UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ___________ to ___________.
Commission File Number:
(Exact name of registrant as specified in its charter)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Warrants to purchase Class A Common Stock |
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VRRMW |
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OTC Pink Marketplace |
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. ☒ 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). ☒ 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:
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Non-accelerated filer |
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Smaller reporting company |
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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 August 1, 2022, there were
VERRA MOBILITY CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2022
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, 2021. 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.
Factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements include, among other things:
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
3
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.
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports, are available free of charge on our website, verramobility.com, under the heading “Investors” immediately after they are filed with, or furnished to, the SEC. We use our Investor Relations website, ir.verramobility.com, as a means of disclosing information which may be of interest or material to our investors and for complying with disclosure obligations under Regulation FD. Accordingly, investors should monitor our Investor Relations website, in addition to following our press releases, SEC filings, public conference calls, webcasts, and social media. Information contained on or accessible through, including any reports available on, our website is not a part of, and is not incorporated by reference into, this Quarterly Report on Form 10-Q or any other report or document we file with the SEC. Any reference to our website in this Form 10-Q is intended to be an inactive textual reference only.
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.
4
Part I—Financial Information
Item 1. Financial Statements
VERRA MOBILITY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
($ in thousands, except per share data) |
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June 30, |
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December 31, |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Accounts receivable (net of allowance for credit losses of $ |
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Unbilled receivables |
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Inventory, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Installation and service parts, net |
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Property and equipment, net |
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Operating lease assets |
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Intangible assets, net |
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Goodwill |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Deferred revenue |
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Accrued liabilities |
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Tax receivable agreement liability, current portion |
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Current portion of long-term debt |
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Total current liabilities |
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Long-term debt, net of current portion |
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Operating lease liabilities, net of current portion |
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Tax receivable agreement liability, net of current portion |
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Private placement warrant liabilities |
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Asset retirement obligation |
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Deferred tax liabilities, net |
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Other long-term liabilities |
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Total liabilities |
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Stockholders' equity |
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Preferred stock, $ |
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Common stock, $ |
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Common stock contingent consideration |
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Additional paid-in capital |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See accompanying Notes to the Condensed Consolidated Financial Statements.
5
VERRA MOBILITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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($ in thousands, except per share data) |
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Service revenue |
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$ |
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$ |
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$ |
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Product sales |
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Total revenue |
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Cost of service revenue |
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Cost of product sales |
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Operating expenses |
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Selling, general and administrative expenses |
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Depreciation, amortization and (gain) loss on |
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Total costs and expenses |
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Income from operations |
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Interest expense, net |
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Change in fair value of private placement warrants |
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Tax receivable agreement liability adjustment |
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Loss on extinguishment of debt |
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Other income, net |
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Total other expenses |
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Income before income taxes |
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Income tax provision |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive (loss) income: |
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Change in foreign currency translation adjustment |
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Total comprehensive income (loss) |
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$ |
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$ |
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$ |
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Net income (loss) per share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average shares outstanding: |
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Basic |
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Diluted |
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See accompanying Notes to the Condensed Consolidated Financial Statements.
6
VERRA MOBILITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
For the Three and Six Months Ended June 30, 2022 |
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Common |
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Common |
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Additional |
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Accumulated |
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Accumulated |
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Total |
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(In thousands) |
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Shares |
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Amount |
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Consideration |
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Capital |
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Deficit |
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(Loss) Income |
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Equity |
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Balance as of December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Vesting of restricted stock units ("RSUs") |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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Payment of employee tax withholding related to RSUs vesting |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive income, net of tax |
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— |
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— |
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— |
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— |
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— |
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Balance as of March 31, 2022 |
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( |
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( |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Share repurchases and retirement |
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( |
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( |
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( |
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( |
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— |
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( |
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Vesting of RSUs |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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Payment of employee tax withholding related to RSUs vesting |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive loss, net of tax |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance as of June 30, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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For the Three and Six Months Ended June 30, 2021 |
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Balance as of December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Vesting of RSUs |
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— |
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— |
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— |
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— |
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— |
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— |
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Payment of employee tax withholding related to RSUs vesting |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive loss, net of tax |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance as of March 31, 2021 |
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( |
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Net income |
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— |
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— |
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— |
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— |
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Vesting of RSUs |
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— |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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Payment of employee tax withholding related to RSUs vesting |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive income, net of tax |
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— |
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— |
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— |
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— |
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— |
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Balance as of June 30, 2021 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
|
See accompanying Notes to the Condensed Consolidated Financial Statements.
7
VERRA MOBILITY CORPORATION
condensed consolidated Statements of Cash Flows
(Unaudited)
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Six Months Ended June 30, |
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($ in thousands) |
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2022 |
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2021 |
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Cash Flows from Operating Activities: |
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Net income (loss) |
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$ |
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$ |
( |
) |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
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Amortization of deferred financing costs and discounts |
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Change in fair value of private placement warrants |
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( |
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|
Tax receivable agreement liability adjustment |
|
|
( |
) |
|
|
|
|
Loss on extinguishment of debt |
|
|
|
|
|
|
||
Credit loss expense |
|
|
|
|
|
|
||
Deferred income taxes |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
( |
) |
|
|
( |
) |
Unbilled receivables |
|
|
( |
) |
|
|
( |
) |
Inventory, net |
|
|
( |
) |
|
|
|
|
Prepaid expenses and other assets |
|
|
|
|
|
( |
) |
|
Deferred revenue |
|
|
|
|
|
|
||
Accounts payable and other current liabilities |
|
|
|
|
|
|
||
Other liabilities |
|
|
|
|
|
( |
) |
|
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
||
Acquisition of business, net of cash and restricted cash acquired |
|
|
|
|
|
( |
) |
|
Payment of contingent consideration |
|
|
( |
) |
|
|
|
|
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 on the revolver |
|
|
( |
) |
|
|
|
|
Borrowings of long-term debt |
|
|
|
|
|
|
||
Repayment of long-term debt |
|
|
( |
) |
|
|
( |
) |
Payment of debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Payment of debt extinguishment costs |
|
|
|
|
|
( |
) |
|
Share repurchases and retirement |
|
|
( |
) |
|
|
|
|
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Payment of employee tax withholding related to RSUs vesting |
|
|
( |
) |
|
|
( |
) |
Net cash (used in) provided by 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 |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Reconciliation of cash, cash equivalents, and restricted cash |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Total cash, cash equivalents, and restricted cash |
|
$ |
|
|
$ |
|
See accompanying Notes to the Condensed Consolidated Financial Statements.
8
VERRA MOBILITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Supplemental cash flow information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income taxes paid, net of refunds |
|
|
|
|
|
|
||
Supplemental non-cash investing and financing activities: |
|
|
|
|
|
|
||
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.
9
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, 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 (the “Platinum Stockholder”), 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 its customers who are located throughout the world, primarily within the United States, Australia, 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 and consumer tolling services through Pagatelia S.L.
The Government Solutions segment offers photo enforcement solutions and services to its customers. Through its acquisition of Redflex Holdings Limited (“Redflex”) in June 2021, the Company expanded its current footprint in the United States and gained access to international markets. The Government Solutions segment provides complete, end-to-end speed, red-light, school bus stop arm and bus lane enforcement solutions within the United States and Canada. These 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. The international operations acquired through Redflex primarily involve the sale of traffic enforcement products and related maintenance services.
The Parking Solutions segment offers an integrated suite of parking software and hardware solutions to its customers, which include universities, municipalities, parking operators, healthcare facilities and transportation hubs. The Company added this new operating segment as a result of the acquisition of T2 Systems Parent Corporation (“T2 Systems”) on December 7, 2021, which allowed the Company to diversify its operations into the parking solutions space (see Note 3. Acquisitions). The Parking Solutions segment develops specialized hardware and parking management software that provides a platform for the issuance of parking permits, enforcement, gateless vehicle counting, event parking and citation services. T2 Systems also produces and markets its proprietary software as a service to its customers throughout the United States and Canada.
2. Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited 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 condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
10
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 condensed consolidated financial statements and accompanying notes. Significant estimates and assumptions include those related to the fair values assigned to net assets acquired (including identifiable intangibles) in business combinations, revenue recognition, inventory valuation, allowance for credit losses, fair value of the private placement warrant liabilities, valuation allowance on deferred tax assets, impairment assessments of goodwill, intangible assets and other long-lived 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.
Concentration of Credit Risk
Significant customers are those which represent more than
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
City of New York Department of Transportation |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
The City of New York Department of Transportation (“NYCDOT”) represented
Significant customer revenue concentrations generated through the Company’s Commercial Services partners as a percent of total revenue are presented below:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Hertz Corporation |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Avis Budget Group, Inc. |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Enterprise Holdings, Inc. |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
There were
Allowance for Credit Losses
The Company reviews historical credit losses and customer payment trends on receivables and develops loss rate estimates as of the balance sheet date, which includes adjustments for current and future expectations using probability-weighted assumptions about potential outcomes. Receivables are written off against the allowance for credit losses when it is probable that amounts will not be collected based on the terms of the customer contracts, and subsequent recoveries reverse the previous write-off and apply to the receivable in the period recovered. No interest or late fees are charged on delinquent accounts. The Company evaluates the adequacy of its allowance for expected credit losses by comparing its actual write-offs to its previously recorded estimates and adjusts appropriately.
The Company identified portfolio segments based on the type of business, industry in which the customer operates and historical credit loss patterns.
11
($ in thousands) |
|
Commercial Services |
|
|
Commercial |
|
|
Government Solutions |
|
|
Parking Solutions |
|
|
Total |
|
|||||
Balance at January 1, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Credit loss expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Write-offs, net of recoveries |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at June 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
($ in thousands) |
|
Commercial Services |
|
|
Commercial |
|
|
Government Solutions |
|
|
Total |
|
||||
Balance at January 1, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Credit loss expense |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
||
Write-offs, net of recoveries |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at June 30, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The Commercial Services (Driver-billed) portfolio segment’s credit loss estimate as of June 30, 2022 increased compared to the prior year due to increased revenue that impacted the volume of transactions as a result of recovery from COVID-19.
Deferred Revenue
Deferred revenue represents amounts that have been invoiced in advance and are expected to be recognized as revenue in future periods, and it primarily relates to Government Solutions and Parking Solutions customers. The Company had approximately $
12
Recent Accounting Pronouncements
Accounting Standards Adopted
In May 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another topic. It specifically addresses the measurement and recognition of the effect of a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option if it remains equity-classified after the modification or exchange. The Company adopted this standard as of January 1, 2022, which did not have an impact on its financial statements and related disclosures, as the Company had no transactions subject to the standard. If the Company were to have modifications or exchanges in the future, such guidance would apply.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, to increase transparency in financial reporting by requiring business entities to disclose information about certain types of government assistance they receive. The amendments require annual disclosures regarding the nature of any transactions with a government accounted for by applying a grant or contribution accounting model by analogy and the related accounting policy used, the effect of the assistance on the entity’s financial statements, and the significant terms and conditions of the transactions. The Company adopted the ASU as of January 1, 2022, which did not have a material impact on its financial statements or related disclosures.
Accounting Standards Not Yet Adopted
In March 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. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The amendments are effective as of March 12, 2020 through December 31, 2022, to help stakeholders during the global market-wide reference rate transition period.
Under the terms of the 2021 Term Loan (as defined below) discussed in Note 7 below, in the event there is a benchmark transition away from LIBOR, a benchmark replacement rate has been defined in the 2021 Term Loan along with the mechanism for such a transition to take place. The Company does not anticipate this transition will have a material impact on its financial statements.
On June 30, 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. It also requires entities with investments in equity securities subject to contractual sale restrictions to disclose certain qualitative and quantitative information about such securities. The guidance is effective for fiscal years, including interim periods beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its financial statements.
