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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, 2020

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)

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

 

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 definitions 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

As of May 6, 2020, there were 161,694,330 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, 2020

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

 

5

Condensed Consolidated Statements of Stockholders’ Equity

 

6

Condensed Consolidated Statements of Cash Flows

 

7

Notes to the Condensed Consolidated Financial Statements

 

9

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

 

25

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4. Controls and Procedures

 

32

PART II—OTHER INFORMATION

 

33

Item 1. Legal Proceedings

 

33

Item 1A. Risk Factors

 

33

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

 

34

Item 3. Defaults Upon Senior Securities

 

34

Item 4. Mine Safety Disclosures

 

34

Item 5. Other Information

 

34

Item 6. Exhibits

 

35

SIGNATURES

 

37

 

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, and the negative of these 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 Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q and in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2019. 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.

Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements include, among other things:

 

disruption to our business and results of operations as a result of the COVID-19 pandemic;

 

the impact of the COVID-19 pandemic on our revenues from key customers in the rental car industry and from photo enforcement programs;

 

customer concentration in our Commercial Services and Government Solutions segments;

 

decreases in the prevalence of automated and other similar methods of photo enforcement or the use of tolling;

 

risks and uncertainties related to our government contracts, including termination rights, audits and investigations;

 

decreased interest in outsourcing from our customers;

 

our ability to properly perform under our contracts and otherwise satisfy our customers;

 

our ability to compete in a highly competitive and rapidly evolving market;

 

our ability to keep up with technological developments and changing customer preferences;

 

the success of our new products and changes to existing products and services;

 

our ability to successfully integrate our recent or future acquisitions; and

 

failures in or breaches of our networks or systems, including as a result of cyber-attacks.

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

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,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

113,583

 

 

$

131,513

 

Restricted cash

 

 

1,510

 

 

 

917

 

Accounts receivable (net of allowance for credit loss

of $10.8 million at March 31, 2020)

 

 

109,839

 

 

 

93,514

 

Unbilled receivables

 

 

16,358

 

 

 

20,003

 

Prepaid expenses and other current assets

 

 

24,616

 

 

 

26,491

 

Total current assets

 

 

265,906

 

 

 

272,438

 

Installation and service parts, net

 

 

8,022

 

 

 

8,841

 

Property and equipment, net

 

 

73,631

 

 

 

72,266

 

Operating lease assets

 

 

31,789

 

 

 

32,177

 

Intangible assets, net

 

 

409,957

 

 

 

434,443

 

Goodwill

 

 

581,730

 

 

 

584,150

 

Other non-current assets

 

 

3,094

 

 

 

3,111

 

Total assets

 

$

1,374,129

 

 

$

1,407,426

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

39,198

 

 

$

50,825

 

Accrued liabilities

 

 

23,701

 

 

 

25,277

 

Current portion of long-term debt

 

 

9,104

 

 

 

28,779

 

Total current liabilities

 

 

72,003

 

 

 

104,881

 

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

 

 

835,507

 

 

 

837,686

 

Operating lease liabilities, net of current portion

 

 

29,917

 

 

 

30,130

 

Payable to related party pursuant to tax receivable agreement

 

 

61,174

 

 

 

61,174

 

Asset retirement obligation

 

 

6,387

 

 

 

6,309

 

Deferred tax liabilities, net

 

 

24,472

 

 

 

25,716

 

Other long-term liabilities

 

 

269

 

 

 

2,183

 

Total liabilities

 

 

1,029,729

 

 

 

1,068,079

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

 

Preferred stock, $.0001 par value

 

 

 

 

 

 

Common stock, $.0001 par value

 

 

16

 

 

 

16

 

Common stock contingent consideration

 

 

36,575

 

 

 

54,862

 

Additional paid-in capital

 

 

387,994

 

 

 

367,266

 

Accumulated deficit

 

 

(74,241

)

 

 

(80,220

)

Accumulated other comprehensive loss

 

 

(5,944

)

 

 

(2,577

)

Total stockholders' equity

 

 

344,400

 

 

 

339,347

 

Total liabilities and stockholders' equity

 

$

1,374,129

 

 

$

1,407,426

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

4


VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended March 31,

 

(In thousands, except per share data)

 

2020

 

 

2019

 

Service revenue

 

$

99,497

 

 

$

98,070

 

Product sales

 

 

17,216

 

 

 

391

 

Total revenue

 

 

116,713

 

 

 

98,461

 

Cost of service revenue

 

 

1,219

 

 

