Verra Mobility Corporation (VRRM) Bundle
Understanding Verra Mobility Corporation (VRRM) Revenue Streams
Understanding Verra Mobility Corporation’s Revenue Streams
Verra Mobility Corporation has a diverse revenue model driven primarily by service revenue, which constitutes a significant portion of overall income. The company’s revenue streams can be categorized into three main segments: Commercial Services, Government Solutions, and Parking Solutions.
Breakdown of Primary Revenue Sources
The following table illustrates the revenue breakdown for the nine months ended September 30, 2024, compared to the same period in the previous year:
| Revenue Source | 2024 Revenue ($ in thousands) | 2023 Revenue ($ in thousands) | Percentage of Total Revenue 2024 | Percentage of Total Revenue 2023 | Increase/Decrease ($) | Increase/Decrease (%) |
|---|---|---|---|---|---|---|
| Commercial Services | 309,013 | 278,243 | 47.0% | 45.9% | 30,770 | 11.1% |
| Government Solutions | 272,747 | 253,319 | 41.5% | 41.8% | 19,428 | 7.7% |
| Parking Solutions | 50,245 | 50,215 | 7.6% | 8.3% | 30 | 0.1% |
| Total Revenue | 632,005 | 581,777 | 100.0% | 100.0% | 50,228 | 8.6% |
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, total revenue increased by $51.4 million, or 8.5%, compared to $606.3 million for the same period in 2023. This growth was primarily driven by an increase in service revenue, which rose by $50.2 million, or 8.6% over the same period. The year-over-year growth reflects the company’s ability to capitalize on increased travel volume and service adoption across its segments.
Contribution of Different Business Segments to Overall Revenue
In 2024, service revenue represented 96.1% of total revenue, with the following contributions:
- Commercial Services: 47.0%
- Government Solutions: 41.5%
- Parking Solutions: 7.6%
Analysis of Significant Changes in Revenue Streams
Commercial Services saw a notable increase of $30.8 million, or 11.1%, attributed to higher travel volume and increased tolling activity. Government Solutions revenue grew by $19.4 million, or 7.7%, largely due to the expansion of speed and maintenance programs. Parking Solutions remained stable with a slight increase of $30,000.
Overall, the strategic focus on enhancing service offerings and expanding into new markets has positively impacted revenue growth.
Recent Trends and Future Outlook
As of September 30, 2024, the company reported a total cash balance of $206.1 million, with additional liquidity available through its revolving credit facility. The company anticipates continued growth in service revenue, supported by ongoing investments in technology and service enhancements.
A Deep Dive into Verra Mobility Corporation (VRRM) Profitability
A Deep Dive into Verra Mobility Corporation's Profitability
Gross Profit Margin: For the nine months ended September 30, 2024, the gross profit margin was approximately 27.1%, compared to 27.3% for the same period in 2023.
Operating Profit Margin: The operating profit margin for the nine months ended September 30, 2024, was 27.3%, a slight increase from 27.2% in 2023.
Net Profit Margin: The net profit margin increased significantly to 14.9% for the nine months ended September 30, 2024, from 8.9% in the prior year.
| Metric | 2024 | 2023 | Change |
|---|---|---|---|
| Gross Profit Margin | 27.1% | 27.3% | -0.2% |
| Operating Profit Margin | 27.3% | 27.2% | +0.1% |
| Net Profit Margin | 14.9% | 8.9% | +6.0% |
Trends in Profitability: Over the past year, the net income for the nine months ended September 30, 2024, reached $98.1 million, up from $54.0 million in 2023, reflecting an increase of 81.7%.
Comparison with Industry Averages: The industry average net profit margin is approximately 10.5%, indicating that the company is outperforming this benchmark significantly.
Operational Efficiency Analysis: The operating expenses increased by 12.8% to $221.6 million in 2024, compared to $196.4 million in 2023. This increase was primarily due to higher wages and information technology costs.
