Notes to the CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
|
Description of Business
|
Verra Mobility Corporation (collectively with its subsidiaries, the “Company” or “Verra Mobility”), formerly known as Gores Holdings II, Inc. (“Gores”), was originally incorporated in Delaware on August 15, 2016, as a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more target businesses. On January 19, 2017, the Company consummated its initial public offering (the “IPO”), following which its shares began trading on the Nasdaq Capital Market (“Nasdaq”). On June 21, 2018, Gores entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Greenlight Holding II Corporation, PE Greenlight Holdings, LLC, AM Merger Sub I, Inc., a direct, wholly-owned subsidiary of Gores and AM Merger Sub II, LLC, a direct, wholly-owned subsidiary of Gores. On October 17, 2018, the transactions contemplated by the Merger Agreement (the “Business Combination”) were consummated. In connection with the closing of the Business Combination, Gores changed its name to Verra Mobility Corporation. As a result of the Business Combination, Verra Mobility Corporation became the owner, directly or indirectly, of all of the equity interests of Verra Mobility Holdings, LLC and its subsidiaries.
Verra Mobility offers integrated technology solutions and services to commercial fleets, rental car companies, state and local governments domestically, and government agencies internationally. The Company has customers located throughout the world, primarily within the United States, Australia, Europe and Canada. The Company is organized into two operating segments: Commercial Services and Government Solutions (see Note 14).
The Commercial Services segment offers toll and violation management solutions for the commercial fleet and rental car industries by partnering with the leading fleet management and rental car companies in North America. Electronic toll payment services enable fleet drivers and rental car customers to use high-speed cashless toll lanes or all-electronic cashless toll roads. The service helps commercial fleets reduce toll management costs, while it provides rental car companies with a revenue-generating, value-added service for their customers. Electronic violation processing services reduce the cost and risk associated with vehicle-issued violations, such as toll, parking or camera-enforced tickets. Title and registration services offer title and registration processing for individuals, rental car companies and fleet management companies. In Europe, the Company provides violations processing through Euro Parking Collection plc (“EPC”) and consumer tolling services through Pagatelia S.L (“Pagatelia”).
The Government Solutions segment offers photo enforcement solutions and services to its customers. Through its recent acquisition of Redflex Holdings Limited (“Redflex”) on June 17, 2021, the Company expanded its current footprint in the United States and gained access to international markets (see Note 3). 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 newly acquired international operations through Redflex primarily involve the sale of traffic enforcement products and related maintenance services.
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.
Restatement of Previously Issued Condensed Consolidated Financial Statements
The notes included herein should be read in conjunction with the Company’s restated audited consolidated financial statements included in the Company’s Annual Report on Form 10-K/A filed with the SEC on May 17, 2021.
10
The Company restated its previously issued consolidated financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 and the related quarterly financial information to reflect adjustments resulting from changes to our accounting for private placement warrants.
The impact of the restatement was a $8.3 million decrease for the three months ended June 30, 2020 and a $7.1 million increase for the six months ended June 30, 2020 to net income, and an increase to private placement warrant liabilities of $22.6 million as of June 30, 2020, with an offsetting decrease of $20.4 million to additional paid-in capital and an increase of $2.2 million to accumulated deficit line items. There was no net cash impact to the condensed consolidated statements of cash flows.
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 items subject to such estimates and assumptions include the fair values assigned to net assets acquired (including identifiable intangible assets) in business combinations, the carrying amounts of inventory, long-lived assets and goodwill, the allowance for credit loss, fair value of private placement warrant liabilities, valuation allowances on deferred tax 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. Revenue from the single Government Solutions customer exceeding 10% as a percent of total revenue is presented below:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
City of New York Department of Transportation
|
|
|
26.7
|
%
|
|
|
40.5
|
%
|
|
|
25.7
|
%
|
|
|
31.6
|
%
|
As of June 30, 2021, the City of New York Department of Transportation (“NYCDOT”) represented 59% of total accounts receivable, net. The Company provides photo enforcement services to NYCDOT under two primary agreements, (i) a legacy contract relating to photo enforcement cameras that were installed prior to fiscal year 2020 (the “Legacy Contract”), and (ii) an emergency contract for the purchase, installation, maintenance and operation of the expanded speed camera program beginning in 2020 (the “Emergency Contract”). At June 30, 2021, the Legacy Contract had an open receivable balance of $30.8 million, of which $22.3 million had aged beyond NYCDOT’s 45-day payment terms. As of June 30, 2021, the Company had invoiced NYCDOT for $64.4 million in product revenue and $36.7 million in service revenue under the Emergency Contract, and the Emergency Contract had an open receivables balance of $96.3 million, of which $79.5 million had aged beyond the 45-day payment terms. The total outstanding receivables balance has increased approximately $6 million in the second quarter of 2021 compared to the first quarter due to additional invoices under both contracts. The Company collected $28.1 million during the second quarter of 2021 related to both contracts. There is no material reserve related to open receivables as amounts are deemed collectible based on current conditions and expectations. No other Government Solutions customer exceeded 10% of total accounts receivable as of any period presented.
Significant customer revenue concentrations generated through the Company’s Commercial Services partners as a percent of total revenue is presented below:
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
2021
|
|
|
2020
|
|
Hertz Corporation
|
|
|
13.3
|
%
|
|
(1)
|
|
|
13.5
|
%
|
|
|
13.0
|
%
|
Avis Budget Group, Inc.
|
|
|
13.0
|
%
|
|
(1)
|
|
|
12.2
|
%
|
|
(1)
|
|
Enterprise Holdings, Inc.
|
|
|
12.8
|
%
|
|
(1)
|
|
|
13.5
|
%
|
|
(1)
|
|
11
|
(1)
|
Customer revenue for the period was below 10% of total revenue.
|
No Commercial Services customer exceeded 10% of total accounts receivable as of any period presented.
Allowance for Credit Loss
The Company reviews historical credit losses and customer payment trends on receivables and develops loss rate estimates as of the balance sheet date, which includes adjustments for future expectations using probability-weighted assumptions about potential outcomes. Receivables are written off against the allowance for credit loss when it is probable that amounts will not be collected based on the terms of the customer contracts, and subsequent recoveries reverse the previous write-off and apply to the receivable in the period recovered. No interest or late fees are charged on delinquent accounts.
The Company identified portfolio segments based on the type of business, industry in which the customer operates and historical credit loss patterns. The following presents the activity in the allowance for credit loss for the six months ended June 30, 2021 and 2020, respectively:
($ 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
|
|
|
4,877
|
|
|
|
(989
|
)
|
|
|
(25
|
)
|
|
|
3,863
|
|
Write-offs, net of recoveries
|
|
|
(2,613
|
)
|
|
|
(24
|
)
|
|
|
(21
|
)
|
|
|
(2,658
|
)
|
Balance at June 30, 2021
|
|
$
|
5,474
|
|
|
$
|
3,264
|
|
|
$
|
3,938
|
|
|
$
|
12,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Commercial Services
(Driver-billed) (1)
|
|
|
Commercial
Services
(All other)
|
|
|
Government Solutions
|
|
|
Total
|
|
Balance at January 1, 2020 (2)
|
|
$
|
5,272
|
|
|
$
|
1,406
|
|
|
$
|
1,778
|
|
|
$
|
8,456
|
|
Credit loss expense
|
|
|
2,744
|
|
|
|
6,256
|
|
|
|
1,723
|
|
|
|
10,723
|
|
Write-offs, net of recoveries
|
|
|
(5,449
|
)
|
|
|
(334
|
)
|
|
|
(466
|
)
|
|
|
(6,249
|
)
|
Balance at June 30, 2020
|
|
$
|
2,567
|
|
|
$
|
7,328
|
|
|
$
|
3,035
|
|
|
$
|
12,930
|
|
|
(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.
|
|
(2)
|
This includes a $0.8 million increase to the allowance for credit loss as a result of adopting the credit loss standard.
|
The Company adjusted down its estimate for credit loss as of June 30, 2021 to reflect the risk of loss based on customer payment rates in the last 12 months and improved economic conditions for the Commercial Services (All other) and Government Solutions portfolio segments. The Company’s methodology for the Commercial Services (Driver-billed) portfolio segment has not changed. The credit loss estimate as of June 30, 2020 was based on higher probabilities of loss given the uncertainty caused by COVID-19 on the travel industry. The Company periodically evaluates the adequacy of its allowance for expected credit losses by comparing its actual historical write-offs to its previously recorded estimates and adjusts appropriately.
