Q3 2025 Earnings Call Contradictions: New York City Contract Timelines, CapEx Plans, and California Market Outlook

Business Commentary:

* Revenue Growth and New York City Contract: - Verra Mobility reported revenue of $262 million for Q3, up 16% over the same period last year. - This growth was driven by a significant increase in revenue from the New York City red-light expansion change order, which contributed $17 million to the quarter's revenue.

• Government Solutions Revenue Increase:
• Revenue from the Government Solutions segment increased by 28% over the third quarter of 2024, primarily due to revenue from New York City, which rose by 46%.

• Contributions from international product sales also increased, adding $4 million to the revenue growth.

• Strong Service Revenue Growth:

• Total service revenue grew 12% year-over-year, with Government Solutions service revenue increasing by 19%.

• Installation services for the New York City red-light expansion accounted for $11 million of this growth.

• Adjusted EPS Improvement:

• Adjusted EPS increased by 16% year-over-year, driven by operating performance, share repurchases, and a reduction in interest rate on the term loan debt.
• The increase was also fueled by strong service revenue growth and the change order for New York City.

Contradiction Point 1

New York City Contract Timeline

It involves differing statements about the timeline for finalizing the New York City contract, which impacts financial forecasts and operational planning.

Can you break down the one-time and continuing costs associated with New York City contract margins? - Faiza Alwy (Deutsche Bank AG, Research Division)

2025Q3: We expect the definitive contract to be finalized in October. - [David Roberts](CEO)

When will the New York City contract be finalized, and when will the impact on the business be clearer? - Nikolai Cremo (UBS Investment Bank)

2025Q1: Probably in the next 60 to 90 days is probably a reasonable bet. - [David Roberts](CEO)

Contradiction Point 2

New York City Contract and Revenue Impact

It involves differing statements about the impact of the New York City contract on revenue and margins, which are crucial for financial forecasting and investor expectations.

Can you break down the one-time and ongoing costs related to NYC contract margins? - Faiza Alwy (Deutsche Bank AG, Research Division)

2025Q3: In 2025, there are one-time readiness costs of approximately $5 million to $10 million, which are baked into guidance. - [Craig Conti](CFO)

What caused the Commercial Services growth slowdown from Q4 to Q1, and why is there a year-over-year decline in 2025? - David Koning (Robert W. Baird & Co. Incorporated, Research Division)

2024Q4: We expect to achieve adjusted earnings per diluted share between $3.55 and $3.70 for 2025, which represents an increase of 1% to 3% over the prior year, primarily driven by top-line growth in the Government Solutions segment. - [Craig Conti](CFO)

Contradiction Point 3

CapEx Investment Justification and Expectations

It involves the explanation for increased CapEx investments, which is crucial for understanding the company's growth strategy and financial management.

What are the CapEx assumptions for 2026 and beyond? - Louie DiPalma(William Blair & Company L.L.C., Research Division)

2025Q3: CapEx in 2026 looks similar to 2025, with no significant changes anticipated. - [Craig Conti](CFO)

Can you explain the recent CapEx increase, given steady revenue growth? - David John Koning(Robert W. Baird & Co. Incorporated, Research Division)

2025Q2: CapEx investments have increased to support the business's rapid growth, which has also led to higher capital requirements. ERP and platform consolidation efforts are part of this buildup. - [Craig Conti](CFO)

Contradiction Point 4

Margins in Government Solutions Business Beyond 2025

It involves the expected margin expansion in the Government Solutions business, which is crucial for financial forecasting and investor expectations.

How should we think about margins beyond the New York City impact in the Government Solutions business? - Louie DiPalma (William Blair & Company L.L.C., Research Division)

2025Q3: The Government Solutions business margin is expected to return to high 20s to 30% by 2028, driven by platform consolidation and efficiency improvements. - [David Roberts](CEO)

What is the potential for margin expansion in Government Solutions beyond 2025? - Daniel Moore (CJS Securities)

2025Q1: The market for photo enforcement is strong, and TAM is expanding, which sets us up well for margin expansion over the next few years. - [David Roberts](CEO)

Contradiction Point 5

Market Opportunities in California

It involves differing statements about the market opportunities and revenue expectations from California, which is a critical growth area for the company.

What are the key California opportunities in 2026 guidance? - Chao Zhang (UBS Investment Bank, Research Division)

2025Q3: Pilot programs account for about $10 million in ARR, with revenue realization in 12 to 18 months. - [Craig Conti](CFO)

Have other California cities issued RFPs for speed camera programs similar to San Jose? When will these decisions be made? - Nikolai Cremo (UBS)

2024Q4: We've responded to San Jose's RFP and expect others like Oakland, L.A., and Long Beach to release their RFPs within the next 3 to 6 months. - [David Roberts](CEO)