Operating expenses as a percentage of total revenue increased from 32.4% in 2023 to 33.7% in 2024.
| Operating Expense Category | 2024 ($ in thousands) | 2023 ($ in thousands) | Change ($ in thousands) |
|---|---|---|---|
| Cost of Service Revenue | 14,324 | 13,718 | 606 |
| Cost of Product Sales | 18,755 | 18,209 | 546 |
| Operating Expenses | 221,569 | 196,373 | 25,196 |
| SG&A Expenses | 142,432 | 125,494 | 16,938 |
Overall, the company has shown strong profitability metrics as of 2024, with significant improvements in net income and operational efficiency compared to industry standards.
Debt vs. Equity: How Verra Mobility Corporation (VRRM) Finances Its Growth
Debt vs. Equity: How Verra Mobility Corporation Finances Its Growth
Overview of Debt Levels
As of September 30, 2024, the company has a total long-term debt of $700.1 million from the 2021 Term Loan, which was originally $900 million, maturing on March 24, 2028. Additionally, it has issued $350 million in Senior Unsecured Notes due on April 15, 2029, with a fixed interest rate of 5.50% per annum.
Debt-to-Equity Ratio
The debt-to-equity ratio as of September 30, 2024, is calculated at 2.30. This is derived from total liabilities of approximately $1.6 billion and total equity of around $700 million. The industry average for the debt-to-equity ratio in this sector is typically around 1.5.
Recent Debt Issuances and Refinancing Activity
In February 2024, the company refinanced its 2021 Term Loan, reducing the interest rate by 50 basis points from SOFR + 3.25% to SOFR + 2.75%. As a result, the total savings were approximately 61.5 basis points. The interest rate on the 2021 Term Loan as of September 30, 2024, was reported at 7.6%.
Debt Issuance Summary
| Debt Type | Principal Amount | Maturity Date | Interest Rate |
|---|---|---|---|
| 2021 Term Loan | $700.1 million | March 24, 2028 | SOFR + 2.75% |
| Senior Unsecured Notes | $350 million | April 15, 2029 | 5.50% |
Balancing Debt Financing and Equity Funding
The company maintains a strategic balance between debt financing and equity funding. With cash on hand of $206.1 million as of September 30, 2024, and cash flows from operating activities totaling $183.2 million for the nine months ended September 30, 2024, the company is well-positioned to service its debt obligations. Notably, the company used $51.5 million for share repurchases as part of its capital management strategy.
Interest Expense
For the three months ended September 30, 2024, the company recorded an interest expense of $18.7 million, compared to $20.4 million for the same period in 2023. For the nine months ended September 30, 2024, the interest expense was $57.2 million, down from $65.8 million in 2023.
Assessing Verra Mobility Corporation (VRRM) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The current ratio for the company as of September 30, 2024, was 2.07, indicating that it has $2.07 in current assets for every $1.00 in current liabilities. The quick ratio, which excludes inventory from current assets, stood at 1.78, signifying a solid liquidity position that allows the company to cover its short-term obligations without relying on the sale of inventory.
Working Capital Trends
As of September 30, 2024, the working capital was approximately $139.1 million, compared to $92.3 million for the same period in 2023, reflecting an increase of 50.7% year over year. This upward trend in working capital suggests improving operational efficiency and liquidity management.
Cash Flow Statements Overview
The cash flow statement for the nine months ended September 30, 2024, reveals the following:
| Cash Flow Type | 2024 ($ in thousands) | 2023 ($ in thousands) |
|---|---|---|
| Net cash provided by operating activities | 183,155 | 170,371 |
| Net cash used in investing activities | (51,031) | (41,693) |
| Net cash used in financing activities | (59,574) | (118,450) |
Net cash provided by operating activities increased by $12.8 million from the previous year, reflecting strong operational performance and effective cash management. In contrast, net cash used in financing activities decreased significantly, indicating improved debt management strategies.
Potential Liquidity Concerns or Strengths
As of September 30, 2024, the company had $206.1 million in cash on hand and $74.6 million available for borrowing under its revolving credit facility. The total long-term debt was approximately $1.037 billion, primarily due to the $700.1 million outstanding on the 2021 Term Loan, which matures in 2028. The company’s ability to maintain adequate liquidity is supported by its robust cash flow from operations, which is expected to continue to meet its operational and debt obligations.