Warrants
As of June 30, 2021, there were warrants outstanding to acquire 19,999,967 shares of the Company’s Class A Common Stock including: (i) 6,666,666 warrants originally issued to Gores Sponsor II, LLC in a private placement in connection with the IPO (the “Private Placement Warrants”); and (ii) 13,333,301 warrants issued in connection with the IPO (the “Public Warrants” and, together with the Private Placement Warrants, the “Warrants”). The Warrants entitle the registered holder to purchase one share of our Class A Common Stock at a price of $11.50 per share, subject to certain adjustments.
The Warrants became exercisable on November 16, 2018, 30 days following the completion of the Business Combination, and expire five years after that date, or earlier upon redemption or liquidation. The Company may redeem the
12
outstanding Warrants at a price of $0.01 per warrant, if the last sale price of its Class A Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30 trading day period ending on the third business day before it sends the notice of redemption to the Warrant holders. The Private Placement Warrants, however, are nonredeemable so long as they are held by Gores Sponsor II, LLC or its permitted transferees.
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance under FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares, among other conditions for equity classification.
For warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The Company’s Public Warrants meet the criteria for equity classification and accordingly, are reported as component of shareholders’ equity while the Company’s Private Placement Warrants do not meet the criteria for equity classification because the holder of the instrument is not an input into the pricing of a fixed-for-fixed option on equity shares and are instead classified as a liability. The fair value of the Private Placement Warrants is estimated at period-end using a Black-Scholes option pricing model. Shares issuable under the Warrants were considered for inclusion in the diluted share count in accordance with GAAP. As the shares issuable under the Warrants are issuable shares when exercised by the holders, they are included when computing diluted income (loss) per share, if such exercise is dilutive to income (loss) per share.
Recent Accounting Pronouncements
Accounting Standards Adopted
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted this standard during the first quarter of 2021 and provided relevant disclosures for the private placement warrant liabilities which are a Level 3 measurement, that fall within the scope of the standard. See Note 8. Fair Value of Financial Instruments.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU removes specific exceptions to the general principles in Topic 740 in GAAP including the exception to the incremental approach for intra-period tax allocation, exceptions to accounting for basis differences when there are ownership changes in foreign investments, and the exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also simplifies current guidance in relation to franchise taxes that are partially based on income, transactions with a government that result in a step-up in tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. The Company adopted the ASU as of January 1, 2021 which did not have a material impact on the Company’s financial statements or related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share calculation in certain areas. The Company early adopted this standard as of January 1, 2021 which did not have an impact on the Company’s financial statements and related disclosures, as the Company had no instruments subject to
13
the standard. If the Company were to issue instruments subject to the standard in the future, such guidance as early adopted by the Company would apply.
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. The impact of the implementation of this guidance is still being determined by the Company.
In May 2021, the FASB issued 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 treatment, 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 amendments are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted. The impact of the implementation of this guidance is still being determined by the Company.
Redflex Acquisition
On June 17, 2021, the Company completed the previously announced acquisition of Redflex, a public company limited by shares, incorporated in Australia and listed on the Australian Securities Exchange. Redflex is a provider of intelligent traffic management products and services that are sold and managed in the Asia Pacific, North America, United Kingdom, Europe, and Middle East regions. Redflex develops, manufactures, and operates a wide range of platform-based solutions, utilizing advanced sensor and image capture technologies that enable active management of state and local motorways. The Company has included the financial results of Redflex in the condensed consolidated financial statements from the date of acquisition, which were not material.
Pursuant to the Scheme Implementation Agreement (the “Agreement”) entered into by the Company and Redflex on January 21, 2021, as amended by the Deed of Amendment and Consent, dated April 30, 2021, VM Consolidated, Inc., an indirect wholly owned subsidiary of the Company, purchased one hundred percent of the outstanding equity of Redflex at A$0.96 per share at consideration of A$152.5 million, or approximately US$117.9 million. Transaction costs for Redflex were $7.4 million which primarily related to professional fees and other expenses related to the acquisition, and were included within the selling, general and administrative expenses in the condensed consolidated statements of operations.
14
The allocation of the preliminary purchase consideration is summarized as follows:
($ in thousands)
|
|
|
|
|
Assets acquired
|
|
|
|
|
Cash and cash equivalents (including restricted cash of $2.2 million)
|
|
$
|
10,923
|
|
Accounts receivable
|
|
|
6,870
|
|
Unbilled receivables
|
|
|
7,744
|
|
Property and equipment
|
|
|
27,541
|
|
Deferred tax assets
|
|
|
9,192
|
|
Other assets
|
|
|
13,729
|
|
Trademark
|
|
|
900
|
|
Customer relationships
|
|
|
23,500
|
|
Developed technology
|
|
|
18,200
|
|
Total assets acquired
|
|
|
118,599
|
|
|
|
|
|
|
Liabilities assumed
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
30,137
|
|
Deferred revenue
|
|
|
1,772
|
|
Long-term debt
|
|
|
14,014
|
|
Other long-term liabilities
|
|
|
9,948
|
|
Total liabilities assumed
|
|
|
55,871
|
|
Goodwill
|
|
|
55,199
|
|
Total purchase consideration
|
|
$
|
117,927
|
|
The primary areas that remain preliminary relate to the fair values of intangible assets acquired, certain tangible assets and liabilities acquired, 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.
Goodwill consists largely of the expected cash flows and future growth anticipated for the Company and was assigned to the Company’s Government Solutions segment. Management has determined that the Redflex international operations represent a new reporting unit for the purposes of assessing potential impairment of goodwill, and as a result of the acquisition, the Government Solutions segment has two reporting units. The total operating and reportable segments for the Company has not changed as the manner in which the Company allocates resources and monitors operating performance has not changed. The goodwill is not expected to be deductible for tax purposes. The preliminary customer relationships value was based on the multi-period excess earnings methodology utilizing projected cash flows. The preliminary values for the trademark and the developed technology related assets were based on a relief-from-royalty method. The trademark, customer relationships and the developed technology related assets were assigned preliminary useful lives of 5.0 years, 10.0 years, and 9.2 years, respectively.
Pro Forma Financial Information
The pro forma information below gives effect to the Redflex acquisition as if it had been completed on the first day of each period presented. The pro forma results of operations are presented for information purposes only. As such, they are not necessarily indicative of the Company’s results had the Redflex acquisition been completed on the first day of each period presented, nor do they intend to represent the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition and does not reflect additional revenue opportunities following the acquisition of Redflex. The pro forma information includes adjustments to record the assets and liabilities associated with the Redflex acquisition at their respective preliminary fair values based on available information.
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
($ in thousands)
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Revenue
|
|
$
|
149,436
|
|
|
$
|
97,264
|
|
|
$
|
257,392
|
|
|
$
|
230,489
|
|
Net income (loss)
|
|
|
3,332
|
|
|
|
(27,516
|
)
|
|
|
(5,768
|
)
|
|
|
(23,443
|
)
|
15
The pro forma results primarily include adjustments related to amortization of intangibles, depreciation expense, interest expense and related debt extinguishment costs from the debt refinancing transactions and exclusion of acquisition-related costs and certain capitalized costs related to operating leases and developed technology.
