Why Is Now The Time To Buy Verra Mobility?

At $22.97 per share, Verra Mobility trades at 17.4x forward P/E. Most industrials companies are more expensive, so we think Verra Mobility is a good deal when considering its quality characteristics.

Where you buy a stock impacts returns. Our analysis shows that business quality is a much bigger determinant of market outperformance over the long term compared to entry price, but getting a good deal on a stock certainly isn’t a bad thing.

3. Verra Mobility (VRRM) Research Report: Q4 CY2024 Update

Traffic solutions company Verra Mobility (NYSE:VRRM) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 5% year on year to $221.5 million. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $930 million at the midpoint. Its non-GAAP profit of $0.33 per share was 11.2% above analysts’ consensus estimates.

Verra Mobility (VRRM) Q4 CY2024 Highlights:

  • Revenue: $221.5 million vs analyst estimates of $221.1 million (5% year-on-year growth, in line)
  • Adjusted EPS: $0.33 vs analyst estimates of $0.30 (11.2% beat)
  • Adjusted EBITDA: $102 million vs analyst estimates of $101.8 million (46% margin, in line)
  • Management’s revenue guidance for the upcoming financial year 2025 is $930 million at the midpoint, in line with analyst expectations and implying 5.8% growth (vs 7.6% in FY2024)
  • Adjusted EPS guidance for the upcoming financial year 2025 is $1.33 at the midpoint, beating analyst estimates by 2.2%
  • EBITDA guidance for the upcoming financial year 2025 is $415 million at the midpoint, below analyst estimates of $417.7 million
  • Operating Margin: -19.6%, down from 11.1% in the same quarter last year
  • Free Cash Flow Margin: 9.8%, similar to the same quarter last year
  • Market Capitalization: $4.27 billion

Company Overview

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.

Verra Mobility was originally established as a traffic enforcement technology business. Today, it offers products addressing smart mobility technology including toll management, automated government systems, and parking solutions.

Specifically, the company provides automated toll and violations management services to rental car companies, direct commercial fleets, and fleet management companies in North America and Europe. It also manages regional toll transponder installations and ensures transponders are correctly linked to specific vehicles. In the realm of government services, Verra Mobility supplies automated safety solutions, including road safety cameras. These systems are capable of detecting various traffic violations such as red-light infractions and speeding. Verra Mobility’s end-to-end solutions support government agencies by installing and maintaining equipment, processing violation data, and managing citation issuance and other administrative functions.

Following the acquisition of T2 Systems in December 2021, Verra Mobility expanded into parking management. T2 Systems is recognized for delivering end-to-end parking solutions, particularly to universities, municipalities, and healthcare facilities. Its parking technologies include software and hardware for managing parking access and revenue, such as multi-space pay stations and mobile payment platforms. One specific product, UNIFI Mobile integrates various parking-related transactions into a unified mobile-first platform, enhancing operational efficiency for parking operators and convenience for end-users.

The company's revenue is generated by fees and contracts from the services mentioned above.

4. 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.

Competitors of Verra Mobility include Conduent Transportation (NASDAQ:CNDT), Cubic (private, acquired by Veritas Capital), and European competitor Kapsch TrafficCom AG (OTCMKTS:KPSHF).

5. Sales Growth

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Verra Mobility grew its sales at an exceptional 14.4% compounded annual growth rate. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

Verra Mobility Quarterly Revenue

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Verra Mobility’s annualized revenue growth of 8.9% over the last two years is below its five-year trend, but we still think the results were respectable. We also think Verra Mobility’s is one of the better Electrical Systems businesses as many of its peers faced declining sales because of cyclical headwinds. Verra Mobility Year-On-Year Revenue Growth

This quarter, Verra Mobility grew its revenue by 5% year on year, and its $221.5 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.4% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and indicates its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

