Notes to the CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
|
Description of Business
|
Verra Mobility Corporation (collectively with its subsidiaries, the “Company” or “Verra Mobility”), formerly known as Gores Holdings II, Inc. (“Gores”), was originally incorporated in Delaware on August 15, 2016, as a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more target businesses. On January 19, 2017, the Company consummated its initial public offering (the “IPO”), following which its shares began trading on the Nasdaq Capital Market (“Nasdaq”). On June 21, 2018, Gores entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Greenlight Holding II Corporation, PE Greenlight Holdings, LLC, AM Merger Sub I, Inc., a direct, wholly-owned subsidiary of Gores and AM Merger Sub II, LLC, a direct, wholly-owned subsidiary of Gores. On October 17, 2018, the transactions contemplated by the Merger Agreement (the “Business Combination”) were consummated. In connection with the closing of the Business Combination, Gores changed its name to Verra Mobility Corporation. As a result of the Business Combination, Verra Mobility Corporation became the owner, directly or indirectly, of all of the equity interests of Verra Mobility Holdings, LLC and its subsidiaries.
Verra Mobility offers integrated technology solutions and services to commercial fleets, rental car companies and state and local governments. The Company has customers located throughout the United States, Canada and Europe. The Company is organized into two operating segments: Commercial Services and Government Solutions (see Note 13).
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 provides complete, end-to-end speed, red-light, school bus stop arm and bus lane enforcement solutions. The Company’s programs are designed to reduce traffic violations and resulting collisions, injuries, and fatalities. The Company implements and administers traffic safety programs for municipalities, counties, school districts and law enforcement agencies of all sizes.
2.
|
Significant Accounting Policies
|
Principles of Consolidation
The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
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 14, 2021 (the “2020 Form 10-K/A”).
We restated the Company’s 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.
10
The impact of the restatement to the three months ended March 31, 2020 was an increase to net income of $15.5 million, an increase to private placement warrant liabilities of $14.3 million, with offsetting decreases of $20.4 million to additional paid-in capital and $6.1 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 interim condensed consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the fair values assigned to net assets acquired (including identifiable intangibles) in business combinations, the carrying amounts of long-lived assets and goodwill, the 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 and accounts receivable. Revenue from one of the Government Solutions customers as a percent of total revenue is presented below:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
City of New York Department of Transportation
|
|
|
24.4
|
%
|
|
|
25.5
|
%
|
As of March 31, 2021, the City of New York Department of Transportation (“NYCDOT”) represented 63% of 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 March 31, 2021, the Legacy Contract had an open receivable balance of $41.3 million, of which $33.1 million had aged beyond NYCDOT’s 45-day payment terms. As of March 31, 2021, the Company had invoiced NYCDOT for $52.6 million in product revenue and $26.8 million in service revenue under the Emergency Contract. NYCDOT has not made any payments against the Emergency Contract to date. There is no material reserve related to these receivables as amounts are deemed collectible based on current conditions and expectations. Please also see section entitled “Risk Factors.”
Significant customer revenue generated through the Company’s Commercial Services partners as a percent of total revenue is presented below:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Hertz Corporation
|
|
|
13.8
|
%
|
|
|
15.7
|
%
|
Avis Budget Group, Inc.
|
|
|
11.2
|
%
|
|
|
12.7
|
%
|
Enterprise Holdings, Inc.
|
|
|
14.5
|
%
|
|
|
10.8
|
%
|
Allowance for Credit Loss
The Company reviews historical credit losses and customer payment trends on receivables and develops loss rate estimates as of the balance sheet date, which includes adjustments for future expectations using probability-weighted assumptions about potential outcomes. Receivables are written off against the allowance for credit loss when it is probable that amounts will not be collected based on the terms of the customer contracts, and subsequent recoveries reverse the previous write-off and apply to the receivable in the period recovered. No interest or late fees are charged on delinquent accounts.
