vrrm-10q_20190331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10‑Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ___________.

Commission File Number: 001‑37979

 

VERRA MOBILITY CORPORATION

(Exact name of Registrant as specified in its charter)

 

Delaware

 

81‑3563824

(State of

 

(I.R.S. Employer

incorporation)

 

Identification No.)

 

 

 

1150 North Alma School Road

 

85201

Mesa, Arizona

 

(Zip Code)

(Address of Principal Executive Offices)

 

 

(480) 443-7000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act:

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). YES NO

Securities registered pursuant to Section 12(b) of the Act:

 

(Title of each class)

 

(Trading symbol)

 

(Name of each exchange on which registered)

Class A common stock, par value $0.0001 per share

 

VRRM

 

Nasdaq Capital Market

 

As of May 03, 2019, there were 158,556,642 shares of the Company’s Class A common stock, par value $0.0001 per share, issued and outstanding.

 

 

 


VERRA MOBILITY CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2019

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION

 

4

Item 1. Financial Statements.

 

4

Condensed Consolidated Balance Sheets

 

4

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

 

5

Condensed Consolidated Statements of Stockholders’ Equity

 

6

Condensed Consolidated Statements of Cash Flows

 

7

Notes to Condensed Consolidated Financial Statements

 

9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

39

Item 4. Controls and Procedures

 

39

PART II—OTHER INFORMATION

 

40

Item 1. Legal Proceedings

 

40

Item 1A. Risk Factors

 

40

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

40

Item 3. Defaults Upon Senior Securities

 

40

Item 4. Mine Safety Disclosures

 

40

Item 5. Other Information

 

40

Item 6. Exhibits

 

41

SIGNATURES

 

43

 

2


Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of federal securities laws. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, products, services, and technology offerings, market conditions, growth and trends, expansion plans and opportunities and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “potentially,” “preliminary,” “likely,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in our Annual Report on Form 10-K/A for the year ended December 31, 2018, under Part I, Item 1A, “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely on forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations.

Unless the context indicates otherwise, as used in this Quarterly Report on Form 10-Q, the terms “Verra Mobility,” the “Company,” “we,” “us,” and “our” refer to Verra Mobility Corporation, a Delaware corporation, and its subsidiaries taken as a whole, unless otherwise noted.

3


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

($ in thousands except per share data)

 

March 31,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

91,484

 

 

$

65,048

 

Restricted cash

 

 

1,704

 

 

 

2,033

 

Accounts receivable, net

 

 

94,630

 

 

 

87,511

 

Unbilled receivables

 

 

16,753

 

 

 

12,956

 

Prepaid expenses and other current assets

 

 

19,012

 

 

 

17,600

 

Total current assets

 

 

223,583

 

 

 

185,148

 

Installation and service parts, net

 

 

10,822

 

 

 

9,282

 

Property and equipment, net

 

 

71,686

 

 

 

69,243

 

Intangible assets, net

 

 

491,853

 

 

 

514,542

 

Goodwill

 

 

565,596

 

 

 

564,723

 

Other non-current assets

 

 

2,072

 

 

 

1,845

 

Total assets

 

$

1,365,612

 

 

$

1,344,783

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

52,239

 

 

$

45,188

 

Accrued liabilities

 

 

30,448

 

 

 

14,444

 

Current portion of long-term debt

 

 

9,104

 

 

 

9,104

 

Total current liabilities

 

 

91,791

 

 

 

68,736

 

Long-term debt, net of current portion and deferred financing costs

 

 

859,768

 

 

 

860,249

 

Other long-term liabilities

 

 

3,633

 

 

 

3,369

 

Payable related to tax receivable agreement

 

 

66,097

 

 

 

69,996

 

Asset retirement obligation

 

 

6,855

 

 

 

6,750

 

Deferred tax liabilities

 

 

32,647

 

 

 

33,627

 

Total liabilities

 

 

1,060,791

 

 

 

1,042,727

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Preferred stock, $.0001 par value

 

 

 

 

 

 

Common stock, $.0001 par value

 

 

16

 

 

 

16

 

Common stock contingent consideration

 

 

73,150

 

 

 

73,150

 

Additional paid-in capital

 

 

346,895

 

 

 

348,017

 

Retained earnings (accumulated deficit)

 

 

(110,743

)

 

 

(113,306

)

Accumulated other comprehensive loss

 

 

(4,497

)

 

 

(5,821

)

Total stockholders' equity

 

 

304,821

 

 

 

302,056

 

Total liabilities and stockholders' equity

 

$

1,365,612

 

 

$

1,344,783

 

 

See accompanying notes to the Condensed Consolidated Financial Statements.