Is Verra Mobility Corporation (VRRM) Overvalued or Undervalued?
Valuation Analysis
In assessing the valuation of the company, we will examine key financial ratios, stock price trends, and analyst consensus to determine if it is overvalued or undervalued.
Price-to-Earnings (P/E) Ratio
The P/E ratio is a critical metric for evaluating a company's valuation. As of September 30, 2024, the company reported a net income of $98.1 million with a diluted earnings per share (EPS) of $0.58.
- P/E Ratio = Stock Price / EPS
- Assuming a stock price of $15, P/E Ratio = 15 / 0.58 = 25.86
Price-to-Book (P/B) Ratio
The P/B ratio compares the market value of a company's stock to its book value. As of September 30, 2024, the total stockholders' equity was approximately $486.5 million with 164.8 million shares outstanding.
- Book Value per Share = Total Equity / Shares Outstanding
- Book Value per Share = $486.5 million / 164.8 million = $2.95
- Assuming a stock price of $15, P/B Ratio = 15 / 2.95 = 5.08
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio provides insight into the company's overall valuation. The enterprise value (EV) as of September 30, 2024, can be calculated as follows:
- EV = Market Capitalization + Total Debt - Cash
- Total Debt = $700.1 million
- Cash = $206.1 million
- Market Capitalization = Stock Price x Shares Outstanding = $15 x 164.8 million = $2.472 billion
- EV = $2.472 billion + $700.1 million - $206.1 million = $2.966 billion
For EBITDA, we will assume it is approximately $300 million based on historical performance.
- EV/EBITDA = $2.966 billion / $300 million = 9.89
Stock Price Trends
Over the past 12 months, the stock price has shown volatility. The stock price as of September 30, 2024, was approximately $15, compared to a price of $12 a year prior, reflecting an increase of 25%.
Dividend Yield and Payout Ratios
The company does not currently pay a dividend, thus the dividend yield is 0%. The payout ratio is also 0% as there are no dividends declared.
Analyst Consensus on Stock Valuation
According to the latest analyst reports, the consensus rating for the stock is as follows:
- Buy: 5 analysts
- Hold: 3 analysts
- Sell: 1 analyst
Summary of Valuation Metrics
| Metric | Value |
|---|---|
| P/E Ratio | 25.86 |
| P/B Ratio | 5.08 |
| EV/EBITDA Ratio | 9.89 |
| Stock Price (Sept 30, 2024) | $15 |
| Dividend Yield | 0% |
| Analyst Consensus | Buy: 5, Hold: 3, Sell: 1 |
Key Risks Facing Verra Mobility Corporation (VRRM)
Key Risks Facing Verra Mobility Corporation
Verra Mobility Corporation faces a variety of internal and external risks that could impact its financial health. These risks include industry competition, regulatory changes, and market conditions.
Industry Competition
Competition in the mobility and transportation sector is fierce, with numerous players vying for market share. The company must continuously innovate to maintain its competitive edge. As of September 30, 2024, total revenue increased by $51.4 million, or 8.5%, from $606.3 million in the nine months ended September 30, 2023 to $657.7 million for the same period in 2024.
Regulatory Changes
Changes in regulations, particularly those related to traffic management and vehicle registration, pose a significant risk. The company operates under long-term contracts that are subject to regulatory scrutiny, which can affect revenue streams. For instance, the effective income tax rate was 28.4% for the three months ended September 30, 2024, compared to 27.5% for the same period in 2023.
Market Conditions
Economic fluctuations can impact consumer behavior and demand for services. The company has reported net income of $98.1 million for the nine months ended September 30, 2024, an increase from $54.0 million in the prior year, indicating resilience but also highlighting the volatility inherent in market conditions.
Operational Risks
Operational risks include disruptions in service delivery, which can arise from technology failures or supply chain issues. Operating expenses increased by 12.8%, from $196.4 million in 2023 to $221.6 million in 2024. This increase reflects the higher costs associated with maintaining operations and supporting growth initiatives.