3. Acquisitions
T2 Systems Acquisition
On
The Company paid a purchase price of $
13
The allocation of the preliminary purchase consideration is summarized as follows:
($ in thousands) |
|
|
|
|
Assets acquired |
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
Restricted cash |
|
|
|
|
Accounts receivable |
|
|
|
|
Unbilled receivables |
|
|
|
|
Inventory |
|
|
|
|
Property and equipment |
|
|
|
|
Prepaid and other assets |
|
|
|
|
Trademark |
|
|
|
|
Customer relationships |
|
|
|
|
Developed technology |
|
|
|
|
Total assets acquired |
|
|
|
|
|
|
|
|
|
Liabilities assumed |
|
|
|
|
Accounts payable and accrued liabilities |
|
|
|
|
Deferred revenue |
|
|
|
|
Deferred tax liability |
|
|
|
|
Other liabilities |
|
|
|
|
Total liabilities assumed |
|
|
|
|
Goodwill |
|
|
|
|
Total assets acquired and liabilities assumed |
|
$ |
|
Goodwill consists largely of the expected cash flows and future growth anticipated for the Company and was assigned to the Company’s Parking Solutions segment. The goodwill is not deductible for tax purposes. The preliminary customer relationships value was based on the multi-period excess earnings methodology utilizing projected cash flows. The significant assumptions used to value customer relationships included, among others, customer upsell and churn rates, forecasted revenue growth rates attributable to existing customers, forecasted EBITDA margins and the discount rate. The preliminary values for the trademark and the developed technology related assets were based on a relief-from-royalty method. The significant assumptions used to value these intangible assets included, among others, forecasted revenue growth rates, royalty rates and the expected obsolescence curve. The trademark, customer relationships and the developed technology related assets were assigned preliminary useful lives of
As of June 30, 2022, the valuation of assets acquired and liabilities assumed is preliminary. The primary areas that remain preliminary relate to the fair values of unbilled receivables, intangible assets acquired, deferred revenue, legal and other contingencies as of the acquisition date, income and non-income based taxes and residual goodwill. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.
NuPark Acquisition
On
14
4. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following at:
($ in thousands) |
|
June 30, |
|
|
December 31, |
|
||
Prepaid services |
|
$ |
|
|
$ |
|
||
Prepaid tolls |
|
|
|
|
|
|
||
Deposits |
|
|
|
|
|
|
||
Prepaid computer maintenance |
|
|
|
|
|
|
||
Prepaid insurance |
|
|
|
|
|
|
||
Prepaid income taxes |
|
|
|
|
|
|
||
Costs to fulfill a customer contract |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
5. Goodwill and Intangible Assets
The following table presents the changes in the carrying amount of goodwill by reportable segment:
|
|
Commercial |
|
|
Government |
|
|
Parking |
|
|
|
|
||||
($ in thousands) |
|
Services |
|
|
Solutions |
|
|
Solutions |
|
|
Total |
|
||||
Balance at December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Foreign currency translation adjustment |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance at June 30, 2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Intangible assets consist of the following as of the respective period-ends:
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||||||
|
|
Weighted |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
||||
|
|
Average |
|
Gross |
|
|
|
|
|
Average |
|
Gross |
|
|
|
|
||||
|
|
Remaining |
|
Carrying |
|
|
Accumulated |
|
|
Remaining |
|
Carrying |
|
|
Accumulated |
|
||||
($ in thousands) |
|
Useful Life |
|
Amount |
|
|
Amortization |
|
|
Useful Life |
|
Amount |
|
|
Amortization |
|
||||
Trademarks |
|
|
$ |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
||||||
Non-compete agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Customer relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Developed technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gross carrying value of intangible assets |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
||||
Less: accumulated amortization |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
|
|
||
Intangible assets, net |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
Amortization expense was $
Estimated amortization expense in future years is expected to be:
($ in thousands) |
|
|
|
|
Remainder of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
15
6. Accrued Liabilities
Accrued liabilities consist of the following at:
($ in thousands) |
|
June 30, |
|
|
December 31, |
|
||
Accrued salaries and wages |
|
$ |
|
|
$ |
|
||
Current deferred tax liabilities |
|
|
|
|
|
|
||
Current portion of operating lease liabilities |
|
|
|
|
|
|
||
Accrued interest payable |
|
|
|
|
|
|
||
Income taxes payable |
|
|
|
|
|
|
||
Restricted cash due to customers |
|
|
|
|
|
|
||
Payroll liabilities |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total accrued liabilities |
|
$ |
|
|
$ |
|
7. Long-term Debt
The following table provides a summary of the Company’s long-term debt at:
($ in thousands) |
|
June 30, |
|
|
December 31, |
|
||
2021 Term Loan, due |
|
$ |
|
|
$ |
|
||
Senior Notes, due |
|
|
|
|
|
|
||
PPP Loan |
|
|
|
|
|
|
||
Revolver |
|
|
|
|
|
|
||
Less: original issue discounts |
|
|
( |
) |
|
|
( |
) |
Less: unamortized deferred financing costs |
|
|
( |
) |
|
|
( |
) |
Total long-term debt |
|
|
|
|
|
|
||
Less: current portion of long-term debt |
|
|
( |
) |
|
|
( |
) |
Total long-term debt, net of current portion |
|
$ |
|
|
$ |
|
2021 Term Loan and Senior Notes
In March 2021, VM Consolidated entered into an Amendment and Restatement Agreement No.1 to the First Lien Term Loan Credit Agreement (the “2021 Term Loan”) with a syndicate of lenders. The 2021 Term Loan has an aggregate borrowing of $
In addition, in March 2021, VM Consolidated issued an aggregate principal amount of $
The net proceeds from both the 2021 Term Loan and the Senior Notes were used in March 2021 to repay in full all outstanding debt which was represented by the First Lien Term Loan Credit Agreement (as amended, the “2018 Term Loan”) with a balance of $
On December 7, 2021, VM Consolidated entered into an agreement to exercise the accordion feature under the 2021 Term Loan, borrowing $
16
principal outstanding under the 2021 Term Loan, which includes the Incremental Term Loan, was $
The 2021 Term Loan is repayable at
In addition, the 2021 Term Loan requires mandatory prepayments equal to the product of the excess cash flows of the Company (as defined in the 2021 Term Loan agreement) and the applicable prepayment percentages (calculated as of the last day of the fiscal year, beginning with the year ending December 31, 2022), as set forth in the following table:
Consolidated First Lien Net Leverage Ratio (As Defined by the 2021 Term Loan Agreement) |
|
Applicable |
> 3.70:1.00 |
|
|
< 3.70:1.00 and > 3.20:1.00 |
|
|
< 3.20:1.00 |
|
Interest on the Senior Notes is fixed at
Year |
|
Percentage |
2024 |
|
|
2025 |
|
|
2026 and thereafter |
|
In addition, the Company may redeem up to
The Company evaluated the March 2021 refinancing transactions on a lender-by-lender basis and accounted for the portion of the transaction that did not meet the accounting criteria for debt extinguishment as a debt modification. Accordingly, the Company recognized a loss on extinguishment of debt of $
PPP Loan
During fiscal year 2020, Redflex received a loan from the U.S. Small Business Administration (“SBA”) as part of the Paycheck Protection Program (“PPP Loan”) to offset certain employment and other allowable costs incurred as a result of the COVID-19 pandemic. At June 30, 2022, the loan amount outstanding was $
The Revolver
The Company has a Revolving Credit Agreement (the “Revolver”) with a commitment of up to $
Interest on the unused portion of the Revolver is payable quarterly at
17
All borrowings and other extensions of credits under the 2021 Term Loan, Senior Notes and the Revolver are subject to the satisfaction of customary conditions and restrictive covenants including absence of defaults and accuracy in material respects of representations and warranties. Substantially all of the Company’s assets are pledged as collateral to secure the Company’s indebtedness under the 2021 Term Loan. At June 30, 2022, the Company was compliant with all debt covenants.
Interest Expense
The Company recorded interest expense, including amortization of deferred financing costs and discounts, of $
The weighted average effective interest rates on the Company’s outstanding borrowings were
8. Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurement, includes a single definition of fair value to be used for financial reporting purposes, provides a framework for applying this definition and for measuring fair value under GAAP, and establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are summarized as follows:
Level 1 – Fair value is based on observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2 – Fair value is determined using quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or inputs other than quoted prices that are directly or indirectly observable.
Level 3 – Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow, or similar technique.
The carrying amounts reported in the Company’s condensed consolidated balance sheets for cash, accounts receivable, accounts payable, accrued expenses and the PPP Loan approximate fair value due to the immediate to short-term maturity of these financial instruments. The estimated fair value of the Company’s long-term debt was calculated based upon available market information.
|
|
Level in |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||||||
|
|
Fair Value |
|
Carrying |
|
|
Estimated |
|
|
Carrying |
|
|
Estimated |
|
||||||||
($ in thousands) |
|
Hierarchy |
|
Amount |
|
|
Fair Value |
|
|
Amount |
|
|
Fair Value |
|
||||||||
2021 Term Loan |
|
2 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
||||
Senior Notes |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revolver |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of the private placement warrant liabilities is measured on a recurring basis and is estimated using the Black-Scholes option pricing model using significant unobservable inputs, primarily related to estimated volatility, and is therefore classified within level 3 of the fair value hierarchy. The key assumptions used were as follows:
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Stock price |
|
$ |
|
|
$ |
|
||
Strike price |
|
$ |
|
|
$ |
|
||
Volatility |
|
|
% |
|
|
% |
||
Remaining life (in years) |
|
|
|
|
|
|
||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Expected dividend yield |
|
|
% |
|
|
% |
||
Estimated fair value |
|
$ |
|
|
$ |
|
The Company is exposed to valuation risk on these Level 3 financial instruments. The risk of exposure is estimated using a sensitivity analysis of potential changes in the significant unobservable inputs, primarily the volatility input that is the most susceptible to valuation risk. A 5.0% increase to the volatility input at June 30, 2022 would increase the estimated fair value
18
by $
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Change in fair value of private placement warrants |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The Company has an equity investment measured at cost of $
The fair value of the contingent consideration payable in connection with the NuPark acquisition was $
9. Net Income (Loss) Per Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average shares outstanding during the period, without consideration of common stock equivalents. Diluted net income (loss) per share is calculated by adjusting the weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method.
The components of basic and diluted net income (loss) per share are as follows:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
(In thousands, except per share data) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares - basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Common stock equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares - diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) per share - basic |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Net income (loss) per share - diluted |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
Antidilutive shares excluded from diluted net income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contingently issuable shares (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Public warrants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Private placement warrants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-qualified stock options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Performance share units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total antidilutive shares excluded |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Contingently issuable shares relate to the earn-out agreement as discussed in Note 13, Other Significant Transactions.
10. Income Taxes
The Company’s interim income tax provision is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that period. The estimated annual effective tax rate requires judgment and is dependent upon several
19
factors. The Company provides for income taxes under the liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the tax basis of assets or liabilities and their carrying amounts in the financial statements.
The Company provides a valuation allowance for deferred tax assets if it is more likely than not that these items will expire before the Company is able to realize their benefit. The Company calculates the valuation allowance in accordance with the authoritative guidance relating to income taxes, which requires an assessment of both positive and negative evidence regarding the realizability of these deferred tax assets, when measuring the need for a valuation allowance. Significant judgment is required in determining any valuation allowance against deferred tax assets.
The Company’s effective income tax rate was
The total amount of unrecognized tax benefits increased by $
Effective January 1, 2022, the Tax Cuts and Jobs Act of 2017 requires taxpayers to capitalize, and subsequently amortize R&D expenses over five years for research activities conducted in the U.S. and over fifteen years for research activities conducted outside of the U.S. This will result in an increase to our U.S. income tax liability and net deferred tax assets. The actual impact will depend on multiple factors, including the amount of R&D expenses incurred and whether the research activities are performed within or outside of the U.S. The Company is currently evaluating the impacts of this change to the financial statements but does not expect them to be material.