11
The Company identified portfolio segments based on the type of business, industry in which the customer operates and historical credit loss patterns. The following presents the activity in the allowance for credit loss for the three months ended March 31, 2021 and 2020, respectively:
($ 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
|
|
|
2,252
|
|
|
|
143
|
|
|
|
7
|
|
|
|
2,402
|
|
Write-offs, net of recoveries
|
|
|
(1,722
|
)
|
|
|
2
|
|
|
|
(21
|
)
|
|
|
(1,741
|
)
|
Balance at March 31, 2021
|
|
$
|
3,740
|
|
|
$
|
4,422
|
|
|
$
|
3,970
|
|
|
$
|
12,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
Commercial Services
(Driver-billed) (1)
|
|
|
Commercial
Services
(All other)
|
|
|
Government Solutions
|
|
|
Total
|
|
Balance at January 1, 2020 (2)
|
|
$
|
5,733
|
|
|
$
|
945
|
|
|
$
|
1,778
|
|
|
$
|
8,456
|
|
Credit loss expense
|
|
|
1,925
|
|
|
|
2,731
|
|
|
|
700
|
|
|
|
5,356
|
|
Write-offs, net of recoveries
|
|
|
(2,220
|
)
|
|
|
(311
|
)
|
|
|
(435
|
)
|
|
|
(2,966
|
)
|
Balance at March 31, 2020
|
|
$
|
5,438
|
|
|
$
|
3,365
|
|
|
$
|
2,043
|
|
|
$
|
10,846
|
|
|
(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 for the three months ended March 31, 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 for the three months ended March 31, 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 March 31, 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 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.
12
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 (loss) income per share, if such exercise is dilutive to (loss) income per share.
Recent Accounting Pronouncements
Accounting Standards Adopted
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard 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 ASU is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. 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 in the scope of the standard. See Note 7. 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 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
13
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.
3.
|
Prepaid Expenses and Other Current Assets
|
Prepaid expenses and other current assets consist of the following at:
($ in thousands)
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Prepaid tolls
|
|
$
|
6,571
|
|
|
$
|
9,237
|
|
Prepaid income taxes
|
|
|
5,285
|
|
|
|
2,354
|
|
Prepaid services
|
|
|
3,375
|
|
|
|
2,989
|
|
Deposits
|
|
|
3,168
|
|
|
|
3,474
|
|
Prepaid computer maintenance
|
|
|
2,761
|
|
|
|
2,732
|
|
Prepaid insurance
|
|
|
1,717
|
|
|
|
2,641
|
|
Other
|
|
|
1,632
|
|
|
|
890
|
|
Total prepaid expenses and other current assets
|
|
$
|
24,509
|
|
|
$
|
24,317
|
|
4.
|
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
|
|
Foreign currency translation adjustment
|
|
|
(215
|
)
|
|
|
—
|
|
|
|
(215
|
)
|
Balance at March 31, 2021
|
|
$
|
426,474
|
|
|
$
|
159,746
|
|
|
$
|
586,220
|
|
Intangible assets consist of the following as of the respective period-ends:
|
|
March 31, 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
|
|
0.1 years
|
|
$
|
32,199
|
|
|
$
|
31,093
|
|
|
0.3 years
|
|
$
|
32,223
|
|
|
$
|
29,358
|
|
Non-compete agreements
|
|
1.8 years
|
|
|
62,570
|
|
|
|
40,554
|
|
|
2.0 years
|
|
|
62,589
|
|
|
|
37,412
|
|
Customer relationships
|
|
5.6 years
|
|
|
367,440
|
|
|
|
134,072
|
|
|
5.9 years
|
|
|
367,512
|
|
|
|
123,784
|
|
Developed technology
|
|
2.1 years
|
|
|
166,051
|
|
|
|
103,392
|
|
|
2.3 years
|
|
|
166,217
|
|
|
|
95,848
|
|
Gross carrying value of intangible assets
|
|
|
|
|
628,260
|
|
|
$
|
309,111
|
|
|
|
|
|
628,541
|
|
|
$
|
286,402
|
|
Less: accumulated amortization
|
|
|
|
|
(309,111
|
)
|
|
|
|
|
|
|
|
|
(286,402
|
)
|
|
|
|
|
Intangible assets, net
|
|
|
|
$
|
319,149
|
|
|
|
|
|
|
|
|
$
|
342,139
|
|
|
|
|
|
The amortization expense was $22.7 million and $23.5 million for the three months ended March 31, 2021 and 2020, respectively.