4


VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

(In thousands, except per share data)

 

2019

 

 

2018

 

Service revenue

 

$

98,070

 

 

$

69,006

 

Product sales

 

 

391

 

 

 

235

 

Total revenue

 

 

98,461

 

 

 

69,241

 

Cost of service revenue

 

 

1,389

 

 

 

831

 

Cost of product sales

 

 

276

 

 

 

172

 

Operating expenses

 

 

29,338

 

 

 

23,681

 

Selling, general and administrative expenses

 

 

20,551

 

 

 

33,276

 

Depreciation, amortization, impairment and

   (gain) loss on disposal of assets, net

 

 

28,941

 

 

 

18,544

 

Total costs and expenses

 

 

80,495

 

 

 

76,504

 

Income (loss) from operations

 

 

17,966

 

 

 

(7,263

)

Interest expense

 

 

16,033

 

 

 

12,647

 

Loss on extinguishment of debt

 

 

 

 

 

10,151

 

Other income, net

 

 

(2,207

)

 

 

(1,293

)

Total other expense

 

 

13,826

 

 

 

21,505

 

Income (loss) before income tax (benefit)

   provision

 

 

4,140

 

 

 

(28,768

)

Income tax (benefit) provision

 

 

1,320

 

 

 

(6,610

)

Net income (loss)

 

$

2,820

 

 

$

(22,158

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

1,324

 

 

 

 

Total comprehensive income (loss)

 

$

4,144

 

 

$

(22,158

)

Earnings (loss) per share:

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

156,057

 

 

 

62,501

 

Basic earnings (loss) per share

 

$

0.02

 

 

$

(0.35

)

Diluted weighted average shares outstanding

 

 

156,458

 

 

 

62,501

 

Diluted earnings (loss) per share

 

$

0.02

 

 

$

(0.35

)

 

See accompanying notes to the Condensed Consolidated Financial Statements.

5


VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

For the Three Months Ended March 31, 2019

 

 

 

Common

Stock

 

 

Common

Stock

Contingent

 

 

Additional

Paid-in

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

 

 

Total

Shareholders'

 

(In thousands)

 

Shares

 

 

Amount

 

 

Consideration

 

 

Capital

 

 

(Deficit)

 

 

Loss

 

 

Equity

 

Balance, December 31, 2018

 

 

156,057

 

 

$

16

 

 

$

73,150

 

 

$

348,017

 

 

$

(113,306

)

 

$

(5,821

)

 

$

302,056

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,820

 

 

 

 

 

 

2,820

 

Cumulative effect of adoption of new

   accounting standard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(257

)

 

 

 

 

 

(257

)

Adjustment to equity infusion

   from Gores

 

 

 

 

 

 

 

 

 

 

 

(6,205

)

 

 

 

 

 

 

 

 

(6,205

)

Adjustment to tax receivable

   agreement liability

 

 

 

 

 

 

 

 

 

 

 

2,940

 

 

 

 

 

 

 

 

 

2,940

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

2,143

 

 

 

 

 

 

 

 

 

2,143

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,324

 

 

 

1,324

 

Balance, March 31, 2019

 

 

156,057

 

 

$

16

 

 

$

73,150

 

 

$

346,895

 

 

$

(110,743

)

 

$

(4,497

)

 

$

304,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2017

 

 

60,484

 

 

$

6

 

 

$

 

 

$

129,020

 

 

$

18,238

 

 

$

 

 

$

147,264

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,158

)

 

 

 

 

 

(22,158

)

Stock issued in exchange

   for HTA acquisition

 

 

6,051

 

 

 

1

 

 

 

 

 

 

57,270

 

 

 

 

 

 

 

 

 

57,271

 

Balance, March 31, 2018

 

 

66,535

 

 

$

7

 

 

$

 

 

$

186,290

 

 

$

(3,920

)

 

$

 

 

$

182,377

 

 

See accompanying notes to the Condensed Consolidated Financial Statements.

6


VERRA MOBILITY CORPORATION

condensed consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended March 31,

 

($ in thousands)

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

2,820

 

 

$

(22,158

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

28,939

 

 

 

18,550

 

Amortization of deferred financing costs and discounts

 

 

1,833

 

 

 

1,644

 

Loss on extinguishment of debt

 

 

 

 

 

10,151

 

Accretion expense

 

 

90

 

 

 

97

 

Write-downs of installation and service parts and (gain) loss on disposal of

   assets

 

 

3

 

 

 

(6

)

Installation and service parts expense

 

 

257

 

 

 

125

 

Bad debt expense

 

 

1,270

 

 

 

1,140

 

Deferred income taxes

 

 

(1,073

)

 

 

(6,805

)

Stock-based compensation

 

 

2,143

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(8,372

)

 

 

(3,614

)

Unbilled receivables

 

 

(3,797

)

 

 

(4,171

)

Prepaid expense and other current assets

 

 

(1,301

)

 

 

(1,138

)

Other assets

 

 

(226

)

 

 

(576

)

