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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2022

OR

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

For the transition period from ___________ to ___________.

Commission File Number: 001-37979

 

VERRA MOBILITY CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

81-3563824

(State of

 

(I.R.S. Employer

Incorporation)

 

Identification No.)

 

 

 

1150 North Alma School Road

 

85201

Mesa, Arizona

 

(Zip Code)

(Address of Principal Executive Offices)

 

 

(480) 443-7000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

(Title of Each Class)

 

(Trading Symbol)

 

(Name of Each Exchange on Which Registered)

Class A Common Stock, par value $0.0001 per share

 

VRRM

 

Nasdaq Capital Market

Warrants to purchase Class A Common Stock

 

VRRMW

 

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. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act:

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). YES NO ☒

As of October 31, 2022, there were 149,875,708 shares of the Company’s Class A Common Stock, par value $0.0001 per share, issued and outstanding.

 

 


 

VERRA MOBILITY CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS

 

PART I—FINANCIAL INFORMATION

 

5

Item 1. Financial Statements

 

5

Condensed Consolidated Balance Sheets

 

5

Condensed Consolidated Statements of Operations and Comprehensive Income

 

6

Condensed Consolidated Statements of Stockholders’ Equity

 

7

Condensed Consolidated Statements of Cash Flows

 

9

Notes to the Condensed Consolidated Financial Statements

 

11

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

 

34

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

46

Item 4. Controls and Procedures

 

46

PART II—OTHER INFORMATION

 

48

Item 1. Legal Proceedings

 

48

Item 1A. Risk Factors

 

48

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

 

48

Item 3. Defaults Upon Senior Securities

 

49

Item 4. Mine Safety Disclosures

 

49

Item 5. Other Information

 

49

Item 6. Exhibits

 

50

SIGNATURES

 

52

 

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. 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:

risks and uncertainties related to our government contracts, including legislative changes, termination rights, delays in payments, audits and investigations;
customer concentration in our Commercial Services and Government Solutions segments;
disruption to our business and results of operations as a result of the novel coronavirus pandemic, including variant strains (“COVID-19”);
the impact of COVID-19 on our revenues from key customers in our Commercial Services, Government Solutions and Parking Solutions segments;
decreases in the prevalence of automated and other similar methods of photo enforcement, parking solutions or the use of tolling;
decreased interest in outsourcing from our customers;
our ability to properly perform under our contracts and otherwise satisfy our customers;
our ability to compete in a highly competitive and rapidly evolving market;
our ability to keep up with technological developments and changing customer preferences;
the success of our new products and changes to existing products and services;
our ability to successfully implement our acquisition strategy or integrate acquisitions;
failure in or breaches of our networks or systems, including as a result of cyber-attacks;
our ability to manage the risks, uncertainties and exposures related to our international operations;
our ability to acquire necessary intellectual property and adequately protect our existing intellectual property;
our ability to manage our substantial level of indebtedness;
our reliance on a limited number of third-party vendors and service providers;
our ability to maintain an effective system of internal controls;
risks and uncertainties related to our share repurchase program; and
risks and uncertainties related to litigation, disputes and regulatory investigations.

You should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking statements will occur. 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

3


 

of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. 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)

 

September 30,
2022

 

 

December 31,
2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

51,576

 

 

$

101,283

 

Restricted cash

 

 

4,053

 

 

 

3,149

 

Accounts receivable (net of allowance for credit losses of $17.7 million and
$
12.1 million at September 30, 2022 and December 31, 2021, respectively)

 

 

175,153

 

 

 

160,979

 

Unbilled receivables

 

 

32,784

 

 

 

29,109

 

Inventory, net

 

 

17,922

 

 

 

12,093

 

Prepaid expenses and other current assets

 

 

35,955

 

 

 

41,456

 

Total current assets

 

 

317,443

 

 

 

348,069

 

Installation and service parts, net

 

 

19,024

 

 

 

13,332

 

Property and equipment, net

 

 

105,268

 

 

 

96,066

 

Operating lease assets

 

 

36,399

 

 

 

38,862

 

Intangible assets, net

 

 

399,992

 

 

 

487,299

 

Goodwill

 

 

827,694

 

 

 

838,867

 

Other non-current assets

 

 

12,513

 

 

 

14,561

 

Total assets

 

$

1,718,333

 

 

$

1,837,056

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

69,135

 

 

$

67,556

 

Deferred revenue

 

 

32,758

 

 

 

27,141

 

Accrued liabilities

 

 

45,068

 

 

 

38,435

 

Tax receivable agreement liability, current portion

 

 

5,107

 

 

 

5,107

 

Current portion of long-term debt

 

 

9,019

 

 

 

36,952

 

Total current liabilities

 

 

161,087

 

 

 

175,191

 

Long-term debt, net of current portion

 

 

1,204,006

 

 

 

1,206,802

 

Operating lease liabilities, net of current portion

 

 

32,692

 

 

 

34,984

 

Tax receivable agreement liability, net of current portion

 

 

55,650

 

 

 

56,615

 

Private placement warrant liabilities

 

 

33,333

 

 

 

38,466

 

Asset retirement obligation

 

 

12,687

 

 

 

11,824

 

Deferred tax liabilities, net

 

 

18,635

 

 

 

47,524

 

Other long-term liabilities

 

 

5,352

 

 

 

5,686

 

Total liabilities

 

 

1,523,442

 

 

 

1,577,092

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Preferred stock, $0.0001 par value

 

 

 

 

 

 

Common stock, $0.0001 par value

 

 

15

 

 

 

16

 

Common stock contingent consideration

 

 

36,575

 

 

 

36,575

 

Additional paid-in capital

 

 

307,471

 

 

 

309,883

 

Accumulated deficit

 

 

(128,236

)

 

 

(81,416

)

Accumulated other comprehensive loss

 

 

(20,934

)

 

 

(5,094

)

Total stockholders' equity

 

 

194,891

 

 

 

259,964

 

Total liabilities and stockholders' equity

 

$

1,718,333

 

 

$

1,837,056

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

5


 

VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

($ in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

Service revenue

 

$

180,617

 

 

$

141,811

 

 

$

516,253

 

 

$

348,000

 

Product sales

 

 

17,039

 

 

 

20,284

 

 

 

39,275

 

 

 

32,610

 

Total revenue

 

 

197,656

 

 

 

162,095

 

 

 

555,528

 

 

 

380,610

 

Cost of service revenue

 

 

4,144

 

 

 

1,412

 

 

 

11,636

 

 

 

3,624

 

Cost of product sales

 

 

11,317

 

 

 

9,391

 

 

 

25,638

 

 

 

15,562

 

Operating expenses

 

 

60,536

 

 

 

48,309

 

 

 

166,795

 

 

 

115,235

 

Selling, general and administrative expenses

 

 

41,126

 

 

 

31,580

 

 

 

122,913

 

 

 

86,252

 

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

 

 

35,035

 

 

 

29,529

 

 

 

105,881

 

 

 

84,806

 

Total costs and expenses

 

 

152,158

 

 

 

120,221

 

 

 

432,863

 

 

 

305,479

 

Income from operations

 

 

45,498

 

 

 

41,874

 

 

 

122,665

 

 

 

75,131

 

Interest expense, net

 

 

20,260

 

 

 

11,637

 

 

 

49,024

 

 

 

32,481

 

Change in fair value of private placement warrants

 

 

(2,267

)

 

 

(5,067

)

 

 

(5,133

)

 

 

5,067

 

Tax receivable agreement liability adjustment

 

 

 

 

 

 

 

 

(965

)

 

 

1,661

 

(Gain) loss on extinguishment of debt

 

 

(3,005

)

 

 

 

 

 

(3,005

)

 

 

5,334

 

Other income, net

 

 

(2,462

)

 

 

(3,494

)

 

 

(9,367

)

 

 

(9,305

)

Total other expenses

 

 

12,526

 

 

 

3,076

 

 

 

30,554

 

 

 

35,238

 

Income before income taxes

 

 

32,972

 

 

 

38,798

 

 

 

92,111

 

 

 

39,893

 

Income tax provision

 

 

8,396

 

 

 

11,492

 

 

 

27,854

 

 

 

17,510

 

Net income

 

$

24,576

 

 

$

27,306

 

 

$

64,257

 

 

$

22,383

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

(8,167

)

 

 

(3,818

)

 

 

(15,840

)

 

 

(3,657

)

Total comprehensive income

 

$

16,409

 

 

$

23,488

 

 

$

48,417

 

 

$

18,726

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

 

$

0.17

 

 

$

0.42

 

 

$

0.14

 

Diluted

 

$

0.15

 

 

$

0.14

 

 

$

0.38

 

 

$

0.14

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

151,429

 

 

 

159,358

 

 

 

154,067

 

 

 

161,334

 

Diluted

 

 

158,304

 

 

 

165,431

 

 

 

160,433

 

 

 

164,808

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

6


 

VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

For the Three and Nine Months Ended September 30, 2022

 

 

 

Common
Stock

 

 

Common
Stock
Contingent

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

(In thousands)

 

Shares

 

 

Amount

 

 

Consideration

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance as of December 31, 2021

 

 

156,079

 

 

$

16

 

 

$

36,575

 

 

$

309,883

 

 

$

(81,416

)

 

$

(5,094

)

 

$

259,964

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,040

 

 

 

 

 

 

10,040

 

Vesting of restricted stock units ("RSUs")

 

 

154

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

7

 

 

 

 

 

 

 

 

 

93

 

 

 

 

 

 

 

 

 

93

 

Payment of employee tax withholding related to RSUs vesting

 

 

 

 

 

 

 

 

 

 

 

(1,436

)

 

 

 

 

 

 

 

 

(1,436

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

4,446

 

 

 

 

 

 

 

 

 

4,446

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,708

 

 

 

2,708

 

Balance as of March 31, 2022

 

 

156,240

 

 

 

16

 

 

 

36,575

 

 

 

312,986

 

 

 

(71,376

)

 

 

(2,386

)

 

 

275,815

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29,641

 

 

 

 

 

 

29,641

 

Share repurchases and retirement

 

 

(3,076

)

 

 

(1

)

 

 

 

 

 

(6,163

)

 

 

(49,117

)

 

 

 

 

 

(55,281

)

Vesting of RSUs

 

 

51

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

5

 

 

 

 

 

 

 

 

 

66

 

 

 

 

 

 

 

 

 

66

 

Payment of employee tax withholding related to RSUs vesting

 

 

 

 

 

 

 

 

 

 

 

(203

)

 

 

 

 

 

 

 

 

(203

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

4,566

 

 

 

 

 

 

 

 

 

4,566

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,381

)

 

 

(10,381

)

Balance as of June 30, 2022

 

 

153,220

 

 

 

15

 

 

 

36,575

 

 

 

311,252

 

 

 

(90,852

)

 

 

(12,767

)

 

 

244,223

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,576

 

 

 

 

 

 

24,576

 

Share repurchases and retirement

 

 

(3,855

)

 

 

 

 

 

 

 

 

(7,830

)

 

 

(61,960

)

 

 

 

 

 

(69,790

)

Vesting of RSUs

 

 

122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

64

 

 

 

 

 

 

 

 

 

838

 

 

 

 

 

 

 

 

 

838

 

Payment of employee tax withholding related to RSUs vesting

 

 

 

 

 

 

 

 

 

 

 

(1,433

)

 

 

 

 

 

 

 

 

(1,433

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

4,644

 

 

 

 

 

 

 

 

 

4,644

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,167

)

 

 

(8,167

)

Balance as of September 30, 2022

 

 

149,551

 

 

$

15

 

 

$

36,575

 

 

$

307,471

 

 

$

(128,236

)

 

$

(20,934

)

 

$

194,891

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

7


 

VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

(Unaudited)

 

 

For the Three and Nine Months Ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common
Stock

 

 

Common
Stock
Contingent

 

 

Additional
Paid-in

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

(In thousands)

 

Shares

 

 

Amount

 

 

Consideration

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance as of December 31, 2020

 

 

162,269

 

 

$

16

 

 

$

36,575

 

 

$

373,620

 

 

$

(94,850

)

 

$

211

 

 

$

315,572

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,915

)

 

 

 

 

 

(8,915

)

Vesting of RSUs

 

 

91

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment of employee tax withholding related to RSUs vesting

 

 

 

 

 

 

 

 

 

 

 

(857

)

 

 

 

 

 

 

 

 

(857

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

2,908

 

 

 

 

 

 

 

 

 

2,908

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(190

)

 

 

(190

)

Balance as of March 31, 2021

 

 

162,360

 

 

 

16

 

 

 

36,575

 

 

 

375,671

 

 

 

(103,765

)

 

 

21

 

 

 

308,518

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,992

 

 

 

 

 

 

3,992

 

Vesting of RSUs

 

 

41

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

7

 

 

 

 

 

 

 

 

 

87

 

 

 

 

 

 

 

 

 

87

 

Payment of employee tax withholding related to RSUs vesting

 

 

 

 

 

 

 

 

 

 

 

(96

)

 

 

 

 

 

 

 

 

(96

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

3,573

 

 

 

 

 

 

 

 

 

3,573

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

351

 

 

 

351

 

Balance as of June 30, 2021

 

 

162,408

 

 

 

16

 

 

 

36,575

 

 

 

379,235

 

 

 

(99,773

)

 

 

372

 

 

 

316,425

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,306

 

 

 

 

 

 

27,306

 

Share repurchase and retirement

 

 

(6,849

)

 

 

 

 

 

 

 

 

(71,985

)

 

 

(28,015

)

 

 

 

 

 

(100,000

)

Vesting of RSUs

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock options

 

 

2

 

 

 

 

 

 

 

 

 

21

 

 

 

 

 

 

 

 

 

21

 

Adjustment to employee tax withholding related to RSUs vesting

 

 

 

 

 

 

 

 

 

 

 

29

 

 

 

 

 

 

 

 

 

29

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

3,703

 

 

 

 

 

 

 

 

 

3,703

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,818

)

 

 

(3,818

)

Balance as of September 30, 2021

 

 

155,564

 

 

$

16

 

 

$

36,575

 

 

$

311,003

 

 

$

(100,482

)

 

$

(3,446

)

 

$

243,666

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

 

 

8


 

VERRA MOBILITY CORPORATION

condensed consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

($ in thousands)

 

2022

 

 

2021

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net income

 

$

64,257

 

 

$

22,383

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

105,294

 

 

 

84,756

 

Amortization of deferred financing costs and discounts

 

 

4,122

 

 

 

3,854

 

Change in fair value of private placement warrants

 

 

(5,133

)

 

 

5,067

 

Tax receivable agreement liability adjustment

 

 

(965

)

 

 

1,661

 

(Gain) loss on extinguishment of debt

 

 

(3,005

)

 

 

5,334

 

Credit loss expense

 

 

10,892

 

 

 

6,716

 

Deferred income taxes

 

 

(17,310

)

 

 

(8,677

)

Stock-based compensation

 

 

13,656

 

 

 

10,184

 

Other

 

 

624

 

 

 

238

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(25,846

)

 

 

(5,442

)

Unbilled receivables

 

 

(4,205

)

 

 

(5,655

)

Inventory, net

 

 

(9,056

)

 

 

373

 

Prepaid expenses and other assets

 

 

8,405

 

 

 

(5,387

)

Deferred revenue

 

 

6,291

 

 

 

1,260

 

Accounts payable and other current liabilities

 

 

(1,978

)

 

 

14,336

 

Other liabilities

 

 

2,733

 

 

 

(1,717

)

Net cash provided by operating activities

 

 

148,776

 

 

 

129,284

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Acquisition of business, net of cash and restricted cash acquired

 

 

 

 

 

(107,004

)

Partial payment of contingent consideration

 

 

(647

)

 

 

 

Purchases of installation and service parts and property and equipment

 

 

(35,927

)

 

 

(15,633

)

Cash proceeds from the sale of assets

 

 

140

 

 

 

225

 

Net cash used in investing activities

 

 

(36,434

)

 

 

(122,412

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

Repayment on the revolver

 

 

(25,000

)

 

 

 

Borrowings of long-term debt

 

 

 

 

 

996,750

 

Repayment of long-term debt

 

 

(6,764

)

 

 

(882,905

)

Payment of debt issuance costs

 

 

(410

)

 

 

(6,628

)

Payment of debt extinguishment costs

 

 

 

 

 

(1,066

)

Share repurchases and retirement

 

 

(125,071

)

 

 

(100,000

)

Proceeds from exercise of stock options

 

 

997

 

 

 

108

 

Payment of employee tax withholding related to RSUs vesting

 

 

(3,072

)

 

 

(924

)

Settlement of contingent consideration

 

 

(205

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(159,525

)

 

 

5,335

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(1,620

)

 

 

(1,907

)

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

 

 

(48,803

)

 

 

10,300

 

Cash, cash equivalents and restricted cash - beginning of period

 

 

104,432

 

 

 

120,892

 

Cash, cash equivalents and restricted cash - end of period

 

$

55,629

 

 

$

131,192

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents, and restricted cash
to the condensed consolidated balance sheets

 

 

 

 

 

 

Cash and cash equivalents

 

$

51,576

 

 

$

128,247

 

Restricted cash

 

 

4,053

 

 

 

2,945

 

Total cash, cash equivalents, and restricted cash

 

$

55,629

 

 

$

131,192

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

 

9


 

VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

 

$

40,068

 

 

$

18,803

 

Income taxes paid, net of refunds

 

 

43,455

 

 

 

14,503

 

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

 

 

6,420

 

 

 

1,910

 

Additions related to asset retirement obligations and property and equipment

 

 

715

 

 

 

1,314

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

10


 

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 three operating segments: Commercial Services, Government Solutions and Parking Solutions (see Note 15. Segment Reporting).

