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 June 30, 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 August 1, 2019, there were 158,609,946 shares of the Company’s Class A common stock, par value $0.0001 per share, issued and outstanding.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2019
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
VERRA MOBILITY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
($ in thousands except per share data) |
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
92,247 |
|
|
$ |
65,048 |
|
Restricted cash |
|
|
1,743 |
|
|
|
2,033 |
|
Accounts receivable, net |
|
|
106,261 |
|
|
|
87,511 |
|
Unbilled receivables |
|
|
13,571 |
|
|
|
12,956 |
|
Prepaid expenses and other current assets |
|
|
21,646 |
|
|
|
17,600 |
|
Total current assets |
|
|
235,468 |
|
|
|
185,148 |
|
Installation and service parts, net |
|
|
10,028 |
|
|
|
9,282 |
|
Property and equipment, net |
|
|
65,907 |
|
|
|
69,243 |
|
Intangible assets, net |
|
|
468,213 |
|
|
|
514,542 |
|
Goodwill |
|
|
564,638 |
|
|
|
564,723 |
|
Other non-current assets |
|
|
2,197 |
|
|
|
1,845 |
|
Total assets |
|
$ |
1,346,451 |
|
|
$ |
1,344,783 |
|
Liabilities and stockholders' equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
49,318 |
|
|
$ |
45,188 |
|
Accrued liabilities |
|
|
20,295 |
|
|
|
14,444 |
|
Current portion of long-term debt |
|
|
9,104 |
|
|
|
9,104 |
|
Total current liabilities |
|
|
78,717 |
|
|
|
68,736 |
|
Long-term debt, net of current portion and deferred financing costs |
|
|
859,133 |
|
|
|
860,249 |
|
Other long-term liabilities |
|
|
3,764 |
|
|
|
3,369 |
|
Payable related to tax receivable agreement |
|
|
66,097 |
|
|
|
69,996 |
|
Asset retirement obligation |
|
|
6,873 |
|
|
|
6,750 |
|
Deferred tax liabilities |
|
|
22,039 |
|
|
|
33,627 |
|
Total liabilities |
|
|
1,036,623 |
|
|
|
1,042,727 |
|
Commitments and Contingencies (Note 14) |
|
|
|
|
|
|
|
|
Stockholders' equity |
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value |
|
|
— |
|
|
|
— |
|
Common stock, $.0001 par value |
|
|
16 |
|
|
|
16 |
|
Common stock contingent consideration |
|
|
54,862 |
|
|
|
73,150 |
|
Additional paid-in capital |
|
|
367,995 |
|
|
|
348,017 |
|
Accumulated deficit |
|
|
(107,152 |
) |
|
|
(113,306 |
) |
Accumulated other comprehensive loss |
|
|
(5,893 |
) |
|
|
(5,821 |
) |
Total stockholders' equity |
|
|
309,828 |
|
|
|
302,056 |
|
Total liabilities and stockholders' equity |
|
$ |
1,346,451 |
|
|
$ |
1,344,783 |
|
See accompanying notes to the Condensed Consolidated Financial Statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(In thousands, except per share data) |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Service revenue |
|
$ |
103,057 |
|
|
$ |
97,044 |
|
|
$ |
201,127 |
|
|
$ |
166,050 |
|
Product sales |
|
|
6,518 |
|
|
|
1,153 |
|
|
|
6,909 |
|
|
|
1,388 |
|
Total revenue |
|
|
109,575 |
|
|
|
98,197 |
|
|
|
208,036 |
|
|
|
167,438 |
|
Cost of service revenue |
|
|
1,613 |
|
|
|
1,651 |
|
|
|
3,002 |
|
|
|
2,482 |
|
Cost of product sales |
|
|
2,918 |
|
|
|
878 |
|
|
|
3,194 |
|
|
|
1,050 |
|
Operating expenses |
|
|
31,795 |
|
|
|
28,800 |
|
|
|
61,133 |
|
|
|
52,481 |
|
Selling, general and administrative expenses |
|
|
20,865 |
|
|
|
27,588 |
|
|
|
41,416 |
|
|
|
60,864 |
|
Depreciation, amortization and (gain) loss on disposal of assets, net |
|
|
28,850 |
|
|
|
27,496 |
|
|
|
57,791 |
|
|
|
46,040 |
|
Impairment of property and equipment |