6. Gross Margin & Pricing Power

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

Verra Mobility has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 66.7% gross margin over the last five years. That means Verra Mobility only paid its suppliers $33.29 for every $100 in revenue. Verra Mobility Trailing 12-Month Gross Margin

In Q4, Verra Mobility produced a 94.1% gross profit margin, marking a 34.2 percentage point increase from 59.9% in the same quarter last year. Verra Mobility’s full-year margin has also been trending up over the past 12 months, increasing by 16.5 percentage points. If this move continues, it could suggest a less competitive environment where the company has better pricing power and leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

7. Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

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 18.9%. 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 operating margin rose by 5.9 percentage points over the last five years, as its sales growth gave it immense operating leverage.

Verra Mobility Trailing 12-Month Operating Margin (GAAP)

This quarter, Verra Mobility generated an operating profit margin of negative 19.6%, down 30.6 percentage points year on year. Conversely, its revenue and gross margin actually rose, so we can assume it was recently less efficient because its operating expenses like marketing, R&D, and administrative overhead grew faster than its revenue.

8. Earnings Per Share

We track the long-term change 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 is profitable.

Verra Mobility’s EPS grew at a remarkable 12.6% compounded annual growth rate over the last five years. Despite its operating margin expansion during that time, this performance was lower than its 14.4% annualized revenue growth, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

Verra Mobility Trailing 12-Month EPS (Non-GAAP)

We can take a deeper look into Verra Mobility’s earnings quality to better understand the drivers of its performance. A five-year view shows Verra Mobility has diluted its shareholders, growing its share count by 1.2%. 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. Verra Mobility Diluted Shares Outstanding

Like with revenue, we 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 9.1% was lower than its five-year trend. This wasn’t great, but at least the company was successful in other measures of financial health.

In Q4, Verra Mobility reported EPS at $0.33, up from $0.24 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Verra Mobility’s full-year EPS of $1.24 to grow 5.7%.

9. Cash Is King

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Verra Mobility has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 19.6% over the last five years.

Taking a step back, we can see that Verra Mobility’s margin expanded by 11.6 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Verra Mobility Trailing 12-Month Free Cash Flow Margin

Verra Mobility’s free cash flow clocked in at $21.64 million in Q4, equivalent to a 9.8% margin. This cash profitability was in line with the comparable period last year but below its five-year average. We wouldn’t put too much weight on it because investment needs can be seasonal, causing short-term swings. Long-term trends are more important.

10. Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Verra Mobility has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.7%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

Verra Mobility Trailing 12-Month Return On Invested Capital

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Verra Mobility’s ROIC averaged 4 percentage point increases over the last few years. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

11. Balance Sheet Assessment

Verra Mobility reported $77.56 million of cash and $1.06 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

Verra Mobility Net Debt Position

With $401.6 million of EBITDA over the last 12 months, we view Verra Mobility’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $2.64 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

12. Key Takeaways from Verra Mobility’s Q4 Results

It was encouraging to see Verra Mobility beat analysts’ EPS and full-year EPS guidance expectations this quarter. On the other hand, its full-year EBITDA forecast slightly missed. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The market seemed to focus on the negatives, and the stock traded down 1.4% to $25.55 immediately after reporting.

13. Is Now The Time To Buy Verra Mobility?

Updated: May 4, 2025 at 11:25 PM EDT

Are you wondering whether to buy Verra Mobility or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Verra Mobility is a rock-solid business worth owning. First of all, the company’s revenue growth was exceptional over the last five years. And while its relatively low ROIC suggests management has struggled to find compelling investment opportunities, its admirable gross margins indicate the mission-critical nature of its offerings. Additionally, Verra Mobility’s powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Verra Mobility’s P/E ratio based on the next 12 months is 17.4x. Looking across the spectrum of industrials companies today, Verra Mobility’s fundamentals shine bright. We like the stock at this price.

Wall Street analysts have a consensus one-year price target of $29.08 on the company (compared to the current share price of $22.97), implying they see 26.6% upside in buying Verra Mobility in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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