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.

11


 

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 10% of the Company’s total revenue or accounts receivable, net. Revenue from the single Government Solutions customer exceeding 10% of total revenue is presented below:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

City of New York Department of Transportation

 

 

20.5

%

 

 

25.5

%

 

 

19.5

%

 

 

25.6

%

 

The City of New York Department of Transportation (“NYCDOT”) represented 29% and 39% of total accounts receivable, net as of September 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. No other Government Solutions customer exceeded 10% of total accounts receivable, net as of any period presented.

Significant customer revenues generated through the Company’s Commercial Services partners as a percent of total revenue are presented below:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Hertz Corporation

 

 

12.6

%

 

 

12.9

%

 

 

11.8

%

 

 

13.2

%

Avis Budget Group, Inc.

 

 

13.9

%

 

 

13.5

%

 

 

12.9

%

 

 

12.8

%

Enterprise Holdings, Inc.

 

 

10.3

%

 

 

10.9

%

 

 

9.7

%

 

 

12.4

%

No Commercial Services customer exceeded 10% of total accounts receivable, net as of any period presented.

There were no significant customer concentrations that exceeded 10% of total revenue or accounts receivables, net for the Parking Solutions segment.

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. The following presents the activity in the allowance for credit losses for the nine months ended September 30, 2022 and 2021, respectively:

12


 

 

($ in thousands)

 

Commercial Services
(Driver-billed)
(1)

 

 

Commercial
Services
(All other)

 

 

Government Solutions

 

 

Parking Solutions

 

 

Total

 

Balance at January 1, 2022

 

$

5,397

 

 

$

3,092

 

 

$

3,649

 

 

$

 

 

$

12,138

 

Credit loss expense

 

 

8,867

 

 

 

835

 

 

 

694

 

 

 

496

 

 

 

10,892

 

Write-offs, net of recoveries

 

 

(2,810

)

 

 

(2,089

)

 

 

(26

)

 

 

(430

)

 

 

(5,355

)

Balance at September 30, 2022

 

$

11,454

 

 

$

1,838

 

 

$

4,317

 

 

$

66

 

 

$

17,675

 

 

($ in thousands)

 

Commercial Services
(Driver-billed)
(1)

 

 

Commercial
Services
(All other)

 

 

Government Solutions

 

 

Total

 

Balance at January 1, 2021

 

$

3,210

 

 

$

4,277

 

 

$

3,984

 

 

$

11,471

 

Credit loss expense

 

 

7,944

 

 

 

(820

)

 

 

(408

)

 

 

6,716

 

Write-offs, net of recoveries

 

 

(3,446

)

 

 

(45

)

 

 

(21

)

 

 

(3,512

)

Balance at September 30, 2021

 

$

7,708

 

 

$

3,412

 

 

$

3,555

 

 

$

14,675

 

 

(1)
Driver-billed consists of receivables from drivers of rental cars and fleet management companies for which the Company bills on behalf of its customers. Receivables not collected from drivers within a defined number of days are transferred to customers subject to applicable bad debt sharing agreements.

The Commercial Services (Driver-billed) portfolio segment’s credit loss estimate as of September 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. The Commercial Services (All other) portfolio segment's credit loss estimate decreased at September 30, 2022 mainly due to a $1.7 million write-off for a rental car customer who filed for bankruptcy.

 

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 $9.8 million and $8.9 million of deferred revenue in the Government Solutions segment as of September 30, 2022 and December 31, 2021, respectively. The majority of the remaining performance obligations as of September 30, 2022 are expected to be completed and recognized as revenue in the next 12 months and $3.2 million is expected to be recognized between 2023 through 2027. The Company had approximately $25.6 million and $20.9 million of deferred revenue in the Parking Solutions segment as of September 30, 2022 and December 31, 2021, respectively. The majority of the remaining performance obligations as of September 30, 2022 are expected to be completed and recognized as revenue in the next 12 months and $0.6 million is expected to be recognized in 2023.

13


 

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. Long-term Debt, in the event there is a benchmark transition away from LIBOR, a benchmark replacement rate has been defined in the 2021 Term Loan agreement 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 December 7, 2021, the Company acquired all of the outstanding shares of T2 Systems, which offers an integrated suite of parking software and hardware solutions to its customers. This acquisition supports the Company’s strategy to expand and diversify into new markets within the mobility sector. The Company has included the financial results of T2 Systems in the financial statements from the date of acquisition, and reported within the Parking Solutions segment.

 

The Company paid a purchase price of $353.2 million. Transaction costs for T2 Systems were $3.4 million, which primarily related to professional fees and other expenses related to the acquisition.

14


 

 

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

 

($ in thousands)

 

 

 

Assets acquired

 

 

 

Cash and cash equivalents

 

$

13,866

 

Restricted cash

 

 

228

 

Accounts receivable

 

 

9,673

 

Unbilled receivables

 

 

2,153

 

Inventory

 

 

7,467

 

Property and equipment

 

 

3,336

 

Prepaid and other assets

 

 

7,477

 

Trademark

 

 

3,200

 

Customer relationships

 

 

164,300

 

Developed technology

 

 

19,300

 

Total assets acquired

 

 

231,000

 

 

 

 

 

Liabilities assumed

 

 

 

Accounts payable and accrued liabilities

 

 

10,379

 

Deferred revenue

 

 

21,253

 

Deferred tax liability

 

 

37,129

 

Other liabilities

 

 

4,228

 

Total liabilities assumed

 

 

72,989

 

Goodwill

 

 

195,226

 

Total assets acquired and liabilities assumed

 

$

353,237

 

 

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 10.0 years, 10.0 years, and 6.1 years, respectively.

 

As of September 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 December 13, 2021, the Company completed the acquisition of NuPark (“NuPark”), a provider of parking services and permit management product platform from Passport Labs, Inc., which expanded the Company’s presence in the United States in the Parking Solutions segment. The acquisition date fair value of the consideration transferred to Passport Labs, Inc. was approximately $7.0 million, which consisted primarily of $5.0 million of cash paid at closing and $1.5 million of contingent consideration payable. The Company recorded $0.3 million of tangible assets, $4.9 million of customer relationships intangible assets valued using a multi-period excess earnings methodology, with an estimated useful life of 10.0 years, and $1.3 million of assumed liabilities, which was primarily deferred revenue. Goodwill recorded was $3.2 million for future growth anticipated for the Company and is expected to be deductible for tax purposes. The Company has included the financial results of NuPark in the financial statements from the date of acquisition, which were not material. The transaction costs for the acquisition were not material.

 

During the nine months ended September 30, 2022, the Company made payments that totaled approximately $0.9 million to settle in full the contingent consideration payable to Passport Labs Inc, and as a result, the Company adjusted the customer relationships intangible assets' value by reducing it $0.6 million to $4.3 million.


 

15


 

4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following at:

 

($ in thousands)

 

September 30,
2022

 

 

December 31,
2021

 

Prepaid services

 

$

9,982

 

 

$

8,643

 

Prepaid tolls

 

 

9,810

 

 

 

7,539

 

Prepaid income taxes

 

 

7,069

 

 

 

5,324

 

Prepaid computer maintenance

 

 

3,689

 

 

 

3,742

 

Deposits

 

 

1,811

 

 

 

6,742

 

Costs to fulfill a customer contract

 

 

1,415

 

 

 

3,364

 

Prepaid supplies

 

 

1,080

 

 

 

1,712

 

Other

 

 

1,099

 

 

 

4,390

 

Total prepaid expenses and other current assets

 

$

35,955

 

 

$

41,456

 

 

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

 

$

425,081

 

 

$

215,400

 

 

$

198,386

 

 

$

838,867

 

Foreign currency translation adjustment

 

 

(9,652

)

 

 

(1,521

)

 

 

 

 

 

(11,173

)

Balance at September 30, 2022

 

$

415,429

 

 

$

213,879

 

 

$

198,386

 

 

$

827,694

 

 

Intangible assets consist of the following as of the respective period-ends:

 

 

 

September 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

 

0.4 years

 

$

36,006

 

 

$

31,973

 

 

0.5 years

 

$

36,225

 

 

$

31,429

 

Non-compete agreements

 

0.3 years

 

 

62,492

 

 

 

58,475

 

 

1.0 years

 

 

62,555

 

 

 

49,982

 

Customer relationships

 

5.8 years

 

 

555,010

 

 

 

210,586

 

 

6.5 years

 

 

561,767

 

 

 

167,255

 

Developed technology

 

1.4 years

 

 

200,237

 

 

 

152,719

 

 

2.2 years

 

 

202,768

 

 

 

127,350

 

Gross carrying value of intangible assets

 

 

 

 

853,745

 

 

$

453,753

 

 

 

 

 

863,315

 

 

$

376,016

 

Less: accumulated amortization

 

 

 

 

(453,753

)

 

 

 

 

 

 

 

(376,016

)

 

 

 

Intangible assets, net

 

 

 

$

399,992

 

 

 

 

 

 

 

$

487,299

 

 

 

 

 

Amortization expense was $26.6 million and $22.9 million for the three months ended September 30, 2022 and 2021, respectively, and was $81.0 million and $66.9 million for the nine months ended September 30, 2022 and 2021, respectively.

 

Estimated amortization expense in future years is expected to be:

 

($ in thousands)

 

 

 

Remainder of 2022

 

$

24,966

 

2023

 

 

76,953

 

2024

 

 

66,469

 

2025

 

 

63,771

 

2026

 

 

56,784

 

Thereafter

 

 

111,049

 

Total

 

$

399,992

 

 

16


 

 

6. Accrued Liabilities

Accrued liabilities consist of the following at:

 

($ in thousands)

 

September 30,
2022

 

 

December 31,
2021

 

Accrued salaries and wages

 

$

11,440

 

 

$

15,744

 

Accrued interest payable

 

 

9,057

 

 

 

4,209

 

Current deferred tax liabilities

 

 

7,987

 

 

 

 

Current portion of operating lease liabilities

 

 

5,777

 

 

 

5,760

 

Restricted cash due to customers

 

 

3,695

 

 

 

3,062

 

Payroll liabilities

 

 

1,946

 

 

 

1,876

 

Advanced deposits

 

 

1,655

 

 

 

2,554

 

Other

 

 

3,511

 

 

 

5,230

 

Total accrued liabilities

 

$

45,068

 

 

$

38,435

 

 

7. Long-term Debt

The following table provides a summary of the Company’s long-term debt at:

 

($ in thousands)

 

September 30,
2022

 

 

December 31,
2021

 

2021 Term Loan, due 2028

 

$

888,361

 

 

$

895,125

 

Senior Notes, due 2029

 

 

350,000

 

 

 

350,000

 

PPP Loan

 

 

 

 

 

2,933

 

Revolver

 

 

 

 

 

25,000

 

Less: original issue discounts

 

 

(5,916

)

 

 

(6,753

)

Less: unamortized deferred financing costs

 

 

(19,420

)

 

 

(22,551

)

Total long-term debt

 

 

1,213,025

 

 

 

1,243,754

 

Less: current portion of long-term debt

 

 

(9,019

)

 

 

(36,952

)

Total long-term debt, net of current portion

 

$

1,204,006

 

 

$

1,206,802

 

 

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, the Company 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 million in Senior Unsecured Notes (the “Senior Notes”), due on April 15, 2029. In connection with the issuance of the Senior Notes, the Company 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 repayment in full all outstanding debt for T2 Systems. In connection with the Incremental Term Loan, the Company 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

17


 

principal outstanding under the 2021 Term Loan, which includes the Incremental Term Loan, was $888.4 million at September 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 the Company’s 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 September 30, 2022, the interest rate on the 2021 Term Loan was 6.1%.

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
Prepayment
Percentage

> 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, the Company 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, the Company may redeem up to 40% of the Senior Notes before April 15, 2024, with the net cash proceeds from certain equity offerings.

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 $5.3 million on the 2018 Term Loan during the nine months ended September 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 $2.9 million 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. In early 2021, Redflex applied for forgiveness of this loan, and on September 23, 2022, the Company was notified by the SBA that the loan, together with accrued interest, had been fully forgiven under the provisions of the PPP Loan program. Accordingly, the Company recognized a $3.0 million gain on extinguishment of debt in the consolidated statement of operations for the three and nine months ended September 30, 2022.

The Revolver

The Company has a Revolving Credit Agreement (the “Revolver”) with a commitment of up to $75.0 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 the Company’s average availability to borrow under the commitment. At December 31, 2021, the Company had $25.0 million in outstanding borrowings on the Revolver, which was repaid in full in January 2022. At September 30, 2022, the availability to borrow was $72.1 million, net of $0.2 million of outstanding letters of credit.

Interest on the unused portion of the Revolver is payable quarterly at 0.375% and the Company is also required to pay participation and fronting fees at 1.38% on $0.2 million of outstanding letters of credit as of September 30, 2022.

18


 

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 September 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 $20.3 million and $11.6 million for the three months ended September 30, 2022 and 2021, respectively, and $49.0 million and $32.5 million for the nine months ended September 30, 2022 and 2021, respectively.

The weighted average effective interest rates on the Company’s outstanding borrowings were 5.9% and 4.1% at September 30, 2022 and December 31, 2021, respectively.

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 and accrued expenses 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. The carrying value and the estimated fair value are as follows:

 

 

 

Level in

 

September 30, 2022

 

 

December 31, 2021

 

 

 

Fair Value

 

Carrying

 

 

Estimated

 

 

Carrying

 

 

Estimated

 

($ in thousands)

 

Hierarchy

 

Amount

 

 

Fair Value

 

 

Amount

 

 

Fair Value

 

2021 Term Loan

 

2

 

$

 

867,587

 

 

$

 

875,035

 

 

$

 

871,467

 

 

$

 

895,125

 

Senior Notes

 

2

 

 

 

345,438

 

 

 

 

308,000

 

 

 

 

344,918

 

 

 

 

355,250

 

Revolver

 

2

 

 

 

 

 

 

 

 

 

 

 

24,435

 

 

 

 

25,000

 

 

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:

 

 

 

September 30, 2022

 

 

December 31, 2021

 

Stock price

 

$

15.37

 

 

$

15.43

 

Strike price

 

$

11.50

 

 

$

11.50

 

Volatility

 

 

41.0

%

 

 

48.0

%

Remaining life (in years)

 

 

1.1

 

 

 

1.8

 

Risk-free interest rate

 

 

4.06

%

 

 

0.66

%

Expected dividend yield

 

 

0.0

%

 

 

0.0

%

Estimated fair value

 

$

5.00

 

 

$

5.77

 

 

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

19


 

susceptible to valuation risk. A 5.0% increase to the volatility input at September 30, 2022 would increase the estimated fair value by $0.19 per unit. A 5.0% decrease to the volatility input at September 30, 2022 would decrease the estimated fair value by $0.18 per unit. The following summarizes the changes in fair value of private placement warrant liabilities included in net income for the respective periods:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

($ in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Beginning balance

 

$

35,600

 

 

$

41,000

 

 

$

38,466

 

 

$

30,866

 

Change in fair value of private placement warrants

 

 

(2,267

)

 

 

(5,067

)

 

 

(5,133

)

 

 

5,067

 

Ending balance

 

$

33,333

 

 

$

35,933

 

 

$

33,333

 

 

$

35,933

 

 

The Company has an equity investment measured at cost of $3.2 million and is only adjusted to fair value if there are identified events that would indicate a need for an upward or downward adjustment or changes in circumstances that may indicate impairment. The estimation of fair value requires the use of significant unobservable inputs, such as voting rights and obligations in the securities held, and is therefore classified within level 3 of the fair value hierarchy. There were no identified events that required a fair value adjustment as of September 30, 2022.

 

The fair value of the contingent consideration payable in connection with the NuPark acquisition was $1.5 million at December 13, 2021 acquisition date and was classified within level 3 of the fair value hierarchy. The valuation of the contingent consideration was measured using a discounted cash flow model and the significant unobservable inputs used in the measurement relate to forecasts of annualized revenue developed by the Company. During the nine months ended September 30, 2022, the Company made payments that totaled approximately $0.9 million to settle in full the contingent consideration payable to Passport Labs Inc.