|
|
5,898 |
|
|
|
— |
|
|
|
5,898 |
|
|
|
— |
|
Total costs and expenses |
|
|
91,939 |
|
|
|
86,413 |
|
|
|
172,434 |
|
|
|
162,917 |
|
Income from operations |
|
|
17,636 |
|
|
|
11,784 |
|
|
|
35,602 |
|
|
|
4,521 |
|
Interest expense, net |
|
|
15,656 |
|
|
|
19,579 |
|
|
|
31,689 |
|
|
|
32,226 |
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,151 |
|
Other income, net |
|
|
(3,345 |
) |
|
|
(2,766 |
) |
|
|
(5,552 |
) |
|
|
(4,059 |
) |
Total other expenses |
|
|
12,311 |
|
|
|
16,813 |
|
|
|
26,137 |
|
|
|
38,318 |
|
Income (loss) before income tax provision (benefit) |
|
|
5,325 |
|
|
|
(5,029 |
) |
|
|
9,465 |
|
|
|
(33,797 |
) |
Income tax provision (benefit) |
|
|
1,734 |
|
|
|
(234 |
) |
|
|
3,054 |
|
|
|
(6,844 |
) |
Net income (loss) |
|
$ |
3,591 |
|
|
$ |
(4,795 |
) |
|
$ |
6,411 |
|
|
$ |
(26,953 |
) |
Other comprehensive income (loss): |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(1,396 |
) |
|
|
(3,712 |
) |
|
|
(72 |
) |
|
|
(3,712 |
) |
Total comprehensive income (loss) |
|
$ |
2,195 |
|
|
$ |
(8,507 |
) |
|
$ |
6,339 |
|
|
$ |
(30,665 |
) |
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
157,846 |
|
|
|
72,484 |
|
|
|
156,956 |
|
|
|
67,520 |
|
Basic earnings (loss) per share |
|
$ |
0.02 |
|
|
$ |
(0.07 |
) |
|
$ |
0.04 |
|
|
$ |
(0.40 |
) |
Diluted weighted average shares outstanding |
|
|
161,977 |
|
|
|
72,484 |
|
|
|
159,223 |
|
|
|
67,520 |
|
Diluted earnings (loss) per share |
|
$ |
0.02 |
|
|
$ |
(0.07 |
) |
|
$ |
0.04 |
|
|
$ |
(0.40 |
) |
See accompanying notes to the Condensed Consolidated Financial Statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three and Six Months Ended June 30, 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 as of 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 income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,324 |
|
|
|
1,324 |
|
Balance as of March 31, 2019 |
|
|
156,057 |
|
|
|
16 |
|
|
|
73,150 |
|
|
|
346,895 |
|
|
|
(110,743 |
) |
|
|
(4,497 |
) |
|
|
304,821 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,591 |
|
|
|
— |
|
|
|
3,591 |
|
Earn-out shares issued to Platinum Stockholder |
|
|
2,500 |
|
|
|
— |
|
|
|
(18,288 |
) |
|
|
18,288 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Vesting of restricted stock units |
|
|
53 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,812 |
|
|
|
— |
|
|
|
— |
|
|
|
2,812 |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,396 |
) |
|
|
(1,396 |
) |
Balance as of June 30, 2019 |
|
|
158,610 |
|
|
$ |
16 |
|
|
$ |
54,862 |
|
|
$ |
367,995 |
|
|
$ |
(107,152 |
) |
|
$ |
(5,893 |
) |
|
$ |
309,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three and Six Months Ended June 30, 2018 |
|
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of 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 as of March 31, 2018 |
|
|
66,535 |
|
|
|
7 |
|
|
|
— |
|
|
|
186,290 |
|
|
|
(3,920 |
) |
|
|
— |
|
|
|
182,377 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,795 |
) |
|
|
— |
|
|
|
(4,795 |
) |
Stock issued in exchange for EPC acquisition |
|
|
6,369 |
|
|
|
1 |
|
|
|
— |
|
|
|
60,284 |
|
|
|
— |
|
|
|
— |
|
|
|
60,285 |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,712 |
) |
|
|
(3,712 |
) |
Balance as of June 30, 2018 |
|
|
72,904 |
|
|
$ |
8 |
|
|
$ |
— |
|
|
$ |
246,574 |
|
|
$ |
(8,715 |
) |
|
$ |
(3,712 |
) |
|
$ |
234,155 |
|
See accompanying notes to the Condensed Consolidated Financial Statements.
