UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
|
|
|
(State of |
|
(I.R.S. Employer |
Incorporation) |
|
Identification No.) |
|
|
|
|
|
|
|
|
(Zip Code) |
(Address of Principal Executive Offices) |
|
|
(
(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) |
|
|
|
|
|
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
As of May 6, 2020, there were
VERRA MOBILITY CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2020
TABLE OF CONTENTS
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 |
|
$ |
|
|
|
$ |
|
|
Restricted cash |
|
|
|
|
|
|
|
|
Accounts receivable (net of allowance for credit loss of $ |
|
|
|
|
|
|
|
|
Unbilled receivables |
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
Total current assets |
|
|
|
|
|
|
|
|
Installation and service parts, net |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
|
|
|
Operating lease assets |
|
|
|
|
|
|
|
|
Intangible assets, net |
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
Other non-current assets |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
|
|
Accrued liabilities |
|
|
|
|
|
|
|
|
Current portion of long-term debt |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
|
|
|
|
|
|
Long-term debt, net of current portion and deferred financing costs |
|
|
|
|
|
|
|
|
Operating lease liabilities, net of current portion |
|
|
|
|
|
|
|
|
Payable to related party pursuant to tax receivable agreement |
|
|
|
|
|
|
|
|
Asset retirement obligation |
|
|
|
|
|
|
|
|
Deferred tax liabilities, net |
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 14) |
|
|
|
|
|
|
|
|
Stockholders' equity |
|
|
|
|
|
|
|
|
Preferred stock, $ |
|
|
|
|
|
|
|
|
Common stock, $ |
|
|
|
|
|
|
|
|
Common stock contingent consideration |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Total stockholders' equity |
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
|
$ |
|
|
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
|
|
Product sales |
|
|
|
|
|
|
|
|
Total revenue |
|
|
|
|
|
|
|
|
Cost of service revenue |
|
|
|
|
|
|
|
|
Cost of product sales |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
Depreciation, amortization and (gain) loss on disposal of assets, net |
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
|
|
|
|
|
|
Income from operations |
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
|
|
|
|
|
|
Other income, net |
|
|
( |
) |
|
|
( |
) |
Total other expenses |
|
|
|
|
|
|
|
|
Income before income tax provision |
|
|
|
|
|
|
|
|
Income tax provision |
|
|
|
|
|
|
|
|
Net income |
|
$ |
|
|
|
$ |
|
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustment |
|
|
( |
) |
|
|
|
|
Total comprehensive income |
|
$ |
|
|
|
$ |
|
|
Net income per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
|
|
|
$ |
|
|
Diluted |
|
$ |
|
|
|
$ |
|
|
Weighted average shares used in per share calculation: |
|
|
|
|
|
|
|
|
Basic outstanding |
|
|
|
|
|
|
|
|
Diluted outstanding |
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Cumulative effect of adoption of the CECL accounting standard, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Earn-out shares issued to Platinum Stockholder |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Vesting of restricted stock units ("RSUs") |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Payment of employee tax withholding related to RSU vesting |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Other comprehensive loss, net of tax |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance as of March 31, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2019 |
|
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2018 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Cumulative effect of adoption of the new revenue accounting standard |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Adjustment to equity infusion from Gores |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Adjustment to tax receivable agreement liability |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Other comprehensive gain |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2019 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
Amortization of deferred financing costs and discounts |
|
|
|
|
|
|
|
|
Credit loss expense |
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation |
|
|
|
|
|
|
|
|
Installation and service parts expense |
|
|
|
|
|
|
|
|
Accretion expense |
|
|
|
|
|
|
|
|
(Gain) loss on disposal of assets |
|
|
( |
) |
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
( |
) |
|
|
( |
) |
Unbilled receivables |
|
|
|
|
|
|
( |
) |
Prepaid expenses and other current assets |
|
|
|
|
|
|
( |
) |
Accounts payable and accrued liabilities |
|
|
( |
) |
|
|
|
|
Other liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Purchases of installation and service parts and property and equipment |
|
|
( |
) |
|
|
( |
) |
Cash proceeds from the sale of assets |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Repayment of long-term debt |
|
|
( |
) |
|
|
( |
) |
Payment of debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Payment of employee tax withholding related to RSU vesting |
|
|
( |
) |
|
|
— |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
|
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents and restricted cash - beginning of period |
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash - end of period |
|
$ |
|
|
|
$ |
|
|
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 |
|
$ |
|
|
|
$ |
|
|
Income taxes paid (refunded), net |
|
|
|
|
|
|
( |
) |
Supplemental non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Reduction to tax receivable agreement liability |
|
|
— |
|
|
|
|
|
Earn-out shares issued to Platinum Stockholder |
|
|
|
|
|
|
— |
|
Additions to ARO, property and equipment, and other |
|
|
|
|
|
|
|
|
Purchases of installation and service parts and property and equipment in accounts payable and accrued liabilities at period-end |
|
|
|
|
|
|
|
|
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
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 $
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 $
The allocation of the preliminary purchase consideration is summarized as follows:
($ in thousands) |
|
|
|
|
Assets acquired |
|
|
|
|
Cash |
|
$ |
|
|
Other assets |
|
|
|
|
Trademark |
|
|
|
|
Customer relationships |
|
|
|
|
Developed technology |
|
|
|
|
Non-compete agreements |
|
|
|
|
Goodwill |
|
|
|
|
Total assets acquired |
|
|
|
|
|
|
|
|
|
Liabilities assumed |
|
|
|
|
Accounts payable and accrued expenses |
|
|
|
|
Deferred tax liability |
|
|
|
|
Total liabilities assumed |
|
|
|
|
Total purchase price |
|
$ |
|
|
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
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.
($ in thousands) |
|
Commercial Services (Driver-billed) (1) |
|
|
Commercial Services (All other) |
|
|
Government Solutions |
|
|
Total |
|
||||
Accounts Receivable, Net at January 1, 2020 (2) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for credit loss at January 1, 2020 (2) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Credit loss expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-offs, net of recoveries |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Allowance for credit loss at March 31, 2020 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|