9. Net Income Per Share

Basic net income per share is calculated by dividing net income by the weighted average shares outstanding during the period, without consideration of common stock equivalents. Diluted net income 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 per share are as follows:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(In thousands, except per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

24,576

 

 

$

27,306

 

 

$

64,257

 

 

$

22,383

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares - basic

 

 

151,429

 

 

 

159,358

 

 

 

154,067

 

 

 

161,334

 

Common stock equivalents

 

 

6,875

 

 

 

6,073

 

 

 

6,366

 

 

 

3,474

 

Weighted average shares - diluted

 

 

158,304

 

 

 

165,431

 

 

 

160,433

 

 

 

164,808

 

Net income per share - basic

 

$

0.16

 

 

$

0.17

 

 

$

0.42

 

 

$

0.14

 

Net income per share - diluted

 

$

0.15

 

 

$

0.14

 

 

$

0.38

 

 

$

0.14

 

Antidilutive shares excluded from diluted net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

Contingently issuable shares (1)

 

 

5,000

 

 

 

5,000

 

 

 

5,000

 

 

 

5,000

 

Public warrants

 

 

 

 

 

 

 

 

 

 

 

 

Private placement warrants

 

 

 

 

 

 

 

 

 

 

 

6,667

 

Non-qualified stock options

 

 

1,110

 

 

 

929

 

 

 

1,224

 

 

 

1,075

 

Performance share units

 

 

 

 

 

12

 

 

 

166

 

 

 

142

 

Restricted stock units

 

 

51

 

 

 

82

 

 

 

1,020

 

 

 

531

 

Total antidilutive shares excluded

 

 

6,161

 

 

 

6,023

 

 

 

7,410

 

 

 

13,415

 

 

(1) Contingently issuable shares relate to the earn-out agreement as discussed in Note 13, Other Significant Transactions.

20


 

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 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 25.5% and 29.6% for the three months ended September 30, 2022 and 2021, respectively, and 30.2% and 43.9% for the nine months ended September 30, 2022 and 2021, respectively. The primary driver for the effective tax rate variance in the nine-month period is the increase in pre-tax income combined with the permanent differences related to the mark-to-market adjustment on the private placement warrants and the adjustment to the carrying value of the Company's tax receivable agreement.

The total amount of unrecognized tax benefits increased by $8.4 million during the nine months ended September 30, 2022 primarily due to prior year tax positions associated with the Redflex acquisition. As of September 30, 2022, the total amount of unrecognized tax benefits was $11.2 million, of which $2.8 million would affect our effective tax rate if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits through income tax expense. As of September 30, 2022, the Company had $0.2 million accrued for the payment of interest and penalties. We believe that it is reasonably possible that a decrease of up to $8.0 million in unrecognized tax benefits related to the Redflex acquisition may be necessary within the coming year, which will not have an impact to the statements of operations.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. The Company is currently evaluating the impacts of this legislation to the financial statements but does not expect them to be material.

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 has evaluated the impacts of this change to the financial statements and noted them not 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 2018 and 2019, however, no material adjustments are anticipated. The Company regularly assesses the likelihood of tax deficiencies in each of the tax jurisdictions and, accordingly, makes appropriate adjustments to the tax provision as deemed necessary.

11. Stockholders’ Equity

Share Repurchases and Retirement - 2022

 

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 twelve 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”).

 

21


 

On May 12, 2022, the Company paid $50.0 million, which represented the amount initially authorized for an ASR, 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 occurred on August 3, 2022, at which time, the Company received 445,086 additional shares calculated using a volume-weighted average price over the term of the ASR agreement.

 

In addition, the Company paid $6.9 million to repurchase 445,791 shares of its Class A Common Stock through open market transactions during the nine months ended September 30, 2022, which it subsequently retired. The Company discontinued open market repurchases during the third quarter of 2022 and its Board of Directors authorized an ASR for the remaining availability under the share repurchase program. On August 19, 2022, the Company paid $68.1 million for a second ASR, and received an initial delivery of 3,300,000 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 fourth 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. The Company accounted for each ASR transaction as a common stock repurchase and a forward contract indexed to its own common stock. The Company determined that the equity classification criteria was met for the forward contracts, therefore, it did not account for them as derivative instruments. The Company incurred $0.1 million of direct costs in connection with share repurchase transactions during the nine months ended September 30, 2022, which it included in the cost of the shares acquired.

 

The Company paid a total of $125.0 million for shares repurchases and $0.1 million for direct costs during the nine months ended September 30, 2022 and accounted for the transactions by deducting the par value from the common stock account, reducing $14.0 million from additional paid-in capital calculated using an average share price, and by increasing accumulated deficit for the remaining cost of $111.1 million.

Share Repurchase and Retirement - 2021

On August 9, 2021, the Company announced that its Board of Directors authorized a share repurchase program for up to an aggregate amount of $100 million of its outstanding shares of Class A Common Stock. On August 20, 2021, the Company repurchased and retired 6,849,315 shares of its Class A Common Stock from the Platinum Stockholder at a price per share of $14.60. The Company paid $100 million to fund the share repurchase using existing cash on hand. The Company accounted for the share repurchase and retirement under the cost method by deducting its par value from the common stock account, reducing $72.0 million from the additional paid-in-capital account using the share price when the stock was originally issued, and the remaining excess cost of $28.0 million by increasing the accumulated deficit account.

12. Stock-Based Compensation

The following details the components of stock-based compensation for the respective periods:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

($ in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses

 

$

331

 

 

$

179

 

 

$

829

 

 

$

621

 

Selling, general and administrative expenses

 

 

4,313

 

 

 

3,524

 

 

 

12,827

 

 

 

9,563

 

Total stock-based compensation expense

 

$

4,644

 

 

$

3,703

 

 

$

13,656

 

 

$

10,184

 

The increase in stock-based compensation expense of $3.5 million during the nine months ended September 30, 2022 is primarily due to approximately $2.0 million related to accelerated vesting of RSUs granted to two executive officers as part of their separation agreements, and the remaining due to increased stock-based compensation as a result of 2021 acquisitions.

22


 

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. On August 3, 2022, the Platinum Stockholder sold and transferred to Lakeside Smart Holdco L.P.(“Lakeside”), all of its rights, remaining interests and obligations as of that date under the TRA. The TRA provides for the payment to Lakeside of 50.0% of the net cash savings, if any, in U.S. federal, state and local income tax that the Company actually realizes (or is deemed to realize in certain circumstances) in periods after the closing of the Business Combination as a result of the increased tax basis of certain acquired intangibles prior to the Business Combination. The Company generally retains the benefit of the remaining 50.0% of these cash savings. The Company estimated the potential maximum benefit to be paid will be approximately $70.0 million, and recorded an initial liability and corresponding charge to equity at the closing of the Business Combination. Subsequently, the Company made adjustments to this amount.

At September 30, 2022, the TRA liability was approximately $60.8 million of which $5.1 million was the current portion and $55.7 million was the non-current portion, both of which are included in the respective tax receivable agreement liability line items on the condensed consolidated balance sheet.

The Company recorded a $1.0 million benefit for the nine months ended September 30, 2022 and a $1.7 million charge for the nine months ended September 30, 2021. 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.

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 10 days out of 20 consecutive trading days at any time during the five-year period following the closing of the Business Combination (the “Common Stock Price”).

The Earn-Out Shares are issued by the Company to the Platinum Stockholder as follows:

 

Common Stock Price Thresholds

 

One-time Issuance of Shares

> $13.00 (a)

 

2,500,000

> $15.50 (a)

 

2,500,000

> $18.00

 

2,500,000

> $20.50

 

2,500,000

 

(a)
The first and second tranches of Earn-Out Shares have been issued, as discussed below.

 

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 not be required to issue the Earn-Out Shares in respect of such Common Stock Price threshold. In no event shall the Platinum Stockholder be entitled to receive more than an aggregate of 10,000,000 Earn-Out Shares.

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 $73.15 million, of which $36.6 million remains contingently issuable as of September 30, 2022. The estimated value is not subject to future revisions during the five-year period discussed above. The Company used a Monte Carlo simulation option-pricing model to arrive at its original estimate. Each tranche was valued separately giving specific consideration to the tranche’s price target. The simulation considered volatility and risk-free rates utilizing a peer group based on a five-year term. This was initially recorded as a distribution to shareholders and was presented as common stock contingent consideration. Upon the occurrence of a Triggering

23


 

Event, any issuable shares would be transferred from common stock contingent consideration to common stock and additional 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 $13.00 and $15.50, respectively, for 10 out of 20 consecutive trading days. These Triggering Events resulted in the issuance of an aggregate 5,000,000 shares of the Company’s Class A Common Stock to the Platinum Stockholder and an increase in the Company’s common stock and additional paid-in capital accounts of $36.6 million, with a corresponding decrease to the common stock contingent consideration account. At September 30, 2022, the potential future Earn-Out Shares issuable are between zero and 5.0 million.

 

Related Party Equity Investment

 

Redflex Irish Investments Pty Ltd, a wholly owned indirect subsidiary of the Company, owns a 16% non-voting equity interest in Road Safety Operations Holdings Unlimited, which has a subsidiary, Road Safety Operations Holdings T/A Go Safe Ireland (Go Safe”), which provides speed and traffic enforcement services and related equipment to its customers in Ireland. This investment was approximately $3.2 million and $3.7 million as of September 30, 2022 and December 31, 2021, respectively, and is presented within other non-current assets on the condensed consolidated balance sheets. The Company is engaged as a vendor to supply equipment and services to Go Safe and related revenues earned were approximately $0.2 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively and $0.8 million and $0.1 million for the nine months ended September 30, 2022 and 2021, respectively. The dividend income received for this investment in the nine months ended September 30, 2022 was $0.2 million.

 

24


 

14. Commitments and Contingencies

The Company has $1.7 million of bank guarantees at September 30, 2022 required to support bids and contracts with certain international customers.

The Company has non-cancelable purchase commitments to certain vendors. The aggregate non-cancelable purchase commitments outstanding at September 30, 2022 were $39.3 million. The majority of these outstanding commitments are expected to be incurred in 2022 and 2023, and approximately $1.3 million is expected to be incurred between 2024 and 2025.

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. appealed the trial court’s ruling granting class certification, which was denied and their petition for discretionary review of the certification ruling by the Louisiana Supreme Court is now 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 three operating and reportable segments, Commercial Services, Government Solutions and Parking Solutions. Commercial Services offers toll and violation management solutions and title and registration services to commercial fleet vehicle owners, rental car companies and violation-issuing authorities. Government Solutions implements and administers traffic safety programs and products for municipalities and government agencies of all sizes. Parking Solutions provides an integrated suite of parking software and hardware solutions to its customers. The Company’s Chief Operating Decision Maker function (“CODM”) is comprised of the Company’s CEO and certain defined representatives of the Company’s executive management team. The Company’s CODM monitors operating performance, allocates resources and deploys capital based on these three segments.

Segment performance is based on revenues and income from operations before depreciation, amortization and stock-based compensation. The measure also excludes interest expense, net, income taxes and certain other transactions and is inclusive of other (income) expense, net. The tables below refer to this measure as segment profit. 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) expense, net included in segment profit below consists primarily of credit card rebates earned on the prepayment of tolling transactions and gains or losses on foreign currency transactions, and excludes certain non-operating expenses inapplicable to segments.

25


 

During the third quarter of 2022, the Company changed its measure of segment profit to include (gain) loss on disposal of assets, net, and to exclude transaction and transformation expenses that were previously included within the selling, general and administrative expenses and other (income) expense line items below. The comparable prior periods have been recast to conform to the revised presentation, although the impact of this revision to previously reported segment profit was not material.

The following tables set forth financial information by segment for the respective periods:

 

 

 

For the Three Months Ended September 30, 2022

 

 

 

Commercial

 

 

Government

 

 

Parking

 

 

Corporate

 

 

 

 

($ in thousands)

 

Services

 

 

Solutions

 

 

Solutions

 

 

and Other

 

 

Total

 

Service revenue

 

$

86,056

 

 

$

77,441

 

 

$

17,120

 

 

$

 

 

$

180,617

 

Product sales

 

 

 

 

 

12,287

 

 

 

4,752

 

 

 

 

 

 

17,039

 

Total revenue

 

 

86,056

 

 

 

89,728

 

 

 

21,872

 

 

 

 

 

 

197,656

 

Cost of service revenue

 

 

478

 

 

 

481

 

 

 

3,185

 

 

 

 

 

 

4,144

 

Cost of product sales

 

 

 

 

 

7,496

 

 

 

3,821

 

 

 

 

 

 

11,317

 

Operating expenses

 

 

18,952

 

 

 

36,868

 

 

 

4,385

 

 

 

 

 

 

60,205

 

Selling, general and administrative expenses

 

 

14,126

 

 

 

15,034

 

 

 

6,218

 

 

 

 

 

 

35,378

 

(Gain) loss on disposal of assets, net

 

 

 

 

 

(54

)

 

 

10

 

 

 

 

 

 

(44

)

Other (income) expense, net

 

 

(3,869

)

 

 

(454

)

 

 

85

 

 

 

 

 

 

(4,238

)

Segment profit

 

$

56,369

 

 

$

30,357

 

 

$

4,168

 

 

$

 

 

$

90,894

 

Segment profit

 

$

56,369

 

 

$

30,357

 

 

$

4,168

 

 

$

 

 

$

90,894

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

35,079

 

 

 

35,079

 

Transaction and other related expenses

 

 

 

 

 

 

 

 

 

 

 

2,968

 

 

 

2,968

 

Transformation expenses

 

 

 

 

 

 

 

 

 

 

 

243

 

 

 

243

 

Change in fair value of private placement warrants

 

 

 

 

 

 

 

 

 

 

 

(2,267

)

 

 

(2,267

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

4,644

 

 

 

4,644

 

Interest expense, net

 

 

 

 

 

 

 

 

 

 

 

20,260

 

 

 

20,260

 

Gain on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

(3,005

)

 

 

(3,005

)

Income before income taxes

 

$

56,369

 

 

$

30,357

 

 

$

4,168

 

 

$

(57,922

)

 

$

32,972

 

 

 

 

For the Three Months Ended September 30, 2021

 

 

 

Commercial

 

 

Government

 

 

Corporate

 

 

 

 

($ in thousands)

 

Services

 

 

Solutions

 

 

and Other

 

 

Total

 

Service revenue

 

$

77,257

 

 

$

64,554

 

 

$

 

 

$

141,811

 

Product sales

 

 

 

 

 

20,284

 

 

 

 

 

 

20,284

 

Total revenue

 

 

77,257

 

 

 

84,838

 

 

 

 

 

 

162,095

 

Cost of service revenue

 

 

996

 

 

 

416

 

 

 

 

 

 

1,412

 

Cost of product sales

 

 

 

 

 

9,391

 

 

 

 

 

 

9,391

 

Operating expenses

 

 

17,471

 

 

 

30,659

 

 

 

 

 

 

48,130

 

Selling, general and administrative expenses

 

 

10,592

 

 

 

14,013

 

 

 

 

 

 

24,605

 

Other income, net

 

 

(3,138

)

 

 

(356

)

 

 

 

 

 

(3,494

)

Segment profit

 

$

51,336

 

 

$

30,715

 

 

$

 

 

$

82,051

 

Segment profit

 

$

51,336

 

 

$

30,715

 

 

$

 

 

$

82,051

 

Depreciation and amortization

 

 

 

 

 

 

 

 

29,529

 

 

 

29,529

 

Transaction and other related expenses

 

 

 

 

 

 

 

 

2,678

 

 

 

2,678

 

Transformation expenses

 

 

 

 

 

 

 

 

773

 

 

 

773

 

Change in fair value of private placement warrants

 

 

 

 

 

 

 

 

(5,067

)

 

 

(5,067

)

Stock-based compensation

 

 

 

 

 

 

 

 

3,703

 

 

 

3,703

 

Interest expense, net

 

 

 

 

 

 

 

 

11,637

 

 

 

11,637

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

$

51,336

 

 

$

30,715

 

 

$

(43,253

)

 

$

38,798

 

 

26


 

 

 

 

 

For the Nine Months Ended September 30, 2022

 

 

 

Commercial

 

 

Government

 

 

Parking

 

 

Corporate

 

 

 

 

($ in thousands)

 

Services

 

 

Solutions

 

 

Solutions

 

 

and Other

 

 

Total

 

Service revenue

 

$

244,409

 

 

$

225,337

 

 

$

46,507

 

 

$

 

 

$

516,253

 

Product sales

 

 

 

 

 

26,747

 

 

 

12,528

 

 

 

 

 

 

39,275

 

Total revenue

 

 

244,409

 

 

 

252,084

 

 

 

59,035

 

 

 

 

 

 

555,528

 

Cost of service revenue

 

 

1,576

 

 

 

1,517

 

 

 

8,543

 

 

 

 

 

 

11,636

 

Cost of product sales

 

 

 

 

 

16,116

 

 

 

9,522

 

 

 

 

 

 

25,638

 

Operating expenses

 

 

53,004

 

 

 

103,660

 

 

 

9,302

 

 

 

 

 

 

165,966

 

Selling, general and administrative expenses

 

 

40,980

 

 

 

45,732

 

 

 

21,184

 

 

 

 

 

 

107,896

 

Loss on disposal of assets, net

 

 

 

 

 

572

 

 

 

15

 

 

 

 

 

 

587

 

Other (income) expense, net

 

 

(10,664

)

 

 

(600

)

 

 

121

 

 

 

 

 

 

(11,143

)

Segment profit

 

$

159,513

 

 

$

85,087

 

 

$

10,348

 

 

$

 

 

$

254,948

 

Segment profit

 

$

159,513

 

 

$

85,087

 

 

$

10,348

 

 

$

 

 

$

254,948

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

105,294

 

 

 

105,294

 

Transaction and other related expenses

 