Accounts payable and accrued liabilities

 

 

18,413

 

 

 

3,452

 

Other liabilities

 

 

(3,648

)

 

 

113

 

Net cash provided by (used in) operating activities

 

 

37,351

 

 

 

(3,196

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Acquisition of business, net of cash and restricted cash acquired

 

 

 

 

 

(531,741

)

Purchases of installation and service parts and property and equipment

 

 

(9,219

)

 

 

(5,885

)

Cash proceeds from the sale of assets and insurance recoveries

 

 

52

 

 

 

185

 

Net cash used in investing activities

 

 

(9,167

)

 

 

(537,441

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Borrowings on revolver

 

 

 

 

 

468

 

Repayment on revolver

 

 

 

 

 

(468

)

Borrowings of long-term debt

 

 

 

 

 

1,033,800

 

Repayment of long-term debt

 

 

(2,276

)

 

 

(448,375

)

Payment of debt issuance costs

 

 

(37

)

 

 

(29,242

)

Payment of debt extinguishment costs

 

 

 

 

 

(8,187

)

Net cash provided by (used in) financing activities

 

 

(2,313

)

 

 

547,996

 

Effect of exchange rate changes on cash and cash equivalents

 

 

236

 

 

 

 

Net increase in cash, cash equivalents and restricted cash

 

 

26,107

 

 

 

7,359

 

Cash, cash equivalents and restricted cash - beginning of period

 

 

67,081

 

 

 

10,509

 

Cash, cash equivalents and restricted cash - end of period

 

$

93,188

 

 

$

17,868

 

 

See accompanying notes to the Condensed Consolidated Financial Statements.

7


VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

13,890

 

 

$

5,745

 

Income taxes paid (refunded), net

 

 

(4,710

)

 

 

321

 

Supplemental non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Non-cash additions (reductions) to ARO, property and equipment, and other

 

 

28

 

 

 

 

Purchases of installation and service parts and property and equipment in

   accounts payable and accrued liabilities at period end

 

 

4,084

 

 

 

3,009

 

Capital contribution received in Parent common stock

 

 

 

 

 

57,270

 

Payable to seller in connection with business acquisition

 

 

 

 

 

12,056

 

 

See accompanying notes to the Condensed Consolidated Financial Statements.

8


VERRA MOBILITY CORPORATION

Notes to the CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.

Basis of Presentation and Description of Business

Basis of Presentation

Verra Mobility Corporation (collectively with its subsidiaries, the “Company” or “Verra Mobility”), formerly known as Gores Holdings II, Inc. (“Gores”), was originally incorporated in Delaware on August 15, 2016, as a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more target businesses. On January 19, 2017, the Company consummated its initial public offering (the “IPO”), following which its shares began trading on the Nasdaq Capital Market (“Nasdaq”).

On June 21, 2018, Gores, AM Merger Sub I, Inc., a direct, wholly-owned subsidiary of Gores (“First Merger Sub”), AM Merger Sub II, LLC, a direct, wholly-owned subsidiary of Gores (“Second Merger Sub”), Greenlight Holding II Corporation (“Greenlight”), and PE Greenlight Holdings, LLC entered into an Agreement and Plan of Merger as amended on August 23, 2018 by that certain Amendment No. 1 to Agreement and Plan of Merger (as amended, the “Merger Agreement”), which provided for, among other things, (i) the merger of First Merger Sub with and into Greenlight, with Greenlight continuing as the surviving corporation (the “First Merger”) and (ii) immediately following the First Merger and as part of the same overall transaction as the First Merger, the merger of Greenlight with and into Second Merger Sub, with Second Merger Sub continuing as the surviving entity (the “Second Merger” and, together with the First Merger, the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”).

In connection with the closing of the Business Combination on October 17, 2018 (the “Closing Date”), Gores changed its name from Gores Holdings II, Inc. to Verra Mobility Corporation, changed its trading symbols on Nasdaq from “GSHT,” and “GSHTW,” to “VRRM” and “VRRMW,” and Second Merger Sub changed its name from AM Merger Sub II, LLC to Verra Mobility Holdings, LLC. As a result of the Business Combination, Verra Mobility Corporation became the owner, directly or indirectly, of all of the equity interests of Verra Mobility Holdings, LLC and its subsidiaries. The Business Combination is treated as a reverse acquisition and recapitalization in which Greenlight is treated as the accounting acquirer (and legal acquiree) and Gores is treated as the accounting acquiree (and legal acquirer). Accordingly, as of the Closing Date, Greenlight’s historical results of operations replaced Gores’ historical results of operations for periods prior to the Business Combination, and the results of operations of both companies are included in the accompanying condensed consolidated financial statements for periods following the Merger (see Note 3).