4.
|
Prepaid Expenses and Other Current Assets
|
Prepaid expenses and other current assets consist of the following at:
($ in thousands)
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Prepaid income taxes
|
|
$
|
5,289
|
|
|
$
|
2,354
|
|
Prepaid tolls
|
|
|
7,955
|
|
|
|
9,237
|
|
Prepaid services
|
|
|
5,206
|
|
|
|
2,989
|
|
Photo enforcement equipment inventory
|
|
|
4,381
|
|
|
|
113
|
|
Deposits
|
|
|
3,256
|
|
|
|
3,474
|
|
Prepaid computer maintenance
|
|
|
3,107
|
|
|
|
2,732
|
|
Prepaid insurance
|
|
|
1,446
|
|
|
|
2,641
|
|
Other
|
|
|
1,615
|
|
|
|
777
|
|
Total prepaid expenses and other current assets
|
|
$
|
32,255
|
|
|
$
|
24,317
|
|
5.
|
Goodwill and Intangible Assets
|
The following table presents the changes in the carrying amount of goodwill by reportable segment:
|
|
Commercial
|
|
|
Government
|
|
|
|
|
|
($ in thousands)
|
|
Services
|
|
|
Solutions
|
|
|
Total
|
|
Balance at December 31, 2020
|
|
$
|
426,689
|
|
|
$
|
159,746
|
|
|
$
|
586,435
|
|
Goodwill from Redflex acquisition
|
|
|
—
|
|
|
|
55,199
|
|
|
|
55,199
|
|
Foreign currency translation adjustment
|
|
|
(17
|
)
|
|
|
(100
|
)
|
|
|
(117
|
)
|
Balance at June 30, 2021
|
|
$
|
426,672
|
|
|
$
|
214,845
|
|
|
$
|
641,517
|
|
Intangible assets consist of the following as of the respective period-ends:
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Gross
|
|
|
|
|
|
|
Average
|
|
Gross
|
|
|
|
|
|
|
|
Remaining
|
|
Carrying
|
|
|
Accumulated
|
|
|
Remaining
|
|
Carrying
|
|
|
Accumulated
|
|
($ in thousands)
|
|
Useful Life
|
|
Amount
|
|
|
Amortization
|
|
|
Useful Life
|
|
Amount
|
|
|
Amortization
|
|
Trademarks
|
|
0.2 years
|
|
$
|
33,107
|
|
|
$
|
31,177
|
|
|
0.3 years
|
|
$
|
32,223
|
|
|
$
|
29,358
|
|
Non-compete agreements
|
|
1.5 years
|
|
|
62,574
|
|
|
|
43,700
|
|
|
2.0 years
|
|
|
62,589
|
|
|
|
37,412
|
|
Customer relationships
|
|
5.7 years
|
|
|
391,005
|
|
|
|
144,429
|
|
|
5.9 years
|
|
|
367,512
|
|
|
|
123,784
|
|
Developed technology
|
|
2.3 years
|
|
|
184,295
|
|
|
|
111,038
|
|
|
2.3 years
|
|
|
166,217
|
|
|
|
95,848
|
|
Gross carrying value of intangible assets
|
|
|
|
|
670,981
|
|
|
$
|
330,344
|
|
|
|
|
|
628,541
|
|
|
$
|
286,402
|
|
Less: accumulated amortization
|
|
|
|
|
(330,344
|
)
|
|
|
|
|
|
|
|
|
(286,402
|
)
|
|
|
|
|
Intangible assets, net
|
|
|
|
$
|
340,637
|
|
|
|
|
|
|
|
|
$
|
342,139
|
|
|
|
|
|
Amortization expense was $21.2 million and $23.5 million for the three months ended June 30, 2021 and 2020, respectively, and was $44.0 million and $47.1 million for the six months ended June 30, 2021 and 2020, respectively.
16
Estimated amortization expense in future years is expected to be:
($ in thousands)
|
|
|
|
|
Remainder of 2021
|
|
$
|
44,432
|
|
2022
|
|
|
85,744
|
|
2023
|
|
|
57,021
|
|
2024
|
|
|
46,527
|
|
2025
|
|
|
43,829
|
|
Thereafter
|
|
|
63,084
|
|
Total
|
|
$
|
340,637
|
|
Accrued liabilities consist of the following at:
($ in thousands)
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
Accrued salaries and wages
|
|
$
|
14,483
|
|
|
$
|
4,432
|
|
Income taxes payable
|
|
|
5,985
|
|
|
|
419
|
|
Accrued interest payable
|
|
|
5,282
|
|
|
|
170
|
|
Current portion of operating lease liabilities
|
|
|
3,917
|
|
|
|
3,179
|
|
Payroll liabilities
|
|
|
3,467
|
|
|
|
1,755
|
|
Restricted cash due to customers
|
|
|
3,159
|
|
|
|
633
|
|
Advanced deposits payable
|
|
|
2,725
|
|
|
|
2,922
|
|
Deferred revenue
|
|
|
2,895
|
|
|
|
749
|
|
Other
|
|
|
2,815
|
|
|
|
1,377
|
|
Total accrued liabilities
|
|
$
|
44,728
|
|
|
$
|
15,636
|
|
The following table provides a summary of the Company’s long-term debt at:
($ in thousands)
|
|
June 30,
2021
|
|
|
December 31,
2020
|
|
2021 Term Loan, due 2028
|
|
$
|
648,375
|
|
|
$
|
—
|
|
Senior Notes, due 2029
|
|
|
350,000
|
|
|
|
—
|
|
PPP Loan
|
|
|
2,910
|
|
|
|
—
|
|
2018 Term Loan
|
|
|
—
|
|
|
|
865,642
|
|
Less: original issue discounts
|
|
|
(6,020
|
)
|
|
|
(3,952
|
)
|
Less: unamortized deferred financing costs
|
|
|
(19,789
|
)
|
|
|
(19,645
|
)
|
Total long-term debt
|
|
|
975,476
|
|
|
|
842,045
|
|
Less: current portion of long-term debt
|
|
|
(9,410
|
)
|
|
|
(9,104
|
)
|
Total long-term debt, net of current portion
|
|
$
|
966,066
|
|
|
$
|
832,941
|
|
2021 Term Loan and Senior Notes
In March 2021, VM Consolidated, Inc., the Company’s wholly owned subsidiary, 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 million, maturing on March 26, 2028, and an accordion feature providing for an additional $250 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, Inc. 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
17
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 to repay in full all outstanding debt which was represented by the existing First Lien Term Loan Credit Agreement (as amended, the “2018 Term Loan”) with a balance of $865.6 million.
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 June 30, 2021, the interest rate on the 2021 Term Loan was 3.4%.
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 (beginning on October 15, 2021). 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 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 six months ended June 30, 2021 consisting of a $4.0 million write-off of pre-existing deferred financing costs and $1.3 million of lender and third-party costs associated with the issuance of the new 2021 Term Loan.
PPP Loan
During fiscal year 2020, Redflex received a loan from the U.S. Small Business Administration (“SBA”) as part of the Paycheck Protection Program (“PPP Loan”) to offset certain employment and other allowable costs incurred as a result of the COVID-19 pandemic. At June 30, 2021, the loan amount outstanding was $2.9 million and is payable within a year, and is included in the current portion of long-term debt. In early 2021, Redflex applied for forgiveness of this loan and awaits approval from the SBA.
The Revolver
The Company has a Revolving Credit Agreement (the “Revolver”) which it entered into in fiscal year 2018 in connection with an acquisition, with a revolving commitment of up to $75 million available for loans and letters of credit. The Revolver matures on February 28, 2023. The terms of the Revolver were not affected by other debt instruments discussed above. 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
18
either 0.25%, 0.50%, or 0.75%, depending on the Company’s average availability to borrow under the commitment. At June 30, 2021, the Company had no outstanding borrowings on the Revolver and availability to borrow was $57.0 million, net of $6.2 million of outstanding letters of credit.
Interest on the unused portion of the Revolver is payable quarterly at 0.375% and the Company is also required to pay participation and fronting fees at 1.38% on $6.2 million of outstanding letters of credit as of June 30, 2021.
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. At June 30, 2021, the Company was compliant with all debt covenants. Substantially all of the Company’s assets are pledged as collateral to secure the Company’s indebtedness under the 2021 Term Loan.
Interest Expense
The Company recorded interest expense, including amortization of deferred financing costs and discounts, of $11.7 million and $9.5 million for the three months ended June 30, 2021 and 2020, respectively, and $20.8 million and $22.0 million for the six months ended June 30, 2021 and 2020, respectively.
The weighted average effective interest rates on the Company’s outstanding borrowings were 4.1% and 3.4% at June 30, 2021 and December 31, 2020, respectively.
8.
|
Fair Value of Financial Instruments
|
ASC Topic 820, Fair Value Measurement, includes a single definition of fair value to be used for financial reporting purposes, provides a framework for applying this definition and for measuring fair value under GAAP, and establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are summarized as follows:
Level 1 – Fair value is based on observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2 – Fair value is determined using quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or inputs other than quoted prices that are directly or indirectly observable.
Level 3 – Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow, or similar technique.