 

 

 

 

 

 

 

 

 

 

3,457

 

 

 

3,457

 

Transformation expenses

 

 

 

 

 

 

 

 

 

 

 

509

 

 

 

509

 

Change in fair value of private placement warrants

 

 

 

 

 

 

 

 

 

 

 

(5,133

)

 

 

(5,133

)

Tax receivable agreement liability adjustment

 

 

 

 

 

 

 

 

 

 

 

(965

)

 

 

(965

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

13,656

 

 

 

13,656

 

Interest expense, net

 

 

 

 

 

 

 

 

 

 

 

49,024

 

 

 

49,024

 

Gain on extinguishment of debt

 

 

 

 

 

 

 

 

 

 

 

(3,005

)

 

 

(3,005

)

Income before income taxes

 

$

159,513

 

 

$

85,087

 

 

$

10,348

 

 

$

(162,837

)

 

$

92,111

 

 

 

 

 

 

For the Nine Months Ended September 30, 2021

 

 

 

Commercial

 

 

Government

 

 

Corporate

 

 

 

 

($ in thousands)

 

Services

 

 

Solutions

 

 

and Other

 

 

Total

 

Service revenue

 

$

189,426

 

 

$

158,574

 

 

$

 

 

$

348,000

 

Product sales

 

 

 

 

 

32,610

 

 

 

 

 

 

32,610

 

Total revenue

 

 

189,426

 

 

 

191,184

 

 

 

 

 

 

380,610

 

Cost of service revenue

 

 

2,432

 

 

 

1,192

 

 

 

 

 

 

3,624

 

Cost of product sales

 

 

 

 

 

15,562

 

 

 

 

 

 

15,562

 

Operating expenses

 

 

47,667

 

 

 

66,947

 

 

 

 

 

 

114,614

 

Selling, general and administrative expenses

 

 

30,449

 

 

 

34,663

 

 

 

 

 

 

65,112

 

Loss on disposal of assets, net

 

 

 

 

 

50

 

 

 

 

 

 

50

 

Other income, net

 

 

(7,802

)

 

 

(1,503

)

 

 

 

 

 

(9,305

)

Segment profit

 

$

116,680

 

 

$

74,273

 

 

$

 

 

$

190,953

 

Segment profit

 

$

116,680

 

 

$

74,273

 

 

$

 

 

$

190,953

 

Depreciation and amortization

 

 

 

 

 

 

 

 

84,756

 

 

 

84,756

 

Transaction and other related expenses

 

 

 

 

 

 

 

 

10,110

 

 

 

10,110

 

Transformation expenses

 

 

 

 

 

 

 

 

1,467

 

 

 

1,467

 

Change in fair value of private placement warrants

 

 

 

 

 

 

 

 

5,067

 

 

 

5,067

 

Tax receivable agreement liability adjustment

 

 

 

 

 

 

 

 

1,661

 

 

 

1,661

 

Stock-based compensation

 

 

 

 

 

 

 

 

10,184

 

 

 

10,184

 

Interest expense, net

 

 

 

 

 

 

 

 

32,481

 

 

 

32,481

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

5,334

 

 

 

5,334

 

Income before income taxes

 

$

116,680

 

 

$

74,273

 

 

$

(151,060

)

 

$

39,893

 

 

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 $17.0 million and $20.3 million for the three months ended September 30, 2022 and 2021, respectively and were $39.3 million and $32.6 million for the nine months ended September 30, 2022 and 2021, respectively.

27


 

The following table details the revenues from international operations for the respective periods:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

($ in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Australia

 

$

9,576

 

 

$

7,489

 

 

$

25,793

 

 

$

8,631

 

Canada

 

 

8,097

 

 

 

1,546

 

 

 

23,757

 

 

 

1,945

 

United Kingdom

 

 

4,517

 

 

 

5,320

 

 

 

15,716

 

 

 

10,968

 

All other

 

 

986

 

 

 

971

 

 

 

2,140

 

 

 

1,848

 

Total international revenues

 

$

23,176

 

 

$

15,326

 

 

$

67,406

 

 

$

23,392

 

 

16. Guarantor/Non-Guarantor Financial Information

VM Consolidated is the lead borrower of the 2021 Term Loan and Senior Notes. 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 September 30, 2022 and the related condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2022 and the condensed consolidated statement of cash flows for the nine months ended September 30, 2022 for the Company, the combined guarantor subsidiaries and the combined non-guarantor subsidiaries.

 

28


 

Verra Mobility Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

at September 30, 2022

(Unaudited)

 

($ in thousands)

 

Verra Mobility
Corporation
(Ultimate Parent)

 

 

Guarantor Subsidiaries

 

 

Non-
guarantor
Subsidiaries

 

 

Eliminations

 

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

 

$

17,296

 

 

$

34,280

 

 

$

 

 

$

51,576

 

Restricted cash

 

 

 

 

 

3,987

 

 

 

66

 

 

 

 

 

 

4,053

 

Accounts receivable (net of allowance for credit losses of $17.7 million)

 

 

 

 

 

164,269

 

 

 

10,884

 

 

 

 

 

 

175,153

 

Unbilled receivables

 

 

 

 

 

27,507

 

 

 

5,277

 

 

 

 

 

 

32,784

 

Investment in subsidiary

 

 

25,632

 

 

 

138,092

 

 

 

 

 

 

(163,724

)

 

 

 

Inventory, net

 

 

 

 

 

1,679

 

 

 

16,243

 

 

 

 

 

 

17,922

 

Prepaid expenses and other current assets

 

 

 

 

 

30,893

 

 

 

5,062

 

 

 

 

 

 

35,955

 

Total current assets

 

 

25,632

 

 

 

383,723

 

 

 

71,812

 

 

 

(163,724

)

 

 

317,443

 

Installation and service parts, net

 

 

 

 

 

19,024

 

 

 

 

 

 

 

 

 

19,024

 

Property and equipment, net

 

 

 

 

 

88,543

 

 

 

16,725

 

 

 

 

 

 

105,268

 

Operating lease assets

 

 

 

 

 

30,024

 

 

 

6,375

 

 

 

 

 

 

36,399

 

Intangible assets, net

 

 

 

 

 

297,907

 

 

 

102,085

 

 

 

 

 

 

399,992

 

Goodwill

 

 

 

 

 

689,501

 

 

 

138,193

 

 

 

 

 

 

827,694

 

Due from affiliates

 

 

169,259

 

 

 

 

 

 

 

 

 

(169,259

)

 

 

 

Other non-current assets

 

 

 

 

 

8,401

 

 

 

4,112

 

 

 

 

 

 

12,513

 

Total assets

 

$

194,891

 

 

$

1,517,123

 

 

$

339,302

 

 

$

(332,983

)

 

$

1,718,333

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

 

$

52,073

 

 

$

17,062

 

 

$

 

 

$

69,135

 

Deferred revenue

 

 

 

 

 

22,302

 

 

 

10,456

 

 

 

 

 

 

32,758

 

Accrued liabilities

 

 

 

 

 

34,805

 

 

 

10,263

 

 

 

 

 

 

45,068

 

Tax receivable agreement liability, current portion

 

 

 

 

 

5,107

 

 

 

 

 

 

 

 

 

5,107

 

Current portion of long-term debt

 

 

 

 

 

9,019

 

 

 

 

 

 

 

 

 

9,019

 

Total current liabilities

 

 

 

 

 

123,306

 

 

 

37,781

 

 

 

 

 

 

161,087

 

Long-term debt, net of current portion

 

 

 

 

 

1,204,006

 

 

 

 

 

 

 

 

 

1,204,006

 

Operating lease liabilities, net of current portion

 

 

 

 

 

28,146

 

 

 

4,546

 

 

 

 

 

 

32,692

 

Tax receivable agreement liability, net of current portion

 

 

 

 

 

55,650

 

 

 

 

 

 

 

 

 

55,650

 

Private placement warrant liabilities

 

 

 

 

 

33,333

 

 

 

 

 

 

 

 

 

33,333

 

Due to affiliates

 

 

 

 

 

29,832

 

 

 

139,427

 

 

 

(169,259

)

 

 

 

Asset retirement obligation

 

 

 

 

 

12,663

 

 

 

24

 

 

 

 

 

 

12,687

 

Deferred tax liabilities, net

 

 

 

 

 

(713

)

 

 

19,348

 

 

 

 

 

 

18,635

 

Other long-term liabilities

 

 

 

 

 

5,268

 

 

 

84

 

 

 

 

 

 

5,352

 

Total liabilities

 

 

 

 

 

1,491,491

 

 

 

201,210

 

 

 

(169,259

)

 

 

1,523,442

 

Total stockholders' equity

 

 

194,891

 

 

 

25,632

 

 

 

138,092

 

 

 

(163,724

)

 

 

194,891

 

Total liabilities and stockholders' equity

 

$

194,891

 

 

$

1,517,123

 

 

$

339,302

 

 

$

(332,983

)

 

$

1,718,333

 

 

29


 

Verra Mobility Corporation and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

Three Months Ended September 30, 2022

(Unaudited)

 

 

 

 

 

($ in thousands)

 

Verra Mobility
Corporation
(Ultimate Parent)

 

 

Guarantor Subsidiaries

 

 

Non-
guarantor
Subsidiaries

 

 

Eliminations

 

 

Consolidated

 

Service revenue

 

$

 

 

$

161,993

 

 

$

18,624

 

 

$

 

 

$

180,617

 

Product sales

 

 

 

 

 

12,487

 

 

 

4,552

 

 

 

 

 

 

17,039

 

Sales to affiliates

 

 

 

 

 

(1,055

)

 

 

1,055

 

 

 

 

 

 

 

Total revenue

 

 

 

 

 

173,425

 

 

 

24,231

 

 

 

 

 

 

197,656

 

Cost of service revenue

 

 

 

 

 

3,184

 

 

 

960

 

 

 

 

 

 

4,144

 

Cost of product sales

 

 

 

 

 

7,153

 

 

 

4,164

 

 

 

 

 

 

11,317

 

Cost of sales to affiliates

 

 

 

 

 

(7

)

 

 

7

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

50,469

 

 

 

10,067

 

 

 

 

 

 

60,536

 

Selling, general and administrative expenses

 

 

 

 

 

38,482

 

 

 

2,644

 

 

 

 

 

 

41,126

 

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

 

 

 

 

 

29,762

 

 

 

5,273

 

 

 

 

 

 

35,035

 

Total costs and expenses

 

 

 

 

 

129,043

 

 

 

23,115

 

 

 

 

 

 

152,158

 

Income from operations

 

 

 

 

 

44,382

 

 

 

1,116

 

 

 

 

 

 

45,498

 

Income from equity investment

 

 

(24,576

)

 

 

(2,530

)

 

 

 

 

 

27,106

 

 

 

 

Interest expense, net

 

 

 

 

 

21,302

 

 

 

(1,042

)

 

 

 

 

 

20,260

 

Change in fair value of private placement warrants

 

 

 

 

 

(2,267

)

 

 

 

 

 

 

 

 

(2,267

)

Gain on extinguishment of debt

 

 

 

 

 

(3,005

)

 

 

 

 

 

 

 

 

(3,005

)

Other income, net

 

 

 

 

 

(2,057

)

 

 

(405

)

 

 

 

 

 

(2,462

)

Total other (income) expenses

 

 

(24,576

)

 

 

11,443

 

 

 

(1,447

)

 

 

27,106

 

 

 

12,526

 

Income before income taxes

 

 

24,576

 

 

 

32,939

 

 

 

2,563

 

 

 

(27,106

)

 

 

32,972

 

Income tax provision

 

 

 

 

 

8,363

 

 

 

33

 

 

 

 

 

 

8,396

 

Net income

 

$

24,576

 

 

$

24,576

 

 

$

2,530

 

 

$

(27,106

)

 

$

24,576

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

 

 

 

 

 

 

(8,167

)

 

 

 

 

 

(8,167

)

Total comprehensive income (loss)

 

$

24,576

 

 

$

24,576

 

 

$

(5,637

)

 

$

(27,106

)

 

$

16,409

 

 

30


 

Verra Mobility Corporation and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

Nine Months Ended September 30, 2022

(Unaudited)

 

 

 

 

 

($ in thousands)

 

Verra Mobility
Corporation
(Ultimate Parent)

 

 

Guarantor Subsidiaries

 

 

Non-
guarantor
Subsidiaries

 

 

Eliminations

 

 

Consolidated

 

Service revenue

 

$

 

 

$

462,294

 

 

$

53,959

 

 

$

 

 

$

516,253

 

Product sales

 

 

 

 

 

25,828

 

 

 

13,447

 

 

 

 

 

 

39,275

 

Sales to affiliates

 

 

 

 

 

(1,403

)

 

 

1,403

 

 

 

 

 

 

 

Total revenue

 

 

 

 

 

486,719

 

 

 

68,809

 

 

 

 

 

 

555,528

 

Cost of service revenue

 

 

 

 

 

8,158

 

 

 

3,478

 

 

 

 

 

 

11,636

 

Cost of product sales

 

 

 

 

 

15,268

 

 

 

10,370

 

 

 

 

 

 

25,638

 

Cost of sales to affiliates

 

 

 

 

 

(10

)

 

 

10

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

137,717

 

 

 

29,078

 

 

 

 

 

 

166,795

 

Selling, general and administrative expenses

 

 

 

 

 

106,550

 

 

 

16,363

 

 

 

 

 

 

122,913

 

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

 

 

 

 

 

90,376

 

 

 

15,505

 

 

 

 

 

 

105,881

 

Total costs and expenses

 

 

 

 

 

358,059

 

 

 

74,804

 

 

 

 

 

 

432,863

 

Income (loss) from operations

 

 

 

 

 

128,660

 

 

 

(5,995

)

 

 

 

 

 

122,665

 

Income from equity investment

 

 

(64,257

)

 

 

2,724

 

 

 

 

 

 

61,533

 

 

 

 

Interest expense, net

 

 

 

 

 

50,063

 

 

 

(1,039

)

 

 

 

 

 

49,024

 

Change in fair value of private placement warrants

 

 

 

 

 

(5,133

)

 

 

 

 

 

 

 

 

(5,133

)

Tax receivable agreement liability adjustment

 

 

 

 

 

(965

)

 

 

 

 

 

 

 

 

(965

)

Gain on extinguishment of debt

 

 

 

 

 

(3,005

)

 

 

 

 

 

 

 

 

(3,005

)

Other income, net

 

 

 

 

 

(7,931

)

 

 

(1,436

)

 

 

 

 

 

(9,367

)

Total other (income) expenses

 

 

(64,257

)

 

 

35,753

 

 

 

(2,475

)

 

 

61,533

 

 

 

30,554

 

Income (loss) before income taxes

 

 

64,257

 

 

 

92,907

 

 

 

(3,520

)

 

 

(61,533

)

 

 

92,111

 

Income tax provision (benefit)

 

 

 

 

 

28,650

 

 

 

(796

)

 

 

 

 

 

27,854

 

Net income (loss)

 

$

64,257

 

 

$

64,257

 

 

$

(2,724

)

 

$

(61,533

)

 

$

64,257

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in foreign currency translation adjustment

 

 

 

 

 

 

 

 

(15,840

)

 

 

 

 

 

(15,840

)

Total comprehensive income (loss)

 

$

64,257

 

 

$

64,257

 

 

$

(18,564

)

 

$

(61,533

)

 

$

48,417

 

4,238

31


 

Verra Mobility Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30, 2022

(Unaudited)

 

($ in thousands)

 

Verra Mobility
Corporation
(Ultimate Parent)

 

 

Guarantor Subsidiaries

 

 

Non-
guarantor
Subsidiaries

 

 

Eliminations

 

 

Consolidated

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

64,257

 

 

$

64,257

 

 

$

(2,724

)

 

$

(61,533

)

 

$

64,257

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

89,789

 

 

 

15,505

 

 

 

 

 

 

105,294

 

Amortization of deferred financing costs and discounts

 

 

 

 

 

4,122

 

 

 

 

 

 

 

 

 

4,122

 

Change in fair value of private placement warrants

 

 

 

 

 

(5,133

)

 

 

 

 

 

 

 

 

(5,133

)

Tax receivable agreement liability adjustment

 

 

 

 

 

(965

)

 

 

 

 

 

 

 

 

(965

)

Gain on extinguishment of debt

 

 

 

 

 

(3,005

)

 

 

 

 

 

 

 

 

(3,005

)

Credit loss expense

 

 

 

 

 

10,431

 

 

 

461

 

 

 

 

 

 

10,892

 

Deferred income taxes

 

 

 

 

 

(15,198

)

 

 

(2,112

)

 

 

 

 

 

(17,310

)

Stock-based compensation

 

 

 

 

 

13,656

 

 

 

 

 

 

 

 

 

13,656

 

Other

 

 

 

 

 

623

 

 

 

1

 

 

 

 

 

 

624

 

Income from equity investment

 

 

(64,257

)

 

 

2,724

 

 

 

 

 

 

61,533

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

 

 

(24,519

)

 

 

(1,327

)

 

 

 

 

 

(25,846

)

Unbilled receivables

 

 

 

 

 

(3,289

)

 

 

(916

)

 

 

 

 

 

(4,205

)

Inventory, net

 

 

 

 