14
Estimated amortization expense in future years is expected to be:
($ in thousands)
|
|
|
|
|
Remainder of 2021
|
|
$
|
63,193
|
|
2022
|
|
|
81,143
|
|
2023
|
|
|
52,447
|
|
2024
|
|
|
41,953
|
|
2025
|
|
|
39,255
|
|
Thereafter
|
|
|
41,158
|
|
Total
|
|
$
|
319,149
|
|
Accrued liabilities consist of the following at:
($ in thousands)
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
Accrued salaries and wages
|
|
$
|
6,160
|
|
|
$
|
4,432
|
|
Current portion of operating lease liabilities
|
|
|
3,157
|
|
|
|
3,179
|
|
Advanced deposits payable
|
|
|
2,544
|
|
|
|
2,922
|
|
Payroll liabilities
|
|
|
1,844
|
|
|
|
1,755
|
|
Self-insurance liability
|
|
|
903
|
|
|
|
682
|
|
Restricted cash due to customers
|
|
|
819
|
|
|
|
633
|
|
Other
|
|
|
1,967
|
|
|
|
2,033
|
|
Total accrued liabilities
|
|
$
|
17,394
|
|
|
$
|
15,636
|
|
The following table provides a summary of the Company’s long-term debt at:
($ in thousands)
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
2021 Term Loan, due 2028
|
|
$
|
650,000
|
|
|
$
|
—
|
|
Senior Notes, due 2029
|
|
|
350,000
|
|
|
|
—
|
|
2018 Term Loan
|
|
|
—
|
|
|
|
865,642
|
|
Less: original issue discounts
|
|
|
(6,247
|
)
|
|
|
(3,952
|
)
|
Less: unamortized deferred financing costs
|
|
|
(21,308
|
)
|
|
|
(19,645
|
)
|
Total long-term debt
|
|
|
972,445
|
|
|
|
842,045
|
|
Less: current portion of long-term debt
|
|
|
(6,500
|
)
|
|
|
(9,104
|
)
|
Total long-term debt, net of current portion
|
|
$
|
965,945
|
|
|
$
|
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 $350.0 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.
15
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 March 31, 2021, the interest rate on the 2021 Term Loan was 3.45%.
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 three months ended March 31, 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.
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 the new debt instruments entered into in March 2021 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 either 0.25%, 0.50%, or 0.75%, depending on the Company’s average availability to borrow under the commitment. At March 31, 2021, the Company had no outstanding borrowings on the Revolver and availability to borrow was $49.4 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 March 31, 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 March 31, 2021, the Company was compliant with all debt covenants.
16
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 $9.2 million and $12.5 million for the three months ended March 31, 2021 and 2020, respectively.
The weighted average effective interest rates on the Company’s outstanding borrowings were 4.2% and 3.4% at March 31, 2021 and December 31, 2020, respectively.
7.
|
Fair Value of Financial Instruments
|
ASC Topic 820, Fair Value Measurement, includes a single definition of fair value to be used for financial reporting purposes, provides a framework for applying this definition and for measuring fair value under GAAP, and establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are summarized as follows:
Level 1 – Fair value is based on observable inputs such as quoted prices for identical assets or liabilities in active markets.
Level 2 – Fair value is determined using quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or inputs other than quoted prices that are directly or indirectly observable.
Level 3 – Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow, or similar technique.
The carrying amounts reported in the Company’s condensed consolidated balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate fair value due to the immediate to short-term maturity of these financial instruments. The estimated fair value of the Company’s long-term debt was calculated based upon available market information. The carrying value and the estimated fair value of long-term debt is as follows:
|
|
Level in
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
|
|
Fair Value
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
($ in thousands)
|
|
Hierarchy
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
2021 Term Loan
|
|
2
|
|
$
|
|
650,000
|
|
|
$
|
|
650,000
|
|
|
$
|
|
—
|
|
|
$
|
|
—
|
|
Senior Notes
|
|
2
|
|
|
|
350,000
|
|
|
|
|
360,063
|
|
|
|
|
—
|
|
|
|
|
—
|
|
2018 Term Loan
|
|
2
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
842,045
|
|
|
|
|
861,314
|
|
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:
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Stock price
|
|
$
|
13.54
|
|
|
$
|
13.42
|
|
Strike price
|
|
$
|
11.50
|
|
|
$
|
11.50
|
|
Volatility
|
|
|
49.0
|
%
|
|
|
44.0
|
%
|
Remaining life (in years)
|
|
|
2.6
|
|
|
|
2.8
|
|
Risk-free interest rate
|
|
|
0.26
|
%
|
|
|
0.16
|
%
|
Expected dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Estimated fair value
|
|
$
|
4.94
|
|
|
$
|
4.63
|
|
The following summarizes the change in the private placement warrant liabilities for the respective periods:
17
|
|
Three Months Ended March 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
Beginning balance (as restated)
|
|
$
|
30,866
|
|
|
$
|
29,733
|
|
Change in fair value included in net (loss) income
|
|
|
2,067
|
|
|
|
(15,467
|
)
|
Ending balance
|
|
$
|
32,933
|
|
|
$
|
14,266
|
|
8.