The Company is subject to examination by the Internal Revenue Service and taxing authorities in various jurisdictions. The Company files U.S. federal and various foreign income tax returns which are subject to examination by the taxing authorities in the respective jurisdictions, generally for three or four years after they are filed. The Company’s state income tax returns are generally no longer subject to income tax examination by tax authorities prior to 2018; however, the Company’s net operating loss carryforwards and research credit carryforwards arising prior to that year are subject to adjustment. The Company is currently under audit by various state tax jurisdictions for the years
11. Stockholders’ Equity
Share Repurchases and Retirement
On May 7, 2022, the Company’s Board of Directors authorized a share repurchase program for up to an aggregate amount of $
On May 12, 2022, the Company paid $
20
In addition, the Company paid $
The Company paid a total of $
12. Stock-Based Compensation
The following details the components of stock-based compensation for the respective periods:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Operating expenses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total stock-based compensation expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The increase in stock-based compensation expense of $
21
13. Other Significant Transactions
Tax Receivable Agreement
At the closing of the Business Combination, the Company entered into a Tax Receivable Agreement (“TRA”) with the Platinum Stockholder. The TRA generally provides for the payment to the Platinum Stockholder of
At June 30, 2022, the TRA liability was approximately $
The Company recorded a $
Earn-Out Agreement
Under the Merger Agreement, the Platinum Stockholder is entitled to receive additional shares of Class A Common Stock (the “Earn-Out Shares”) if the volume weighted average closing sale price of one share of Class A Common Stock on the Nasdaq exceeds certain thresholds for a period of at least
The Earn-Out Shares are issued by the Company to the Platinum Stockholder as follows:
Common Stock Price Thresholds |
|
One-time Issuance of Shares |
> $ |
|
|
> $ |
|
|
> $ |
|
|
> $ |
|
If any of the Common Stock Price thresholds above (each, a “Triggering Event”) are not achieved within the five-year period following the closing of the Business Combination, the Company will
If, during the earn-out period, there is a change of control (as defined in the Merger Agreement) that will result in the holders of the Company’s Class A Common Stock receiving a per share price equal to or in excess of the applicable Common Stock Price required in connection with any Triggering Event, then immediately prior to the consummation of such change of control: (a) any such Triggering Event that has not previously occurred shall be deemed to have occurred; and (b) the Company shall issue the applicable Earn-Out Shares to the cash consideration stockholders (as defined in the Merger Agreement) (in accordance with their respective pro rata cash share), and the recipients of the issued Earn-Out Shares shall be eligible to participate in such change of control.
The Company estimated the original fair value of the contingently issuable shares to be $
22
paid-in capital accounts. Any contingently issuable shares not issued as a result of a Triggering Event not being attained by the end of the earn-out period will be canceled.
On April 26, 2019 and on January 27, 2020, the Triggering Events for the issuance of the first and second tranches of Earn-Out Shares occurred, as the volume weighted average closing sale price per share of the Company’s Class A Common Stock as of that date had been greater than $
Related Party Equity Investment
Redflex Irish Investments Pty Ltd, a wholly owned indirect subsidiary of the Company, owns a
23
14. Commitments and Contingencies
The Company has issued various letters of credit under contractual arrangements with certain of its domestic vendors and customers. Outstanding letters of credit under these arrangements totaled $
The Company has non-cancelable purchase commitments to certain vendors. The aggregate non-cancelable purchase commitments outstanding at June 30, 2022 were $
The Company is subject to tax audits in the normal course of business and does not have material contingencies recorded related to such audits.
The Company accrues for claims and contingencies when losses become probable and reasonably estimable. As of the end of each applicable reporting period, the Company reviews each of its matters and, where it is probable that a liability has been or will be incurred, the Company accrues for all probable and reasonably estimable losses. Where the Company can reasonably estimate a range of loss it may incur regarding such a matter, the Company records an accrual for the amount within the range that constitutes its best estimate. If the Company can reasonably estimate a range but no amount within the range appears to be a better estimate than any other, the Company uses the amount that is the low end of such range.
Legal Proceedings
The Company is subject to legal and regulatory actions that arise from time to time in the ordinary course of business. The Company records a liability when it believes it is probable a loss will be incurred and the amount of loss or range of loss can be reasonably estimated. The assessment as to whether a loss is probable, reasonably possible or remote, and as to whether a loss or a range of such loss is estimable, often involves significant judgment about future events. The Company has determined that resolution of pending matters is not probable to have a material adverse impact on its results of operations, cash flows, or financial position, and accordingly, no material contingency accruals are recorded. However, the outcome of litigation is inherently uncertain. As additional information becomes available, the Company reassesses the potential liability.
Brantley v. City of Gretna is a class action lawsuit filed in the 24th Judicial District Court of Jefferson Parish, Louisiana against the City of Gretna (“City”) and its safety camera vendor, Redflex Traffic Systems, Inc. in April 2016. The plaintiff class, which was certified on March 30, 2021, alleges that the City’s safety camera program was implemented and operated in violation of local ordinances and the state constitution, including that the City’s hearing process violated the plaintiffs’ due process rights for lack of a “neutral” arbiter of liability for traffic infractions. Plaintiffs seek recovery of traffic infraction fines paid. The City and Redflex Traffic Systems, Inc. have appealed the trial court’s ruling granting class certification, which remains pending. Based on the information available to the Company at present, it cannot reasonably estimate a range of loss for this action and, accordingly, it has not accrued any liability associated with this action.
15. Segment Reporting
The Company has
Segment performance is based on revenues and income from operations before depreciation, amortization, (gain) loss on disposal of assets, net, and stock-based compensation. The measure also excludes interest expense, net, income taxes and certain other transactions and is inclusive of other income, net. The tables below refer to this measure as segment profit (loss). The aforementioned items are not indicative of operating performance, and, as a result are not included in the measures that are reviewed by the CODM for the segments. Other income, net consists primarily of credit card rebates earned on the prepayment of tolling transactions and is therefore included in segment profit (loss).
24
The following tables set forth financial information by segment for the respective periods:
|
|
For the Three Months Ended June 30, 2022 |
|
|||||||||||||||||
|
|
Commercial |
|
|
Government |
|
|
Parking |
|
|
Corporate |
|
|
|
|
|||||
($ in thousands) |
|
Services |
|
|
Solutions |
|
|
Solutions |
|
|
and Other |
|
|
Total |
|
|||||
Service revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Product sales |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total revenue |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Cost of service revenue |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Cost of product sales |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Other (income) expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
Segment profit |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Segment profit |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Depreciation and amortization |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Loss on disposal of assets, net |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Change in fair value of private placement warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Tax receivable agreement liability adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Interest expense, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Income (loss) before income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
For the Three Months Ended June 30, 2021 |
|
|||||||||||||
|
|
Commercial |
|
|
Government |
|
|
Corporate |
|
|
|
|
||||
($ in thousands) |
|
Services |
|
|
Solutions |
|
|
and Other |
|
|
Total |
|
||||
Service revenue |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Product sales |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total revenue |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Cost of service revenue |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Cost of product sales |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Operating expenses |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other income, net |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Segment profit (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Segment profit (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Depreciation and amortization |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Gain on disposal of assets, net |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Change in fair value of private placement warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Tax receivable agreement liability adjustment |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Interest expense, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Income (loss) before income taxes |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
25
|
|
For the Six Months Ended June 30, 2022 |
|
|||||||||||||||||
|
|
Commercial |
|
|
Government |
|
|
Parking |
|
|
Corporate |
|
|
|
|
|||||
($ in thousands) |
|
Services |
|
|
Solutions |
|
|
Solutions |
|
|
and Other |
|
|
Total |
|
|||||
Service revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Product sales |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total revenue |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Cost of service revenue |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Cost of product sales |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Other (income) expense, net |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
Segment profit |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Segment profit |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
||||
Depreciation and amortization |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Loss on disposal of assets, net |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Change in fair value of private placement warrants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Tax receivable agreement liability adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Interest expense, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Income (loss) before income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
For the Six Months Ended June 30, 2021 |
|
|||||||||||||
|
|
Commercial |
|
|
Government |
|
|
Corporate |
|
|
|
|
||||
($ in thousands) |
|
Services |
|
|
Solutions |
|
|
and Other |
|
|
Total |
|
||||
Service revenue |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Product sales |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total revenue |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Cost of service revenue |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Cost of product sales |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Operating expenses |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other income, net |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Segment profit (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Segment profit (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Depreciation and amortization |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Loss on disposal of assets, net |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Change in fair value of private placement warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Tax receivable agreement liability adjustment |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Interest expense, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Loss on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Income (loss) before income taxes |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
The Company primarily operates within the United States, Australia, Canada, United Kingdom and in various other countries in Europe and Asia. Revenues earned from goods transferred to customers at a point in time were approximately $
26
The following table details the revenues from international customers for the respective periods:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Australia |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United Kingdom |
|
|
|
|
|
|
|
|
|
|
|
|
||||
All other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total international revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
16. Guarantor/Non-Guarantor Financial Information
VM Consolidated is the lead borrower of the 2021 Term Loan, Senior Notes and the Revolver. VM Consolidated is owned by the Company through a series of holding companies that ultimately end with the Company. VM Consolidated is wholly owned by Greenlight Acquisition Corporation, which is wholly owned by Greenlight Intermediate Holding Corporation, which is wholly owned by Greenlight Holding Corporation, which is wholly owned by Verra Mobility Holdings, LLC, which is wholly owned by Verra Mobility Corporation. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, including transactions with the Company’s wholly owned guarantor subsidiaries and non-guarantor subsidiaries.
The following financial information presents the condensed consolidated balance sheets as of June 30, 2022 and the related condensed consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2022 and the condensed consolidated statement of cash flows for the six months ended June 30, 2022 for the Company, the combined guarantor subsidiaries and the combined non-guarantor subsidiaries.
27
Verra Mobility Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
at June 30, 2022
(Unaudited)
($ in thousands) |
|
Verra Mobility |
|
|
Guarantor Subsidiaries |
|
|
Non- |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Restricted cash |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Accounts receivable (net of allowance for credit losses of $ |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Unbilled receivables |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Investment in subsidiary |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
||
Inventory, net |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
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 |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Due from affiliates |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Other non-current assets |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Accounts payable |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Deferred revenue |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Accrued liabilities |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Tax receivable agreement liability, current portion |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Current portion of long-term debt |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total current liabilities |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Long-term debt, net of current portion |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Operating lease liabilities, net of current portion |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Tax receivable agreement liability, net of current portion |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Private placement warrant liabilities |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Due to affiliates |
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
||
Asset retirement obligation |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Deferred tax liabilities, net |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Other long-term liabilities |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total liabilities |
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Total stockholders' equity |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Total liabilities and stockholders' equity |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
28
Verra Mobility Corporation and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income
Three Months Ended June 30, 2022
(Unaudited)
|
|
|
|
|||||||||||||||||
($ in thousands) |
|
Verra Mobility |
|
|
Guarantor Subsidiaries |
|
|
Non- |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Service revenue |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Product sales |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Sales to affiliates |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Total revenue |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Cost of service revenue |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Cost of product sales |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Cost of sales to affiliates |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Operating expenses |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Selling, general and administrative expenses |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Depreciation, amortization and (gain) loss on disposal of assets, net |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total costs and expenses |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Income (loss) from operations |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||
Income from equity investment |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Interest expense, net |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Change in fair value of private placement warrants |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Tax receivable agreement liability adjustment |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other income, net |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Total other (income) expenses |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Income (loss) before income taxes |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||
Income tax provision |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Change in foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Total comprehensive income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
29
Verra Mobility Corporation and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income
Six Months Ended June 30, 2022
(Unaudited)
|
|
|
|
|||||||||||||||||
($ in thousands) |
|
Verra Mobility |
|
|
Guarantor Subsidiaries |
|
|
Non- |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Service revenue |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Product sales |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Sales to affiliates |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Total revenue |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Cost of service revenue |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Cost of product sales |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Cost of sales to affiliates |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Operating expenses |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Selling, general and administrative expenses |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Depreciation, amortization and (gain) loss on disposal of assets, net |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total costs and expenses |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Income (loss) from operations |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||
Income from equity investment |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Interest expense, net |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Change in fair value of private placement warrants |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Tax receivable agreement liability adjustment |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other income, net |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Total other (income) expenses |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Income (loss) before income taxes |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||
Income tax provision (benefit) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Change in foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Total comprehensive income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
30
Verra Mobility Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2022
(Unaudited)
($ in thousands) |
|
Verra Mobility |
|
|
Guarantor Subsidiaries |
|
|
Non- |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income (loss) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Depreciation and amortization |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Amortization of deferred financing costs and discounts |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Change in fair value of private placement warrants |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Tax receivable agreement liability adjustment |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Credit loss expense |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Deferred income taxes |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Other |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Income from equity investment |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Accounts receivable, net |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
Unbilled receivables |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
( |
) |
|
Inventory, net |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Prepaid expenses and other assets |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Deferred revenue |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Accounts payable and other current liabilities |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||
Due to affiliates |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Other liabilities |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Net cash provided by operating activities |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Payment of contingent consideration |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
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 on the revolver |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Repayment of long-term debt |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Payment of debt issuance costs |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Share repurchases and retirement |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Proceeds from exercise of stock options |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Payment of employee tax withholding related to RSUs vesting |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Net cash used in financing activities |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net decrease 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 |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
31
Verra Mobility Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
Six Months Ended June 30, 2022
(Unaudited)
|
|
Verra Mobility |
|
|
Guarantor Subsidiaries |
|
|
Non- |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest paid |
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Income taxes paid, net of refunds |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Supplemental non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Purchases of installation and service parts and property and equipment in accounts payable and accrued liabilities at period-end |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
32
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read together with our Annual Report on Form 10-K for the year ended December 31, 2021, and our financial statements included in Part I, Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. Please also refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”
Business Overview
We are a leading provider of smart mobility technology solutions and services throughout the United States, Australia, Europe and Canada. These solutions and services include toll and violations management, title and registration, automated safety solutions, parking enforcement and citation, and other data-driven solutions, to our customers, which include rental car companies (“RACs”), fleet management companies (“FMCs”), other large fleet owners, municipalities, school districts, universities, parking operators, healthcare facilities and transportation hubs and other violation-issuing authorities. Our solutions simplify the smart mobility ecosystem by utilizing what we believe are industry-leading capabilities, information and technology expertise, and integrated hardware and software to efficiently facilitate the automated processing of tolls and violations, automated safety and parking solutions for hundreds of agencies and millions of end users annually, while also making cities and roadways safer for everyone.
