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vrrm-10q_20200630.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2020

☐	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:

Class A Common Stock, par value $0.0001 per share		VRRM		Nasdaq Capital Market
(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 ☐ NO☒

As of July 31, 2020, there were 161,736,615 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 JUNE 30, 2020

TABLE OF CONTENTS


PART I—FINANCIAL INFORMATION		5
Item 1. Financial Statements.		5
Condensed Consolidated Balance Sheets		5
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income		6
Condensed Consolidated Statements of Stockholders’ Equity		7
Condensed Consolidated Statements of Cash Flows		8
Notes to the Condensed Consolidated Financial Statements		10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3. Quantitative and Qualitative Disclosures About Market Risk		40
Item 4. Controls and Procedures		41
PART II—OTHER INFORMATION		42
Item 1. Legal Proceedings		42
Item 1A. Risk Factors		42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		43
Item 3. Defaults Upon Senior Securities		43
Item 4. Mine Safety Disclosures		43
Item 5. Other Information		43
Item 6. Exhibits		44
SIGNATURES		46

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, Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 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 novel coronavirus (“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;

•

historical data regarding our business, results of operations, financial condition and liquidity may not reflect the impact of COVID-19;

•

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 legislative changes, 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. 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.

Part I—Financial Information

Item 1. Financial Statements.

VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

($ in thousands except per share data)	June 30, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	113,239		$	131,513
Restricted cash		711			917
Accounts receivable (net of allowance for credit loss of $12.9 million at June 30, 2020)		125,252			93,514
Unbilled receivables		12,532			20,003
Prepaid expenses and other current assets		18,964			26,491
Total current assets		270,698			272,438
Installation and service parts, net		8,672			8,841
Property and equipment, net		73,604			72,266
Operating lease assets		30,933			32,177
Intangible assets, net		386,363			434,443
Goodwill		581,615			584,150
Other non-current assets		3,237			3,111
Total assets	$	1,355,122		$	1,407,426
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	36,346		$	50,825
Accrued liabilities		19,570			25,277
Current portion of long-term debt		9,104			28,779
Total current liabilities		65,020			104,881
Long-term debt, net of current portion and deferred financing costs		834,317			837,686
Operating lease liabilities, net of current portion		29,240			30,130
Payable to related party pursuant to tax receivable agreement		65,620			61,174
Asset retirement obligation		6,237			6,309
Deferred tax liabilities, net		22,691			25,716
Other long-term liabilities		247			2,183
Total liabilities		1,023,372			1,068,079
Commitments and contingencies (Note 15)
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		391,240			367,266
Accumulated deficit		(89,629	)		(80,220	)
Accumulated other comprehensive loss		(6,452	)		(2,577	)
Total stockholders' equity		331,750			339,347
Total liabilities and stockholders' equity	$	1,355,122		$	1,407,426

See accompanying Notes to the Condensed Consolidated Financial Statements.

VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE (LOSS) INCOME

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except per share data)	2020			2019			2020			2019
Service revenue	$	62,815		$	103,057		$	162,312		$	201,127
Product sales		16,994			6,518			34,210			6,909
Total revenue		79,809			109,575			196,522			208,036
Cost of service revenue		1,013			1,613			2,232			3,002
Cost of product sales		9,060			2,918			17,750			3,194
Operating expenses		26,699			31,795			58,958			61,133
Selling, general and administrative expenses		20,821			20,865			46,707			41,416
Depreciation, amortization and (gain) loss on disposal of assets, net		29,166			28,850			58,412			57,791
Impairment of property and equipment		—			5,898			—			5,898
Total costs and expenses		86,759			91,939			184,059			172,434
(Loss) income from operations		(6,950	)		17,636			12,463			35,602
Interest expense, net		9,539			15,656			21,990			31,689
Loss from tax receivable agreement adjustment		4,446			—			4,446			—
Other income, net		(1,523	)		(3,345	)		(4,448	)		(5,552	)
Total other expenses		12,462			12,311			21,988			26,137
(Loss) income before income tax (benefit) provision		(19,412	)		5,325			(9,525	)		9,465
Income tax (benefit) provision		(4,024	)		1,734			(810	)		3,054
Net (loss) income	$	(15,388	)	$	3,591		$	(8,715	)	$	6,411
Other comprehensive loss:
Change in foreign currency translation adjustment		(508	)		(1,396	)		(3,875	)		(72	)
Total comprehensive (loss) income	$	(15,896	)	$	2,195		$	(12,590	)	$	6,339
Net (loss) income per share:
Basic	$	(0.10	)	$	0.02		$	(0.05	)	$	0.04
Diluted	$	(0.10	)	$	0.02		$	(0.05	)	$	0.04
Weighted average shares used in per share calculation:
Basic outstanding		161,710			157,846			161,317			156,956
Diluted outstanding		161,710			161,977			161,317			159,223

See accompanying Notes to the Condensed Consolidated Financial Statements.

VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

For the Three and Six Months Ended June 30, 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
Net loss		—		—		—			—			(15,388	)		—			(15,388	)
Vesting of RSUs		45		—		—			—			—			—			—
Payment of employee tax withholding related to RSU vesting		—		—		—			(25	)		—			—			(25	)
Stock-based compensation		—		—		—			3,271			—			—			3,271
Other comprehensive loss, net of tax		—		—		—			—			—			(508	)		(508	)
Balance as of June 30, 2020		161,737	$	16	$	36,575		$	391,240		$	(89,629	)	$	(6,452	)	$	331,750

For the Three and Six Months Ended June 30, 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
Net income		—		—		—			—			3,591			—			3,591
Earn-out shares issued to Platinum Stockholder		2,500		—		(18,288	)		18,288			—			—			—
Vesting of RSUs		53		—		—			—			—			—			—
Stock-based compensation		—		—		—			2,812			—			—			2,812
Other comprehensive loss		—		—		—			—