Verra Mobility (VRRM)

Traffic solutions company Verra Mobility (NYSE:VRRM) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 6.4% year on year to $223.3 million. The company expects the full year’s revenue to be around $930 million, close to analysts’ estimates. Its non-GAAP profit of $0.30 per share was 4.5% above analysts’ consensus estimates.

Company Overview

Aiming to wrap technology and data around a historically manual and paper-based industry, Verra Mobility (NYSE:VRRM) is a leading provider of smart mobility technology to address tolls and violations, title and registration services, as well as safety and traffic enforcement.

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).

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Verra Mobility grew its sales at an exceptional 13.8% 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.

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 8.2% 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.

This quarter, Verra Mobility reported year-on-year revenue growth of 6.4%, and its $223.3 million of revenue exceeded Wall Street’s estimates by 2.9%.

Looking ahead, sell-side analysts expect revenue to grow 6.3% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and indicates its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

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 62.1% gross margin over the last five years. That means Verra Mobility only paid its suppliers $37.85 for every $100 in revenue.

Verra Mobility’s gross profit margin came in at 61.2% this quarter, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

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 19.4%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Verra Mobility’s operating margin rose by 10.1 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q1, Verra Mobility generated an operating margin profit margin of 25.7%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Verra Mobility’s EPS grew at a spectacular 16.3% compounded annual growth rate over the last five years, higher than its 13.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Verra Mobility’s earnings can give us a better understanding of its performance. As we mentioned earlier, Verra Mobility’s operating margin was flat this quarter but expanded by 10.1 percentage points over the last five years. On top of that, its share count shrank by 1.4%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

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 8.5% 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 Q1, Verra Mobility reported EPS at $0.30, up from $0.27 in the same quarter last year. This print beat analysts’ estimates by 4.5%. Over the next 12 months, Wall Street expects Verra Mobility’s full-year EPS of $1.26 to grow 8.1%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because 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 20% over the last five years.

Taking a step back, we can see that Verra Mobility’s margin expanded by 13.7 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’s free cash flow clocked in at $41.72 million in Q1, equivalent to a 18.7% margin. This result was good as its margin was 9.1 percentage points higher than in the same quarter last year, building on its favorable historical trend.

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 8.1%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

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 4.2 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.

Verra Mobility reported $108.5 million of cash and $1.04 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.

With $404.3 million of EBITDA over the last 12 months, we view Verra Mobility’s 2.3× net-debt-to-EBITDA ratio as safe. We also see its $71.79 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.

We enjoyed seeing Verra Mobility beat analysts’ revenue expectations this quarter. We were also happy its EBITDA outperformed Wall Street’s estimates. Overall, this print had some key positives. Investors were likely hoping for more, and shares traded down 1.2% to $24.07 immediately after reporting.

Updated: July 2, 2025 at 11:36 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Verra Mobility.

There are multiple reasons why we think Verra Mobility is an amazing business. For starters, its revenue growth was exceptional over the last five years. And while its mediocre ROIC lags the market and is a headwind for its stock price, 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 18.7x. Looking at the industrials landscape today, Verra Mobility’s fundamentals really stand out, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $28.92 on the company (compared to the current share price of $25.53), implying they see 13.3% upside in buying Verra Mobility in the short term.