The carrying amounts reported in the Company’s condensed consolidated balance sheets for cash, accounts receivable, accounts payable, accrued expenses and the PPP Loan approximate fair value due to the immediate to short-term maturity of these financial instruments. The estimated fair value of the Company’s long-term debt was calculated based upon available market information. The carrying value and the estimated fair value are as follows:
|
|
Level in
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
Fair Value
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
($ in thousands)
|
|
Hierarchy
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
2021 Term Loan
|
|
2
|
|
$
|
|
627,995
|
|
|
$
|
|
628,780
|
|
|
$
|
|
—
|
|
|
$
|
|
—
|
|
Senior Notes
|
|
2
|
|
|
|
344,571
|
|
|
|
|
354,047
|
|
|
|
|
—
|
|
|
|
|
—
|
|
2018 Term Loan
|
|
2
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
842,045
|
|
|
|
|
861,314
|
|
19
The fair value of the private placement warrant liabilities is measured on a recurring basis and is estimated using the Black-Scholes option pricing model using significant unobservable inputs, primarily related to estimated volatility, and is therefore classified within level 3 of the fair value hierarchy. The key assumptions used were as follows:
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
Stock price
|
|
$
|
15.37
|
|
|
$
|
13.42
|
|
Strike price
|
|
$
|
11.50
|
|
|
$
|
11.50
|
|
Volatility
|
|
|
49.0
|
%
|
|
|
44.0
|
%
|
Remaining life (in years)
|
|
|
2.3
|
|
|
|
2.8
|
|
Risk-free interest rate
|
|
|
0.31
|
%
|
|
|
0.16
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Estimated fair value
|
|
$
|
6.15
|
|
|
$
|
4.63
|
|
The following summarizes the changes in the private placement warrant liabilities for the respective periods:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
($ in thousands)
|
|
|
|
|
|
(As restated)
|
|
|
|
|
|
|
(As restated)
|
|
Beginning balance
|
|
$
|
32,933
|
|
|
$
|
14,266
|
|
|
$
|
30,866
|
|
|
$
|
29,733
|
|
Change in fair value included in net income (loss)
|
|
|
8,067
|
|
|
|
8,334
|
|
|
|
10,134
|
|
|
|
(7,133
|
)
|
Ending balance
|
|
$
|
41,000
|
|
|
$
|
22,600
|
|
|
$
|
41,000
|
|
|
$
|
22,600
|
|
9.
|
Net Income (Loss) Per Share
|
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average shares outstanding during the period, without consideration of common stock equivalents. Diluted net income (loss) per share is calculated by adjusting the weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method.
The components of basic and diluted net income (loss) per share are as follows:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
(In thousands, except per share data)
|
|
|
|
|
|
(As restated)
|
|
|
|
|
|
|
(As restated)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,992
|
|
|
$
|
(23,722
|
)
|
|
$
|
(4,923
|
)
|
|
$
|
(1,582
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares - basic
|
|
|
162,378
|
|
|
|
161,710
|
|
|
|
162,338
|
|
|
|
161,317
|
|
Common stock equivalents
|
|
|
3,650
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Weighted average shares - diluted
|
|
|
166,028
|
|
|
|
161,710
|
|
|
|
162,338
|
|
|
|
161,317
|
|
Net income (loss) per share - basic
|
|
$
|
0.02
|
|
|
$
|
(0.15
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
Net income (loss) per share - diluted
|
|
$
|
0.02
|
|
|
$
|
(0.15
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.01
|
)
|
Antidilutive shares excluded from diluted net income (loss) per share (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingently issuable shares (2)
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
Public warrants
|
|
|
—
|
|
|
|
13,333
|
|
|
|
13,333
|
|
|
|
13,333
|
|
Private placement warrants
|
|
|
6,667
|
|
|
|
6,667
|
|
|
|
6,667
|
|
|
|
6,667
|
|
Non-qualified stock options
|
|
|
1,039
|
|
|
|
699
|
|
|
|
1,185
|
|
|
|
699
|
|
Performance share units
|
|
|
—
|
|
|
|
116
|
|
|
|
229
|
|
|
|
116
|
|
Restricted stock units
|
|
|
26
|
|
|
|
3,377
|
|
|
|
2,559
|
|
|
|
3,377
|
|
Total antidilutive shares excluded
|
|
|
12,732
|
|
|
|
29,192
|
|
|
|
28,973
|
|
|
|
29,192
|
|
20
|
(1)
|
These amounts represent the outstanding shares as of the three and six months ended June 30, 2021 and 2020.
|
|
(2)
|
Contingently issuable shares relate to the earn-out agreement as discussed in Note 12, Related Party Transactions.
|
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.
In December 2019, COVID-19 emerged and spread throughout the world causing severe disruption to the global economy. In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law after COVID-19 was declared a pandemic. There were several income tax provisions and other non-tax matters incorporated into law as a result of the enactment of the CARES Act. The Company elected to delay the employer-side of the FICA payments with the intention of making the payments in 2021 and 2022.
The Company’s effective income tax rate was 69.0% and 14.5% for the three months ended June 30, 2021 and 2020, respectively, and 549.6% and 33.9% for the six months ended June 30, 2021 and 2020, respectively. The primary driver of the effective tax rate variance is due to the Company’s permanent differences related to the mark-to-market adjustment on the private placement warrants.
The total amount of unrecognized tax benefits increased by $0.2 million during fiscal year 2021 primarily due to prior year tax positions. As of June 30, 2021, the total amount of unrecognized tax benefits was $1.1 million, of which $0.5 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 June 30, 2021, the Company had less than $0.1 million accrued for the payment of interest and penalties.
The Company is subject to examination by the Internal Revenue Service and taxing authorities in various states. The Company’s U.S. federal income tax returns remain subject to examination by tax authorities for the years 2017 to 2019. The Company’s state income tax returns are no longer subject to income tax examination by tax authorities prior to 2016; however, the Company’s net operating loss carryforwards and research credit carryforwards arising prior to that year are subject to adjustment. The Company is currently under audit by the State of Georgia for the years 2018 and 2019, however, no material adjustments are anticipated. The Company regularly assesses the likelihood of tax deficiencies in each of the tax jurisdictions and, accordingly, makes appropriate adjustments to the tax provision as deemed necessary.
11.
|
Stock-Based Compensation
|
The following details the components of stock-based compensation for the periods presented:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Operating expenses
|
|
$
|
248
|
|
|
$
|
294
|
|
|
$
|
442
|
|
|
$
|
514
|
|
Selling, general and administrative expenses
|
|
|
3,325
|
|
|
|
2,977
|
|
|
|
6,039
|
|
|
|
5,525
|
|
Total stock-based compensation expense
|
|
$
|
3,573
|
|
|
$
|
3,271
|
|
|
$
|
6,481
|
|
|
$
|
6,039
|
|
21
12.
|
Related Party Transactions
|
Tax Receivable Agreement
At the closing of the Business Combination, the Company entered into the Tax Receivable Agreement (“TRA”) with PE Greenlight Holdings, LLC (the “Platinum Stockholder”) and Greenlight Holding II Corporation as the stockholder representative. The TRA generally provides for the payment by the post-closing company to the Platinum Stockholder of 50% of the net cash savings, if any, in U.S. federal, state and local income tax that the post-closing 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 increase in the tax basis of the intangible assets which resulted from an acquisition by the Company prior to the Business Combination. The post-closing company generally will retain the benefit of the remaining 50% of these cash savings. The Company estimated the potential maximum benefit to be paid would 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 adjusted this amount.
At June 30, 2021, the TRA liability was approximately $69.5 million of which $5.2 million was the current portion and $64.3 million was the non-current portion, both of which are included in the respective payable to related party pursuant to tax receivable agreement line items on the condensed consolidated balance sheet. The Company made a $4.8 million payment during the first quarter of 2021 related to the current portion payable as of December 31, 2020.
The Company recorded a $1.7 million charge for the three and six months ended June 30, 2021 and a $4.4 million charge for the three and six months ended June 30, 2020. The TRA liability adjustment in 2021 is arising from higher estimated state tax rates due to changes in statutory rates, whereas in 2020 it is arising from higher estimated state tax rates due to a change in apportionment.
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 (an “Acceleration 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.
22
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 June 30, 2021. 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 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 June 30, 2021, the potential future Earn-Out Shares issuable are between zero and 5.0 million.
13.
|
Commitments and Contingencies
|
The Company has issued various letters of credit under contractual arrangements with certain of its domestic vendors and customers. Outstanding letters of credit under these arrangements totaled $6.2 million at June 30, 2021. In addition, the Company has $3.0 million of bank guarantees and bonds at June 30, 2021 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 June 30, 2021 were $38.2 million.