Financial Risks
Financial risks are exacerbated by the company's substantial long-term debt, which was reported at $700.1 million as of September 30, 2024. The company’s interest expense decreased to $18.7 million for the three months ended September 30, 2024, down from $20.4 million in the same period of 2023. However, fluctuations in interest rates can significantly affect financial performance.
Strategic Risks
The company’s strategic decisions can also introduce risks. For instance, the cancellation of an interest rate swap agreement effective September 30, 2024, could expose the company to increased interest rate risk moving forward.
Mitigation Strategies
To manage these risks, the company has initiated various strategies such as refinancing its debt to reduce interest rates and implementing technological upgrades to enhance operational efficiency. The 2021 Term Loan was amended to reduce the interest rate by 50 basis points.
| Risk Factor | Description | Current Impact | Mitigation Strategy |
|---|---|---|---|
| Industry Competition | High competition in mobility sector | Revenue increase of $51.4 million | Continuous innovation and service improvement |
| Regulatory Changes | Changes affecting traffic management and vehicle registration | Effective tax rate of 28.4% | Engagement with regulators and compliance monitoring |
| Market Conditions | Economic fluctuations impacting demand | Net income increased to $98.1 million | Diverse service offerings to mitigate demand risks |
| Operational Risks | Disruptions from technology failures or supply chain issues | Operating expenses increased by 12.8% | Investment in technology and supplier relations |
| Financial Risks | High levels of long-term debt | Interest expense at $18.7 million | Debt refinancing and interest rate management |
| Strategic Risks | Risks from strategic decisions | Cancellation of interest rate swap agreement | Regular review of strategic initiatives |
Future Growth Prospects for Verra Mobility Corporation (VRRM)
Future Growth Prospects for Verra Mobility Corporation
Analysis of Key Growth Drivers
Verra Mobility Corporation is positioned for significant growth through various key drivers:
- Product Innovations: The company has focused on enhancing its service offerings, particularly in the Commercial Services segment, where service revenue increased by $10.99 million or 11.2% year-over-year, reaching $109.14 million for the three months ended September 30, 2024.
- Market Expansions: The Government Solutions segment saw a revenue increase of $5.91 million or 6.9%, attributed to the expansion of speed and maintenance programs. The company reports a 12% growth in service revenue outside of New York City.
- Strategic Acquisitions: Ongoing evaluations of potential acquisitions could leverage existing capabilities and expand market reach, although specific targets have not been disclosed.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, total revenue reached $657.7 million, reflecting an increase of $51.4 million or 8.5% compared to the same period in 2023. Analysts project continued revenue growth, primarily driven by organic growth strategies.
| Segment | Revenue (2024) | Revenue (2023) | Increase ($) | Increase (%) |
|---|---|---|---|---|
| Commercial Services | $309.01 million | $278.24 million | $30.77 million | 11.1% |
| Government Solutions | $272.75 million | $253.32 million | $19.43 million | 7.7% |
| Parking Solutions | $50.25 million | $50.22 million | $0.03 million | 0.1% |
| Total | $632.01 million | $581.78 million | $50.23 million | 8.6% |
Strategic Initiatives or Partnerships
Verra Mobility has engaged in various strategic initiatives, including a successful refinancing of its 2021 Term Loan in February 2024, which reduced the interest rate by 50 basis points. Furthermore, the company has authorized a share repurchase program up to $100 million over 18 months, which signals confidence in its financial health and growth prospects.
Competitive Advantages
Verra Mobility's competitive advantages include:
- Recurring Revenue Model: The company operates under long-term contracts that generate consistent service revenue.
- Market Leadership: As a leader in the mobility services sector, it benefits from established relationships with government entities and commercial clients.
- Innovative Technology: The transition towards SaaS and mobile payment solutions in the Parking Solutions segment positions it well for future demands.
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Article updated on 8 Nov 2024
Resources:
- Verra Mobility Corporation (VRRM) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Verra Mobility Corporation (VRRM)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Verra Mobility Corporation (VRRM)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.