On May 31, 2017, Greenlight Acquisition Corporation (“Parent”) acquired ATS Consolidated Inc. (“ATS”) pursuant to the Agreement and Plan of Merger, dated April 15, 2017 by and among ATS, Greenlight Merger Corporation, a wholly-owned subsidiary of Parent (“ATS Merger Sub”) and Parent whereby ATS Consolidated merged with and into Merger Sub with the former surviving (the “ATS Merger”). Prior to the Business Combination, Parent was ultimately owned by Greenlight, which in turn was owned by certain private equity investment vehicles sponsored by Platinum Equity, LLC (collectively, “Platinum”) (See Note 3).

Description of Business

Verra Mobility is a technology-enabled services company offering traffic safety and mobility solutions for state and local governments, commercial fleets and rental car companies. The Company has customers located throughout the United States, Canada and Europe. The Company is organized into two operating divisions: Government Solutions and Commercial Services (See Note 14).

The Government Solutions division provides complete, end-to-end red-light, speed, school bus stop arm and bus lane enforcement solutions. The Company’s programs are designed to reduce traffic violations and resulting collisions, injuries, and fatalities. The Company implements and administers traffic safety programs for municipalities and agencies of all sizes.

9


The Commercial Services division offers toll and violation management solutions for the commercial fleet and rental car industries by partnering with the leading fleet management and rental car companies in North America and Europe. Electronic toll payment services enable fleet drivers and rental car customers to use high-speed cashless toll lanes or cashless all-electronic toll roads. The service helps commercial fleets reduce toll management costs, while it provides rental car companies with a revenue-generating, value-added service for their customers. Electronic violation processing services reduce the cost and risk associated with vehicle-issued violations, such as toll, parking or camera-enforced tickets. Title and registration services offer title and registration processing for individuals, rental car companies and fleet management companies.

2.

Significant Accounting Principles and Policies

Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.

Use of Estimates

The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited interim condensed consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the fair values assigned to net assets acquired (including identifiable intangibles) in business combinations, the carrying amounts of long-lived assets and goodwill, the carrying amount of installation and service parts, the allowance for doubtful accounts, valuation allowances on deferred tax assets, asset retirement obligations, contingent consideration and the recognition and measurement of loss contingencies.

Management believes that its estimates and assumptions are reasonable in the circumstances; however, actual results could differ materially from those estimates.

Recent Accounting Pronouncements

Accounting Standards Adopted

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We elected to early adopt the requirements of the new standard in the fourth quarter of 2018 using the retrospective transition method, as required by the new standard. The adoption of this ASU had an immaterial impact to the condensed consolidated statements of cash flows.

The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the condensed consolidated balance sheet as of March 31, 2018 that sums to the total of such amounts in the condensed consolidated statements of cash flows for the three months ended March 31, 2018:

 

($ in thousands)

 

 

 

 

Cash and cash equivalents

 

$

15,703

 

Restricted cash

 

 

2,165

 

Cash, cash equivalents and restricted cash in the condensed consolidated statements of

   cash flows

 

$

17,868

 

 

Revenue Recognition

On January 1, 2019, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, Topic 606 (“ASC 606”) using the modified retrospective method applied to those contracts that were not completed as of the adoption date. Results for 2019 are presented under ASC 606, while prior periods were not adjusted and are reported under ASC Topic 605, Revenue Recognition (“ASC 605”).

10


The Company has evaluated its current accounting practices to the requirements of ASC 606. This evaluation included an assessment of representative contracts from each of the Company’s revenue streams. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows, however, there have been additions and modification to its existing financial disclosures. While the overall revenue, systems and controls were minimally impacted by the new standard, the underlying recognition methodology has changed.

 

Under the new standard, the Company now recognizes revenue when the Company satisfies the performance obligation, including, for some of its contracts, the processing of the violation on the customer’s behalf. The primary difference under ASC 606 within the Government Solutions segment is the deferral of revenue related to certain variable price contracts, until citation payment. The Company recorded a $0.3 million reduction to opening retained earnings as of January 1, 2019 for the cumulative impact of adoption related to the recognition of revenue in its Government Solutions segment. There was no cumulative impact of adoption related to the Commercial Services segment.

The comparative information was not restated and continues to be presented under ASC 605 for those periods. There was no material impact upon adoption related to the costs of obtaining or fulfilling a contract.

Nature of goods and services

The following is a description of principal activities – separated by reportable segments – from which the Company generates revenue:

 

a.

Government Solutions Segment: The Government Solutions segment principally generates revenue from providing complete, end-to-end red light, speed, school bus stop arm, and bus lane enforcement solutions. Products, when sold, are typically sold together with the services in a bundle. The average initial term of a contract is 3 to 5 years. Payment terms for contracts with government agencies vary depending on whether the consideration is fixed or variable. Payment terms for contracts with fixed consideration are usually based on equal installments over the duration of the contract. Payment terms for contracts with variable consideration are usually billed and collected as citations are issued or paid.

