Verra Mobility delivered Q2 2026 results that beat internal expectations, with total revenue, adjusted EBITDA, margins, and adjusted EPS all coming in stronger than forecast. The company reported consolidated adjusted EBITDA of $111 million, driven by accelerated New York City camera installations, operational improvements, and stronger commercial collections. GAAP net loss was $48 million, reflecting a non-cash goodwill and intangible asset impairment charge of $104 million related to T2 Systems. Adjusted EPS rose to $0.38 from $0.34 in the prior year quarter, helped by higher EBITDA and a lower share count. Revenue growth was led by Government Solutions, where service revenue increased 17% year-over-year, including 36% growth in New York City and 8% growth outside the city. Commercial Services returned to growth, up 6%, while Parking Solutions revenue grew only 1%, with segment margins contracting 465 basis points on product mix and operating expense timing.

The most significant strategic development was the renewal of two key rental car customer contracts. Following Avis Budget Group's termination notice in May, management re-engaged and reached a new seven-year tolling and violation services agreement. Separately, the company signed a new five-year agreement with Hertz, extending a relationship not due for renewal until mid-2027. Both contracts were executed at pricing materially less favorable than prior terms and include options for customers to modulate fleet volume, prompting a reduction in full-year guidance. Management also highlighted the selection of Verra Mobility as the automated speed safety vendor for the City of Los Angeles, the sixth of six California cities authorized under AB 645 to choose the company, representing an expected $10 million in annual recurring revenue once finalized. Cost transformation efforts remain on track, with roughly $20 million in annualized savings expected to be fully realized by 2027.

Operationally, the company is shifting to a more integrated operating model, unifying customer-facing functions under a new Chief Customer Officer and combining product and engineering leadership. Management emphasized the strategic importance of its data assets—over 10 petabytes of transportation data, 28,000 edge sensors, and 230 million toll transactions processed annually—as a foundation for AI-driven products and internal efficiency. Free cash flow for the quarter was $33 million, with operating cash flow of $56 million, and net leverage declined to 2.4x. The company ended the quarter with its revolver fully repaid and undrawn, maintaining ample liquidity under its $250 million share repurchase authorization. While the customer renewals create short-term margin pressure, management believes the long-term stability and visibility from these agreements, combined with continued Government Solutions momentum, position the company for sustainable growth.

Q2 2026 Financial Performance

• Consolidated revenue: Total revenue was not explicitly disclosed but reflects strong segment growth. Government Solutions service revenue grew 17%, Commercial Services revenue grew 6%, and Parking Solutions revenue grew approximately 1%.
• Adjusted EBITDA: $111 million, above internal expectations, with margins supported by NYC camera installation timing and improved collections.
• Adjusted EPS: $0.38 versus $0.34 in Q2 2025, driven by higher EBITDA and lower share count, partially offset by higher depreciation.
• GAAP net loss: $(48) million, including a $104 million non-cash impairment charge for T2 Systems.
• Cash flow: Operating cash flow of $56 million; free cash flow of $33 million.

Segment Performance

Commercial Services

• Revenue increased 6% year-over-year.
• RAC tolling revenue up 5% despite a 1% decline in U.S. travel volumes.
• Fleet management (FMC) revenue up 3% ($1 million), offsetting prior-year churn.
• Segment profit margin expanded 100 basis points year-over-year on operating leverage and lower bad debt expense.

Government Solutions

• Service revenue increased 17%: NYC grew 36% (net new camera installations more than offset pricing changes), and non-NYC grew 8%.
• Total revenue grew 20%, with product revenue up approximately $4 million.
• Segment profit of $31 million, margin of ~24%, down from prior year due to NYC pricing changes.
• Booked $25 million of new annual recurring revenue in Q2; trailing twelve-month bookings of approximately $74 million.

Parking Solutions

• Revenue of $20 million; SaaS/services revenue up ~1%, product revenue flat.
• Segment profit of ~$2 million; margins declined 465 basis points on product mix and expense timing.
• No improvement in underlying performance; management acknowledged the business has underperformed and identified it as a focus area.

Key Business Developments

• Avis Budget Group: New seven-year tolling and violation services contract, replacing earlier termination notice.
• Hertz: New five-year agreement, early extension of contract originally expiring in mid-2027.
• City of Los Angeles: Selected as automated speed safety vendor; expected $10 million ARR once finalized. This is the sixth city won by Verra Mobility under California's AB 645 pilot.
• Cost transformation: ~$20 million annualized cost savings expected to be fully realized by 2027; headcount actions largely complete, with further non-labor savings under review.