Executive Summary
We operate under long-term contracts and have a highly reoccurring service revenue model. We continue to execute our strategy to grow revenue organically and expand offerings into adjacent markets through innovation or acquisition. During the periods presented, we:
Redflex – During the second quarter of 2021, we acquired Redflex Holdings Limited (“Redflex”), which provides intelligent traffic management products and services to its customers. Through our acquisition of Redflex, we expanded our current footprint in the United States and gained access to international markets.
T2 Systems – During the fourth quarter of 2021, we acquired T2 Systems Parent Corporation (“T2 Systems”), which provides an integrated suite of parking software and hardware solutions and supports our strategy to diversify into new markets and increase opportunities to cross sell to customers within our overall portfolio.
Recent Events
Share Repurchases and Retirement
On May 7, 2022, our Board of Directors authorized a share repurchase program for up to an aggregate amount of $125.0 million of our outstanding shares of Class A Common Stock over the next 12 months from time to time in open market transactions, accelerated share repurchases (“ASR”) or in privately negotiated transactions, each as permitted under applicable rules and regulations, any of which may use pre-arranged trading plans that are designed to meet the requirements of Rule 10b5-1 of the Securities Exchange Act of 1934 (the “Exchange Act”) .
On May 12, 2022, we paid $50.0 million, which represented the aggregate amount authorized for an ASR, and received an initial delivery of 2,739,726 shares of our Class A Common Stock in accordance with an ASR agreement with a third-party financial institution. The final settlement is expected to occur during the third quarter of fiscal year 2022, at which time, a volume-weighted average price calculation over the term of the ASR agreement will be used to determine the final number and
33
the average price of shares repurchased and retired. In addition, we paid $5.2 million and repurchased 336,153 shares of our Class A Common Stock through open market transactions during the second quarter of fiscal year 2022. Our Board of Directors authorized an aggregate purchase amount of $75 million related to the open market repurchases, of which $69.8 million is available for future repurchases as of June 30, 2022.
The Company’s repurchase of shares of its Class A Common Stock in the future depends on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors our management may deem relevant. The timing, volume and nature of such repurchases are subject to market conditions, applicable securities laws and other factors and may be amended, suspended or discontinued at any time.
Segment Information
We have three operating and reportable segments, Commercial Services, Government Solutions and Parking Solutions:
Segment performance is based on revenues and income from operations before depreciation, amortization, (gain) loss on disposal of assets, net, and stock-based compensation. The measure also excludes interest expense, net, income taxes and certain other transactions and is inclusive of other income, net.
Primary Components of Our Operating Results
Revenues
Service Revenue. Our Commercial Services segment generates service revenue primarily through the operation and management of tolling programs and processing violations for RACs, FMCs and other large fleet customers. These solutions are full-service offerings by which we enroll the license plates of our customers’ vehicles and transponders with tolling authority accounts, pay tolls and violations on the customers’ behalf and, through proprietary technology, integrate with customer data to match the toll or violation to the driver and then bill the driver (or our customer, as applicable) for use of the service. The cost of certain tolls, violations and our customers’ share of administration fees are netted against revenue. We also generate service revenue in our Commercial Services segment through processing titles and registrations.
Our Government Solutions segment generates service revenue through the operation and maintenance of photo enforcement systems. Revenue drivers in this segment include the number of systems installed and the monthly revenue per system. Ancillary service revenue is generated in our Government Solutions segment from payment processing, pass-through fees for collection expense, and other fees.
Our Parking Solutions segment generates service revenue mainly from offering software as a service, subscription fees, professional services and citation processing services related to parking management solutions to its customers.
Product Sales. Product sales are generated by the sale of photo enforcement equipment in the Government Solutions segment and specialized hardware in the Parking Solutions segment. Customer buying patterns vary greatly from period to period related to product sales.
Costs and Expenses
Cost of Service Revenue. Cost of service revenue consists of collection and other professional services provided by third parties and certain recurring service costs in our segments.
34
Cost of Product Sales. Cost of product sales consists of the cost to acquire and install photo enforcement equipment purchased by Government Solutions customers and costs to develop and install hardware sold to Parking Solutions customers.
Operating Expenses. Operating expenses primarily include payroll and payroll-related costs (including stock-based compensation), subcontractor costs, payment processing and other operational costs including print, postage and communication costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses include payroll and payroll-related costs (including stock-based compensation), real estate lease expense, insurance costs, professional services fees, acquisition costs and general corporate expenses.
Depreciation, Amortization and (Gain) Loss on Disposal of Assets, Net. Depreciation, amortization and (gain) loss on disposal of assets, net includes depreciation on property, plant and equipment, and amortization of definite-lived intangible assets. This line item also includes any one-time gains or losses incurred in connection with the disposal of certain assets.
Interest Expense, Net. This includes interest expense and amortization of deferred financing costs and discounts and is net of interest income.
Change in Fair Value of Private Placement Warrants. Change in fair value of private placement warrants consists of liability adjustments related to the 6,666,666 Private Placement Warrants originally issued to Gores Sponsor II, LLC re-measured to fair value at the end of each reporting period.
Tax Receivable Agreement Liability Adjustment. Tax receivable agreement liability adjustment consists of adjustments made to our Tax Receivable Agreement due to changes in estimates.
Loss on Extinguishment of Debt. Loss on extinguishment of debt generally consists of early payment penalties, the write-off of original issue discounts and deferred financing costs associated with debt extinguishment.
Other Income, Net. Other income, net primarily consists of volume rebates earned from total spend on purchasing cards and gain or loss on foreign currency transactions.
35
Results of Operations
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
The following table sets forth our statements of operations data and expresses each item as a percentage of total revenue for the periods presented as well as the changes between periods. The tables and information provided in this section were derived from exact numbers and may have immaterial rounding differences.
|
|
Three Months Ended June 30, |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
Percentage of Revenue |
|
|
Increase (Decrease) |
|
||||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||||
Service revenue |
|
$ |
174,502 |
|
|
$ |
116,426 |
|
|
|
93.1 |
% |
|
|
90.5 |
% |
|
$ |
58,076 |
|
|
|
49.9 |
% |
Product sales |
|
|
12,985 |
|
|
|
12,231 |
|
|
|
6.9 |
% |
|
|
9.5 |
% |
|
|
754 |
|
|
|
6.2 |
% |
Total revenue |
|
|
187,487 |
|
|
|
128,657 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
58,830 |
|
|
|
45.7 |
% |
Cost of service revenue |
|
|
3,713 |
|
|
|
1,332 |
|
|
|
2.0 |
% |
|
|
1.0 |
% |
|
|
2,381 |
|
|
|
178.8 |
% |
Cost of product sales |
|
|
8,326 |
|
|
|
6,144 |
|
|
|
4.5 |
% |
|
|
4.8 |
% |
|
|
2,182 |
|
|
|
35.5 |
% |
Operating expenses |
|
|
55,196 |
|
|
|
36,434 |
|
|
|
29.4 |
% |
|
|
28.3 |
% |
|
|
18,762 |
|
|
|
51.5 |
% |
Selling, general and administrative expenses |
|
|
40,152 |
|
|
|
26,229 |
|
|
|
21.4 |
% |
|
|
20.4 |
% |
|
|
13,923 |
|
|
|
53.1 |
% |
Depreciation, amortization and (gain) loss on disposal of assets, net |
|
|
34,939 |
|
|
|
27,012 |
|
|
|
18.6 |
% |
|
|
21.0 |
% |
|
|
7,927 |
|
|
|
29.3 |
% |
Total costs and expenses |
|
|
142,326 |
|
|
|
97,151 |
|
|
|
75.9 |
% |
|
|
75.5 |
% |
|
|
45,175 |
|
|
|
46.5 |
% |
Income from operations |
|
|
45,161 |
|
|
|
31,506 |
|
|
|
24.1 |
% |
|
|
24.5 |
% |
|
|
13,655 |
|
|
|
43.3 |
% |
Interest expense, net |
|
|
14,485 |
|
|
|
11,680 |
|
|
|
7.7 |
% |
|
|
9.1 |
% |
|
|
2,805 |
|
|
|
24.0 |
% |
Change in fair value of private placement warrants |
|
|
(6,600 |
) |
|
|
8,067 |
|
|
|
(3.5 |
)% |
|
|
6.3 |
% |
|
|
(14,667 |
) |
|
|
(181.8 |
)% |
Tax receivable agreement liability adjustment |
|
|
(965 |
) |
|
|
1,661 |
|
|
|
(0.5 |
)% |
|
|
1.3 |
% |
|
|
(2,626 |
) |
|
|
(158.1 |
)% |
Other income, net |
|
|
(4,039 |
) |
|
|
(2,798 |
) |
|
|
(2.2 |
)% |
|
|
(2.2 |
)% |
|
|
(1,241 |
) |
|
|
44.4 |
% |
Total other expenses |
|
|
2,881 |
|
|
|
18,610 |
|
|
|
1.5 |
% |
|
|
14.5 |
% |
|
|
(15,729 |
) |
|
|
(84.5 |
)% |
Income before income taxes |
|
|
42,280 |
|
|
|
12,896 |
|
|
|
22.6 |
% |
|
|
10.0 |
% |
|
|
29,384 |
|
|
|
227.9 |
% |
Income tax provision |
|
|
12,639 |
|
|
|
8,904 |
|
|
|
6.8 |
% |
|
|
6.9 |
% |
|
|
3,735 |
|
|
|
41.9 |
% |
Net income |
|
$ |
29,641 |
|
|
$ |
3,992 |
|
|
|
15.8 |
% |
|
|
3.1 |
% |
|
$ |
25,649 |
|
|
|
642.5 |
% |
Service Revenue. Service revenue increased by $58.1 million, or 49.9%, to $174.5 million for the three months ended June 30, 2022 from $116.4 million for the three months ended June 30, 2021, representing 93.1% and 90.5% of total revenue, respectively. The following table depicts service revenue by segment:
|
|
Three Months Ended June 30, |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
Percentage of Revenue |
|
|
Increase (Decrease) |
|
||||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||||
Service revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial Services |
|
$ |
84,888 |
|
|
$ |
66,480 |
|
|
|
45.3 |
% |
|
|
51.7 |
% |
|
$ |
18,408 |
|
|
|
27.7 |
% |
Government Solutions |
|
|
74,672 |
|
|
|
49,946 |
|
|
|
39.8 |
% |
|
|
38.8 |
% |
|
|
24,726 |
|
|
|
49.5 |
% |
Parking Solutions |
|
|
14,942 |
|
|
|
— |
|
|
|
8.0 |
% |
|
|
— |
|
|
|
14,942 |
|
|
n/a |
|
|
Total service revenue |
|
$ |
174,502 |
|
|
$ |
116,426 |
|
|
|
93.1 |
% |
|
|
90.5 |
% |
|
$ |
58,076 |
|
|
|
49.9 |
% |
Commercial Services service revenue increased by $18.4 million, or 27.7%, from $66.5 million for the three months ended June 30, 2021 to $84.9 million for the three months ended June 30, 2022. The increase was primarily due to the increase in travel volume and related tolling activity in 2022 compared to 2021, which was negatively impacted by the COVID-19 pandemic. The volume of tolls incurred by RAC vehicles increased along with a shift towards an all-inclusive fee structure from an incidental or daily usage rate and higher pricing for certain products contributed to a $13.2 million increase, and the volume of tolls incurred by our FMC customers contributed to a $3.1 million increase in revenue during the three months ended June 30, 2022 compared to the same period in 2021.