 

(2,835

)

 

 

(6,221

)

 

 

 

 

 

(9,056

)

Prepaid expenses and other assets

 

 

 

 

 

4,647

 

 

 

3,758

 

 

 

 

 

 

8,405

 

Deferred revenue

 

 

 

 

 

5,132

 

 

 

1,159

 

 

 

 

 

 

6,291

 

Accounts payable and other current liabilities

 

 

 

 

 

(2,476

)

 

 

498

 

 

 

 

 

 

(1,978

)

Due to affiliates

 

 

 

 

 

(473

)

 

 

473

 

 

 

 

 

 

 

Other liabilities

 

 

 

 

 

3,408

 

 

 

(675

)

 

 

 

 

 

2,733

 

Net cash provided by operating activities

 

 

 

 

 

140,896

 

 

 

7,880

 

 

 

 

 

 

148,776

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Partial payment of contingent consideration

 

 

 

 

 

(647

)

 

 

 

 

 

 

 

 

(647

)

Purchases of installation and service parts and property and equipment

 

 

 

 

 

(28,570

)

 

 

(7,357

)

 

 

 

 

 

(35,927

)

Cash proceeds from the sale of assets

 

 

 

 

 

140

 

 

 

 

 

 

 

 

 

140

 

Net cash used in investing activities

 

 

 

 

 

(29,077

)

 

 

(7,357

)

 

 

 

 

 

(36,434

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repayment on the revolver

 

 

 

 

 

(25,000

)

 

 

 

 

 

 

 

 

(25,000

)

Repayment of long-term debt

 

 

 

 

 

(6,764

)

 

 

 

 

 

 

 

 

(6,764

)

Payment of debt issuance costs

 

 

 

 

 

(410

)

 

 

 

 

 

 

 

 

(410

)

Share repurchases and retirement

 

 

 

 

 

(125,071

)

 

 

 

 

 

 

 

 

(125,071

)

Proceeds from exercise of stock options

 

 

 

 

 

997

 

 

 

 

 

 

 

 

 

997

 

Payment of employee tax withholding related to RSUs vesting

 

 

 

 

 

(3,072

)

 

 

 

 

 

 

 

 

(3,072

)

Settlement of contingent consideration

 

 

 

 

 

(205

)

 

 

 

 

 

 

 

 

(205

)

Net cash used in financing activities

 

 

 

 

 

(159,525

)

 

 

 

 

 

 

 

 

(159,525

)

Effect of exchange rate changes on cash and cash equivalents

 

 

 

 

 

 

 

 

(1,620

)

 

 

 

 

 

(1,620

)

Net decrease in cash, cash equivalents and restricted cash

 

 

 

 

 

(47,706

)

 

 

(1,097

)

 

 

 

 

 

(48,803

)

Cash, cash equivalents and restricted cash - beginning of period

 

 

 

 

 

68,989

 

 

 

35,443

 

 

 

 

 

 

104,432

 

Cash, cash equivalents and restricted cash - end of period

 

$

 

 

$

21,283

 

 

$

34,346

 

 

$

 

 

$

55,629

 

 

32


 

Verra Mobility Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

Nine Months Ended September 30, 2022

(Unaudited)

 

 

 

Verra Mobility
Corporation
(Ultimate Parent)

 

 

Guarantor Subsidiaries

 

 

Non-
guarantor
Subsidiaries

 

 

Eliminations

 

 

Consolidated

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

 

 

$

40,068

 

 

$

 

 

$

 

 

$

40,068

 

Income taxes paid, net of refunds

 

 

 

 

 

43,072

 

 

 

383

 

 

 

 

 

 

43,455

 

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

 

 

 

 

 

6,420

 

 

 

 

 

 

 

 

 

6,420

 

Additions related to asset retirement obligations and property and equipment

 

 

 

 

 

715

 

 

 

 

 

 

 

 

 

715

 

 

33


 

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, Canada and Europe. 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:

Experienced growth as a result of strategic acquisitions completed in 2021:

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.

Increased total revenue by $174.9 million from $380.6 million for the nine months ended September 30, 2021 to $555.5 million for the nine months ended September 30, 2022. Redflex and T2 Systems contributed approximately $96.2 million to the overall revenue growth, and the remaining increase was mainly due to service revenue resulting from increased travel volume and tolling activity in 2022 in the Commercial Services segment and expansion of speed programs in the Government Solutions segment; and
Generated cash flows from operations of $148.8 million and $129.3 million for the nine months ended September 30, 2022 and 2021, respectively. Our cash on hand was $51.6 million as of September 30, 2022.

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 amount initially 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 occurred on August 3, 2022, at which time, we received 445,086 additional shares

34


 

calculated using a volume-weighted average price over the term of the ASR agreement. In addition, we paid $6.9 million and repurchased 445,791 shares of our Class A Common Stock through open market transactions during the nine months ended September 30, 2022. During the third quarter of 2022, we discontinued open market repurchases and our Board of Directors authorized an ASR for the remaining availability under the share repurchase program. On August 19, 2022, we paid $68.1 million for a second ASR, and received an initial delivery of 3,300,000 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 fourth quarter of 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. We paid a total of $125.0 million for share repurchases and $0.1 million for direct costs during the nine months ended September 30, 2022 using available cash on hand.

Segment Information

 

We have three operating and reportable segments, Commercial Services, Government Solutions and Parking Solutions:

Commercial Services segment offers toll and violation management solutions and title and registration services for RACs and FMCs in North America. In Europe, we provide toll and violations processing services.
Government Solutions segment offers photo enforcement solutions and services to its customers. We provide complete end-to-end speed, red-light, school bus stop arm and bus lane enforcement solutions within the United States and Canada. The international operations through Redflex primarily involve the sale of traffic enforcement products and related maintenance services.
Parking Solutions segment provides an integrated suite of parking software and hardware solutions to universities, municipalities, parking operators, healthcare facilities and transportation hubs in the United States and Canada.

 

Segment performance is based on revenues and income from operations before depreciation, amortization, and stock-based compensation. The measure also excludes interest expense, net, income taxes and certain other transactions and is inclusive of other income, net.

 

During the third quarter of 2022, we changed our measure of segment profit to include (gain) loss on disposal of assets, net, and to exclude transaction and transformation expenses that were previously included within the selling, general and administrative expenses and other income, net line items. The comparable prior periods have been recast to conform to the revised presentation, although the impact of this revision to previously reported segment profit was not material. See Note 15. Segment Reporting.

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.

35


 

Costs and Expenses

Cost of Service Revenue. Cost of service revenue consists of certain recurring service costs, collection and other third-party service costs in our segments.

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. This consists of adjustments made to our Tax Receivable Agreement liability due to changes in estimates.

(Gain) Loss on Extinguishment of Debt. (Gain) loss on extinguishment of debt generally consists of early payment penalties and the write-off of original issue discounts and deferred financing costs associated with debt extinguishment, and any gains recognized as a result of loan forgiveness.

Other Income, Net. Other income, net primarily consists of volume rebates earned from total spend on purchasing cards, gains or losses on foreign currency transactions and other non-operating expenses.

36


 

Results of Operations

Three Months Ended September 30, 2022 Compared to Three Months Ended September 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 September 30,

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

Increase (Decrease)
 2022 vs 2021

 

($ in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

$

 

 

%

 

Service revenue

 

$

180,617

 

 

$

141,811

 

 

 

91.4

%

 

 

87.5

%

 

$

38,806

 

 

 

27.4

%

Product sales

 

 

17,039

 

 

 

20,284

 

 

 

8.6

%

 

 

12.5

%

 

 

(3,245

)

 

 

(16.0

)%

Total revenue

 

 

197,656

 

 

 

162,095

 

 

 

100.0

%

 

 

100.0

%

 

 

35,561

 

 

 

21.9

%

Cost of service revenue

 

 

4,144

 

 

 

1,412

 

 

 

2.1

%

 

 

0.9

%

 

 

2,732

 

 

 

193.5

%

Cost of product sales

 

 

11,317

 

 

 

9,391

 

 

 

5.7

%

 

 

5.8

%

 

 

1,926

 

 

 

20.5

%

Operating expenses

 

 

60,536

 

 

 

48,309

 

 

 

30.6

%

 

 

29.8

%

 

 

12,227

 

 

 

25.3

%

Selling, general and administrative expenses

 

 

41,126

 

 

 

31,580

 

 

 

20.8

%

 

 

19.5

%

 

 

9,546

 

 

 

30.2

%

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

 

 

35,035

 

 

 

29,529

 

 

 

17.7

%

 

 

18.2

%

 

 

5,506

 

 

 

18.6

%

Total costs and expenses

 

 

152,158

 

 

 

120,221

 

 

 

76.9

%

 

 

74.2

%

 

 

31,937

 

 

 

26.6

%

Income from operations

 

 

45,498

 

 

 

41,874

 

 

 

23.1

%

 

 

25.8

%

 

 

3,624

 

 

 

8.7

%

Interest expense, net

 

 

20,260

 

 

 

11,637

 

 

 

10.3

%

 

 

7.2

%

 

 

8,623

 

 

 

74.1

%

Change in fair value of private placement warrants

 

 

(2,267

)

 

 

(5,067

)

 

 

(1.1

)%

 

 

(3.1

)%

 

 

2,800

 

 

 

(55.3

)%

Gain on extinguishment of debt

 

 

(3,005

)

 

 

 

 

 

(1.5

)%

 

 

 

 

 

(3,005

)

 

n/a

 

Other income, net

 

 

(2,462

)

 

 

(3,494

)

 

 

(1.2

)%

 

 

(2.2

)%

 

 

1,032

 

 

 

(29.5

)%

Total other expenses

 

 

12,526

 

 

 

3,076

 

 

 

6.5

%

 

 

1.9

%

 

 

9,450

 

 

 

307.2

%

Income before income taxes

 

 

32,972

 

 

 

38,798

 

 

 

16.6

%

 

 

23.9

%

 

 

(5,826

)

 

 

(15.0

)%

Income tax provision

 

 

8,396

 

 

 

11,492

 

 

 

4.2

%

 

 

7.1

%

 

 

(3,096

)

 

 

(26.9

)%

Net income

 

$

24,576

 

 

$

27,306

 

 

 

12.4

%

 

 

16.8

%

 

$

(2,730

)

 

 

(10.0

)%

 

Service Revenue. Service revenue increased by $38.8 million, or 27.4%, to $180.6 million for the three months ended September 30, 2022 from $141.8 million for the three months ended September 30, 2021, representing 91.4% and 87.5% of total revenue, respectively. The following table depicts service revenue by segment:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

Increase (Decrease)
 2022 vs 2021

 

($ in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

$

 

 

%

 

Service revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Services

 

$

86,056

 

 

$

77,257

 

 

 

43.5

%

 

 

47.7

%

 

$

8,799

 

 

 

11.4

%

Government Solutions

 

 

77,441

 

 

 

64,554

 

 

 

39.2

%

 

 

39.8

%

 

 

12,887

 

 

 

20.0

%

Parking Solutions

 

 

17,120

 

 

 

 

 

 

8.7

%

 

 

 

 

 

17,120

 

 

n/a

 

Total service revenue

 

$

180,617

 

 

$

141,811

 

 

 

91.4

%

 

 

87.5

%

 

$

38,806

 

 

 

27.4

%

 

Commercial Services service revenue increased by $8.8 million, or 11.4%, from $77.3 million for the three months ended September 30, 2021 to $86.1 million for the three months ended September 30, 2022. The increase was primarily due to increased travel volume and related tolling activity in 2022 compared to 2021, which was slowly recovering from COVID-19. 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 $7.6 million increase, and the tolling related revenue generated by our FMC customers contributed to a $1.8 million increase during the three months ended September 30, 2022, compared to the same period in 2021. These increases were partially offset by decreases in title and registration and violation processing service revenues during the quarter 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 $12.9 million to $77.4 million for the three months ended September 30, 2022 compared to $64.6 million in the same period in 2021. The increase was primarily driven by the expansion of school zone

37


 

speed programs, as speed is the largest product in this segment and contributed approximately $10.8 million to the service revenue increase this quarter. 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 $17.1 million resulted from the acquisition of T2 systems in December 2021 with no revenue in the comparable period.

Product Sales. Product sales were $17.0 million and $20.3 million for the three months ended September 30, 2022 and 2021, respectively. Product sales decreased by approximately $3.2 million which was mainly due to a $8.0 million decrease in product sales to Government Solutions customers including Redflex, offset by a $4.8 million increase from the inclusion of T2 Systems for which there was no revenue in the comparable 2021 period. Customer buying patterns vary greatly from period to period related to product sales.

Cost of Service Revenue. Cost of service revenue increased from $1.4 million for the three months ended September 30, 2021 to $4.1 million for the three months ended September 30, 2022. The $2.7 million increase was mainly due 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 $1.9 million from $9.4 million in the three months ended September 30, 2021 to $11.3 million in the three months ended September 30, 2022, which was mainly due to a $3.8 million increase in costs from the inclusion of T2 Systems for which there was no comparable amount in the prior year offset by a $1.9 million decrease in costs in the Government Solutions segment.

Operating Expenses. Operating expenses increased by $12.2 million, or 25.3%, from $48.3 million for the three months ended September 30, 2021 to $60.5 million for the three months ended September 30, 2022. The increase in 2022 was primarily attributable to increase in wages, information technology and recurring service costs in the Government Solutions segment, and from the inclusion of T2 Systems' operations in 2022 with no comparable amounts in the prior period. Operating expenses as a percentage of total revenue increased slightly from 29.8% to 30.6% for the three months ended September 30, 2021 and 2022, respectively. The following table presents operating expenses by segment:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

Increase (Decrease)
 2022 vs 2021

 

($ in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

$

 

 

%

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Services

 

$

18,952

 

 

$

17,471

 

 

 

9.6

%

 

 

10.8

%

 

$

1,481

 

 

 

8.5

%

Government Solutions

 

 

36,868

 

 

 

30,659

 

 

 

18.6

%

 

 

18.9

%

 

 

6,209

 

 

 

20.3

%

Parking Solutions

 

 

4,385

 

 

 

 

 

 

2.2

%

 

 

 

 

 

4,385

 

 

n/a

 

Total operating expenses before stock-based compensation

 

 

60,205

 

 

 

48,130

 

 

 

30.4

%

 

 

29.7

%

 

 

12,075

 

 

 

25.1

%

Stock-based compensation

 

 

331

 

 

 

179

 

 

 

0.2

%

 

 

0.1

%

 

 

152

 

 

 

84.9

%

Total operating expenses

 

$

60,536

 

 

$

48,309

 

 

 

30.6

%

 

 

29.8

%

 

$

12,227

 

 

 

25.3

%

 

38


 

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $41.1 million for the three months ended September 30, 2022 compared to $31.6 million for the same period in 2021. The increase is primarily due to increased wages and other general expenses from the inclusion of T2 Systems with no comparable amounts in the prior year. In addition, we had overall increases of $3.1 million of professional services costs, $1.0 million related to credit loss expense and $0.8 million for stock-based compensation expense, which were partially offset by a $2.0 million decrease in certain transaction and transformation expenses compared to the prior year. Selling, general and administrative expenses as a percentage of total revenue increased from 19.5% to 20.8% for the three months ended September 30, 2021 and 2022, respectively. The following table presents selling, general and administrative expenses by segment:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

Increase (Decrease)
 2022 vs 2021

 

($ in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

$

 

 

%

 

Selling, general and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Services

 

$

14,126

 

 

$

10,592

 

 

 

7.2

%

 

 

6.5

%

 

$

3,534

 

 

 

33.4

%

Government Solutions

 

 

15,034

 

 

 

14,013

 

 

 

7.6

%

 

 

8.7

%

 

 

1,021

 

 

 

7.3

%

Parking Solutions

 

 

6,218

 

 

 

 

 

 

3.1

%

 

 

 

 

 

6,218

 

 

n/a

 

Corporate and other

 

 

1,435

 

 

 

3,451

 

 

 

0.7

%

 

 

2.1

%

 

 

(2,016

)

 

 

(58.4

)%

Total selling, general and administrative expenses before stock-based compensation

 

 

36,813

 

 

 

28,056

 

 

 

18.6

%

 

 

17.3

%

 

 

8,757

 

 

 

31.2

%

Stock-based compensation

 

 

4,313

 

 

 

3,524

 

 

 

2.2

%

 

 

2.2

%

 

 

789

 

 

 

22.4

%

Total selling, general and administrative expenses

 

$

41,126

 

 

$

31,580

 

 

 

20.8

%

 

 

19.5

%

 

$

9,546

 

 

 

30.2

%

 

Depreciation, Amortization and (Gain) Loss on Disposal of Assets, Net. Depreciation, amortization and (gain) loss on disposal of assets, net, increased by $5.5 million to $35.0 million for the three months ended September 30, 2022 from $29.5 million for the same period in 2021. This was mainly due to increased amortization and depreciation expense resulting from the inclusion of T2 Systems with no comparable amounts in the prior year.

Interest Expense, Net. Interest expense, net increased by $8.6 million from $11.6 million for the three months ended September 30, 2021 to approximately $20.3 million for the same period in 2022. This increase is primarily attributable to a higher interest rate on our variable debt which was approximately 270 basis points higher than the comparable prior period and $1.24 billion in average outstanding debt during the three months ended September 30, 2022, which included the $250 million of incremental term loan borrowing, compared to $998 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 gains of $2.3 million and $5.1 million for the three months ended September 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.