6
condensed consolidated Statements of Cash Flows
(Unaudited)
|
|
Six Months Ended June 30, |
|
|||||
($ in thousands) |
|
2019 |
|
|
2018 |
|
||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
6,411 |
|
|
$ |
(26,953 |
) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
57,804 |
|
|
|
46,047 |
|
Amortization of deferred financing costs and discounts |
|
|
3,589 |
|
|
|
4,215 |
|
Impairment of property and equipment |
|
|
5,898 |
|
|
|
— |
|
Bad debt expense |
|
|
2,736 |
|
|
|
2,437 |
|
Deferred income taxes |
|
|
(11,568 |
) |
|
|
(10,949 |
) |
Stock-based compensation |
|
|
4,955 |
|
|
|
— |
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
10,151 |
|
Installation and service parts expense |
|
|
643 |
|
|
|
244 |
|
Accretion expense |
|
|
183 |
|
|
|
194 |
|
Write-downs of installation and service parts and (gain) on disposal of assets |
|
|
(13 |
) |
|
|
(7 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(21,433 |
) |
|
|
(3,490 |
) |
Unbilled receivables |
|
|
(616 |
) |
|
|
(8,017 |
) |
Prepaid expense and other current assets |
|
|
(3,848 |
) |
|
|
(428 |
) |
Other assets |
|
|
(351 |
) |
|
|
(715 |
) |
Accounts payable and accrued liabilities |
|
|
5,224 |
|
|
|
(467 |
) |
Other liabilities |
|
|
(3,833 |
) |
|
|
272 |
|
Net cash provided by operating activities |
|
|
45,781 |
|
|
|
12,534 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Acquisition of businesses, net of cash and restricted cash acquired |
|
|
— |
|
|
|
(525,362 |
) |
Purchases of installation and service parts and property and equipment |
|
|
(14,192 |
) |
|
|
(11,109 |
) |
Cash proceeds from the sale of assets and insurance recoveries |
|
|
14 |
|
|
|
3 |
|
Net cash used in investing activities |
|
|
(14,178 |
) |
|
|
(536,468 |
) |
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 |
|
|
(4,552 |
) |
|
|
(450,475 |
) |
Payment of debt issuance costs |
|
|
(152 |
) |
|
|
(29,512 |
) |
Payment of debt extinguishment costs |
|
|
— |
|
|
|
(8,187 |
) |
Net cash (used in) provided by financing activities |
|
|
(4,704 |
) |
|
|
545,626 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
10 |
|
|
|
(507 |
) |
Net increase in cash, cash equivalents and restricted cash |
|
|
26,909 |
|
|
|
21,185 |
|
Cash, cash equivalents and restricted cash - beginning of period |
|
|
67,081 |
|
|
|
10,509 |
|
Cash, cash equivalents and restricted cash - end of period |
|
$ |
93,990 |
|
|
$ |
31,694 |
|
See accompanying notes to the Condensed Consolidated Financial Statements.