Government Solutions service revenue includes revenue from speed, red-light, school bus stop arm and bus lane photo enforcement systems. Service revenue increased by $24.7 million to $74.7 million for the three months ended June 30, 2022 compared to $49.9 million in the same period in 2021. The Redflex acquisition contributed approximately $13.9 million to our
36
growth. Organic growth excluding Redflex was approximately $10.8 million, which was primarily driven by the expansion of school zone speed programs, and speed is the largest product in this segment. We added 752 speed cameras in 2021, excluding Redflex, which provided growth in 2022, and 268 speed cameras for the three months ended June 30, 2022 which provided growth in the current quarter and will continue to provide growth for the remainder of 2022. The remaining growth is attributable to other expansions and improvement in variable rate programs that recovered from COVID-19 to more normalized volumes.
Parking Solutions service revenue of $14.9 million resulted from the acquisition of T2 systems in December 2021 with no revenue in the comparable period.
Product Sales. Product sales were $13.0 million and $12.2 million for the three months ended June 30, 2022 and 2021, respectively. Product sales increased by approximately $0.8 million, which was mainly due to $4.1 million of product revenue from the inclusion of T2 Systems for which there was no revenue in the comparable 2021 period, offset by a $3.3 million decrease in product sales to Government Solutions customers including Redflex.
Cost of Service Revenue. Cost of service revenue increased from $1.3 million for the three months ended June 30, 2021 to $3.7 million for the three months ended June 30, 2022. The $2.4 million increase was mainly attributable to the inclusion of costs in the Parking Solutions segment with no comparable amounts in the prior year.
Cost of Product Sales. Cost of product sales increased by $2.2 million from $6.1 million in the three months ended June 30, 2021 to $8.3 million in the three months ended June 30, 2022, which was mainly due to a $3.4 million increase in costs from the inclusion of T2 Systems for which there was no comparable amount in the prior year offset by a $1.3 million decrease in costs in the Government Solutions segment.
Operating Expenses. Operating expenses increased by $18.8 million, or 51.5%, from $36.4 million for the three months ended June 30, 2021 to $55.2 million for the three months ended June 30, 2022. The increase in 2022 was primarily attributable to increase in wages expense, recurring services, subcontractor expenses and information technology costs resulting from the inclusion of Redflex for the full three-month period as compared to 12 days in 2021 and the inclusion of T2 Systems operations with no comparable amounts in the prior period. Operating expenses as a percentage of total revenue increased from 28.3% to 29.4% for the three months ended June 30, 2021 and 2022, respectively. This increase mainly represents improved operating leverage corresponding to the increased revenue in the Commercial Services segment and decreased operating leverage for the Government Solutions business with the addition of Redflex, which historically had lower margins than the Verra Mobility business. The following table presents operating expenses by segment:
|
|
Three Months Ended June 30, |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
Percentage of Revenue |
|
|
Increase (Decrease) |
|
||||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial Services |
|
$ |
18,105 |
|
|
$ |
15,990 |
|
|
|
9.7 |
% |
|
|
12.4 |
% |
|
$ |
2,115 |
|
|
|
13.2 |
% |
Government Solutions |
|
|
34,401 |
|
|
|
20,196 |
|
|
|
18.3 |
% |
|
|
15.7 |
% |
|
|
14,205 |
|
|
|
70.3 |
% |
Parking Solutions |
|
|
2,406 |
|
|
|
— |
|
|
|
1.2 |
% |
|
|
— |
|
|
|
2,406 |
|
|
n/a |
|
|
Total operating expenses before stock-based compensation |
|
|
54,912 |
|
|
|
36,186 |
|
|
|
29.2 |
% |
|
|
28.1 |
% |
|
|
18,726 |
|
|
|
51.7 |
% |
Stock-based compensation |
|
|
284 |
|
|
|
248 |
|
|
|
0.2 |
% |
|
|
0.2 |
% |
|
|
36 |
|
|
|
14.5 |
% |
Total operating expenses |
|
$ |
55,196 |
|
|
$ |
36,434 |
|
|
|
29.4 |
% |
|
|
28.3 |
% |
|
$ |
18,762 |
|
|
|
51.5 |
% |
37
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $40.2 million for the three months ended June 30, 2022 compared to $26.2 million for the same period in 2021. The increase is primarily due to increased wages and other general expenses from the inclusion of Redflex for the full three-month period as compared to 12 days in 2021 and the inclusion of T2 Systems with no comparable amounts in the prior year. In addition, we had increases of $3.6 million of professional services costs, $2.1 million related to credit loss expense and $1.0 million of stock-based compensation expense, which were partially offset by a $3.0 million decrease in transaction costs compared to the prior year. Selling, general and administrative expenses as a percentage of total revenue increased from 20.4% to 21.4% for the three months ended June 30, 2021 and 2022, respectively. The following table presents selling, general and administrative expenses by segment:
|
|
Three Months Ended June 30, |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
Percentage of Revenue |
|
|
Increase (Decrease) |
|
||||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial Services |
|
$ |
13,681 |
|
|
$ |
9,479 |
|
|
|
7.3 |
% |
|
|
7.4 |
% |
|
$ |
4,202 |
|
|
|
44.3 |
% |
Government Solutions |
|
|
14,433 |
|
|
|
10,119 |
|
|
|
7.7 |
% |
|
|
7.8 |
% |
|
|
4,314 |
|
|
|
42.6 |
% |
Parking Solutions |
|
|
7,756 |
|
|
|
— |
|
|
|
4.1 |
% |
|
|
— |
|
|
|
7,756 |
|
|
n/a |
|
|
Corporate and other |
|
|
— |
|
|
|
3,306 |
|
|
|
— |
|
|
|
2.6 |
% |
|
|
(3,306 |
) |
|
|
(100.0 |
)% |
Total selling, general and administrative expenses before stock-based compensation |
|
|
35,870 |
|
|
|
22,904 |
|
|
|
19.1 |
% |
|
|
17.8 |
% |
|
|
12,966 |
|
|
|
56.6 |
% |
Stock-based compensation |
|
|
4,282 |
|
|
|
3,325 |
|
|
|
2.3 |
% |
|
|
2.6 |
% |
|
|
957 |
|
|
|
28.8 |
% |
Total selling, general and administrative expenses |
|
$ |
40,152 |
|
|
$ |
26,229 |
|
|
|
21.4 |
% |
|
|
20.4 |
% |
|
$ |
13,923 |
|
|
|
53.1 |
% |
Depreciation, Amortization and (Gain) Loss on Disposal of Assets, Net. Depreciation, amortization and (gain) loss on disposal of assets, net, increased by $7.9 million to $34.9 million for the three months ended June 30, 2022 from $27.0 million for the same period in 2021. This was mainly due to increased amortization and depreciation expense resulting from the inclusion of Redflex for the full three-month period as compared to 12 days in 2021 and the inclusion of T2 Systems with no comparable amounts in the prior year.
Interest Expense, Net. Interest expense, net increased by $2.8 million from $11.7 million for the three months ended June 30, 2021 to $14.5 million for the same period in 2022. This increase is primarily attributable to $1.2 billion in average outstanding debt during the three months ended June 30, 2022, which included the $250.0 million of incremental term loan borrowing, compared to $1.0 billion in average outstanding debt for the same period in 2021. See “Liquidity and Capital Resources.”
Change in Fair Value of Private Placement Warrants. We recorded a gain of $6.6 million and a loss of $8.1 million for the three months ended June 30, 2022 and 2021, respectively, related to the changes in fair value of our Private Placement Warrants which are accounted for as liabilities on our condensed consolidated balance sheets. The change in fair value is the result of re-measurement of the liability at the end of each reporting period.
Tax Receivable Agreement Liability Adjustment. We recorded a $1.0 million benefit and a $1.7 million charge for the three months ended June 30, 2022 and 2021, respectively. The TRA liability adjustment in 2022 is arising from lower estimated state tax rates due to changes in apportionment, whereas in 2021 it is arising from higher estimated state tax rates due to changes in statutory rates.
Other Income, Net. We pay a high volume of tolls on behalf of our customers with purchasing cards, which generate rebates based on volume, payment terms and rebate frequency. Other income, net was $4.0 million for the three months ended June 30, 2022, compared to $2.8 million for the three months ended June 30, 2021. The increase of $1.2 million is primarily attributable to increased tolling activity due to increased travel, especially in the RAC industry.
Income Tax Provision. Income tax provision was $12.6 million representing an effective tax rate of 29.9% for the three months ended June 30, 2022 compared to a tax provision of $8.9 million, representing an effective tax rate of 69.0% for the same period in 2021. The primary driver for the effective tax rate variance is due to the permanent differences related to the mark-to-market adjustment on the private placement warrants and the increase in pre-tax income for 2022 compared to 2021, resulting in the Company’s permanent book and tax differences having a proportionately lesser impact on the effective tax rate for 2022.