 

1,389

 

Cost of product sales

 

 

8,690

 

 

 

276

 

Operating expenses

 

 

32,259

 

 

 

29,338

 

Selling, general and administrative expenses

 

 

25,886

 

 

 

20,551

 

Depreciation, amortization and (gain) loss on disposal of assets, net

 

 

29,246

 

 

 

28,941

 

Total costs and expenses

 

 

97,300

 

 

 

80,495

 

Income from operations

 

 

19,413

 

 

 

17,966

 

Interest expense, net

 

 

12,451

 

 

 

16,033

 

Other income, net

 

 

(2,925

)

 

 

(2,207

)

Total other expenses

 

 

9,526

 

 

 

13,826

 

Income before income tax provision

 

 

9,887

 

 

 

4,140

 

Income tax provision

 

 

3,214

 

 

 

1,320

 

Net income

 

$

6,673

 

 

$

2,820

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

(3,367

)

 

 

1,324

 

Total comprehensive income

 

$

3,306

 

 

$

4,144

 

Net income per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.04

 

 

$

0.02

 

Diluted

 

$

0.04

 

 

$

0.02

 

Weighted average shares used in per share calculation:

 

 

 

 

 

 

 

 

Basic outstanding

 

 

160,924

 

 

 

156,057

 

Diluted outstanding

 

 

164,427

 

 

 

156,458

 

 

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, 2020

 

 

 

Common

Stock

 

 

Common

Stock

Contingent

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders'

 

(In thousands)

 

Shares

 

 

Amount

 

 

Consideration

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance as of December 31, 2019

 

 

159,150

 

 

$

16

 

 

$

54,862

 

 

$

367,266

 

 

$

(80,220

)

 

$

(2,577

)

 

$

339,347

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,673

 

 

 

 

 

 

6,673

 

Cumulative effect of adoption of the CECL accounting standard, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(694

)

 

 

 

 

 

(694

)

Earn-out shares issued to Platinum Stockholder

 

 

2,500

 

 

 

 

 

 

(18,287

)

 

 

18,287

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock units ("RSUs")

 

 

42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment of employee tax withholding related to RSU vesting

 

 

 

 

 

 

 

 

 

 

 

(327

)

 

 

 

 

 

 

 

 

(327

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

2,768

 

 

 

 

 

 

 

 

 

2,768

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,367

)

 

 

(3,367

)

Balance as of March 31, 2020

 

 

161,692

 

 

$

16

 

 

$

36,575

 

 

$

387,994

 

 

$

(74,241

)

 

$

(5,944

)

 

$

344,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 the new revenue 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 gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,324

 

 

 

1,324

 

Balance as of March 31, 2019

 

 

156,057

 

 

$

16

 

 

$

73,150

 

 

$

346,895

 

 

$

(110,743

)

 

$

(4,497

)

 

$

304,821

 

 

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)

 

2020

 

 

2019

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

6,673

 

 

$

2,820

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

29,250

 

 

 

28,939

 

Amortization of deferred financing costs and discounts

 

 

903

 

 

 

1,833

 

Credit loss expense

 

 

5,356

 

 

 

1,270

 

Deferred income taxes

 

 

(682

)

 

 

(1,073

)

Stock-based compensation

 

 

2,768

 

 

 

2,143

 

Installation and service parts expense

 

 

393

 

 

 

257

 

Accretion expense

 

 

64

 

 

 

90

 

(Gain) loss on disposal of assets

 

 

(4

)

 

 

2

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(22,397

)

 

 

(8,372

)

Unbilled receivables

 

 

3,648

 

 

 

(3,797

)

Prepaid expenses and other current assets

 

 

2,367

 

 

 

(1,527

)

Accounts payable and accrued liabilities

 

 

(11,363

)

 

 

18,413

 

Other liabilities

 

 

(2,135

)

 

 

(3,647

)

Net cash provided by operating activities

 

 

14,841

 

 

 

37,351

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Purchases of installation and service parts and property and equipment

 

 

(8,141

)

 

 

(9,219

)

Cash proceeds from the sale of assets

 

 

10

 

 

 

52

 

Net cash used in investing activities

 

 

(8,131

)

 

 

(9,167

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Repayment of long-term debt

 

 

(21,951

)

 

 

(2,276

)

Payment of debt issuance costs

 

 

(806

)

 

 

(37

)

Payment of employee tax withholding related to RSU vesting

 

 

(327

)

 

 

 

Net cash used in financing activities

 

 