7
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
28,144 |
|
|
$ |
27,846 |
|
Income taxes paid, net |
|
|
15,448 |
|
|
|
849 |
|
Supplemental non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Reduction to tax receivable agreement liability |
|
|
2,940 |
|
|
|
— |
|
Gores equity infusion working capital adjustment payable to related party |
|
|
6,205 |
|
|
|
— |
|
Earn-out shares issued to Platinum Stockholder |
|
|
18,288 |
|
|
|
— |
|
Additions to ARO, property and equipment, and other |
|
|
143 |
|
|
|
— |
|
Purchases of installation and service parts and property and equipment in accounts payable and accrued liabilities at period-end |
|
|
4,269 |
|
|
|
3,413 |
|
Capital contributions received in Parent common stock |
|
|
— |
|
|
|
117,556 |
|
Payable to HTA sellers in connection with business acquisition |
|
|
— |
|
|
|
12,056 |
|
See accompanying notes to the Condensed Consolidated Financial Statements.
8
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, 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 merged with and into ATS 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: Commercial Services and Government Solutions (See Note 15).
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.
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, counties, school districts and law enforcement agencies of all sizes.
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 sheets as of June 30, 2019 and 2018, respectively, that sums to the total of such amounts in the condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018, respectively:
($ in thousands) |
|
June 30, 2019 |
|
|
June 30, 2018 |
|
||
Cash and cash equivalents |
|
$ |
92,247 |
|
|
$ |
29,777 |
|
Restricted cash |
|
|
1,743 |
|
|
|
1,917 |
|
Cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows |
|
$ |
93,990 |
|
|
$ |
31,694 |
|
10
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”).
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) |
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. 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. |
|
b) |
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. |
11
Remaining Performance Obligations
As of June 30, 2019, the Company had approximately $0.2 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 June 30, 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, and issued an amendment within ASU 2019-04, collectively Topic 825. The main objective of the updates 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, and it is not expected to be material to the consolidated financial statements.
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.
12
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), and issued certain amendments within ASU 2019-04 and ASU 2019-05, respectively and collectively Topic 326, which require 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.
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 unit’s 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. 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. The Company does not plan to early adopt the standard. The impact of the implementation of this standard is still being determined by the Company, and it is not expected to be material to the consolidated financial statements.
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 six months ended June 30, 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.
13
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.
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 8).
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 $1.1 billion, which was used to derive a per share value.
The final allocation of the purchase consideration is summarized as follows:
($ 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
14
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.
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 six months ended June 30, 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 stock 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 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 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 $0.5 million of professional fees and other expenses.
15
Pro Forma Financial Information
The pro forma information below gives effect to the Merger, the HTA Merger and the EPC Merger (collectively, the “Transactions”) as if they had been completed on the first day of the period presented. The pro forma results of operations are presented for information purposes only. As such, they are not necessarily indicative of the Company’s results had the Transactions been completed on the first day of the period presented, nor do they intend to represent the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisitions and does not reflect additional revenue opportunities following the Transactions. The pro forma information includes adjustments to record the assets and liabilities associated with the Transactions at their respective fair values based on available information and to give effect to the financing for the Transactions.
|
|
Six Months Ended |
|
|
($ in thousands) |
|
June 30, 2018 |
|
|
Revenue |
|
$ |
186,659 |
|
Income from operations |
|
|
24,349 |
|
Net loss before income tax |
|
|
(332 |
) |
Net loss |
|
|
(2,138 |
) |
Loss per share - basic |
|
$ |
(0.03 |
) |
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) |
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||
Prepaid income taxes |
|
$ |
2,466 |
|
|
$ |
1,562 |
|
Prepaid services |
|
|
4,277 |
|
|
|
3,017 |
|
Prepaid tolls |
|
|
9,878 |
|
|
|
8,434 |
|
Prepaid computer maintenance |
|
|
2,556 |
|
|
|
1,709 |
|
Prepaid insurance |
|
|
443 |
|
|
|
1,230 |
|
Deposits |
|
|
1,331 |
|
|
|
839 |
|
Prepaid rent |
|
|
490 |
|
|
|
406 |
|
Other |
|
|
205 |
|
|
|
403 |
|
Total prepaid expenses and other current assets |