For bundled packages, the Company accounts for individual products and services separately if they are distinct – i.e., if a product or service is separately identifiable from other items in the bundle and if a customer can benefit from it as a stand-alone item. The consideration is allocated between separate products and services in a bundle based on their stand-alone selling prices (“SSP”). The Company estimates the SSP of its services based upon observable evidence, market conditions and other relevant inputs.

 

Product sales (sale of camera and installation) – The Company recognizes revenue when the installation process is completed and the camera is ready to perform the services as expected by the customer. Generally, it occurs at site acceptance or first citation. The Company recognizes revenue for the sale of the camera and installation services at a point in time.

 

Service revenue – The Company determined its performance obligation is to provide a complete end-to-end safety and enforcement solution. Promises include providing a system to capture images, processing images taken by the camera, forwarding eligible images to the local police department and processing payments on behalf of the municipality. The Company determined that certain of the promises to its customers are capable of being distinct, as they may provide some measure of benefit to the customer either on their own or together with other resources that are readily available to the customer. However, the Company determined that the promises to its customers do not meet the criterion of being distinct within the context of its contracts. The Company would not be able to fulfill its promises individually, as its customers could not obtain the intended benefit from the contract without the Company fulfilling all promises. Accordingly, the Company concluded that each contract represents one service offering and is a single performance obligation to our customer. Further, the Company accounts for all the services as a single continuous service. The Company applies the series guidance for those services as the nature of the service is to provide a service for a period of time with distinct time increments. The Company recognizes revenue from services over time, as they are performed.

 

b.

Commercial Services Segment: The Commercial Services segment offers toll and violation management solutions for the commercial fleet and rental car industries by partnering with the leading fleet management and rental car companies in North America and Europe. The Company determined its performance obligation is a distinct stand-ready obligation, as there is an unspecified quantity of services provided that does not diminish, and the customer is being charged only when it uses the Company’s services, such as toll payment, title and registration, etc.

11


 

Therefore, all services provided within the Commercial Services segment are accounted for as a single performance obligation, of a series of distinct items, with distinct time increments, as a stand-ready obligation. Payment terms for contracts with commercial fleet and rental car companies vary, but are usually billed as services are performed. Revenue from services provided in the Commercial Services segment is recognized over time as the customer simultaneously receives and consumes the benefits provided by the Company and as the Company performs the services.

Remaining Performance Obligations

As of March 31, 2019, the Company had approximately $0.3 million of remaining performance obligations in the Government Solutions segment, which include amounts that will be invoiced and recognized in future periods. The remaining performance obligations are limited only to arrangements that meet the definition of a contract under ASC 606 as of March 31, 2019. As these amounts relate to the initial deferral of revenue under a contract, the Company expects to recognize these amounts over a two month period at the end of the contract.

The Company applies the practical expedient in paragraph 606-10-50-14A of ASC 606 and does not disclose variable consideration allocated entirely to wholly unsatisfied stand-ready performance obligations for certain Government Solutions and Commercial Services contracts as part of the information about remaining performance obligations. The duration for these contracts ranges between 3 and 5 years for new contracts.

Significant judgments

 

Under the new revenue standard, significant judgments are required in order to identify contracts with customers and estimate transaction prices. Additional judgments are required for the identification of distinct performance obligations, the estimation of standalone selling prices and the allocation of the transaction price by relative standalone selling prices. Assumptions regarding timing of when control transfers to the customer requires significant judgment in order to recognize revenue. The Company makes significant judgments related to identifying the performance obligation and determining whether the services provided are able to be distinct, determining the transaction price, specifically as it is related to the different variable consideration structures identified in the Company’s contracts, and in determining the timing of revenue recognition.

Accounting Standards Not Yet Adopted

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The main objective of this update is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, ASU 2016-01 requires the change in fair value of available for sale securities to be recognized in net income. The pronouncement also requires the use of the exit price notion, the separate presentation of financial assets and liabilities by measurement category and form of asset, and the separate presentation in other comprehensive income of changes in fair value resulting from a change in the instrument-specific credit risk. ASU 2016-01 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The impact of the implementation of this standard is still being determined by the Company.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and issued certain amendments within ASU 2018-01, 2018-10, 2018-11 and ASU 2019-01, respectively and collectively Topic 842 to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company does not plan to early adopt this standard. The impact of the implementation of this standard is still being determined by the Company.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), which requires companies to present assets held at amortized cost and available for sale debt securities net of the amount expected to be collected. The guidance requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectability. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2019 and early adoption is permitted. Different components of the guidance require modified retrospective or prospective adoption. The impact of the implementation of this standard is still being determined by the Company.