Gain on extinguishment of debt. We recorded a $3.0 million gain on extinguishment of debt during the three months ended September 30, 2022 related to the forgiveness of the PPP loan, which is further discussed below.

Other Income, Net. Other income, net was $2.5 million for the three months ended September 30, 2022 compared to $3.5 million for the three months ended September 30, 2021. The decrease of $1.0 million is primarily attributable to an adjustment recognized for a previous acquisition subsequent to the measurement period, offset mainly by income resulting from volume rebates earned from total spend on purchasing cards from increased tolling and travel activity, especially in the RAC industry.

Income Tax Provision. Income tax provision was $8.4 million representing an effective tax rate of 25.5% for the three months ended September 30, 2022 compared to a tax provision of $11.5 million, representing an effective tax rate of 29.6% 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 the private placement warrants and the Redflex PPP loan forgiveness recorded as pre-tax income in 2022, resulting in the Company’s permanent book and tax differences having a proportionately lesser impact on the effective tax rate for 2022.

Net Income. We had net income of $24.6 million for the three months ended September 30, 2022, as compared to a net income of $27.3 million for the three months ended September 30, 2021. The $2.7 million decrease in net income was primarily

39


 

due to increased interest expense, costs and expenses due to the inclusion of T2 Systems in 2022 with no comparable amounts in the prior period, and the other statement of operations activity discussed above.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 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.

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

Increase (Decrease)
 2022 vs 2021

 

($ in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

$

 

 

%

 

Service revenue

 

$

516,253

 

 

$

348,000

 

 

 

92.9

%

 

 

91.4

%

 

$

168,253

 

 

 

48.3

%

Product sales

 

 

39,275

 

 

 

32,610

 

 

 

7.1

%

 

 

8.6

%

 

 

6,665

 

 

 

20.4

%

Total revenue

 

 

555,528

 

 

 

380,610

 

 

 

100.0

%

 

 

100.0

%

 

 

174,918

 

 

 

46.0

%

Cost of service revenue

 

 

11,636

 

 

 

3,624

 

 

 

2.1

%

 

 

1.0

%

 

 

8,012

 

 

 

221.1

%

Cost of product sales

 

 

25,638

 

 

 

15,562

 

 

 

4.6

%

 

 

4.1

%

 

 

10,076

 

 

 

64.7

%

Operating expenses

 

 

166,795

 

 

 

115,235

 

 

 

30.0

%

 

 

30.3

%

 

 

51,560

 

 

 

44.7

%

Selling, general and administrative expenses

 

 

122,913

 

 

 

86,252

 

 

 

22.1

%

 

 

22.6

%

 

 

36,661

 

 

 

42.5

%

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

 

 

105,881

 

 

 

84,806

 

 

 

19.1

%

 

 

22.3

%

 

 

21,075

 

 

 

24.9

%

Total costs and expenses

 

 

432,863

 

 

 

305,479

 

 

 

77.9

%

 

 

80.3

%

 

 

127,384

 

 

 

41.7

%

Income from operations

 

 

122,665

 

 

 

75,131

 

 

 

22.1

%

 

 

19.7

%

 

 

47,534

 

 

 

63.3

%

Interest expense, net

 

 

49,024

 

 

 

32,481

 

 

 

8.8

%

 

 

8.5

%

 

 

16,543

 

 

 

50.9

%

Change in fair value of private placement warrants

 

 

(5,133

)

 

 

5,067

 

 

 

(0.9

)%

 

 

1.3

%

 

 

(10,200

)

 

 

(201.3

)%

Tax receivable agreement liability adjustment

 

 

(965

)

 

 

1,661

 

 

 

(0.2

)%

 

 

0.4

%

 

 

(2,626

)

 

 

(158.1

)%

(Gain) loss on extinguishment of debt

 

 

(3,005

)

 

 

5,334

 

 

 

(0.5

)%

 

 

1.4

%

 

 

(8,339

)

 

 

(156.3

)%

Other income, net

 

 

(9,367

)

 

 

(9,305

)

 

 

(1.7

)%

 

 

(2.4

)%

 

 

(62

)

 

 

0.7

%

Total other expenses

 

 

30,554

 

 

 

35,238

 

 

 

5.5

%

 

 

9.2

%

 

 

(4,684

)

 

 

(13.3

)%

Income before income taxes

 

 

92,111

 

 

 

39,893

 

 

 

16.6

%

 

 

10.5

%

 

 

52,218

 

 

 

130.9

%

Income tax provision

 

 

27,854

 

 

 

17,510

 

 

 

5.0

%

 

 

4.6

%

 

 

10,344

 

 

 

59.1

%

Net income

 

$

64,257

 

 

$

22,383

 

 

 

11.6

%

 

 

5.9

%

 

$

41,874

 

 

 

187.1

%

 

Service Revenue. Service revenue increased by $168.3 million, or 48.3%, to $516.3 million for the nine months ended September 30, 2022 from $348.0 million for the nine months ended September 30, 2021, representing 92.9% and 91.4% of total revenue, respectively. The following table depicts service revenue by segment:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

Increase (Decrease)
 2022 vs 2021

 

($ in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

$

 

 

%

 

Service revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Services

 

$

244,409

 

 

$

189,426

 

 

 

44.0

%

 

 

49.8

%

 

$

54,983

 

 

 

29.0

%

Government Solutions

 

 

225,337

 

 

 

158,574

 

 

 

40.6

%

 

 

41.6

%

 

 

66,763

 

 

 

42.1

%

Parking Solutions

 

 

46,507

 

 

 

 

 

 

8.3

%

 

 

 

 

 

46,507

 

 

n/a

 

Total service revenue

 

$

516,253

 

 

$

348,000

 

 

 

92.9

%

 

 

91.4

%

 

$

168,253

 

 

 

48.3

%

 

Commercial Services service revenue increased by $55.0 million, or 29%, from $189.4 million for the nine months ended September 30, 2021 to $244.4 million for the nine months ended September 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 $39.8 million increase, and the tolling related revenue generated by our FMC customers contributed to a $9.6 million increase during the nine months ended September 30, 2022 compared to the same period in 2021.

40


 

Government Solutions service revenue includes revenue from speed, red-light, school bus stop arm and bus lane photo enforcement systems. Service revenue increased by approximately $66.8 million, and was $225.3 million and $158.6 million for the nine months ended September 30, 2022 and 2021, respectively. Redflex operations contributed $33.2 million to our growth year over year. Organic growth excluding Redflex was $33.5 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 549 speed cameras in the nine months ended September 30, 2022 which provided growth in the current period and will continue to provide growth for the remainder of 2022 and beyond. 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 $46.5 million resulted from our acquisition of T2 systems in December 2021 with no revenue in the comparable nine-month period.

Product Sales. Product sales increased by $6.7 million, and were $39.3 million and $32.6 million for the nine months ended September 30, 2022 and 2021, respectively. The increase in 2022 was mainly due to an aggregate $16.4 million of product revenue generated from T2 Systems for which there was no revenue in the comparable 2021 period and from Redflex, which included approximately one hundred days of activity in the 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 $3.6 million for the nine months ended September 30, 2021 to $11.6 million for the nine months ended September 30, 2022. The $8.0 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 approximately $10.0 million from $15.6 million in the nine months ended September 30, 2021 to $25.6 million in the nine months ended September 30, 2022, which was mainly due to increased costs from the inclusion of T2 Systems and Redflex operations.

Operating Expenses. Operating expenses increased by $51.6 million, or 44.7%, from $115.2 million for the nine months ended September 30, 2021 to $166.8 million for the nine months ended September 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 nine-month period in 2022 compared to approximately one hundred 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 slightly from 30.3% to 30.0% for the nine months ended September 30, 2021 and 2022, respectively. The following table presents operating expenses by segment:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

Increase (Decrease)
 2022 vs 2021

 

($ in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

$

 

 

%

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Services

 

$

53,004

 

 

$

47,667

 

 

 

9.5

%

 

 

12.5

%

 

$

5,337

 

 

 

11.2

%

Government Solutions

 

 

103,660

 

 

 

66,947

 

 

 

18.7

%

 

 

17.6

%

 

 

36,713

 

 

 

54.8

%

Parking Solutions

 

 

9,302

 

 

 

 

 

 

1.7

%

 

 

 

 

 

9,302

 

 

n/a

 

Total operating expenses before stock-based compensation

 

 

165,966

 

 

 

114,614

 

 

 

29.9

%

 

 

30.1

%

 

 

51,352

 

 

 

44.8

%

Stock-based compensation

 

 

829

 

 

 

621

 

 

 

0.1

%

 

 

0.2

%

 

 

208

 

 

 

33.5

%

Total operating expenses

 

$

166,795

 

 

$

115,235

 

 

 

30.0

%

 

 

30.3

%

 

$

51,560

 

 

 

44.7

%

 

 

41


 

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $36.7 million to $122.9 million for the nine months ended September 30, 2022 compared to $86.3 million for the same period in 2021. The increase is primarily due to increased wages and other general expenses due to the inclusion of Redflex for the full nine-month period in 2022 as compared to approximately one hundred days in the prior year and T2 Systems' operations included in the nine months ended September 30, 2022 with no comparable amounts in the prior year. In addition, we had overall increases of $8.9 million for professional services, $4.2 million for credit loss expense, and $3.3 million related to stock-based compensation expense compared to the prior year, which were partially offset by a $9.4 million decrease in certain transaction and transformation costs compared to 2021. Selling, general and administrative expenses as a percentage of total revenue decreased from 22.6% to 22.1% for the nine months ended September 30, 2021 and 2022, respectively. The following table presents selling, general and administrative expenses by segment:

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

 

 

 

Percentage of Revenue

 

 

Increase (Decrease)
 2022 vs 2021

 

($ in thousands)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

$

 

 

%

 

Selling, general and administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Services

 

$

40,980

 

 

$

30,449

 

 

 

7.4

%

 

 

8.0

%

 

$

10,531

 

 

 

34.6

%

Government Solutions

 

 

45,732

 

 

 

34,663

 

 

 

8.2

%

 

 

9.1

%

 

 

11,069

 

 

 

31.9

%

Parking Solutions

 

 

21,184

 

 

 

 

 

 

3.8

%

 

 

 

 

 

21,184

 

 

n/a

 

Corporate and other

 

 

2,190

 

 

 

11,577

 

 

 

0.4

%

 

 

3.0

%

 

 

(9,387

)

 

 

(81.1

)%

Total selling, general and administrative expenses before stock-based compensation

 

 

110,086

 

 

 

76,689

 

 

 

19.8

%

 

 

20.1

%

 

 

33,397

 

 

 

43.5

%

Stock-based compensation

 

 

12,827

 

 

 

9,563

 

 

 

2.3

%

 

 

2.5

%

 

 

3,264

 

 

 

34.1

%

Total selling, general and administrative expenses

 

$

122,913

 

 

$

86,252

 

 

 

22.1

%

 

 

22.6

%

 

$

36,661

 

 

 

42.5

%

 

Depreciation, Amortization and (Gain) Loss on Disposal of Assets, Net. Depreciation, amortization and (gain) loss on disposal of assets, net, increased by $21.1 million to $105.9 million for the nine months ended September 30, 2022 from $84.8 million for the same period in 2021. This was mainly due to increased amortization and depreciation expense from the inclusion of T2 Systems' operations with no comparable amounts in the prior year and Redflex for the full nine-month period in 2022 compared to approximately one hundred days in 2021.

Interest Expense, Net. Interest expense, net increased by $16.5 million from $32.5 million for the nine months ended September 30, 2021 to $49.0 million for the same period in 2022. This increase is primarily attributable to $1.24 billion in average outstanding debt during the nine months ended September 30, 2022 which included the $250 million of incremental term loan borrowing, compared to $958 million in average outstanding debt for the same period in 2021. In addition, the 2022 period included a higher interest rate on our variable debt for three months out of the nine-month period. See “Liquidity and Capital Resources.”

Change in Fair Value of Private Placement Warrants. We recorded a $5.1 million gain for the nine months ended September 30, 2022 and a $5.1 million loss for the nine months ended September 30, 2021, 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 nine months ended September 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.

(Gain) Loss on Extinguishment of Debt. We recorded a $3.0 million gain on extinguishment of debt during the nine months ended September 30, 2022 related to the forgiveness of the PPP loan, which is further discussed below. Loss on extinguishment of debt was $5.3 million for the nine months ended September 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. Other income, net was approximately $9.4 million for the nine months ended September 30, 2022, compared to $9.3 million for the nine months ended September 30, 2021. The slight increase is primarily due to income resulting from volume rebates earned from total spend on purchasing cards from increased tolling activity, especially in the RAC industry, offset mainly by an adjustment recognized for a previous acquisition subsequent to the measurement period.

42


 

Income Tax Provision. Income tax provision was $27.9 million representing an effective tax rate of 30.2% for the nine months ended September 30, 2022 compared to $17.5 million representing an effective tax rate of 43.9% 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 the private placement warrants, the Redflex PPP loan forgiveness recorded as pre-tax income in 2022, and the increase in overall 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. We had net income of approximately $64.3 million for the nine months ended September 30, 2022, as compared to a net income of $22.4 million for the nine months ended September 30, 2021. The increase in net income of $41.9 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 the available borrowing 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, borrowing 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 September 30, 2022, we had $72.1 million available for borrowing, net of letters of credit, under our Revolver.

 

Share Repurchases

 

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 amount initially 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 occurred on August 3, 2022, at which time, we received 445,086 additional shares calculated using a volume-weighted average price over the term of the ASR agreement. In addition, we paid $6.9 million and repurchased 445,791 shares through open market transactions during the nine months ended September 30, 2022. We discontinued open market repurchases during the third quarter of 2022 and our Board of Directors authorized an ASR for the remaining availability under the share repurchase program. On August 19, 2022, we paid $68.1 million for a second ASR, and received an initial delivery of 3,300,000 shares in accordance with an ASR agreement with a third-party financial institution. The final settlement is expected to occur during the fourth 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. We paid a total of $125.0 million for share repurchases and $0.1 million for direct costs during the nine months ended September 30, 2022 using available cash on hand.

Concentration of Credit Risk

The City of New York Department of Transportation (“NYCDOT”) represented 29% and 39% of total accounts receivable, net as of September 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.

43


 

The following table sets forth certain captions indicated on our statements of cash flows for the respective periods:

 

 

 

Nine Months Ended September 30,

 

($ in thousands)

 

2022

 

 

2021

 

Net cash provided by operating activities

 

$

148,776

 

 

$

129,284

 

Net cash used in investing activities

 

 

(36,434

)

 

 

(122,412

)

Net cash (used in) provided by financing activities

 

 

(159,525

)

 

 

5,335

 

 

Cash Flows from Operating Activities

Cash provided by operating activities increased by $19.5 million, from $129.3 million for the nine months ended September 30, 2021 to $148.8 million for the nine months ended September 30, 2022. Net income year over year increased by $41.9 million, from $22.4 million in 2021 to $64.3 million in 2022. The aggregate adjustments to reconcile net income to cash provided by operating activities remained relatively consistent year over year. The aggregate changes in operating assets and liabilities decreased by $21.4 million in 2022 primarily due to increased driver-billable accounts receivable balances in the Commercial Services business and the inclusion of accounts receivable balances in 2022 for the Parking Solutions business.

Cash Flows from Investing Activities

Cash used in investing activities was $36.4 million and $122.4 million for the nine months ended September 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 $(159.5) million and $5.3 million for the nine months ended September 30, 2022 and 2021, respectively. The cash used in 2022 was mainly due to the repurchases of 6.9 million shares of the Company’s Class A Common Stock for $125.1 million in the second and third quarters 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 the 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 $882.9 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 along with existing cash on hand were used to fund the close of the Redflex acquisition in June 2021 and the share repurchase and retirement for $100 million in August 2021 (discussed above).

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

44


 

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 $888.4 million at September 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 September 30, 2022, the interest rate on the 2021 Term Loan was 6.1%.

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
Prepayment
Percentage

> 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 nine months ended September 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 $2.9 million 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. In early 2021, Redflex applied for forgiveness of this loan, and on September 23, 2022, we were notified by the SBA that the loan, together with accrued interest, had been fully forgiven under the provisions of the PPP Loan program. Accordingly, we recognized a $3.0 million gain on extinguishment of debt in the consolidated statement of operations for the three and nine months ended September 30, 2022.

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 September 30, 2022, the availability to borrow was $72.1 million, net of $0.2 million of

45


 

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 $0.2 million of outstanding letters of credit as of September 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 September 30, 2022, we were compliant with all debt covenants.

Interest Expense

We recorded interest expense, including amortization of deferred financing costs and discounts, of $20.3 million and $11.6 million for the three months ended September 30, 2022 and 2021, respectively, and $49.0 million and $32.5 million for the nine months ended September 30, 2022 and 2021, respectively.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet financing arrangements as of September 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 $888.4 million at September 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. Based on the September 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 nine months ended September 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

46


 

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 September 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 nine months ended September 30, 2022.