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.
NYC Investigation
In January 2021, the New York City Law Department advised the Company that the City of New York was investigating certain matters related to the Company’s installation work for its largest customer, NYCDOT. The Company was informed in March 2021 by the NYC Law Department that it had concluded its investigation, and an agreement was reached in principle to resolve the matter for approximately $1.3 million, which was accrued during the three months ended March 31, 2021, subject to final administrative approvals.
23
Legal Proceedings
The Company is subject to legal and regulatory actions that arise from time to time in the ordinary course of business. The Company records a liability when it believes it is probable a loss will be incurred and the amount of loss or range of loss can be reasonably estimated. The assessment as to whether a loss is probable, reasonably possible or remote, and as to whether a loss or a range of such loss is estimable, often involves significant judgment about future events. The Company has determined that resolution of pending matters is not probable to have a material adverse impact on its results of operations, cash flows, or financial position, and accordingly, no material contingency accruals are recorded. However, the outcome of litigation is inherently uncertain. As additional information becomes available, the Company reassesses the potential liability.
Brantley v. City of Gretna is a class action lawsuit filed in the 24th Judicial District Court of Jefferson Parish, Louisiana against the City of Gretna (“City”) and its safety camera vendor, Redflex Traffic Systems, Inc. in April 2016. The plaintiff class, which was certified on March 30, 2021, alleges that the City’s safety camera program was implemented and operated in violation of local ordinances and the state constitution, including that the City’s hearing process violated the plaintiffs’ due process rights for lack of a “neutral” arbiter of liability for traffic infractions. Plaintiffs seek recovery of traffic infraction fines paid. The City and Redflex Traffic Systems, Inc. have initiated an appeal of the trial court’s ruling granting class certification, which remains pending. Based on the information available to the Company at present, it cannot reasonably estimate a range of loss for this action and, accordingly, it has not accrued any liability associated with this action.
The Company has two operating and reportable segments, Commercial Services and Government 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 local and foreign government agencies of all sizes. 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 two segments.
Segment performance is based on revenues and income (loss) from operations before depreciation, amortization, gain (loss) on disposal of assets, net, and stock-based compensation. The measure also excludes interest expense, net, income taxes and certain other transactions and is inclusive of other income, net. The tables below refer to this measure as segment profit (loss). The aforementioned items are not indicative of operating performance, and, as a result are not included in the measures that are reviewed by the CODM for the segments. Other income, net consists primarily of credit card rebates earned on the prepayment of tolling transactions and is therefore included in segment profit (loss). There are no significant non-cash items reported in segment profit (loss).
24
The following tables set forth financial information by segment for the respective periods:
|
|
For the Three Months Ended June 30, 2021
|
|
|
|
Commercial
|
|
|
Government
|
|
|
Corporate
|
|
|
|
|
|
($ in thousands)
|
|
Services
|
|
|
Solutions
|
|
|
and Other
|
|
|
Total
|
|
Service revenue
|
|
$
|
66,480
|
|
|
$
|
49,946
|
|
|
$
|
—
|
|
|
$
|
116,426
|
|
Product sales
|
|
|
—
|
|
|
|
12,231
|
|
|
|
—
|
|
|
|
12,231
|
|
Total revenue
|
|
|
66,480
|
|
|
|
62,177
|
|
|
|
—
|
|
|
|
128,657
|
|
Cost of service revenue
|
|
|
905
|
|
|
|
427
|
|
|
|
—
|
|
|
|
1,332
|
|
Cost of product sales
|
|
|
—
|
|
|
|
6,144
|
|
|
|
—
|
|
|
|
6,144
|
|
Operating expenses
|
|
|
15,990
|
|
|
|
20,196
|
|
|
|
—
|
|
|
|
36,186
|
|
Selling, general and administrative expenses
|
|
|
9,479
|
|
|
|
10,119
|
|
|
|
3,306
|
|
|
|
22,904
|
|
Other income, net
|
|
|
(2,594
|
)
|
|
|
(204
|
)
|
|
|
—
|
|
|
|
(2,798
|
)
|
Segment profit (loss)
|
|
$
|
42,700
|
|
|
$
|
25,495
|
|
|
$
|
(3,306
|
)
|
|
$
|
64,889
|
|
Segment profit (loss)
|
|
$
|
42,700
|
|
|
$
|
25,495
|
|
|
$
|
(3,306
|
)
|
|
$
|
64,889
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
27,013
|
|
|
|
27,013
|
|
Gain on disposal of assets, net
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(1
|
)
|
Change in fair value of private placement warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
8,067
|
|
|
|
8,067
|
|
Tax receivable agreement liability adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
1,661
|
|
|
|
1,661
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
3,573
|
|
|
|
3,573
|
|
Interest expense, net
|
|
|
—
|
|
|
|
—
|
|
|
|
11,680
|
|
|
|
11,680
|
|
Income (loss) before income tax provision
|
|
$
|
42,700
|
|
|
$
|
25,496
|
|
|
$
|
(55,300
|
)
|
|
$
|
12,896
|
|
|
|
For the Three Months Ended June 30, 2020
|
|
|
|
Commercial
|
|
|
Government
|
|
|
Corporate
|
|
|
|
|
|
|
|
Services
|
|
|
Solutions
|
|
|
and Other
|
|
|
Total
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
Service revenue
|
|
$
|
27,272
|
|
|
$
|
35,543
|
|
|
$
|
—
|
|
|
$
|
62,815
|
|
Product sales
|
|
|
—
|
|
|
|
16,994
|
|
|
|
—
|
|
|
|
16,994
|
|
Total revenue
|
|
|
27,272
|
|
|
|
52,537
|
|
|
|
—
|
|
|
|
79,809
|
|
Cost of service revenue
|
|
|
646
|
|
|
|
367
|
|
|
|
—
|
|
|
|
1,013
|
|
Cost of product sales
|
|
|
—
|
|
|
|
9,060
|
|
|
|
—
|
|
|
|
9,060
|
|
Operating expenses
|
|
|
10,750
|
|
|
|
15,655
|
|
|
|
—
|
|
|
|
26,405
|
|
Selling, general and administrative expenses
|
|
|
10,191
|
|
|
|
7,150
|
|
|
|
503
|
|
|
|
17,844
|
|
Other income, net
|
|
|
(1,507
|
)
|
|
|
(16
|
)
|
|
|
—
|
|
|
|
(1,523
|
)
|
Segment profit (loss)
|
|
$
|
7,192
|
|
|
$
|
20,321
|
|
|
$
|
(503
|
)
