VRRM

Strategic Transformation & Cost Management

• Following a leadership transition, the company's top two priorities are increased customer focus and organizational transformation via cost structure realignment and operational improvement.
• Principal labor and initial non-labor cost reduction efforts have been completed rapidly, enabled by prior transformation work and oversight from the Transformation Advisory Committee. The company has now shifted focus to reducing non-labor spending, third-party costs, procurement inefficiencies, and organizational complexity, targeting $20 million in annualized run-rate cost savings starting in 2027.
• While cutting low-value duplicative activity, the company continues to invest in technology, product development, and customer service capabilities, framing transformation as a sustained, disciplined effort to improve resource allocation rather than isolated cost cuts.

AI Strategy & Product Development

• The company is pursuing two parallel AI initiatives: 1) leveraging AI to improve internal operations, including accelerating software development, automating repetitive work, improving forecasting, and accelerating information analysis; 2) integrating AI deeper into customer-facing products and services.
• Vera Mobility operates one of North America's largest connected transportation technology platforms, with 28,000+ edge sensors, over 10 petabytes of historical transportation data, and years of large-scale operational intelligence, creating a unique foundation for AI deployment. The company expects AI will improve sensor interpretation, predict operational issues, optimize customer operations, and enable a new generation of safety-focused transportation solutions.

Key Operational Wins

• The company caught up on delayed New York City camera installations after Q1 weather-related delays, returning to the original installation timeline for the first half of the program. It was also selected as the technology partner for all six pilot speed enforcement programs under California's AB645 authorization, including the large Los Angeles Metro contract, which is expected to generate $10 million in ARR once finalized.
• The company renewed long-term contracts with two major rental car customers: Avis Budget (a new seven-year agreement) and Hertz (a new five-year agreement), extending these long-standing partnerships after a prior termination notice from Avis Budget.

• Full year 2026 consolidated guidance updated downward from prior levels: Total revenue is expected to be 945 to 965 million yen; adjusted EBITDA is expected to be $360 to $370 million (38% adjusted EBITDA margin); non-GAAP adjusted EPS is expected to be $1.11 to $1.17 per share; free cash flow is expected to be 105 to $115 million. The downward revision is entirely driven by less favorable commercial terms in the new Avis Budget and Hertz contracts and higher expected CapEx.
• Government Solutions guidance unchanged from prior outlooks: Total revenue is expected to grow in the high end of the mid-single-digit range, with low double-digit service revenue growth outside New York City and high single-digit total revenue growth within New York City; full-year 2026 segment margins are expected to land in the low 20s (a 450 to 500 basis point contraction from 2025, driven by New York contract pricing changes and subcontractor requirements). Margins are expected to reach the mid-20s by Q4 2026 driven by volume leverage, cost savings, and seasonality.
• Commercial Services guidance updated downward: Full-year 2026 total revenue is expected to decline in the negative high single-digit range versus 2025, with growth decelerating in the second half of the year. Full-year segment profit margins are expected to land in the low 60% range, a contraction from prior expectations. Full-year total available fleet volume is now expected to be flat versus 2025, a 1% to 1.5% reduction from prior assumptions.
• Parking Solutions guidance maintained: Full-year revenue is expected to grow in the low to mid-single-digit range versus 2025, driven by SaaS, subscription, and professional services growth. Full-year segment margins are expected to be slightly higher than 2025 levels.

1. Commercial Services: Total year-over-year revenue grew 6%. RAC tolling revenue increased 5% year-over-year, while FMC revenue increased 3% ($1 million year-over-year), offsetting prior period churn. Segment profit margins increased 100 basis points year-over-year, driven by operating leverage and lower bad debt from improved collections. It contributes approximately 22% of consolidated Q2 revenue.
2. Government Solutions: Total service revenue grew 17% year-over-year (36% growth within New York City, 8% growth outside New York City), and total revenue grew 20% year-over-year. Q2 product revenue was $14 million of the $17 million total consolidated product revenue. Segment profit was $31 million for the quarter, with a 24% segment margin. It booked $25 million in new annual recurring revenue (ARR) in the quarter, with $74 million in incremental ARR over the trailing 12 months. It contributes approximately 59% of consolidated Q2 revenue.
3. Parking Solutions: Generated total Q2 revenue of $20 million, with segment profit of approximately $2 million. SaaS and services revenue grew 1% year-over-year, product revenue was flat year-over-year. Segment profit margins declined 465 basis points year-over-year, driven by product sales mix and operating expense timing. It contributes approximately 19% of consolidated Q2 revenue. Consolidated Q2 results: Total product revenue $17 million, adjusted EBITDA $111 million, GAAP net loss $48 million (including a $104 million non-cash impairment charge for T2 Systems), operating cash flow $56 million, free cash flow $33 million, net debt $1 billion, net leverage 2.4x.

• The renewed Avis Budget and Hertz contracts have materially less favorable pricing terms than prior agreements, and include provisions that allow the customers to modulate fleet volume, creating revenue uncertainty for the commercial services segment.
• The New York City expansion contract includes lower service pricing from the competitive procurement process and new minority and women-owned subcontractor requirements that compress government solutions segment margins.
• The T2 Systems (Parking Solutions) business has underperformed expectations in recent years, resulting in a $104 million non-cash goodwill and intangible asset impairment charge in Q2 2026.
• While cost reduction efforts have delivered $20 million in planned annualized savings, it remains uncertain whether additional cost optimization will fully offset margin pressure from the new rental car contracts.
• The company is still negotiating the final Los Angeles Metro contract, so revenue from that award has not been finalized.

Q: What led to Avis Budget's initial termination notice, and what factors led to the new extension agreement? / A: The termination notice was disappointing to management. After the company's leadership transition, the CEO and management team re-engaged Avis Budget, actively listened to the customer's strategic priorities, and re-negotiated a new long-term agreement that works for both parties. This outcome reflects the company's new priority of broadening and deepening senior-level customer relationships.

Q: What key economic changes came with the new Avis and Hertz contracts, and is there update on negotiations with Enterprise? / A: The new contracts have lower pricing than prior agreements and include flexible volume terms that let customers adjust fleet volume committed to Vera. The five-year Hertz agreement was negotiated early, before its 2027 expiration, while Avis is a new seven-year agreement. Management confirmed they are holding positive senior-level discussions with Enterprise, focusing on providing new technology to support the customer's transformation efforts.

Q: What is the scope and outlook for the new Los Angeles speed enforcement contract? / A: The contract is part of California's six-city pilot program for authorized speed enforcement, and Vera was selected as the technology partner for all six pilot cities. Once finalized, the Los Angeles contract is expected to generate $10 million in annual recurring revenue. This win follows years of government relations work to expand the total addressable market for automated safety programs across U.S. states.

Q: What is the future outlook for the underperforming Parking Solutions business after its impairment charge? / A: Management acknowledged the business has not met performance expectations in recent years, but confirmed it is currently growing and generating positive cash flow, so it remains part of the company's portfolio. Management also noted there is meaningful room for operational improvement, and the business will be a key focus area going forward.

Q: How will management address commercial segment margin pressure from the new lower-priced contracts? / A: Management has already identified $20 million in annualized run-rate cost savings (mostly completed for headcount reductions) that will take full effect in 2027, with additional cost optimization opportunities remaining in non-labor areas like procurement and roadside service operations. Management did not provide long-term margin guidance beyond 2026 at this time.