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:

Design and implement controls to properly recognize revenue within our recent acquisitions.
Evaluate the sufficiency, experience, and training of our internal personnel and hire additional personnel.
Design and implement controls to validate revenue and reporting data used in the preparation of our consolidated financial statements.

 

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 September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

47


 

Part II—Other Information

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 and subsequent Quarterly Reports on Form 10-Q. 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 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. We subsequently paid $50.0 million in May 2022 to repurchase outstanding shares of our Class A Common Stock through an ASR, and received an initial delivery of 2,739,726 shares. The final settlement occurred in August 2022, at which time we received 445,086 additional shares. In addition, during the second and third quarters, we paid $6.9 million and repurchased 445,791 shares of our Class A Common Stock through open market transactions. During the third quarter of 2022, we discontinued open market repurchases and our Board of Directors authorized a second ASR for the remaining availability under the share repurchase program. In August 2022, we paid $68.1 million for the second ASR, and received an initial delivery of 3,300,000 shares of our Class A Common Stock. The final settlement is expected to occur during the fourth quarter of 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.

The timing, price, and quantity of purchases under the program have been, and will continue to be, made at the discretion of our management based 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. There is no guarantee as to the exact number of shares that we will repurchase and we cannot guarantee that the program will enhance long-term stockholder value. The share repurchase program could affect the trading price of our common stock and increase volatility. In addition, our repurchases under our share repurchase program have diminished, and could continue to diminish, our cash reserves.

 

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

 

Purchases of Equity Securities

In May 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 a 12 month period 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.

We subsequently paid $50.0 million in May 2022 to repurchase outstanding shares of our Class A Common Stock through an ASR, and received an initial delivery of 2,739,726 shares. The final settlement occurred in August 2022, at which time we

48


 

received 445,086 additional shares. In addition, during the second and third quarters, we paid $6.9 million and repurchased 445,791 shares of our Class A Common Stock through open market transactions. During the third quarter of 2022, we discontinued open market repurchases and our Board of Directors authorized a second ASR for the remaining availability under the share repurchase program. In August 2022, we paid $68.1 million for the second ASR, and received an initial delivery of 3,300,000 shares of our Class A Common Stock. The final settlement is expected to occur during the fourth quarter of 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.

The following details the purchases of the Company's Class A Common Stock during the three months ended September 30, 2022:

 

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 to be Purchased Under the Plans or Programs

 

As of July 1, 2022

 

 

 

 

$

 

 

 

 

 

$

69,790,032

 

Share repurchases

 

 

109,638

 

 

$

15.74

 

 

 

109,638

 

 

$

68,069,870

 

As of July 31, 2022

 

 

109,638

 

 

$

15.74

 

 

 

109,638

 

 

$

68,069,870

 

Share repurchases - ASR (1)

 

 

3,745,086

 

 

$

16.27

 

 

 

3,745,086

 

 

$

 

Share repurchases

 

 

 

 

$

 

 

 

 

 

$

 

As of August 31, 2022

 

 

3,854,724

 

 

$

 

 

 

3,854,724

 

 

$

 

Share repurchases

 

 

 

 

$

 

 

 

 

 

$

 

As of September 30, 2022

 

 

3,854,724

 

 

$

 

 

 

3,854,724

 

 

$

 

 

(1) This includes the settlement of the first ASR on August 3, 2022 for 445,086 additional shares and the initial delivery of 3,300,000 shares from the second ASR on August 19, 2022.

 

Sales of Unregistered Securities

We did not have any sales of unregistered equity securities during the three months ended September 30, 2022.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

49


 

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

Merger Agreement, dated as of June 21, 2018, by and among Gores Holdings II, Inc., AM Merger Sub I, Inc., AM Merger Sub II, LLC, Greenlight Holding II Corporation and PE Greenlight Holdings, LLC, in its capacity as the Stockholder Representative.

8-K

001-37979

2.1

June 21, 2018

 

2.2

Amendment No. 1 to Agreement and Plan of Merger, dated as of August 23, 2018, by and among Gores Holdings II, Inc., AM Merger Sub I, Inc., AM Merger Sub II, LLC, Greenlight Holding II Corporation and PE Greenlight Holdings, LLC, in its capacity as the Stockholder Representative.

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

Amended and Restated Bylaws of Verra Mobility Corporation.

8-K

001-37979

3.2

October 22, 2018

 

4.1

Specimen Class A Common Stock Certificate.

S-1

333-21503

4.2

December 9, 2016

 

4.2

Specimen Warrant Certificate.

S-1

333-21503

4.3

December 9, 2016

 

4.3

Warrant Agreement, dated January 12, 2017, between the Registrant and Continental Stock Transfer & Trust Company, as warrant agent.

8-K

001-37979

4.1

January 19, 2017

 

4.4

First Amendment to Warrant Agreement, dated January 15, 2020, by and among the Registrant, Continental Stock Transfer & Trust Company and American Stock Transfer & Trust Company.

10-K

001-37979

4.4

March 2, 2020

 

10.1

Separation and Release Agreement, by and between Rebecca Collins and the Registrant, dated August 29, 2022.

 

 

 

 

X

31.1

Certification of Principal Executive Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

X

31.2

Certification of Principal Financial Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

X

32.1*

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.

 

 

 

 

X

32.2*

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.

 

 

 

 

X

 

50


 

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.

 

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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: November 2, 2022

By:

/s/ David Roberts

 

 

David Roberts

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

52


EX-10.1

Exhibit 10.1

SEPARATION AND RELEASE AGREEMENT

This Separation and Release Agreement (“Agreement”) is made by and between Rebecca Collins (“Executive”) and Verra Mobility Corporation. (“Verra Mobility” or the “Company”) (and, together with Executive, the “Parties”) to set forth the Parties’ agreement concerning the terms and conditions that will govern the termination of the employment relationship between Executive and the Company.

WHEREAS, Executive serves as the Company’s General Counsel pursuant to that certain Amended and Restated Executive Employment Agreement Effective as of March 25, 2021 (the “Employment Agreement”); and

 

WHEREAS, Executive has notified the Company of her intent to resign from her position as General Counsel; and

 

WHEREAS, the Company and Executive desire to enter into certain mutual agreements regarding the terms under which Executive’s separation from the Company will occur.

NOW, THEREFORE, the Parties hereto, intending to be legally bound, hereby agree as follows:

1. Separation Date. Executive’s last day of work as the Company’s General Counsel shall be September 16, 2022 (the “Separation Date”). Executive agrees that, in addition to resigning as the Company’s General Counsel as of the Separation Date, she will resign from all other Company director, officer and other official positions on the date on which replacements are appointed by the Company, which shall be no later than the Separation Date. Executive agrees to execute any documents reasonably required by the Company, and/or its subsidiaries and affiliates, to affect such resignations. After the Separation Date, Executive will not represent herself as being an employee, officer, attorney, agent, or representative of the Company for any purpose. Except as otherwise set forth in this Agreement, the Separation Date will be the employment termination date for the Executive for all purposes, meaning that Executive is not entitled to any further compensation, monies, or other benefits from the Company, including coverage under any benefit plans or programs sponsored by the Company, as of the Separation Date.

2. Pay, Expenses, and Benefits.

a)
Salary and Expenses. The Company will pay Executive at her current salary through the Separation Date in accordance with the Company’s standard payroll practices. Executive will be reimbursed for any unreimbursed business expenses incurred prior to the Separation Date pursuant to Company policy. Reimbursement requests must be submitted before the Separation Date.
b)
Benefit Plans and Programs. As of the Separation Date, Executive will cease to earn, accrue, or be eligible for benefits, coverage, or perquisites under the benefit plans and programs provided to employees of the Company, with the sole exception of the specific benefits promised in Section 3. After the Separation Date, Executive shall be eligible for continuation coverage under the Company’s health plan pursuant to COBRA. Any vested benefits to which Executive may be entitled under any Company-sponsored 401(k) plan will be provided in accordance with and subject to the terms of that plan, including any terms regarding the timing, form, and manner of contributions and payment. Except as specifically provided in Section 3 of this Agreement, any grant of equity units to Executive shall be governed by the terms of the Verra Mobility Corporation 2018 Equity Incentive Plan (the “Equity Plan”) and related agreements.
c)
Payment of Accrued and Unused Paid Time Off Balance. Executive will be entitled to receive, and the Company will promptly pay to Executive, all accrued but unused paid time off, but not unused paid sick leave, following the Separation Date consistent with the Company’s policies and Arizona law.

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3. Severance Benefits.

The Company previously awarded Executive a restricted stock unit award for 160,274 shares of the Company’s common stock on October 23, 2018 (the “2018 RSU Award”), subject to the terms and conditions of the Equity Plan and related Equity Plan documents. The Parties acknowledge that 40,069 restricted stock units remain unvested under the 2018 RSU Award (the “Unvested RSUs”), and because they are scheduled to vest on October 23, 2022, would remain unvested as of the Separation Date and be subject to forfeiture under the terms of the Equity Plan. As consideration for (i) Executive’s obligations set forth in this Agreement and (ii) Executive’s valid execution and non-revocation of the Supplemental Separation and Release Agreement attached hereto as Exhibit A (the “Supplemental Release”) on or after the Separation Date, and provided Executive is not terminated for cause, the Company agrees to accelerate the vesting of the Unvested RSUs to occur on the Supplemental Release Effective Date, as defined in the Supplemental Release (the “RSU Vesting Acceleration”). The Parties acknowledge and agree that the RSU Vesting Acceleration is made expressly subject to and contingent upon Executive remaining in full compliance with the terms of this Agreement, the Proprietary Rights Agreement (defined in Section 6(a)) and the Supplemental Release. Executive acknowledges and agrees that (i) other than the RSU Vesting Acceleration, Executive has no rights to otherwise vest in any securities of the Company following the Separation Date, (ii) all other unvested equity awards held by Executive will terminate or be forfeited on the Separation Date and (iii) all vested equity as of the Separation Date, including those covered by the RSU Vesting Acceleration, shall be governed by the terms of the Equity Plan and related Equity Plan documents. This Agreement and the terms related to the RSU Vesting Acceleration constitute a “superseding agreement” to the Verra Mobility Corporation Restricted Stock Units Agreement and the Verra Mobility Corporation Notice of Grant of Restricted Stock Units provided to Executive with a grant date of October 23, 2018.

Executive agrees that her notice of resignation was “without Good Reason” as such term is referenced and/or defined in Sections 3.4 and 3.7(b) of her Employment Agreement, pursuant to which she is not entitled to the severance benefits set forth in the Employment Agreement. Executive further acknowledges and agrees that she has no right to receive the RSU Vesting Acceleration unless she validly executes this Agreement and the Supplemental Release and fully complies with the respective terms of this Agreement, the Proprietary Rights Agreement and the Supplemental Release, and is not terminated for cause. The Parties further agree that the RSU Vesting Acceleration constitutes adequate and sufficient consideration to support the mutual promises set forth in this Agreement and the Supplemental Release. Executive is not entitled to any additional payment or benefit from any Released Party (as defined below) that is not expressly promised or described in this Agreement.

4. Release of Claims.

a) Release and Released Parties. In exchange for the consideration described in Section 3, and subject only to the exclusions of Section 4(b) below, Executive hereby releases the Company, its parents, shareholders, subsidiaries, affiliates, predecessors, successors, assigns, related companies or entities, its and their employee benefit plans and administrators, and any and all of its and their respective current and former officers, directors, partners, insurers, agents, representatives, attorneys, accountants, actuaries, trustees, fiduciaries, and employees (the “Released Parties”) from any and all claims, demands or causes of action which Executive or Executive’s heirs, executors, administrators, agents, attorneys, representatives or assigns (all collectively included in the term “Executive” for purposes of this Section 4), has, had or may have against any of the Released Parties, based on any events or circumstances arising or occurring on or before the date of Executive’s execution of this Agreement, including, but not limited to, any claims relating to Executive’s employment or termination of employment, and any rights of continued employment, reinstatement or reemployment with any of the Released Parties. For the avoidance of doubt, and subject only to the exclusions in Section 4(b) of this Agreement, Executive expressly agrees, understands, and acknowledges that this is a general release that, to the fullest extent permitted by law, waives, surrenders, and extinguishes any and all claims that Executive has or may have against any of the Released Parties, whether known, unknown, foreseen, or unforeseen, including, but not limited to, the following:

(i)
any claim(s) under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act, the Equal Pay Act, the Employee Retirement Income Security Act, the Family and Medical Leave Act (“FMLA”), the Genetic Information Nondiscrimination Act, the Health Insurance

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Portability and Accountability Act, 42 U.S.C. § 1981, the Arizona Minimum Wage Act; Arizona Equal Pay Act, the Arizona Employment Protection Act, the Arizona Civil Rights Act, the Arizona Occupational Health and Safety Act; Arizona Right to Work Act, the Arizona Drug Testing of Employees Act, the Arizona Medical Marijuana Act, or the Worker Adjustment and Retraining Notification Act;
(ii)
any claim(s) under any other applicable federal, state, or local or foreign law, statute, regulation, or ordinance regarding discrimination, harassment, retaliation, or any other subject matter;
(iii)
any claim(s) for unpaid or withheld wages, severance, benefits, bonuses, commissions, and other compensation of any kind that Executive may have against the Company;

 

(iv)
any claim(s) for breach of contract, wrongful discharge, unjust dismissal, defamation, slander, libel, fraud, misrepresentation, negligence, intentional or negligent infliction of emotional distress; and
(v)
any other claim for damages or other relief arising under the common law or any theory of law or equity, including any claim for costs or attorneys’ fees.
b)
Claims Not Released. The claims released in Section 4(a) of this Agreement do not include any claim or cause of action based on any of the following: (i) the right to vested benefits under any retirement plan; (ii) the right to continued benefits as required by COBRA; (iii) any right to receive workers’ compensation benefits or unemployment insurance as required by applicable law; (iv) the right to challenge the validity or enforceability of this Agreement under the Older Workers Benefit Protection Act; (v) any claim to enforce the terms of this Agreement; or (vi) any claim which cannot be waived as a matter of law. For the avoidance of doubt, nothing herein waives or releases any claim that may arise after the Effective Date (as defined below).
c)
Permitted Conduct. Nothing in this Agreement prohibits Executive from filing a charge with the Equal Employment Opportunity Commission (“EEOC”) or any other government agency, nor does anything in this Agreement prohibit Executive from participating, cooperating, or testifying in any investigation or proceeding conducted by or pending before the EEOC or any other any government agency. However, even though Executive can provide testimony or information or assistance in an investigation or in proceedings described in this Section 4(c), Executive’s participation therein will not entitle Executive to additional compensation from the Company or any of the Released Parties beyond that described in Section 3 of this Agreement. In fact, if Executive is awarded any monetary relief in connection with any lawsuit, legal proceeding, charge or complaint, that relief will be reduced by any amounts paid or payable by the Company under this Agreement. Further, nothing in this Agreement limits or prohibits Executive from reporting possible violations of law or regulation to any government agency or entity, making other disclosures that are protected under whistleblower provisions of law, or receiving an award or monetary recovery pursuant to the Securities and Exchange Commission’s whistleblower program. Executive does not need prior authorization to make such reports or disclosures and is not required to notify the Company if Executive has made any such report or disclosure.

5. Pay and Leave Confirmation. Executive is not aware of any occasion on which the Company or any of the Released Parties failed to pay Executive for hours worked for or on behalf of the Company at the appropriate rate of pay. Executive is not aware of any occasion when she was denied any leave that she was entitled to take under the FMLA or any other law or regulation.

6. Confidentiality, Intellectual Property, and Company Property.

a)
Confidential Information. Executive understands and agrees that she remains bound by the terms of the Company Proprietary Rights and Non-Competition Agreement that she executed in conjunction with her employment dated May 9, 2016 (the “Proprietary Rights Agreement”), as supplemented by Sections 5 and 6 of her Employment Agreement. Executive specifically acknowledges and reaffirms her ongoing obligations (a) not to use or

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disclose for her own benefit, or that of another employer or any party other than the Company, any confidential or proprietary information of the Company to which she had access or created during the period of her employment with the Company, (b) to return to the Company any and all Company property and all materials containing Company confidential or proprietary information in her possession, and (c) to comply with applicable post-employment restrictions regarding the Company’s customers, competitors and employees. Notwithstanding the foregoing, nothing in this Agreement limits or prohibits Executive from reporting possible violations of law or regulation to any government agency or entity or making other disclosures that are protected under whistleblower provisions of law, and Executive may disclose Confidential Information to the extent she is compelled to do so by lawful service of process, subpoena, court order, or as she is otherwise compelled to do by law or the rules or regulations of any regulatory body or governmental agency or instrumentality to which she is subject, including full and complete disclosure in response thereto, in which event she agrees (unless prohibited by law) to provide the Company with a copy of the documents seeking disclosure of such information promptly upon receipt of such documents and prior to their disclosure of any such information, so that the Company may, upon notice to Executive, take such action as the Company deems appropriate in relation to such subpoena or request, and Executive (unless otherwise compelled to do so by lawful service of process, subpoena, court order, or by law or the rules or regulations of any regulatory body or governmental agency or instrumentality) may not disclose any such information until the Company has had the opportunity to take such action. Executive further understands and acknowledges that the Company’s Insider Trading Policy will continue to apply to Executive and her family members until after the second trading day that any material nonpublic information in her possession has become public or is no longer material.
b)
Company Property. Executive will promptly return to the Company all property belonging to it, including, but not limited to, laptops, monitors, desktop computers, mobile phones, hotspots and other mobile Wi-Fi devices, headsets, keyboards, mice, power cords and adaptors, identification badges, credit cards, supplies, documents, files, computer disks or drives, and the like (collectively, the “Company Property”). Executive further agrees to remove from any personal computer and other data devices all data and files containing Company information.