12


In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350). ASU 2017-04 simplifies the accounting for goodwill impairment and removes Step 2 of the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting units carrying value exceeds its fair value limited to the total amount of goodwill allocated to that reporting unit. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. The amendments in this ASU are effective for goodwill impairment tests in fiscal years beginning after December 15, 2021. The impact of the implementation of this standard is still being determined by the Company.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. These amendments expand the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. ASU 2018-07 is effective beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. At this time, the Company does not expect this standard to have a material effect on the Company’s financial position, results of operations or cash flows and disclosures.

In August 2018, the FASB issued ASU 2018-13, (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this update and delay adoption of the additional disclosures until their effective date. The impact of the implementation of this standard is still being determined by the Company.

3.

Mergers and Acquisitions

Verra Mobility Merger

As described in Note 1, Gores and Greenlight consummated the Business Combination on October 17, 2018. Pursuant to Business Combinations (Topic 805), the Business Combination qualified as a reverse acquisition because immediately following completion of the transaction the stockholders of Greenlight immediately prior to the Business Combination maintained effective control of Verra Mobility, the post-combination company. For accounting purposes, Greenlight is deemed the accounting acquirer in the transaction and, consequently, the transaction is treated as recapitalization of Greenlight (i.e. a capital transaction involving the issuance of stock by Greenlight in exchange for the payment of cash by Gores to the selling shareholders of Greenlight). Accordingly, the consolidated assets, liabilities and results of operations of Greenlight are the historical financial statements of Verra Mobility and the Gores assets, liabilities and results of operations are consolidated with Greenlight beginning on the acquisition date. No step-up in basis of intangible assets or goodwill was recorded for this transaction. The Company effected this treatment through opening stockholders’ equity by adjusting the number of common shares outstanding. Other than underwriting and professional fees paid to consummate the transaction, the Business Combination primarily involved the exchange of cash and equity between Gores, Greenlight and the stockholders of the respective companies. During the three months ended March 31, 2019, the Company recorded a $6.2 million payable to Platinum, a related party, for the recapitalization related to the working capital adjustment required by the merger agreements. This resulted in a decrease to the additional paid-in capital account for $6.2 million, and a corresponding increase to accrued liabilities.

ATS Merger

On May 31, 2017, ATS was acquired by Parent through the merger of ATS Merger Sub with and into ATS for a total purchase price of $548.2 million ($550.0 million less adjustments set forth in the ATS Merger agreement). The Company recognized approximately $9.9 million of costs related to the ATS Merger, which consisted of $8.0 million of payments for acquisition services to Platinum Equity Advisors, LLC, an affiliate of Platinum (“Advisors”), and $1.9 million of professional fees and other expenses related to the ATS Merger.

13


On May 31, 2017, ATS Merger Sub obtained debt financing pursuant to a credit agreement entered into with a syndicate of lenders. ATS Merger Sub was merged with and into ATS on the same date, effectively making ATS the sole borrower (see Note 7).

HTA Merger

On March 1, 2018, the Company acquired all of the issued and outstanding membership interests of Highway Toll Administration, LLC, and Canada Highway Toll Administration (collectively, “HTA”), pursuant to a unit purchase agreement (“Unit Agreement”) for a cash purchase price of $525.0 million subject to adjustments set forth in the Unit Agreement which aggregated $9.7 million, a $11.3 million payable to the HTA sellers for certain tax items and the issuance of 5.26 shares of Greenlight common stock resulting in an aggregate purchase price of $603.3 million (the “HTA Merger”). The Greenlight shares issued to the Company were determined to have a fair value of $57.3 million. The Company reflected the receipt of the Greenlight common shares as a capital contribution from Parent and then delivered these shares to the HTA sellers as non-cash purchase consideration.

The Company estimated the fair value of the Greenlight common shares issued in connection with this transaction with input from management and a contemporaneous third-party valuation of the Company. Management determined the fair value of Greenlight was the same as the Company as Greenlight’s only holdings were the Company. The valuation advisory firm prepared a valuation report as of March 1, 2018. The assumptions and inputs used in connection with the valuation reflected management’s best estimate of the Company’s business condition, prospects and operating performance on the valuation date.  The Company averaged the results of a discounted cash flow analysis, comparable public company analysis and comparable acquisitions analysis to determine an enterprise value of $2.1 billion. The Company then deducted debt of $1.0 billion to arrive at a concluded equity value of $1.1 billion, which was used to derive a per share value.