38
Net Income. We had net income of $29.6 million for the three months ended June 30, 2022, as compared to a net income of $4.0 million for the three months ended June 30, 2021. The $25.6 million increase in net income was primarily due to increases in service revenue across all business segments, the change in the fair value of the private placement warrants and the other statement of operations activity discussed above.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
The following table sets forth our statements of operations data and expresses each item as a percentage of total revenue for the periods presented as well as the changes between periods. The tables and information provided in this section were derived from exact numbers and may have immaterial rounding differences.
|
|
Six Months Ended June 30, |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
Percentage of Revenue |
|
|
Increase (Decrease) |
|
||||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||||
Service revenue |
|
$ |
335,636 |
|
|
$ |
206,189 |
|
|
|
93.8 |
% |
|
|
94.4 |
% |
|
$ |
129,447 |
|
|
|
62.8 |
% |
Product sales |
|
|
22,236 |
|
|
|
12,326 |
|
|
|
6.2 |
% |
|
|
5.6 |
% |
|
|
9,910 |
|
|
|
80.4 |
% |
Total revenue |
|
|
357,872 |
|
|
|
218,515 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
139,357 |
|
|
|
63.8 |
% |
Cost of service revenue |
|
|
7,492 |
|
|
|
2,212 |
|
|
|
2.1 |
% |
|
|
1.0 |
% |
|
|
5,280 |
|
|
|
238.7 |
% |
Cost of product sales |
|
|
14,321 |
|
|
|
6,171 |
|
|
|
4.0 |
% |
|
|
2.8 |
% |
|
|
8,150 |
|
|
|
132.1 |
% |
Operating expenses |
|
|
106,259 |
|
|
|
66,926 |
|
|
|
29.7 |
% |
|
|
30.6 |
% |
|
|
39,333 |
|
|
|
58.8 |
% |
Selling, general and administrative expenses |
|
|
81,787 |
|
|
|
54,672 |
|
|
|
22.9 |
% |
|
|
25.1 |
% |
|
|
27,115 |
|
|
|
49.6 |
% |
Depreciation, amortization and (gain) loss on disposal of assets, net |
|
|
70,846 |
|
|
|
55,277 |
|
|
|
19.8 |
% |
|
|
25.3 |
% |
|
|
15,569 |
|
|
|
28.2 |
% |
Total costs and expenses |
|
|
280,705 |
|
|
|
185,258 |
|
|
|
78.5 |
% |
|
|
84.8 |
% |
|
|
95,447 |
|
|
|
51.5 |
% |
Income from operations |
|
|
77,167 |
|
|
|
33,257 |
|
|
|
21.5 |
% |
|
|
15.2 |
% |
|
|
43,910 |
|
|
|
132.0 |
% |
Interest expense, net |
|
|
28,764 |
|
|
|
20,844 |
|
|
|
8.0 |
% |
|
|
9.6 |
% |
|
|
7,920 |
|
|
|
38.0 |
% |
Change in fair value of private placement warrants |
|
|
(2,866 |
) |
|
|
10,134 |
|
|
|
(0.8 |
)% |
|
|
4.6 |
% |
|
|
(13,000 |
) |
|
|
(128.3 |
)% |
Tax receivable agreement liability adjustment |
|
|
(965 |
) |
|
|
1,661 |
|
|
|
(0.3 |
)% |
|
|
0.8 |
% |
|
|
(2,626 |
) |
|
|
(158.1 |
)% |
Loss on extinguishment of debt |
|
|
— |
|
|
|
5,334 |
|
|
|
— |
|
|
|
2.4 |
% |
|
|
(5,334 |
) |
|
|
(100.0 |
)% |
Other income, net |
|
|
(6,905 |
) |
|
|
(5,811 |
) |
|
|
(1.9 |
)% |
|
|
(2.7 |
)% |
|
|
(1,094 |
) |
|
|
18.8 |
% |
Total other expenses |
|
|
18,028 |
|
|
|
32,162 |
|
|
|
5.0 |
% |
|
|
14.7 |
% |
|
|
(14,134 |
) |
|
|
(43.9 |
)% |
Income before income taxes |
|
|
59,139 |
|
|
|
1,095 |
|
|
|
16.5 |
% |
|
|
0.5 |
% |
|
|
58,044 |
|
|
|
5300.8 |
% |
Income tax provision |
|
|
19,458 |
|
|
|
6,018 |
|
|
|
5.4 |
% |
|
|
2.8 |
% |
|
|
13,440 |
|
|
|
223.3 |
% |
Net income (loss) |
|
$ |
39,681 |
|
|
$ |
(4,923 |
) |
|
|
11.1 |
% |
|
|
(2.3 |
)% |
|
$ |
44,604 |
|
|
|
906.0 |
% |
Service Revenue. Service revenue increased by $129.4 million, or 62.8%, to $335.6 million for the six months ended June 30, 2022 from $206.2 million for the six months ended June 30, 2021, representing 93.8% and 94.4% of total revenue, respectively. The following table depicts service revenue by segment:
|
|
Six Months Ended June 30, |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
Percentage of Revenue |
|
|
Increase (Decrease) |
|
||||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||||
Service revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial Services |
|
$ |
158,353 |
|
|
$ |
112,169 |
|
|
|
44.3 |
% |
|
|
51.4 |
% |
|
$ |
46,184 |
|
|
|
41.2 |
% |
Government Solutions |
|
|
147,896 |
|
|
|
94,020 |
|
|
|
41.3 |
% |
|
|
43.0 |
% |
|
|
53,876 |
|
|
|
57.3 |
% |
Parking Solutions |
|
|
29,387 |
|
|
|
— |
|
|
|
8.2 |
% |
|
|
— |
|
|
|
29,387 |
|
|
n/a |
|
|
Total service revenue |
|
$ |
335,636 |
|
|
$ |
206,189 |
|
|
|
93.8 |
% |
|
|
94.4 |
% |
|
$ |
129,447 |
|
|
|
62.8 |
% |
Commercial Services service revenue increased by $46.2 million, or 41.2%, from $112.2 million for the six months ended June 30, 2021 to $158.4 million for the six months ended June 30, 2022. The increase was primarily due to the increase in travel volume in 2022 compared to 2021 which was negatively impacted by the COVID-19 pandemic, especially the first three months of 2021. The volume of tolls incurred by RAC vehicles increased along with a shift towards an all-inclusive fee structure from an incidental or daily usage rate and higher pricing for certain products contributed to a $32.1 million increase, and the volume of tolls incurred by our FMC customers contributed to a $7.8 million increase in revenue during the six months ended June 30, 2022 compared to the same period in 2021.
39
Government Solutions service revenue includes revenue from speed, red-light, school bus stop arm and bus lane photo enforcement systems. Service revenue increased by $53.9 million and was $147.9 million and $94.0 million for the six months ended June 30, 2022 and 2021, respectively. The Redflex acquisition contributed $30.9 million to our growth. Organic growth excluding Redflex was $22.9 million, which was primarily driven by the expansion of school zone speed programs, and speed is the largest product in this segment. We added 752 speed cameras in 2021, excluding Redflex, which provided year-over-year growth in 2022, and 379 speed cameras in the six months ended June 30, 2022 which provided growth in the current period and will continue to provide growth for the remainder of 2022. The remaining growth is attributable to other expansions and improvement in variable rate programs that recovered from COVID-19 to more normalized volumes.
Parking Solutions service revenue of $29.4 million resulted from our acquisition of T2 systems in December 2021 with no revenue in the comparable six-month period.
Product Sales. Product sales increased by $9.9 million, and were $22.2 million and $12.3 million for the six months ended June 30, 2022 and 2021, respectively. The increase in 2022 was mainly due to an aggregate $12.2 million of product revenue generated from Redflex, which only included 12 days of activity in the 2021 period and T2 Systems for which there was no revenue in the comparable 2021 period, offset by a decrease in product sales for a Government Solutions customer whose buying patterns varied from period to period.
Cost of Service Revenue. Cost of service revenue increased from $2.2 million for the six months ended June 30, 2021 to $7.5 million for the six months ended June 30, 2022. The $5.3 million increase was mainly attributable to the inclusion of costs in the Parking Solutions segment with no comparable amounts in the prior year.
Cost of Product Sales. Cost of product sales increased by $8.1 million from $6.2 million in the six months ended June 30, 2021 to $14.3 million in the six months ended June 30, 2022, which was mainly due to increased costs from the inclusion of Redflex and T2 Systems operations.
Operating Expenses. Operating expenses increased by $39.3 million, or 58.8%, from $66.9 million for the six months ended June 30, 2021 to $106.3 million for the six months ended June 30, 2022. The increase was primarily attributable to increases in wages expense, subcontractor expenses, recurring services and information technology costs resulting from the inclusion of Redflex for the full six-month period in 2022 compared to only 12 days in 2021 and T2 Systems operations in 2022 with no comparable amounts in the prior year. Operating expenses as a percentage of total revenue decreased from 30.6% to 29.7% for the six months ended June 30, 2021 and 2022, respectively. The following table presents operating expenses by segment:
|
|
Six Months Ended June 30, |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
Percentage of Revenue |
|
|
Increase (Decrease) |
|
||||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial Services |
|
$ |
34,052 |
|
|
$ |
30,196 |
|
|
|
9.5 |
% |
|
|
13.8 |
% |
|
$ |
3,856 |
|
|
|
12.8 |
% |
Government Solutions |
|
|
66,792 |
|
|
|
36,288 |
|
|
|
18.7 |
% |
|
|
16.6 |
% |
|
|
30,504 |
|
|
|
84.1 |
% |
Parking Solutions |
|
|
4,917 |
|
|
|
— |
|
|
|
1.4 |
% |
|
|
— |
|
|
|
4,917 |
|
|
n/a |
|
|
Total operating expenses before stock-based compensation |
|
|
105,761 |
|
|
|
66,484 |
|
|
|
29.6 |
% |
|
|
30.4 |
% |
|
|
39,277 |
|
|
|
59.1 |
% |
Stock-based compensation |
|
|
498 |
|
|
|
442 |
|
|
|
0.1 |
% |
|
|
0.2 |
% |
|
|
56 |
|
|
|
12.7 |
% |
Total operating expenses |
|
$ |
106,259 |
|
|
$ |
66,926 |
|
|
|
29.7 |
% |
|
|
30.6 |
% |
|
$ |
39,333 |
|
|
|
58.8 |
% |
40
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $27.1 million to $81.8 million for the six months ended June 30, 2022 compared to $54.7 million for the same period in 2021. The increase is primarily due to increased wages, information technology and other general expenses due to the inclusion of Redflex for the full six-month period as compared to 12 days in the prior year and T2 Systems operations included in the six months ended June 30, 2022 with no comparable amounts in the prior year. In addition, we had increases of $5.8 million for professional services, $3.2 million for credit loss expense, and $2.5 million related to stock-based compensation expense compared to the prior year, which were partially offset by a $6.9 million decrease in transaction costs compared to 2021. Selling, general and administrative expenses as a percentage of total revenue decreased from 25.1% to 22.9% for the six months ended June 30, 2021 and 2022, respectively. The following table presents selling, general and administrative expenses by segment:
|
|
Six Months Ended June 30, |
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
Percentage of Revenue |
|
|
Increase (Decrease) |
|
||||||||||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||||
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Commercial Services |
|
$ |
26,957 |
|
|
$ |
20,271 |
|
|
|
7.5 |
% |
|
|
9.3 |
% |
|
$ |
6,686 |
|
|
|
33.0 |
% |
Government Solutions |
|
|
30,888 |
|
|
|
20,930 |
|
|
|
8.7 |
% |
|
|
9.6 |
% |
|
|
9,958 |
|
|
|
47.6 |
% |
Parking Solutions |
|
|
15,428 |
|
|
|
— |
|
|
|
4.3 |
% |
|
|
— |
|
|
|
15,428 |
|
|
n/a |
|
|
Corporate and other |
|
|
— |
|
|
|
7,432 |
|
|
|
— |
|
|
|
3.4 |
% |
|
|
(7,432 |
) |
|
|
(100.0 |
)% |
Total selling, general and administrative expenses before stock-based compensation |
|
|
73,273 |
|
|
|
48,633 |
|
|
|
20.5 |
% |
|
|
22.3 |
% |
|
|
24,640 |
|
|
|
50.7 |
% |
Stock-based compensation |
|
|
8,514 |
|
|
|
6,039 |
|
|
|
2.4 |
% |
|
|
2.8 |
% |
|
|
2,475 |
|
|
|
41.0 |
% |
Total selling, general and administrative expenses |
|
$ |
81,787 |
|
|
$ |
54,672 |
|
|
|
22.9 |
% |
|
|
25.1 |
% |
|
$ |
27,115 |
|
|
|
49.6 |
% |
Depreciation, Amortization and (Gain) Loss on Disposal of Assets, Net. Depreciation, amortization and (gain) loss on disposal of assets, net, increased by approximately $15.6 million to $70.8 million for the six months ended June 30, 2022 from $55.3 million for the same period in 2021. This was mainly due to increased amortization and depreciation expense from the inclusion of Redflex for the full six-month period in 2022 compared to only 12 days in 2021 and T2 Systems operations with no comparable amounts in the prior year, partially offset by a decrease due to certain trademark intangibles being fully amortized for the six months ended June 30, 2022.
Interest Expense, Net. Interest expense, net increased by $7.9 million from $20.8 million for the six months ended June 30, 2021 to approximately $28.8 million for the same period in 2022. This increase is primarily attributable to $1.2 billion in average outstanding debt during the six months ended June 30, 2022, compared to $943 million in average outstanding debt for the same period in 2021. See “Liquidity and Capital Resources.”