|
|
$
|
27,010
|
|
Segment profit (loss)
|
|
$
|
7,192
|
|
|
$
|
20,321
|
|
|
$
|
(503
|
)
|
|
$
|
27,010
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
29,159
|
|
|
|
29,159
|
|
Loss on disposal of assets, net
|
|
|
5
|
|
|
|
2
|
|
|
|
—
|
|
|
|
7
|
|
Change in fair value of private placement warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
8,334
|
|
|
|
8,334
|
|
Tax receivable agreement liability adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
4,446
|
|
|
|
4,446
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
3,271
|
|
|
|
3,271
|
|
Interest expense, net
|
|
|
—
|
|
|
|
—
|
|
|
|
9,539
|
|
|
|
9,539
|
|
Income (loss) before income tax benefit
|
|
$
|
7,187
|
|
|
$
|
20,319
|
|
|
$
|
(55,252
|
)
|
|
$
|
(27,746
|
)
|
25
|
|
For the Six Months Ended June 30, 2021
|
|
|
|
Commercial
|
|
|
Government
|
|
|
Corporate
|
|
|
|
|
|
($ in thousands)
|
|
Services
|
|
|
Solutions
|
|
|
and Other
|
|
|
Total
|
|
Service revenue
|
|
$
|
112,169
|
|
|
$
|
94,020
|
|
|
$
|
—
|
|
|
$
|
206,189
|
|
Product sales
|
|
|
—
|
|
|
|
12,326
|
|
|
|
—
|
|
|
|
12,326
|
|
Total revenue
|
|
|
112,169
|
|
|
|
106,346
|
|
|
|
—
|
|
|
|
218,515
|
|
Cost of service revenue
|
|
|
1,436
|
|
|
|
776
|
|
|
|
—
|
|
|
|
2,212
|
|
Cost of product sales
|
|
|
—
|
|
|
|
6,171
|
|
|
|
—
|
|
|
|
6,171
|
|
Operating expenses
|
|
|
30,196
|
|
|
|
36,288
|
|
|
|
—
|
|
|
|
66,484
|
|
Selling, general and administrative expenses
|
|
|
20,271
|
|
|
|
20,930
|
|
|
|
7,432
|
|
|
|
48,633
|
|
Other income, net
|
|
|
(4,664
|
)
|
|
|
(1,147
|
)
|
|
|
—
|
|
|
|
(5,811
|
)
|
Segment profit (loss)
|
|
$
|
64,930
|
|
|
$
|
43,328
|
|
|
$
|
(7,432
|
)
|
|
$
|
100,826
|
|
Segment profit (loss)
|
|
$
|
64,930
|
|
|
$
|
43,328
|
|
|
$
|
(7,432
|
)
|
|
$
|
100,826
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
55,227
|
|
|
|
55,227
|
|
Loss on disposal of assets, net
|
|
|
—
|
|
|
|
50
|
|
|
|
—
|
|
|
|
50
|
|
Change in fair value of private placement warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
10,134
|
|
|
|
10,134
|
|
Tax receivable agreement liability adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
1,661
|
|
|
|
1,661
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
6,481
|
|
|
|
6,481
|
|
Interest expense, net
|
|
|
—
|
|
|
|
—
|
|
|
|
20,844
|
|
|
|
20,844
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
5,334
|
|
|
|
5,334
|
|
Income (loss) before income tax provision
|
|
$
|
64,930
|
|
|
$
|
43,278
|
|
|
$
|
(107,113
|
)
|
|
$
|
1,095
|
|
|
|
For the Six Months Ended June 30, 2020
|
|
|
|
Commercial
|
|
|
Government
|
|
|
Corporate
|
|
|
|
|
|
|
|
Services
|
|
|
Solutions
|
|
|
and Other
|
|
|
Total
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
Service revenue
|
|
$
|
88,514
|
|
|
$
|
73,798
|
|
|
$
|
—
|
|
|
$
|
162,312
|
|
Product sales
|
|
|
—
|
|
|
|
34,210
|
|
|
|
—
|
|
|
|
34,210
|
|
Total revenue
|
|
|
88,514
|
|
|
|
108,008
|
|
|
|
—
|
|
|
|
196,522
|
|
Cost of service revenue
|
|
|
1,453
|
|
|
|
779
|
|
|
|
—
|
|
|
|
2,232
|
|
Cost of product sales
|
|
|
—
|
|
|
|
17,750
|
|
|
|
—
|
|
|
|
17,750
|
|
Operating expenses
|
|
|
27,280
|
|
|
|
31,164
|
|
|
|
—
|
|
|
|
58,444
|
|
Selling, general and administrative expenses
|
|
|
23,575
|
|
|
|
16,819
|
|
|
|
788
|
|
|
|
41,182
|
|
Other income, net
|
|
|
(4,396
|
)
|
|
|
(52
|
)
|
|
|
—
|
|
|
|
(4,448
|
)
|
Segment profit (loss)
|
|
$
|
40,602
|
|
|
$
|
41,548
|
|
|
$
|
(788
|
)
|
|
$
|
81,362
|
|
Segment profit (loss)
|
|
$
|
40,602
|
|
|
$
|
41,548
|
|
|
$
|
(788
|
)
|
|
$
|
81,362
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
58,409
|
|
|
|
58,409
|
|
Loss (gain) on disposal of assets, net
|
|
|
5
|
|
|
|
(2
|
)
|
|
|
—
|
|
|
|
3
|
|
Change in fair value of private placement warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,133
|
)
|
|
|
(7,133
|
)
|
Tax receivable agreement liability adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
4,446
|
|
|
|
4,446
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
6,039
|
|
|
|
6,039
|
|
Interest expense, net
|
|
|
—
|
|
|
|
—
|
|
|
|
21,990
|
|
|
|
21,990
|
|
Income (loss) before income tax benefit
|
|
$
|
40,597
|
|
|
$
|
41,550
|
|
|
$
|
(84,539
|
)
|
|
$
|
(2,392
|
)
|
The Company primarily operates within the United States, Australia, Europe and Canada. Revenues are attributable to countries based upon the location of the customer. Revenues from international customers were $5.0 million and $3.0 million for the three months ended June 30, 2021 and 2020, respectively, and were $7.8 million and $6.9 million for the six months ended June 30, 2021 and 2020, respectively. The Company does not disaggregate assets by segment other than certain customer equipment and vehicles related to the Government Solutions segment. Refer to Note 5, Goodwill and Intangible Assets for goodwill balances by segment.
26
15.
|
Guarantor/Non-Guarantor Financial Information
|
VM Consolidated, Inc., a wholly owned subsidiary of the Company, is the lead borrower of the 2021 Term Loan, Senior Notes and the Revolver. VM Consolidated, Inc. is owned by the Company through a series of holding companies that ultimately end with the Company. VM Consolidated, Inc. is wholly owned by Greenlight Acquisition Corporation, which is wholly owned by Greenlight Intermediate Holding Corporation, which is wholly owned by Greenlight Holding Corporation, which is wholly owned by Verra Mobility Holdings, LLC, which is wholly owned by Verra Mobility Corporation or the Company. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, including transactions with the Company’s wholly owned subsidiary guarantor and non-guarantor subsidiaries.
The following financial information presents the condensed consolidated balance sheets as of June 30, 2021 and the related condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2021 and the condensed consolidated statements of cash flows for the six months ended June 30, 2021 for the Company, the combined guarantor subsidiary and the combined non-guarantor subsidiaries.
27
Verra Mobility Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
at June 30, 2021
(Unaudited)
($ in thousands)
|
|
Verra Mobility
Corporation
(Ultimate Parent)
|
|
|
VM
Consolidated
Inc.
