Sarah Farrell, a partner at Inclusive, joined Verra’s board in late 2021. Here’s what could be ahead for the company.
on Dec. 30, 2021, just four months after Inclusive Capital filed a 13D, reporting its position in the company.Verra Mobility operates through two segments: Commercial Services and Government Solutions . The CS business turned what was a major headache and large administrative cost for the rental car companies into an ancillary revenue stream at 100% margin. The company takes a cut of the daily service fee and a piece of the toll.
The CS segment comprises approximately 60% of the company's revenue and has 63% EBITDA margins at the segment level and the GS segment comprises approximately 40% of the company's revenue with 40% EBITDA margins at the segment level. Both businesses are No. 1 in market share with the CS business covering 95% of U.S. toll roads and the GS business having 70% of U.S. market share.
Despite all of this, the company is undervalued because investors are not giving it credit for recovery from Covid, even though the CS segment is at 98% of 2019 revenue and the GS segment has exceeded 2019 revenue. Moreover, from 2015 through 2019, it grew EBITDA at 19% per year and is expected to grow EBITDA more than 25% per year in 2021 and 2022.
Additionally, there could be future upside from three areas. First, the company could have a huge opportunity replicating what they currently have in the U.S. in Europe. Europe has even more tolls. If the company could find a way to manage the tolls for the European arms of the U.S. rental car agencies, there could be a $300 million to $350 million market opportunity, compared to $230 million in revenue generated from CS in the US in 2019.
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