(23,084

)

 

 

(2,313

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(963

)

 

 

236

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(17,337

)

 

 

26,107

 

Cash, cash equivalents and restricted cash - beginning of period

 

 

132,430

 

 

 

67,081

 

Cash, cash equivalents and restricted cash - end of period

 

$

115,093

 

 

$

93,188

 

 

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,

 

 

 

2020

 

 

2019

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

11,822

 

 

$

13,890

 

Income taxes paid (refunded), net

 

 

319

 

 

 

(4,710

)

Supplemental non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Reduction to tax receivable agreement liability

 

 

 

 

 

2,940

 

Earn-out shares issued to Platinum Stockholder

 

 

18,287

 

 

 

 

Additions to ARO, property and equipment, and other

 

 

22

 

 

 

28

 

Purchases of installation and service parts and property and equipment in accounts payable and accrued liabilities at period-end

 

 

4,586

 

 

 

4,084

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

8


VERRA MOBILITY CORPORATION

Notes to the CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.

Description of Business

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 entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Greenlight Holding II Corporation, PE Greenlight Holdings, LLC, AM Merger Sub I, Inc., a direct, wholly-owned subsidiary of Gores and AM Merger Sub II, LLC, a direct, wholly-owned subsidiary of Gores. On October 17, 2018, the transactions contemplated by the Merger Agreement (the “Business Combination”) were consummated. In connection with the closing of the Business Combination, Gores changed its name to Verra Mobility Corporation. 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.

Verra Mobility offers integrated technology solutions and services to commercial fleets, rental car companies and state and local governments. The Company has customers located throughout the United States, Canada and Europe. The Company is organized into two operating segments: Commercial Services and Government Solutions (see Note 15).

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. Electronic toll payment services enable fleet drivers and rental car customers to use high-speed cashless toll lanes or all-electronic cashless 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. In Europe, the Company provides violations processing through Euro Parking Collection plc (“EPC”) and tolling services through Pagatelia S.L (“Pagatelia”).

The Government Solutions segment 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 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 credit loss, valuation allowances on deferred tax assets, asset retirement obligations, contingent consideration and the recognition and measurement of loss contingencies.

9


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 January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 is now 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 Company adopted the ASU as of January 1, 2020 and followed the one-step method in evaluating potential goodwill impairment for the first quarter of fiscal 2020, refer to Note 6, Goodwill and Intangible Assets. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related disclosures.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), and issued certain amendments within ASU 2019-04, ASU 2019-05 and ASU 2019-11, respectively. The guidance replaced the incurred loss impairment model and applies a new model, current expected credit losses (“CECL”), that requires entities to estimate expected credit losses measured over the contractual life of an instrument that consider supportable forecasts of future economic conditions in addition to information about past events and current conditions. An entity is required to measure and record an allowance for credit loss upon initial recognition of a financial asset, and present in-scope assets at amortized cost net of the amount expected to be collected. Under legacy GAAP, the Company recognized credit losses on trade receivables when it was probable that a loss has been incurred.

 

The Company adopted the CECL standard as of January 1, 2020 through a cumulative effect adjustment of $0.7 million, net of tax, to the opening balance of Accumulated deficit. The adjustment increased Accumulated deficit and increased the Allowance for credit loss accounts. Subsequent impacts to the Allowance for credit loss have been recorded through the Credit loss expense account included within Selling, general and administrative expenses in our condensed consolidated statements of operations and as an Allowance for credit loss on our condensed consolidated balance sheet. See Note 4. Accounts Receivable, Net for additional information.

Accounting Standards Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU removes specific exceptions to the general principles in Topic 740 in U.S. GAAP including the exception to the incremental approach for intra-period tax allocation, exceptions to accounting for basis differences when there are ownership changes in foreign investments, and the exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also simplifies current guidance in relation to franchise taxes that are partially based on income, transactions with a government that result in a step-up in tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted. The impact of the implementation of this standard is still being determined by the Company.

On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. It provides optional expedients and exceptions for applying GAAP to contract modifications, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is in effect for a limited time through December 31, 2022, to help stakeholders during the global market-wide reference rate transition period. The impact of the implementation of this standard is still being determined by the Company.

10


3.

Acquisition

Pagatelia Acquisition

 

On October 31, 2019, the Company completed the acquisition of all of the outstanding shares of Pagatelia S.L., (“Pagatelia”), a Spanish limited liability company that provides electronic consumer tolling and parking solutions in Spain, Portugal, France and Italy. The purchase consideration for Pagatelia was $26.6 million. Transaction costs were not material.