(Guarantor
Subsidiary)
|
|
|
Non-
guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
—
|
|
|
$
|
124,422
|
|
|
$
|
22,924
|
|
|
$
|
—
|
|
|
$
|
147,346
|
|
Restricted cash
|
|
|
—
|
|
|
|
734
|
|
|
|
2,425
|
|
|
|
—
|
|
|
|
3,159
|
|
Accounts receivable (net of allowance for credit loss of $12.7 million )
|
|
|
—
|
|
|
|
205,254
|
|
|
|
9,671
|
|
|
|
—
|
|
|
|
214,925
|
|
Unbilled receivables
|
|
|
—
|
|
|
|
16,733
|
|
|
|
7,138
|
|
|
|
—
|
|
|
|
23,871
|
|
Investment in subsidiary
|
|
|
147,166
|
|
|
|
211,612
|
|
|
|
—
|
|
|
|
(358,778
|
)
|
|
|
—
|
|
Prepaid expenses and other current assets
|
|
|
—
|
|
|
|
23,771
|
|
|
|
8,484
|
|
|
|
—
|
|
|
|
32,255
|
|
Total current assets
|
|
|
147,166
|
|
|
|
582,526
|
|
|
|
50,642
|
|
|
|
(358,778
|
)
|
|
|
421,556
|
|
Installation and service parts, net
|
|
|
—
|
|
|
|
8,145
|
|
|
|
2,041
|
|
|
|
—
|
|
|
|
10,186
|
|
Property and equipment, net
|
|
|
—
|
|
|
|
66,319
|
|
|
|
27,989
|
|
|
|
—
|
|
|
|
94,308
|
|
Operating lease assets
|
|
|
—
|
|
|
|
29,512
|
|
|
|
5,150
|
|
|
|
—
|
|
|
|
34,662
|
|
Intangible assets, net
|
|
|
—
|
|
|
|
274,101
|
|
|
|
66,536
|
|
|
|
—
|
|
|
|
340,637
|
|
Goodwill
|
|
|
—
|
|
|
|
524,766
|
|
|
|
116,751
|
|
|
|
—
|
|
|
|
641,517
|
|
Due from affiliates
|
|
|
169,259
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(169,259
|
)
|
|
|
—
|
|
Other non-current assets
|
|
|
—
|
|
|
|
2,660
|
|
|
|
13,665
|
|
|
|
—
|
|
|
|
16,325
|
|
Total assets
|
|
$
|
316,425
|
|
|
$
|
1,488,029
|
|
|
$
|
282,774
|
|
|
$
|
(528,037
|
)
|
|
$
|
1,559,191
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
—
|
|
|
$
|
28,124
|
|
|
$
|
19,279
|
|
|
$
|
—
|
|
|
$
|
47,403
|
|
Accrued liabilities
|
|
|
—
|
|
|
|
26,511
|
|
|
|
18,217
|
|
|
|
—
|
|
|
|
44,728
|
|
Payable to related party pursuant to tax receivable agreement, current portion
|
|
|
—
|
|
|
|
5,202
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,202
|
|
Current portion of long-term debt
|
|
|
—
|
|
|
|
6,500
|
|
|
|
2,910
|
|
|
|
—
|
|
|
|
9,410
|
|
Total current liabilities
|
|
|
—
|
|
|
|
66,337
|
|
|
|
40,406
|
|
|
|
—
|
|
|
|
106,743
|
|
Long-term debt, net of current portion
|
|
|
—
|
|
|
|
966,066
|
|
|
|
—
|
|
|
|
—
|
|
|
|
966,066
|
|
Operating lease liabilities, net of current portion
|
|
|
—
|
|
|
|
28,337
|
|
|
|
4,383
|
|
|
|
—
|
|
|
|
32,720
|
|
Payable to related party pursuant to tax receivable agreement, net of current portion
|
|
|
—
|
|
|
|
64,329
|
|
|
|
—
|
|
|
|
—
|
|
|
|
64,329
|
|
Private placement warrant liabilities
|
|
|
—
|
|
|
|
41,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
41,000
|
|
Due to affiliates
|
|
|
—
|
|
|
|
151,830
|
|
|
|
17,429
|
|
|
|
(169,259
|
)
|
|
|
—
|
|
Asset retirement obligation
|
|
|
—
|
|
|
|
6,439
|
|
|
|
3,620
|
|
|
|
—
|
|
|
|
10,059
|
|
Deferred tax liabilities, net
|
|
|
—
|
|
|
|
15,974
|
|
|
|
4,816
|
|
|
|
—
|
|
|
|
20,790
|
|
Other long-term liabilities
|
|
|
—
|
|
|
|
551
|
|
|
|
508
|
|
|
|
—
|
|
|
|
1,059
|
|
Total liabilities
|
|
|
—
|
|
|
|
1,340,863
|
|
|
|
71,162
|
|
|
|
(169,259
|
)
|
|
|
1,242,766
|
|
Total stockholders' equity
|
|
|
316,425
|
|
|
|
147,166
|
|
|
|
211,612
|
|
|
|
(358,778
|
)
|
|
|
316,425
|
|
Total liabilities and stockholders' equity
|
|
$
|
316,425
|
|
|
$
|
1,488,029
|
|
|
$
|
282,774
|
|
|
$
|
(528,037
|
)
|
|
$
|
1,559,191
|
|
28
Verra Mobility Corporation and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income
Three Months Ended June 30, 2021
(Unaudited)
|
|
|
|
($ in thousands)
|
|
Verra Mobility
Corporation
(Ultimate Parent)
|
|
|
VM
Consolidated
Inc.
(Guarantor
Subsidiary)
|
|
|
Non-
guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Service revenue
|
|
$
|
—
|
|
|
$
|
110,201
|
|
|
$
|
6,225
|
|
|
$
|
—
|
|
|
$
|
116,426
|
|
Product sales
|
|
|
—
|
|
|
|
11,986
|
|
|
|
245
|
|
|
|
—
|
|
|
|
12,231
|
|
Total revenue
|
|
|
—
|
|
|
|
122,187
|
|
|
|
6,470
|
|
|
|
—
|
|
|
|
128,657
|
|
Cost of service revenue
|
|
|
—
|
|
|
|
521
|
|
|
|
811
|
|
|
|
—
|
|
|
|
1,332
|
|
Cost of product sales
|
|
|
—
|
|
|
|
6,037
|
|
|
|
107
|
|
|
|
—
|
|
|
|
6,144
|
|
Operating expenses
|
|
|
—
|
|
|
|
32,369
|
|
|
|
4,065
|
|
|
|
—
|
|
|
|
36,434
|
|
Selling, general and administrative expenses
|
|
|
—
|
|
|
|
24,261
|
|
|
|
1,968
|
|
|
|
—
|
|
|
|
26,229
|
|
Depreciation, amortization and (gain) loss on disposal of assets, net
|
|
|
—
|
|
|
|
25,023
|
|
|
|
1,989
|
|
|
|
—
|
|
|
|
27,012
|
|
Total costs and expenses
|
|
|
—
|
|
|
|
88,211
|
|
|
|
8,940
|
|
|
|
—
|
|
|
|
97,151
|
|
Income (loss) from operations
|
|
|
—
|
|
|
|
33,976
|
|
|
|
(2,470
|
)
|
|
|
—
|
|
|
|
31,506
|
|
(Income) loss from equity investment
|
|
|
(3,992
|
)
|
|
|
2,610
|
|
|
|
—
|
|
|
|
1,382
|
|
|
|
—
|
|
Interest expense, net
|
|
|
—
|
|
|
|
11,680
|
|
|
|
—
|
|
|
|
—
|
|
|
|
11,680
|
|
Change in fair value of private placement warrants
|
|
|
—
|
|
|
|
8,067
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,067
|
|
Tax receivable agreement liability adjustment
|
|
|
—
|
|
|
|
1,661
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,661
|
|
Other income, net
|
|
|
—
|
|
|
|
(2,809
|
)
|
|
|
11
|
|
|
|
—
|
|
|
|
(2,798
|
)
|
Total other expenses
|
|
|
(3,992
|
)
|
|
|
21,209
|
|
|
|
11
|
|
|
|
1,382
|
|
|
|
18,610
|
|
Income (loss) before income taxes
|
|
|
3,992
|
|
|
|
12,767
|
|
|
|
(2,481
|
)
|
|
|
(1,382
|
)
|
|
|
12,896
|
|
Income tax provision
|
|
|
—
|
|
|
|
8,775
|
|
|
|
129
|
|
|
|
—
|
|
|
|
8,904
|
|
Net income (loss)
|
|
$
|
3,992
|
|
|
$
|
3,992
|
|
|
$
|
(2,610
|
)
|
|
$
|
(1,382
|
)
|
|
$
|
3,992
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
351
|
|
|
|
—
|
|
|
|
351
|
|
Total comprehensive income
|
|
$
|
3,992
|
|
|
$
|
3,992
|
|
|
$
|
(2,259
|
)
|
|
$
|
(1,382
|
)
|
|
$
|
4,343
|
|
29
Verra Mobility Corporation and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
Six Months Ended June 30, 2021
(Unaudited)
|
|
|
|
($ in thousands)
|
|
Verra Mobility
Corporation
(Ultimate Parent)
|
|
|
VM
Consolidated
Inc.