 

($ in thousands)

 

 

 

 

Assets acquired

 

 

 

 

Cash

 

$

2,996

 

Accounts receivable

 

 

10,220

 

Prepaid expense and other current assets

 

 

5,266

 

Installation and service parts

 

 

296

 

Property and equipment

 

 

996

 

Customer relationships

 

 

242,500

 

Developed technology

 

 

72,800

 

Non-compete agreements

 

 

48,500

 

Trademark

 

 

5,500

 

Goodwill

 

 

233,271

 

Total assets acquired

 

 

622,345

 

Liabilities assumed

 

 

 

 

Accounts payable and accrued expenses

 

 

14,268

 

Deferred tax liability

 

 

4,733

 

Total liabilities assumed

 

 

19,001

 

Total purchase price

 

$

603,344

 

 

The excess of cost of the HTA Merger over the net amounts assigned to the fair value of the net assets acquired was recorded as goodwill and was assigned to the Company’s Commercial Services segment. The Company made certain immaterial adjustments to the preliminary purchase price allocation resulting in a $1.2 million net reduction to goodwill. The goodwill consists largely of the expected cash flows and future growth anticipated for the Company. Most of the goodwill is expected to be deductible for tax purposes. The customer relationship value was based on an excess earnings methodology utilizing projected cash flows. The non-compete agreement values were based on the with-or-without method. The trademark and the developed technology values were based on a relief from royalty method. The customer relationship, developed technology, non-compete and trademark intangibles were assigned useful lives of 9 years, 5.5 years, 5 years and 3 years, respectively.

14


The Company recognized $15.6 million of costs related to the HTA Merger, which were included in selling, general and administrative expenses in the condensed consolidated statement of operations in the three months ended March 31, 2018.  These costs consisted of $7.2 million for acquisition services to Advisors and $8.4 million of professional fees and other expenses related to the transaction.

EPC Merger

On April 6, 2018, the Company acquired all of the issued and outstanding capital stock of Euro Parking Collection plc (“EPC”), pursuant to a stock purchase agreement for purchase consideration of 5.54 shares of Greenlight common stock and working capital adjustments set forth in the share purchase agreement, which aggregated $2.6 million, resulting in an aggregate purchase price of $62.9 million (the “EPC Merger”). The Company reflected the receipt of the Greenlight II common shares as a capital contribution from Parent and then delivered these shares to the EPC sellers as non-cash purchase consideration.

The Company estimated the fair value of the Greenlight common shares issued in connection with this transaction with input from management and a contemporaneous third-party valuation of the Company.

Management determined the fair value of Greenlight was the same as the Company as Greenlight’s only holdings were the Company. The valuation advisory firm prepared a valuation report as of March 1, 2018. The assumptions and inputs used in connection with the valuation reflected management’s best estimate of the Company’s business condition, prospects and operating performance on the valuation date. The Company averaged the results of a discounted cash flow analysis, comparable public company analysis and comparable acquisitions analysis to determine an enterprise value of $2.1 billion. The Company then deducted debt of $1.0 billion to arrive at a concluded equity value of $1.1 billion, which was used to derive a per share value.

The allocation of the purchase consideration is summarized as follows:

 

($ in thousands)

 

 

 

 

Assets acquired

 

 

 

 

Cash

 

$

9,029

 

Other assets

 

 

1,948

 

Trademark

 

 

1,100

 

Customer relationships

 

 

19,400

 

Developed technology

 

 

3,900

 

Goodwill

 

 

40,826

 

Total assets acquired

 

 

76,203

 

Liabilities assumed

 

 

 

 

Accounts payable and accrued expenses

 

 

8,995

 

Deferred tax liability

 

 

4,273

 

Total liabilities assumed

 

 

13,268

 

Total purchase price

 

$

62,935

 

 

Goodwill arising from the EPC Merger was assigned to the Company’s Commercial Services segment and consists largely of the expected cash flows and future growth anticipated for the Company. The goodwill is not expected to be deductible for tax purposes. The customer relationship value was based on an excess earnings methodology utilizing projected cash flows. The trademark and the developed technology values were based on a relief from royalty method. The customer relationship, trademark, and developed technology intangibles were preliminarily assigned useful lives of 10 years, 5 years and 4.5 years, respectively.

The Company recognized $3.0 million of costs related to the EPC Merger in the three months ended June 30, 2018, which consisted of $2.5 million for acquisition services to Advisors and $0.5 million of professional fees and other expenses.

15


Pro Forma Financial Information

The pro forma information below gives effect to the Merger, the HTA Merger and the EPC Merger (collectively, the “Transactions”) as if they had been completed on the first day of the period presented. The pro forma results of operations are presented for information purposes only. As such, they are not necessarily indicative of the Company’s results had the Transactions been completed on the first day of the period presented, nor do they intend to represent the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisitions and does not reflect additional revenue opportunities following the Transactions. The pro forma information includes adjustments to record the assets and liabilities associated with the Transactions at their respective fair values based on available information and to give effect to the financing for the Transactions.

 

 

 

Three Months Ended

 

($ in thousands)

 

March 31, 2018

 

Revenue

 

$

88,462

 

Loss from operations

 

 

(2,201

)

Net loss before income tax benefit

 

 

(14,774

)

Net loss

 

 

(11,752

)

Loss per share - basic

 

$

(0.19

)

 

The pro forma results include adjustments to reflect additional amortization of intangibles associated with the acquired businesses and additional interest expense for debt issued in connection with the HTA Merger.