The allocation of the preliminary purchase consideration is summarized as follows:

 

($ in thousands)

 

 

 

 

Assets acquired

 

 

 

 

Cash

 

$

1,086

 

Other assets

 

 

5,047

 

Trademark

 

 

771

 

Customer relationships

 

 

5,946

 

Developed technology

 

 

4,624

 

Non-compete agreements

 

 

440

 

Goodwill

 

 

17,528

 

Total assets acquired

 

 

35,442

 

 

 

 

 

 

Liabilities assumed

 

 

 

 

Accounts payable and accrued expenses

 

 

6,045

 

Deferred tax liability

 

 

2,801

 

Total liabilities assumed

 

 

8,846

 

Total purchase price

 

$

26,596

 

 

Goodwill arising from Pagatelia 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 relationships 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 non-compete agreement values were based on the with-or-without method. The trademark, customer relationships, developed technology and non-compete agreements were assigned useful lives of 8.5 years, 9.5 years, 6.5 years and 3 years, respectively.  

 

The Company did not provide pro forma financial information for Pagatelia as it was not material.

 

4.

Accounts Receivable, Net

 

Accounts receivable are uncollateralized customer obligations due from the sale of products or services. Accounts receivable have normal trade terms less than one year and are initially stated at the amounts billed to the customers. Accounts receivable are subsequently measured at amortized cost net of allowance for credit loss. As part of its analysis for implementation of the CECL standard, the Company reviewed historical loss rates, customer payment trends and collection rates on customer balances. Estimated loss rates were developed using historical credit loss experience, which were adjusted based on a range of likelihood increases to reflect management’s expectations of current and future conditions as of the balance sheet date. Receivables are written off against the allowance for credit loss when it is probable that amounts will not be collected based on terms of the customer contracts, and subsequent recoveries will be credited to earnings in the period recovered. The Company will periodically evaluate the adequacy of its allowance for expected credit loss by comparing its actual historical write-offs to its previously recorded estimates.

 

11


The Company identified portfolio segments based on type of business, industry in which the customer operates and historical credit loss patterns. The following presents by portfolio segment Accounts receivable, net and the activity in the Allowance for credit loss for the three months ended March 31, 2020:

 

($ in thousands)

 

Commercial Services

(Driver-billed) (1)

 

 

Commercial Services

(All other)

 

 

Government Solutions

 

 

Total

 

Accounts Receivable, Net at January 1, 2020 (2)

 

$

9,793

 

 

$

51,158

 

 

$

31,744

 

 

$

92,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit loss at January 1, 2020 (2)

 

$

5,733

 

 

$

945

 

 

$

1,778

 

 

$

8,456

 

Credit loss expense

 

 

1,925

 

 

 

2,731

 

 

 

700

 

 

 

5,356

 

Write-offs, net of recoveries

 

 

(2,220

)

 

 

(311

)

 

 

(435

)

 

 

(2,966

)

Allowance for credit loss at March 31, 2020

 

$

5,438

 

 

$

3,365

 

 

$

2,043

 

 

$

10,846

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts Receivable, Net at March 31, 2020

 

$

9,430

 

 

$

50,898

 

 

$

49,511

 

 

$

109,839

 

 

 

(1)

Driver-billed consists of receivables from drivers of rental cars and fleet management companies for which the Company bills on behalf of its customers.

 

(2)

This includes a $0.8 million increase to Allowance for credit loss as a result of adopting the CECL standard.

 

Concentration of Credit Risk

 

Significant customers are those which represent more than 10% of the Company’s total revenue. Revenue from one of the Government Solutions customers, the City of New York Department of Transportation, accounted for 25.5% of total revenue for the three months ended March 31, 2020, as a result of increased product revenue. This customer did not meet the revenue criteria for the three months ended March 31, 2019. 

 

Revenue generated through one of the Company’s Commercial Services partners, the Hertz Corporation, accounted for 15.7% and 18.4% of total revenue for the three months ended March 31, 2020 and 2019, respectively. Additionally, revenue generated through two of the Company’s Commercial Services partners, Avis Budget Group, Inc. and Enterprise Holdings, Inc., accounted for 12.7% and 10.8%, respectively, of total revenue for the three months ended March 31, 2020. Enterprise Holdings, Inc., accounted for 14.0% for the three months ended March 31, 2019. Avis Budget Group, Inc. did not meet the revenue criteria above for the 2019 period.

 

5.

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