Change in Fair Value of Private Placement Warrants. We recorded a gain of $2.9 million and a loss of $10.1 million for the six months ended June 30, 2022 and 2021, respectively, related to the changes in fair value of our Private Placement Warrants which are accounted for as liabilities on our condensed consolidated balance sheets. The change in fair value is the result of re-measurement of the liability at the end of each reporting period.
Tax Receivable Agreement Liability Adjustment. We recorded a $1.0 million benefit and a $1.7 million charge for the six months ended June 30, 2022 and 2021, respectively. The TRA liability adjustment in 2022 is arising from lower estimated state tax rates due to changes in apportionment, whereas in 2021 it was arising from higher estimated state tax rates due to changes in statutory rates.
Loss on Extinguishment of Debt. Loss on extinguishment of debt was $5.3 million for the six months ended June 30, 2021 consisting of a $4.0 million write-off of pre-existing deferred financing costs and discounts and $1.3 million of lender and third-party costs associated with the issuance of the 2021 Term Loan, as discussed and defined below.
Other Income, Net. We pay a high volume of tolls on behalf of our customers with purchasing cards which generate rebates based on volume, payment terms and rebate frequency. Other income, net was $6.9 million for the six months ended June 30, 2022, compared to $5.8 million for the six months ended June 30, 2021. The increase of $1.1 million is primarily attributable to increased tolling activity due to increased travel in 2022, especially in the RAC industry.
Income Tax Provision. Income tax provision was $19.5 million representing an effective tax rate of 32.9% for the six months ended June 30, 2022 compared to $6.0 million representing an effective tax rate of 549.6% for the same period in 2021. The primary driver for the effective tax rate variance is the permanent differences related to the mark-to-market adjustment on
41
the private placement warrants and the increase in pre-tax income for 2022 compared to 2021, resulting in the Company’s permanent book and tax differences having a proportionately lesser impact on the effective tax rate for 2022.
Net Income (Loss). We had net income of $39.7 million for the six months ended June 30, 2022, as compared to a net loss of $4.9 million for the six months ended June 30, 2021. The increase in net income of $44.6 million was mainly due to increases in service revenue and product sales, and the other statement of operations activity discussed above.
Liquidity and Capital Resources
Our principal sources of liquidity are cash flows from operations and available borrowings under our Revolver (defined below).
We have incurred significant long-term debt as a result of acquisitions completed in prior years.
We believe that our existing cash and cash equivalents, cash flows provided by operating activities and our ability to borrow under our Revolver (as defined below) will be sufficient to meet operating cash requirements and service debt obligations for at least the next 12 months. Our ability to generate sufficient cash from our operating activities depends on our future performance, which is subject to general economic, political, financial, competitive and other factors beyond our control. In addition, our future capital expenditures and other cash requirements could be higher than currently expected due to various factors, including any expansion of our business or strategic acquisitions. Should we pursue strategic acquisitions, we may need to raise additional capital, which may be in the form of additional long-term debt, borrowings on our Revolver, or equity financings, all of which may not be available to us on favorable terms or at all.
We have the ability to borrow under our Revolver to meet obligations as they come due. As of June 30, 2022, we had $68.8 million available for borrowing, net of letters of credit, under our Revolver.
On May 7, 2022, our Board of Directors authorized a share repurchase program for up to an aggregate amount of $125.0 million of our outstanding shares of Class A Common Stock over the next 12 months from time to time in open market transactions, ASRs or in privately negotiated transactions, each as permitted under applicable rules and regulations. On May 12, 2022, we paid $50.0 million, which represented the aggregate amount authorized for an ASR, and received an initial delivery of 2,739,726 shares of our Class A Common Stock in accordance with an ASR agreement with a third-party financial institution. The final settlement is expected to occur during the third quarter of fiscal year 2022, at which time, a volume-weighted average price calculation over the term of the ASR agreement will be used to determine the final number and the average price of shares repurchased. In addition, we paid $5.2 million and repurchased 336,153 shares of our Class A Common Stock through open market transactions during the second quarter of fiscal year 2022. Our Board of Directors authorized an aggregate purchase amount of $75.0 million related to the open market repurchases, of which $69.8 million is available for future repurchases as of June 30, 2022. We used existing cash on hand to fund all share repurchases during 2022. See Note 11, Stockholders' Equity, for additional details on the share repurchases.
Concentration of Credit Risk
The City of New York Department of Transportation (“NYCDOT”) represented 25% and 39% of total accounts receivable, net as of June 30, 2022 and December 31, 2021, respectively. There is no material reserve related to NYCDOT open receivables as amounts are deemed collectible based on current conditions and expectations.
The following table sets forth certain captions indicated on our statements of cash flows for the respective periods:
|
|
Six Months Ended June 30, |
|
|||||
($ in thousands) |
|
2022 |
|
|
2021 |
|
||
Net cash provided by operating activities |
|
$ |
96,375 |
|
|
$ |
37,478 |
|
Net cash used in investing activities |
|
|
(23,299 |
) |
|
|
(115,102 |
) |
Net cash (used in) provided by financing activities |
|
|
(86,517 |
) |
|
|
107,030 |
|
Cash Flows from Operating Activities
Cash provided by operating activities increased by $58.9 million, from $37.5 million for the six months ended June 30, 2021 to $96.4 million for the six months ended June 30, 2022. Net income year over year increased by $44.6 million, from $(4.9) million in 2021 to $39.7 million in 2022. Adjustments to reconcile net income (loss) to cash provided by operating activities decreased $14.7 million in 2022 compared to 2021. This was primarily due to the change in deferred income taxes,
42
changes in the fair value of the private placement warrant liability, the TRA liability adjustment and the $5.3 million loss on extinguishment of debt in 2021 with no comparable amount in the 2022 period. These decreases were offset mainly by increased depreciation and amortization resulting from our recent acquisitions, combined with increases in the credit loss expense and stock-based compensation expenses. The major changes in operating assets and liabilities compared to the prior period were driven by a decrease in accounts receivable balances mainly for the NYCDOT customer, and decrease in prepaid and other assets.
Cash Flows from Investing Activities
Cash used in investing activities was $23.3 million and $115.1 million for the six months ended June 30, 2022 and 2021, respectively. The cash used in 2022 was primarily related to purchases of installation and service parts and property and equipment. The cash used in 2021 was primarily related to VM Consolidated’s acquisition of 100% of the outstanding equity of Redflex at A$0.96 per share for total consideration of A$152.5 million, or approximately US$117.9 million.
Cash Flows from Financing Activities
Cash (used in) provided by financing activities was $(86.5) million and $107.0 million for the six months ended June 30, 2022 and 2021, respectively. The cash used in 2022 was mainly due to the repurchases of 3.1 million shares of the Company’s Class A Common Stock for $55.3 million in the second quarter of 2022 (as discussed further in Note 11. Stockholders’ Equity), the repayment of $25.0 million of borrowing on the Revolver in January 2022 and quarterly principal payments on the 2021 Term Loan.
We had aggregate borrowings of $996.8 million during 2021 consisting of the 2021 Term Loan and Senior Notes and repayments of $881.3 million on outstanding debt related to the 2018 and 2021 Term Loans (defined below), and debt assumed as part of the Redflex acquisition that was subsequently paid. The 2018 Term Loan was fully repaid in March 2021. The aggregate borrowings net of the repayments were used in part to fund the close of the Redflex acquisition.
Long-term Debt
2021 Term Loan and Senior Notes
In March 2021, VM Consolidated entered into an Amendment and Restatement Agreement No.1 to the First Lien Term Loan Credit Agreement (the “2021 Term Loan”) with a syndicate of lenders. The 2021 Term Loan has an aggregate borrowing of $650.0 million, maturing on March 26, 2028, and an accordion feature providing for an additional $250.0 million of term loans, subject to satisfaction of certain requirements. In connection with the 2021 Term Loan, we had an offering discount cost of $3.3 million and $0.7 million of deferred financing costs, both of which were capitalized and are amortized over the remaining life of the 2021 Term Loan.
In addition, in March 2021, VM Consolidated issued an aggregate principal amount of $350.0 million in Senior Unsecured Notes (the “Senior Notes”), due on April 15, 2029. In connection with the issuance of the Senior Notes, we incurred $5.7 million in lender and third-party costs, which were capitalized as deferred financing costs and are being amortized over the remaining life of the Senior Notes.
The net proceeds from both the 2021 Term Loan and the Senior Notes were used in March 2021 to repay in full all outstanding debt which was represented by the First Lien Term Loan Credit Agreement (as amended, the “2018 Term Loan”) with a balance of $865.6 million.
On December 7, 2021, VM Consolidated entered into an agreement to exercise the accordion feature under the 2021 Term Loan, borrowing $250.0 million in incremental term loans (“Incremental Term Loan”). The proceeds from the Incremental Term Loan were used, along with cash on hand, to fund the acquisition of T2 Systems, including repaying in full all outstanding debt for T2 Systems. In connection with the Incremental Term Loan, we had an offering discount cost of $1.3 million and $3.8 million of deferred financing costs, both of which were capitalized and are amortized over the remaining life of the 2021 Term Loan. The Incremental Term Loan accrued interest from the date of borrowing until December 31, 2021, at which time, it was combined with the 2021 Term Loan to be a single tranche of term loan borrowings. The total principal outstanding under the 2021 Term Loan, which includes the Incremental Term Loan, was $890.6 million at June 30, 2022.
The 2021 Term Loan is repayable at 1.0% per annum of the amount initially borrowed, paid in quarterly installments. It bears interest based, at our option, on either (1) LIBOR plus an applicable margin of 3.25% per annum, or (2) an alternate base rate plus an applicable margin of 2.25% per annum. As of June 30, 2022, the interest rate on the 2021 Term Loan was 6.1%.
43
In addition, the 2021 Term Loan requires mandatory prepayments equal to the product of the excess cash flows of the Company (as defined in the 2021 Term Loan agreement) and the applicable prepayment percentages (calculated as of the last day of the fiscal year, beginning with the year ending December 31, 2022), as set forth in the following table:
Consolidated First Lien Net Leverage Ratio (As Defined by the 2021 Term Loan Agreement) |
|
Applicable |
> 3.70:1.00 |
|
50% |
< 3.70:1.00 and > 3.20:1.00 |
|
25% |
< 3.20:1.00 |
|
0% |
Interest on the Senior Notes is fixed at 5.50% per annum and is payable on April 15 and October 15 of each year. On or after April 15, 2024, we may redeem all or a portion of the Senior Notes at the redemption prices set forth below in percentages by year, plus accrued and unpaid interest:
Year |
|
Percentage |
2024 |
|
102.750% |
2025 |
|
101.375% |
2026 and thereafter |
|
100.000% |
In addition, we may redeem up to 40% of the Senior Notes before April 15, 2024, with the net cash proceeds from certain equity offerings.
We evaluated the March 2021 refinancing transactions on a lender-by-lender basis and accounted for the portion of the transaction that did not meet the accounting criteria for debt extinguishment as a debt modification. Accordingly, we recognized a loss on extinguishment of debt of $5.3 million on the 2018 Term Loan during the six months ended June 30, 2021 consisting of a $4.0 million write-off of pre-existing deferred financing costs and discounts and $1.3 million of lender and third-party costs associated with the issuance of the 2021 Term Loan.
PPP Loan
During fiscal year 2020, Redflex received a loan from the U.S. Small Business Administration (“SBA”) as part of the Paycheck Protection Program to offset certain employment and other allowable costs incurred as a result of the COVID-19 pandemic. At June 30, 2022, the loan amount outstanding was $2.9 million and was included in the current portion of long-term debt. In early 2021, Redflex applied for forgiveness of this loan and, as of June 30, 2022, was still awaiting approval from the SBA for loan forgiveness. In April 2022, the original maturity as of April 2022 was extended to September 2022 by the lender.