4.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets, consist of the following at:

 

($ in thousands)

 

March 31,

2019

 

 

December 31,

2018

 

Prepaid income taxes

 

$

248

 

 

$

1,562

 

Prepaid services

 

 

3,584

 

 

 

3,017

 

Prepaid tolls

 

 

10,375

 

 

 

8,434

 

Prepaid computer maintenance

 

 

2,515

 

 

 

1,709

 

Prepaid insurance

 

 

897

 

 

 

1,230

 

Deposits

 

 

873

 

 

 

839

 

Prepaid rent

 

 

490

 

 

 

406

 

Other

 

 

30

 

 

 

403

 

Total prepaid expenses and other current assets

 

$

19,012

 

 

$

17,600

 

 

5.

Goodwill and Intangible Assets

The following table presents the changes in the carrying amount of goodwill by reportable segment:

 

 

 

Government

 

 

Commercial

 

 

 

 

 

($ in thousands)

 

Solutions

 

 

Services

 

 

Total

 

Balance at December 31, 2018

 

$

159,746

 

 

$

404,977

 

 

$

564,723

 

Foreign currency translation adjustment

 

 

 

 

 

873

 

 

 

873

 

Balance at March 31, 2019

 

$

159,746

 

 

$

405,850

 

 

$

565,596

 

 

16


Intangible assets consist of the following as of the respective period ends:

 

 

 

March 31, 2019

 

 

December 31, 2018

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Average

 

Gross

 

 

 

 

 

 

Average

 

Gross

 

 

 

 

 

 

 

Remaining

 

Carrying

 

 

Accumulated

 

 

Remaining

 

Carrying

 

 

Accumulated

 

($ in thousands)

 

Useful Life

 

Amount

 

 

Amortization

 

 

Useful Life

 

Amount

 

 

Amortization

 

Trademarks

 

2.4 years

 

$

31,324

 

 

$

11,448

 

 

2.7 years

 

$

31,302

 

 

$

8,902

 

Non-compete agreements

 

3.8 years

 

 

62,100

 

 

 

15,495

 

 

4.0 years

 

 

62,100

 

 

 

12,390

 

Customer relationships

 

7.6 years

 

 

360,158

 

 

 

52,349

 

 

7.9 years

 

 

359,768

 

 

 

42,201

 

Developed technology

 

4.0 years

 

 

160,930

 

 

 

43,367

 

 

4.3 years

 

 

160,852

 

 

 

35,987

 

Gross carrying value of intangible assets

 

 

 

 

614,512

 

 

$

122,659

 

 

 

 

 

614,022

 

 

$

99,480

 

Less: accumulated amortization

 

 

 

 

(122,659

)

 

 

 

 

 

 

 

 

(99,480

)

 

 

 

 

Intangible assets, net

 

 

 

$

491,853

 

 

 

 

 

 

 

 

$

514,542

 

 

 

 

 

 

The amortization expense was $23.1 million and $12.3 million for the three months ended March 31, 2019 and 2018, respectively.

 

Estimated amortization expense in future years is expected to be:

 

($ in thousands)

 

 

 

 

Remainder of 2019

 

$

69,159

 

2020

 

 

92,290

 

2021

 

 

83,998

 

2022

 

 

79,274

 

2023

 

 

50,813

 

2024

 

 

40,321

 

Thereafter

 

 

75,998

 

Total

 

$

491,853

 

 

6.

Accrued Liabilities

Accrued liabilities consist of the following at:

 

($ in thousands)

 

March 31,

2019

 

 

December 31,

2018

 

Accrued salaries and wages

 

$

7,194

 

 

$

8,340

 

Restricted cash due to customers

 

 

1,704

 

 

 

2,033

 

Income taxes payable

 

 

6,002

 

 

 

862

 

Accrued interest payable

 

 

542

 

 

 

232

 

Advanced deposits payable

 

 

6,334

 

 

 

805

 

Gores equity infusion working capital adjustment payable to related party

 

 

6,205

 

 

 

 

Current portion of related party TRA liability

 

 

959

 

 

 

 

Deferred rent

 

 

477

 

 

 

523

 

Accrued sales commissions

 

 

387

 

 

 

463

 

Other

 

 

644

 

 

 

1,186

 

Total accrued liabilities

 

$

30,448

 

 

$

14,444

 

17


 

7.

Debt

The following table provides a summary of the Company’s long-term debt at:

 

($ in thousands)

 

March 31,

2019

 

 

December 31,

2018

 

First lien term loan, due February 28, 2025

 

$

901,248

 

 

$

903,524

 

Less: original issue discounts

 

 

(5,534

)

 

 

(5,819

)

Less: unamortized deferred financing costs

 

 

(26,842

)