Full-Year 2026 Guidance (Updated)

• Revenue: $945 million to $965 million.
• Adjusted EBITDA: $360 million to $370 million, representing a margin of approximately 38%.
• Non-GAAP adjusted EPS: $1.11 to $1.17.
• Free cash flow: $105 million to $115 million, reflecting higher CapEx for accelerated Los Angeles Metro and school bus stop arm awards and a $30 million working capital usage.

Segment Outlook

• Government Solutions: Total revenue growth at the high end of mid-single digits; service revenue outside NYC expected to grow low double digits; NYC total revenue expected to grow high single digits. Segment profit margins expected to contract 450-500 basis points for the year, landing in the low 20s. Q3 margins similar to Q1, ramping to mid-20s by Q4.
• Commercial Services: Full-year revenue expected to decline in the high single digits versus 2025, reflecting revised pricing from ABG and Hertz renewals and a lower TSA assumption (flat year-over-year vs. prior assumption of +1% to +1.5%). Segment profit margins expected to be in the low 60s for 2026.
• Parking Solutions: Revenue expected to grow low to mid-single digits; segment margins expected to be slightly accretive to 2025.

Management Commentary

• The company expects to generate full run-rate cost savings from its ~$20 million program by 2027.
• The evaluation of segment reporting is ongoing; the company may potentially move to a single operating and reportable segment and would recast prior periods accordingly.
• Management is not providing 2027 guidance but emphasized disciplined capital allocation with priority on strengthening the balance sheet and building cash reserves.

Q: Tom Osano (JP Morgan) – On the Avis contract, what circumstances led to the initial termination notice, and what drove Avis to rescind and extend? A: Jon Keyser explained that the termination notice was disappointing, but management re-engaged with Avis, listened carefully to their concerns and strategic priorities, and negotiated a new agreement. He emphasized that the renewal reflects the value of Verra's technology and ability to de-risk fleet operations.

Q: Tom Osano – Following the Avis and Hertz renewals, can you summarize key economic changes vs. prior agreements, including pricing, variable components, volume assumptions, and any update on Enterprise? A: Craig Conti noted that both agreements are on less favorable terms, with options for customers to modulate fleet volume. He declined to disclose specific commercial terms due to competitive reasons. Jon Keyser added that Enterprise Mobility discussions are positive and that Verra is engaging with rental car customers at senior levels to provide technology-driven value.

Q: Daniel Moore (CJS Securities) – Are there new floors or minimums in fleet volumes or percentages of customer volumes dedicated to Verra? A: Craig Conti said he could not disclose contract specifics, but noted the company is in daily contact with customers and will have better forecasting visibility after a few quarters. He confirmed the changes went into effect immediately.

Q: Daniel Moore – Can you discuss the City of Los Angeles revenue opportunity, ramp, camera ownership model, and margins? A: Craig Conti expressed excitement about the LA win, noting Verra was selected for 6 of 6 AB 645 cities. He expects $10 million in ARR once the contract is finalized. He highlighted the legislative groundwork that expanded TAM and emphasized the company's strong positioning in automated safety enforcement.

Q: Daniel Moore – Given the write-down in Parking Solutions, what is your sense of its future? Is it a growth vehicle or divestment candidate? A: Craig Conti acknowledged underperformance but said it is growing and generating cash, and remains part of the portfolio. He sees opportunities to improve the business and noted it is a focus area.

Q: Faiza Alwi (Deutsche Bank) – What changed over the last few years that led to contracts being signed at much more unfavorable terms? A: Jon Keyser said the termination was a surprise, but through engagement with senior leadership, the company better understands its customers' priorities. He believes the renewals demonstrate the soundness of Verra's technology platform and its ability to de-risk complex fleet operations.

Q: Faiza Alwi – Will Commercial segment margins stay at the lower implied level, or can cost initiatives rightsize the base? A: Craig Conti stated that the $20 million annualized cost savings program is underway, with headcount actions largely complete. Further opportunities exist in sourcing and roadside service delivery. He declined to guide beyond 2026, but emphasized the company is not standing still on cost optimization.