The Revolver
We have a Revolving Credit Agreement (the “Revolver”) with a commitment of up to $75 million available for loans and letters of credit. The Revolver matures on December 20, 2026. Borrowing eligibility under the Revolver is subject to a monthly borrowing base calculation based on (i) certain percentages of eligible accounts receivable and inventory, less (ii) certain reserve items, including outstanding letters of credit and other reserves. The Revolver bears interest on either (1) LIBOR plus an applicable margin, or (2) an alternate base rate, plus an applicable margin. The margin percentage applied to (1) LIBOR is either 1.25%, 1.50%, or 1.75%, or (2) the base rate is either 0.25%, 0.50%, or 0.75%, depending on our average availability to borrow under the commitment. At December 31, 2021, we had $25.0 million in outstanding borrowings on the Revolver, which was repaid in full in January 2022. At June 30, 2022, the availability to borrow was $68.8 million, net of $6.2 million of outstanding letters of credit.
Interest on the unused portion of the Revolver is payable quarterly at 0.375% and we are also required to pay participation and fronting fees at 1.38% on $6.2 million of outstanding letters of credit as of June 30, 2022.
All borrowings and other extensions of credits under the 2021 Term Loan, Senior Notes and the Revolver are subject to the satisfaction of customary conditions and restrictive covenants including absence of defaults and accuracy in material respects of representations and warranties. Substantially all of our assets are pledged as collateral to secure our indebtedness under the 2021 Term Loan. At June 30, 2022, we were compliant with all debt covenants.
44
Interest Expense
We recorded interest expense, including amortization of deferred financing costs and discounts, of $14.5 million and $11.7 million for the three months ended June 30, 2022 and 2021, respectively, and $28.8 million and $20.8 million for the six months ended June 30, 2022 and 2021, respectively.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet financing arrangements as of June 30, 2022.
Critical Accounting Policies, Estimates and Judgments
The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Significant estimates and assumptions include those related to the fair values assigned to net assets acquired (including identifiable intangibles) in business combinations, revenue recognition, inventory valuation, allowance for credit losses, fair value of the private placement warrant liabilities, valuation allowance on deferred tax assets, impairment assessments of goodwill, intangible assets and other long-lived 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.
Refer to our 2021 Annual Report on Form 10-K for our critical accounting policies, estimates and judgments.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, refer to Note 2, Significant Accounting Policies, in Part I, Item 1, Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to interest rate market risk due to the variable interest rate on the 2021 Term Loan described in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.
Interest rate risk represents our exposure to fluctuations in interest rates associated with the variable rate debt represented by the 2021 Term Loan, which has an outstanding balance of $890.6 million at June 30, 2022. The 2021 Term Loan bears interest based, at our option, on either (1) LIBOR plus an applicable margin of 3.25% per annum, or (2) an alternate base rate plus an applicable margin of 2.25% per annum. At June 30, 2022, the interest rate on the 2021 Term Loan was 6.1%, up approximately 250 basis points from March 31, 2022. Based on the June 30, 2022 balance outstanding, each 1% movement in interest rates will result in an approximately $8.9 million change in annual interest expense.
We have not engaged in any hedging activities during the six months ended June 30, 2022. We do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure. Our Chief Executive Officer and Chief Financial Officer, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of June 30, 2022 and, based on their evaluation, have concluded the controls and procedures were ineffective as the material weaknesses in internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 were not yet remediated during the first half of fiscal year 2022.
45
Remediation
As previously described in Part II, Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for the year ended December 31, 2021, management commenced implementation of remediation plans which are ongoing to address the material weaknesses mentioned above. The material weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We continue to take steps to remediate the material weaknesses identified as of December 31, 2021. However, we will not be able to demonstrate that this material weakness has been fully remediated or that our controls are operating effectively, until we complete our remediation efforts and both we and our independent registered public accounting firm conduct a year-end assessment of our internal control over financial reporting for the fiscal year ended December 31, 2022, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. The following steps of the remediation plan are currently in process, and management may determine to enhance existing controls and/or implement additional controls as the implementation progresses:
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
46
Part II—Other Information
Item 1. Legal Proceedings
On November 2, 2020, PlusPass, Inc. (“PlusPass”) commenced an action in the United States District Court, Central District of California, against Verra Mobility, The Gores Group LLC, Platinum Equity LLC, and ATS Processing Services, Inc., alleging civil violations of federal antitrust statutes: Section 7 of the Clayton Antitrust Act of 1914 (the “Clayton Act”), and Sections 1 and 2 of the Sherman Act. On November 20, 2020, PlusPass filed a First Amended Complaint. On February 9, 2021, the defendants filed motions to dismiss, and PlusPass subsequently abandoned various theories and claims and dismissed The Gores Group LLC, Platinum Equity LLC, and ATS Processing Services, Inc. On April 27, 2021, PlusPass filed a Second Amended Complaint (“SAC”), alleging that Verra Mobility violated Section 7 of the Clayton Act through the merger of Highway Toll Administration, LLC (“HTA”) and American Traffic Solutions, Inc. (“ATS”) in 2018, and that Verra Mobility violated Sections 1 and 2 of the Sherman Antitrust Act of 1890 by using exclusive agreements in restraint of trade and other allegedly anticompetitive means to acquire and maintain monopoly power in the market for the administration of electronic toll payment collection for rental cars. PlusPass seeks injunctive relief, divestiture by Verra Mobility of HTA, damages in an amount to be determined, and attorneys’ fees and costs. On May 28, 2021, Verra Mobility filed a motion to dismiss the SAC in its entirety, which was denied in August 2021. Discovery is underway and trial has been set for September 2023. Verra Mobility believes that all of PlusPass' claims are without merit and will defend itself vigorously in this litigation.
Item 1A. Risk Factors
Risks Related to Our Business
Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 includes a discussion of our risk factors. Other than the risk factor below, there have been no material changes from the risk factors described in our Annual Report on Form 10-K. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future SEC filings.
We cannot guarantee that our stock repurchase program will be consummated fully or that it will enhance long-term shareholder value. Stock repurchases could also increase the volatility of the trading price of our stock and could diminish our cash reserves.
In May 2022, our Board of Directors authorized a share repurchase program for up to an aggregate amount of $125 million of our outstanding shares of Class A common stock over the following next twelve months. The timing, price, and quantity of purchases under the program will be at the discretion of our management and will depend upon a variety of factors including share price, general and business market conditions, compliance with applicable laws and regulations, corporate and regulatory requirements, and alternative uses of capital. The program may be amended, suspended or discontinued by our Board of Directors at any time. Although our Board of Directors has authorized this stock repurchase program, there is no guarantee as to the exact number of shares that will be repurchased by us, and we may discontinue purchases at any time if management determines additional purchases are not warranted. We cannot guarantee that the program will be consummated fully or that it will enhance long-term stockholder value. The program could affect the trading price of our common stock and increase volatility, and any announcement of a termination of this program may result in a decrease in the trading price of our common stock. In addition, this program could diminish our cash reserves.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities
On May 7, 2022, the Company’s Board of Directors authorized a share repurchase program for up to an aggregate amount of $125.0 million of its outstanding shares of Class A common stock over the next 12 months from time to time in open market transactions, ASRs or in privately negotiated transactions, each as permitted under applicable rules and regulations, any of which may use pre-arranged trading plans that are designed to meet the requirements of Rule 10b5-1 of the Exchange Act. The Company authorized an aggregate purchase amount of $75.0 million related to the open market repurchases and $50.0 million for the ASR, as discussed above.
The following details the purchases of the Company's Class A Common Stock during the three months ended June 30, 2022:
47
Period |
|
Total Number of Shares Purchased |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Maximum Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs |
|
||||
As of March 31, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
Share repurchases |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
As of April 30, 2022 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Share repurchases - ASR (1) |
|
|
2,739,726 |
|
|
$ |
14.60 |
|
|
|
2,739,726 |
|
|
$ |
— |
|
Share repurchases |
|
|
167,902 |
|
|
$ |
15.46 |
|
|
|
167,902 |
|
|
$ |
72,413,962 |
|
As of May 31, 2022 |
|
|
2,907,628 |
|
|
$ |
15.40 |
|
|
|
2,907,628 |
|
|
$ |
72,413,962 |
|
Share repurchases |
|
|
168,251 |
|
|
$ |
15.63 |
|
|
|
168,251 |
|
|
$ |
69,790,032 |
|
As of June 30, 2022 |
|
|
3,075,879 |
|
|
$ |
15.53 |
|
|
|
3,075,879 |
|
|
$ |
69,790,032 |
|
(1) On May 12, 2022, the Company paid $50.0 million and received an initial delivery of 2,739,726 shares of its Class A Common Stock in accordance with an ASR agreement with a third-party financial institution. The final settlement is expected to occur during the third quarter of fiscal year 2022, at which time, a volume-weighted average price calculation over the term of the ASR agreement will be used to determine the final number and the average price of shares repurchased and retired.
Sales of Unregistered Securities
We did not have any sales of unregistered equity securities during the three months ended June 30, 2022.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
48
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
Exhibit Index
|
|
Incorporated by Reference |
|
|||
Exhibit Number |
Description |
Form |
File No. |
Exhibit |
Filing Date |
Filed Herewith |
2.1 |
8-K |
001-37979 |
2.1 |
June 21, 2018 |
|
|
2.2 |
8-K |
001-37979 |
2.2 |
August 24, 2018 |
|
|
3.1 |
Second Amended and Restated Certificate of Incorporation of Verra Mobility Corporation. |
8-K |
001-37979 |
3.1 |
October 22, 2018 |
|
3.2 |
8-K |
001-37979 |
3.2 |
October 22, 2018 |
|
|
4.1 |
S-1 |
333-21503 |
4.2 |
December 9, 2016 |
|
|
4.2 |
S-1 |
333-21503 |
4.3 |
December 9, 2016 |
|
|
4.3 |
8-K |
001-37979 |
4.1 |
January 19, 2017 |
|
|
4.4 |
10-K |
001-37979 |
4.4 |
March 2, 2020 |
|
|
10.1 |
Amended and Restated Verra Mobility Corporation Short-Term Incentive Plan. |
8-K |
001-37979 |
10.1 |
April 28, 2022 |
|
10.2 |
8-K |
001-37379 |
10.1 |
June 1, 2022 |
|
|
31.1 |
|
|
|
|
X |
|
31.2 |
|
|
|
|
X |
|
32.1* |
|
|
|
|
X |
|
32.2* |
|
|
|
|
X |
49
101.INS |
Inline XBRL Instance Document (the instance does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). |
|
|
|
|
X |
101.SCH |
Inline XBRL Taxonomy Extension Schema Document. |
|
|
|
|
X |
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
|
X |
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
|
X |
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
|
X |
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
|
|
|
|
X |
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
|
X |
* This certification is deemed not filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. |
50
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
VERRA MOBILITY CORPORATION |
|
|
|
|
Date: August 3, 2022 |
By: |
/s/ David Roberts |
|
|
David Roberts |
|
|
President and Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
51
Exhibit 31.1
Certification of Principal Executive Officer
Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, David Roberts, certify that:
Dated: August 3, 2022 |
By: |
|
/s/ David Roberts |
|
|
|
David Roberts |
|
|
|
President and Chief Executive Officer |
Exhibit 31.2
Certification of Principal Financial Officer
Pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a)
as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Craig Conti, certify that:
Dated: August 3, 2022 |
By: |
|
/s/ Craig Conti |
|
|
|
Craig Conti |
|
|
|
Chief Financial Officer |
Exhibit 32.1
VERRA MOBILITY CORPORATION
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the periodic report of Verra Mobility Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission (the “Report”), I, David Roberts, President and Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.
Dated: August 3, 2022 |
By: |
|
/s/ David Roberts |
|
|
|
David Roberts |
|
|
|
President and Chief Executive Officer |
Exhibit 32.2
VERRA MOBILITY CORPORATION
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the periodic report of Verra Mobility Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission (the “Report”), I, Craig Conti, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.
Dated: August 3, 2022 |
By: |
|
/s/ Craig Conti |
|
|
|
Craig Conti |
|
|
|
Chief Financial Officer |