7. Cooperation in Legal Proceedings and Investigations. Executive affirms that, pursuant to Section 3.6 of the Employment Agreement, she will make herself reasonably available to the Company to provide cooperation and assistance with regards to information requests, investigations, and other reasonable assistance with regards to any litigation or proceeding in which the Company (or a subsidiary) is or becomes involved. Only reasonable travel and out-of-pocket expenses incurred in assisting the Company will be reimbursed; and any such expenses incurred in excess of five hundred dollars ($500.00) must be pre-approved in writing by the Company to be eligible for reimbursement. Executive acknowledges and agrees that should she fail to provide reasonable cooperation and assistance, the Company has the right to claw back the Accelerated Vesting or, if the Company has already issued stock as a result of the RSU Vesting Acceleration, Executive shall reimburse the Company the fair market value of the RSU Vesting Acceleration, which will be calculated by multiplying the number of shares issued as a result of the RSU Vesting Acceleration by the closing price of the Company’s common stock on the date of the stock issuance (the “FMV Reimbursement”); provided, however, that it shall be a condition precedent to the Company’s right to claw back the Accelerated Vesting or Executive’s obligation to make the FMV Reimbursement, as the case may be, related to Executive’s failure to provide reasonable cooperation and assistance pursuant to this Section 7 that (a) the Company shall first have provided Executive with written notice describing, with reasonable specificity, the nature of Executive’s breach of this Section 7, and (b) Executive shall have a period of thirty (30) calendar days from and after the provision of such notice to fully cure or remedy any enumerated breaches.

8. Non-Disparagement. Executive affirms her obligations to comply with Section 9 (Non-Disparagement) of her Employment Agreement.

9. Post-employment Obligations. Executive affirms her obligations to comply with any post-employment obligations contained in the Proprietary Rights Agreement and her Employment Agreement. Additionally, in further consideration for the mutual promises and covenants set forth herein, Executive and the Company agree that the Employment Agreement shall be amended as follows: (a) the Non-Competition Period set forth in Section 7 of the Employment Agreement shall extend for a period of twenty-four (24) months following the Separation Date; (b) the

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definition of the term Business (as defined in Section 7 of the Employment Agreement) shall be amended to include telematics, connected vehicles, traffic management, and curbside management; provided, however, that the business of Blue Yonder Group, Inc., as currently conducted, shall be expressly permitted under the definition of such term; and (c) the non-solicitation restrictions set forth in Section 8 of the Employment Agreement shall extend for a period of twenty-four (24) months following the Separation Date.

10. Liquidated Damages for Breach of Certain Obligations. As Executive previously acknowledged when she signed the Proprietary Rights Agreement and her Employment Agreement, a breach of her obligations under the Proprietary Rights Agreement or Sections 5, 6, 7, 8 or 9 of her Employment Agreement could irreparably damage the Company. Consequently, and because the damage that a breach of those obligations would inflict on the Company is not an amount that the Parties can clearly ascertain at this time, but would likely be even greater than the RSU Vesting Acceleration that Executive will receive under this Agreement. Executive agrees that if she breaches any of her obligations set forth above, she will forfeit the RSU Vesting Acceleration received under this Agreement and, if the Company has already issued stock as a result of the RSU Vesting Acceleration, Executive shall provide the Company with the FMV Reimbursement of the RSU Vesting Acceleration. THE REMEDIES SET FORTH IN THIS SECTION 10 ARE NOT EXCLUSIVE AND SHALL BE IN ADDITION TO ANY OTHER LEGAL OR EQUITABLE REMEDY THAT MAY BE AVAILABLE TO THE COMPANY IN THE EVENT OF A BREACH BY EMPLOYEE.

11. Non-Admission. This Agreement does not constitute and shall not be construed as an admission by the Company or any of the Released Parties that any of them has violated any law, interfered with any rights, breached any obligation or otherwise engaged in any improper or illegal conduct with respect to Executive, and the Company expressly denies that it has engaged in any such conduct.

12.
Severability. If any term or provision of this Agreement shall be determined by any court of competent jurisdiction to be invalid, illegal or unenforceable in whole or in part, and such determination shall become final, such provision or portion shall be deemed to be severed or limited, but only to the extent required to render the remaining terms and provisions of this Agreement enforceable. This Agreement as thus amended shall be enforced so as to give effect to the intention of the Parties insofar as that is possible. In addition, the Parties hereby expressly empower a court of competent jurisdiction to modify any term or provision of this Agreement to the extent necessary to comply with existing law and to enforce this Agreement as modified.
13.
Choice of Law. This Agreement shall be construed, enforced and interpreted in accordance with and governed by the laws of the State of Arizona without regard to its choice-of-law principles.
14.
Deductions and Withholding. The Company may deduct and withhold from any amounts payable to the Executive hereunder all federal, state, city or other taxes that the Company may reasonably determine are required to be deducted or withheld pursuant to any applicable law or regulation (it being understood that Executive shall be responsible for payment of all taxes in respect of the payments and benefits provided herein). However, to be clear, the Company makes no commitment or guarantee to Executive that any federal, state, local, or other tax treatment will (or will not) apply or be available to Executive and assumes no liability whatsoever for any potential tax consequences (including any penalties or interest related thereto) to Executive.
15.
Headings. The headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
16.
Entire Agreement. This Agreement constitutes the entire agreement and understanding between the Parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters. This Agreement shall be binding upon and inure to the benefit of, as applicable, Executive’s (on the one hand) and the Company’s and the Released Parties’ (on the other hand) respective successors, assigns, heirs, estates, and representatives. This Agreement shall not be amended or modified except in a writing signed by Executive and the Company’s Chief Executive Officer.

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17.
Tax Code Section 409A Compliance. The intent of the Parties is that any payments and benefits under this Agreement that are subject to Section 409A of the Code comply with the requirements of Section 409A of the Code and any related regulations and other guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service. Accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered in compliance therewith. All expense reimbursements paid pursuant to this Agreement that are taxable income to Executive shall in no event be paid later than the end of the calendar year next following the calendar year in which Executive incurs such expense. For purposes of applying the provisions of Section 409A of the Code to this Agreement, each separately identified amount to which Executive is entitled under this Agreement shall be treated as a separate payment. In addition, to the extent permissible under Section 409A of the Code, any series of installment payments under this Agreement shall be treated as a right to a series of separate payments. In no event shall the Company be liable to Executive for any adverse tax consequences arising under Section 409A.

 

18.
Acceptance. Executive may accept this Agreement by delivering a signed original of this Agreement to the Company’s Chief Executive Officer, David Roberts, on or before September 16, 2022. Executive’s signing of this Agreement will be final and binding upon Executive.

 

19.
Effective Date. This Agreement will become effective and enforceable on the date both Parties sign the Agreement (the “Effective Date”), although Executive’s right to receive the RSU Vesting Acceleration shall not accrue until the Supplemental Release Effective Date.
20.
Executive’s Acknowledgment. Executive acknowledges that she (a) has carefully read and understands the terms and conditions of this Agreement; (b) has had adequate opportunity to consult with counsel of her choosing concerning the consequences of signing this Agreement and the release and waiver contained in Section 4; (c) is signing this Agreement knowingly and voluntarily of her own free will, without any duress, coercion or undue influence by the Company, its representatives, or other persons; and (d) has not relied on any promise, statement, or representation by anyone associated with the Company that is not contained in this Agreement in deciding to sign this Agreement. Executive specifically represents that she has not assigned or given to any other person or party the right to pursue any legal claim that falls within the scope of Section 4 of this Agreement.

 

[Signature Page Follows]

 

 

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IN WITNESS WHEREOF, the Parties knowingly and voluntarily executed this Separation and Release Agreement as of the dates set forth below.

 

Executive Verra Mobility Corporation

 

 

 

 

Signature:

/s/ Rebecca Collins

 

/s/ David Roberts

 

Rebecca Collins

 

David Roberts

 

 

 

Chief Executive Officer

 

Date:

8/29/2022

 

Date:

8/29/2022

 

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Exhibit 10.1

EXHIBIT A

SUPPLEMENTAL SEPARATION AND RELEASE AGREEMENT

This Supplemental Separation and Release Agreement (this “Supplemental Release”) is made by and between Rebecca Collins (“Executive”) and Verra Mobility Corporation (the “Company” and, together with Executive, the “Parties”), as contemplated by that certain Separation and Release Agreement, by and between the Parties, dated as of August __, 2022 (the “Separation Agreement”). Capitalized terms used by not otherwise defined herein shall have the meaning set forth in the Separation Agreement.

RECITALS

WHEREAS, pursuant to the Separation Agreement and in consideration for the RSU Vesting Acceleration, Executive desires to execute this Supplemental Release.

NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:

1.
Termination. Executive’s last day of employment with the Company was the Separation Date. Executive’s accrual of, and eligibility for vacation, holiday pay, and any other employee privileges ceased on the Separation Date. Pursuant to Section 3 of the Separation Agreement, Executive acknowledges that any unvested equity awards, other than those covered by the RSU Vesting Acceleration, were forfeited as of the Separation Date.
2.
General Release of Claims. In exchange of the consideration described above, including the RSU Vesting Acceleration, Executive unconditionally, irrevocably and absolutely releases and discharges the Company, and any parent and subsidiary corporations, divisions and affiliated corporations, partnerships or other affiliated entities of the Company, past and present, as well as the Company’s employees, officers, directors, agents, successors and assigns (collectively, “Released Parties”), from all claims related in any way to the transactions or occurrences between them to date, to the fullest extent permitted by law, including, but not limited to, Executive’s employment with the Company, the termination of Executive’s employment, and all other losses, liabilities, claims, charges, demands and causes of action, known or unknown, suspected or unsuspected, arising directly or indirectly out of or in any way connected with Executive’s employment with the Company. This release is intended to have the broadest possible application and includes, but is not limited to, any tort, contract, wrongful discharge, common law, constitutional or other statutory claims, including, but not limited to alleged violations of the Title VII of the Civil Rights Act of 1964, as amended; the Age Discrimination in Employment Act (“ADEA”); the Fair Labor Standards Act; the Fair Credit Reporting Act; the Americans with Disabilities Act; the Family Medical Leave Act; the Equal Pay Act; the Employee Retirement Income Security Act of 1974; the National Labor Relations Act; the Arizona Minimum Wage Act; Arizona Equal Pay Act, the Arizona Employment Protection Act, the Arizona Civil Rights Act, the Arizona Occupational Health and Safety Act; Arizona Right to Work Act, the Arizona Drug Testing of Employees Act, the Arizona Medical Marijuana Act, and all other laws against discrimination, governing wage and hour, or applicable to employment that may be the subject of a release under applicable law. Executive expressly waives her right to recovery of any type, including damages or reinstatement, in any court action, whether state or federal, and whether brought by Executive or on her behalf, related in any way to the matters released herein. Nothing in this Agreement shall be construed to prohibit Executive from reporting conduct to, providing truthful information to or participating in any investigation or proceeding conducted by any federal or state government agency or self-regulatory organization.

Executive represents that, as of the date of this Supplemental Release, she has not filed any lawsuits, charges, complaints, petitions, claims or other accusatory pleadings against the Company or any of the Released Parties, in any court or with any governmental agency. Executive agrees that, to the fullest extent permitted by law, Executive will not prosecute, nor allow to be prosecuted on Executive’s behalf, in any administrative agency, whether state or federal, or in any court, whether state or federal, any claim or demand of any type related to the matters released in the Separation Agreement or this Supplemental Release.

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Nothing in this Supplemental Release shall be construed to waive any claims that cannot be waived as a matter of law. In addition, this Supplemental Release does not prevent Executive from filing an administrative charge against the Company that may not be released as a matter of law. Nothing in this Supplemental Release shall be construed to prohibit Executive from reporting conduct to, providing truthful information to or participating in any investigation or proceeding conducted by any federal or state government agency or self-regulatory organization. This Supplemental Release does not waive any rights or claims that may arise after the date that Executive executed this Supplemental Release.

3.
Job-Related Illness or Injury. Executive certifies that she has not experienced a job-related illness or injury for which she has not already filed a claim.
4.
Acknowledgment. Executive stipulates and agrees that she has been advised in writing that, by virtue of her age, she may have rights under the ADEA, which rights will be extinguished by her execution of this Agreement.
a.
Executive acknowledges that she has been advised to seek an attorney regarding the effect of this Agreement prior to signing it.
b.
Executive stipulates and agrees that this Supplemental Release provides consideration in addition to anything of value to which she may be entitled independent of this Supplemental Release.
c.
Nothing herein shall be deemed to release claims that arise under the ADEA after the date that Executive executes this Supplemental Release.
d.
Executive acknowledges that she has twenty-one (21) days from the date this offer is received to consider this Supplemental Release before signing it. Executive may choose to execute this Supplemental Release before the expiration of this period.
e.
Executive understands that she has seven (7) days after accepting this offer to revoke her acceptance (the “Revocation Period”). Revocation must be in writing and either personally delivered or overnight mailed to the Company’s Chief Executive Officer to arrive on the eighth (8th) day after Executive executed this Supplemental Release. Neither Executive’s acceptance nor the terms of this Supplemental Release will be effective until the Revocation Period has expired.
5.
Acceptance. Executive may accept this Supplemental Release by delivering a signed original of this Supplemental Release to the Company’s Chief Executive Officer within twenty-one (21) calendar days from Executive’s receipt of this Supplemental Release. Executive may sign this Supplemental Release before the 21-day period expires, provided, however, that Executive’s execution of this Supplemental Release will be final and binding upon Executive, unless Executive rescinds the Supplemental Release within the Revocation Period referenced in Section 4 above.
6.
Effective Date. This Supplemental Release will not become effective or enforceable until the eighth (8th) calendar day after Executive signs it (the “Supplemental Release Effective Date”). If (i) this Supplemental Release fails to become effective and irrevocable on or prior to the 60th day following the Separation Date or (ii)(a) Executive revokes this Supplemental Release within the seven (7) day Revocation Period or (b) Executive fails to return an executed original within the required twenty-one (21) day timeframe referenced above, the Parties shall have no obligations under this Supplemental Release, and this Supplemental Release shall be considered null and void.
7.
Severability. In the event any provision of this Supplemental Release shall be found unenforceable, that provision shall be deemed modified to the extent necessary to allow enforceability of the provision as so limited, it being intended that the Company shall receive the benefits contemplated herein to the fullest extent permitted by law. If a deemed modification is not satisfactory to make it enforceable, then that unenforceable provision shall be deemed deleted, and the validity and enforceability of the remaining provisions shall not be affected thereby.

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8.
No Admissions. By entering into this Supplemental Release, the Company makes no admission that any of the Released Parties have engaged in any unlawful conduct. The Parties understand and acknowledge that this Supplemental Release is not an admission of liability and shall not be used or construed as such in any legal or administrative proceeding.
9.
Applicable Law. The validity, interpretation and performance of this Supplemental Release shall be construed and interpreted according to the laws of the United States of America and the State of Arizona.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties knowingly and voluntarily executed this Supplemental Separation and Release Agreement as of the dates set forth below.

 

Executive Verra Mobility Corporation

 

 

 

 

Signature:

 

 

Rebecca Collins

 

David Roberts

 

 

 

Chief Executive Officer

 

Date:

 

 

Date:

 

 

*not to be signed until on or after the Separation Date

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EX-31.1

 

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:

1.
I have reviewed this Quarterly Report on Form 10-Q of Verra Mobility Corporation;
2.
Based on my knowledge, this Quarterly Report on Form 10-Q does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report on Form 10-Q;
3.
Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report on Form 10-Q is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Quarterly Report on Form 10-Q our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q based on such evaluation; and
d)
Disclosed in this Quarterly Report on Form 10-Q any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: November 2, 2022

By:

 

/s/ David Roberts

 

 

 

David Roberts

 

 

 

President and Chief Executive Officer

 

 


EX-31.2

 

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:

1.
I have reviewed this Quarterly Report on Form 10-Q of Verra Mobility Corporation;
2.
Based on my knowledge, this Quarterly Report on Form 10-Q does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report on Form 10-Q;
3.
Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report on Form 10-Q is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Quarterly Report on Form 10-Q our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: November 2, 2022

By:

 

/s/ Craig Conti

 

 

 

Craig Conti

 

 

 

Chief Financial Officer

 

 


EX-32.1

 

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 September 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:

(1)
the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

 

Dated: November 2, 2022

By:

 

/s/ David Roberts

 

 

 

David Roberts

 

 

 

President and Chief Executive Officer

 

 


EX-32.2

 

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 September 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:

(1)
the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

 

Dated: November 2, 2022

By:

 

/s/ Craig Conti

 

 

 

Craig Conti

 

 

 

Chief Financial Officer