(Guarantor
Subsidiary)
|
|
|
Non-
guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Service revenue
|
|
$
|
—
|
|
|
$
|
197,204
|
|
|
$
|
8,985
|
|
|
$
|
—
|
|
|
$
|
206,189
|
|
Product sales
|
|
|
—
|
|
|
|
12,081
|
|
|
|
245
|
|
|
|
—
|
|
|
|
12,326
|
|
Total revenue
|
|
|
—
|
|
|
|
209,285
|
|
|
|
9,230
|
|
|
|
—
|
|
|
|
218,515
|
|
Cost of service revenue
|
|
|
—
|
|
|
|
916
|
|
|
|
1,296
|
|
|
|
—
|
|
|
|
2,212
|
|
Cost of product sales
|
|
|
—
|
|
|
|
6,064
|
|
|
|
107
|
|
|
|
—
|
|
|
|
6,171
|
|
Operating expenses
|
|
|
—
|
|
|
|
60,452
|
|
|
|
6,474
|
|
|
|
—
|
|
|
|
66,926
|
|
Selling, general and administrative expenses
|
|
|
—
|
|
|
|
51,684
|
|
|
|
2,988
|
|
|
|
—
|
|
|
|
54,672
|
|
Depreciation, amortization and (gain) loss on disposal of assets, net
|
|
|
—
|
|
|
|
52,241
|
|
|
|
3,036
|
|
|
|
—
|
|
|
|
55,277
|
|
Total costs and expenses
|
|
|
—
|
|
|
|
171,357
|
|
|
|
13,901
|
|
|
|
—
|
|
|
|
185,258
|
|
Income (loss) from operations
|
|
|
—
|
|
|
|
37,928
|
|
|
|
(4,671
|
)
|
|
|
—
|
|
|
|
33,257
|
|
Loss from equity investment
|
|
|
4,923
|
|
|
|
4,479
|
|
|
|
—
|
|
|
|
(9,402
|
)
|
|
|
—
|
|
Interest expense, net
|
|
|
—
|
|
|
|
20,844
|
|
|
|
—
|
|
|
|
—
|
|
|
|
20,844
|
|
Change in fair value of private placement warrants
|
|
|
—
|
|
|
|
10,134
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,134
|
|
Tax receivable agreement liability adjustment
|
|
|
—
|
|
|
|
1,661
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,661
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
|
5,334
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,334
|
|
Other income, net
|
|
|
—
|
|
|
|
(5,823
|
)
|
|
|
12
|
|
|
|
—
|
|
|
|
(5,811
|
)
|
Total other expenses
|
|
|
4,923
|
|
|
|
36,629
|
|
|
|
12
|
|
|
|
(9,402
|
)
|
|
|
32,162
|
|
(Loss) income before income taxes
|
|
|
(4,923
|
)
|
|
|
1,299
|
|
|
|
(4,683
|
)
|
|
|
9,402
|
|
|
|
1,095
|
|
Income tax provision (benefit)
|
|
|
—
|
|
|
|
6,222
|
|
|
|
(204
|
)
|
|
|
—
|
|
|
|
6,018
|
|
Net loss
|
|
$
|
(4,923
|
)
|
|
$
|
(4,923
|
)
|
|
$
|
(4,479
|
)
|
|
$
|
9,402
|
|
|
$
|
(4,923
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
161
|
|
|
|
—
|
|
|
|
161
|
|
Total comprehensive loss
|
|
$
|
(4,923
|
)
|
|
$
|
(4,923
|
)
|
|
$
|
(4,318
|
)
|
|
$
|
9,402
|
|
|
$
|
(4,762
|
)
|
30
Verra Mobility Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2021
(Unaudited)
($ in thousands)
|
|
Verra Mobility
Corporation
(Ultimate Parent)
|
|
|
VM
Consolidated
Inc.
(Guarantor
Subsidiary)
|
|
|
Non-
guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,923
|
)
|
|
$
|
(4,923
|
)
|
|
$
|
(4,479
|
)
|
|
$
|
9,402
|
|
|
$
|
(4,923
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
52,191
|
|
|
|
3,036
|
|
|
|
—
|
|
|
|
55,227
|
|
Amortization of deferred financing costs and discounts
|
|
|
—
|
|
|
|
2,722
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,722
|
|
Change in fair value of private placement warrants
|
|
|
—
|
|
|
|
10,134
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,134
|
|
Tax receivable agreement liability adjustment
|
|
|
—
|
|
|
|
1,661
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,661
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
|
5,334
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,334
|
|
Credit loss expense
|
|
|
—
|
|
|
|
3,770
|
|
|
|
93
|
|
|
|
—
|
|
|
|
3,863
|
|
Deferred income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
(825
|
)
|
|
|
—
|
|
|
|
(825
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
6,481
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,481
|
|
Other
|
|
|
—
|
|
|
|
257
|
|
|
|
—
|
|
|
|
—
|
|
|
|
257
|
|
Loss from equity investment
|
|
|
4,923
|
|
|
|
4,479
|
|
|
|
—
|
|
|
|
(9,402
|
)
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
—
|
|
|
|
(42,276
|
)
|
|
|
(694
|
)
|
|
|
—
|
|
|
|
(42,970
|
)
|
Unbilled receivables
|
|
|
—
|
|
|
|
(3,281
|
)
|
|
|
1,183
|
|
|
|
—
|
|
|
|
(2,098
|
)
|
Prepaid expenses and other assets
|
|
|
—
|
|
|
|
167
|
|
|
|
(1,344
|
)
|
|
|
—
|
|
|
|
(1,177
|
)
|
Accounts payable and accrued liabilities
|
|
|
—
|
|
|
|
11,979
|
|
|
|
(7,642
|
)
|
|
|
—
|
|
|
|
4,337
|
|
Due to affiliates
|
|
|
—
|
|
|
|
(11,731
|
)
|
|
|
11,731
|
|
|
|
—
|
|
|
|
—
|
|
Other liabilities
|
|
|
—
|
|
|
|
445
|
|
|
|
(990
|
)
|
|
|
—
|
|
|
|
(545
|
)
|
Net cash provided by operating activities
|
|
|
—
|
|
|
|
37,409
|
|
|
|
69
|
|
|
|
—
|
|
|
|
37,478
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of business, net of cash and restricted cash acquired
|
|
|
—
|
|
|
|
(107,004
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(107,004
|
)
|
Purchases of installation and service parts and property and equipment
|
|
|
—
|
|
|
|
(7,834
|
)
|
|
|
(423
|
)
|
|
|
—
|
|
|
|
(8,257
|
)
|
Cash proceeds from the sale of assets
|
|
|
—
|
|
|
|
159
|
|
|
|
—
|
|
|
|
—
|
|
|
|
159
|
|
Cash contribution to subsidiary
|
|
|
—
|
|
|
|
(23,219
|
)
|
|
|
—
|
|
|
|
23,219
|
|
|
|
—
|
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
(137,898
|
)
|
|
|
(423
|
)
|
|
|
23,219
|
|
|
|
(115,102
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
|
|
—
|
|
|
|
996,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
996,750
|
|
Repayment of long-term debt
|
|
|
—
|
|
|
|
(867,268
|
)
|
|
|
(14,013
|
)
|
|
|
—
|
|
|
|
(881,281
|
)
|
Payment of debt issuance costs
|
|
|
—
|
|
|
|
(6,507
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,507
|
)
|
Payment of debt extinguishment costs
|
|
|
—
|
|
|
|
(1,066
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,066
|
)
|
Proceeds from exercise of stock options
|
|
|
—
|
|
|
|
87
|
|
|
|
—
|
|
|
|
—
|
|
|
|
87
|
|
Capital contribution from VM Consolidated Inc.
|
|
|
—
|
|
|
|
—
|
|
|
|
23,219
|
|
|
|
(23,219
|
)
|
|
|
—
|
|
Payment of employee tax withholding related to RSUs vesting
|
|
|
—
|
|
|
|
(953
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(953
|
)
|
Net cash provided by financing activities
|
|
|
—
|
|
|
|
121,043
|
|
|
|
9,206
|
|
|
|
(23,219
|
)
|
|
|
107,030
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
—
|
|
|
|
—
|
|
|
|
207
|
|
|
|
—
|
|
|
|
207
|
|
Net increase in cash, cash equivalents and restricted cash
|
|
|
—
|
|
|
|
20,554
|
|
|
|
9,059
|
|
|
|
—
|
|
|
|
29,613
|
|
Cash, cash equivalents and restricted cash - beginning of period
|
|
|
—
|
|
|
|
104,602
|
|
|
|
16,290
|
|
|
|
—
|
|
|
|
120,892
|
|
Cash, cash equivalents and restricted cash - end of period
|
|
$
|
—
|
|
|
$
|
125,156
|
|
|
$
|
25,349
|
|
|
$
|
—
|
|
|
$
|
150,505
|
|
31
Verra Mobility Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
Six Months Ended June 30, 2021
(Unaudited)
|
|
Verra Mobility
Corporation
(Ultimate Parent)
|
|
|
VM
Consolidated
Inc.
(Guarantor
Subsidiary)
|
|
|
Non-
guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
—
|
|
|
$
|
13,054
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,054
|
|
Income taxes paid, net of refunds
|
|
|
—
|
|
|
|
4,945
|
|
|
|
50
|
|
|
|
—
|
|
|
|
4,995
|
|
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
|
|
|
—
|
|
|
|
3,358
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,358
|
|
16.Subsequent Event
On July 29, 2021, the Company’s 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 over the next twelve months. The level at which the Company repurchases depends on a number of factors, including its financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors its management may deem relevant. The timing, volume and nature of repurchases are subject to market conditions, applicable securities laws and other factors and may be amended, suspended or discontinued at any time.
32