|
Net (Loss) Income Per Share
|
Basic net (loss) income per share is calculated by dividing net (loss) income by the weighted average shares outstanding during the period, without consideration of common stock equivalents. Diluted net (loss) 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 (loss) income per share are as follows:
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
(In thousands, except per share data)
|
|
|
|
|
|
(As restated)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(8,915
|
)
|
|
$
|
22,140
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares - basic
|
|
|
162,297
|
|
|
|
160,924
|
|
Common stock equivalents
|
|
|
—
|
|
|
|
3,503
|
|
Weighted average shares - diluted
|
|
|
162,297
|
|
|
|
164,427
|
|
Net (loss) income per share - basic
|
|
$
|
(0.05
|
)
|
|
$
|
0.14
|
|
Net (loss) income per share - diluted
|
|
$
|
(0.05
|
)
|
|
$
|
0.04
|
|
Antidilutive shares excluded from diluted net (loss) income per share (1):
|
|
|
|
|
|
|
|
|
Contingently issuable shares (2)
|
|
|
5,000
|
|
|
|
5,000
|
|
Public warrants
|
|
|
13,333
|
|
|
|
—
|
|
Private placement warrants
|
|
|
6,667
|
|
|
|
—
|
|
Non-qualified stock options
|
|
|
1,205
|
|
|
|
705
|
|
Performance share units
|
|
|
229
|
|
|
|
116
|
|
Restricted stock units
|
|
|
2,582
|
|
|
|
28
|
|
Total antidilutive shares excluded
|
|
|
29,016
|
|
|
|
5,849
|
|
|
(1)
|
These amounts represent outstanding shares as of the three months ended March 31, 2021 and 2020.
|
|
(2)
|
Contingently issuable shares relate to the earn-out agreement as discussed in Note 11, Related Party Transactions.
|
The Company’s interim income tax (benefit) 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.
18
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.
The Company’s effective income tax benefit rate was 24.5% for the three months ended March 31, 2021 and the effective income tax rate was 12.7% for the three months ended March 31, 2020. The effective tax rate change was primarily due to the Company’s permanent differences related to the mark-to-market adjustment on the private placement warrants, which had a lesser impact on the effective tax rate.
The total amount of unrecognized tax benefits increased by $0.2 million during the quarter primarily due to prior year tax positions. As of March 31, 2021, the total amount of unrecognized tax benefits was $1.1 million, of which $0.5 million would affect the Company’s effective tax rate if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits through income tax expense. As of March 31, 2021, we had less than $0.1 million accrued for the payment of interest and penalties.
The Company is subject to examination by the Internal Revenue Service and taxing authorities in various states. The Company’s U.S. federal income tax returns remain subject to examination by tax authorities for the years 2017 to 2019. The Company’s state income tax returns are no longer subject to income tax examination by tax authorities prior to 2016; however, the Company’s net operating loss carryforwards and research credit carryforwards arising prior to that year are subject to adjustment. The Company is currently under audit by the State of Georgia for the years 2018 and 2019, however, no material adjustments are anticipated. The Company regularly assesses the likelihood of tax deficiencies in each of the tax jurisdictions and, accordingly, makes appropriate adjustments to the tax provision as deemed necessary.
10.
|
Stock-Based Compensation
|
The following details the components of stock-based compensation for the periods presented:
|
|
Three Months Ended March 31,
|
|
($ in thousands)
|
|
2021
|
|
|
2020
|
|
Operating expenses
|
|
$
|
194
|
|
|
$
|
220
|
|
Selling, general and administrative expenses
|
|
|
2,714
|
|
|
|
2,548
|
|
Total stock-based compensation expense
|
|
$
|
2,908
|
|
|
$
|
2,768
|
|
11.
|
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 March 31, 2021, the TRA liability was approximately $67.9 million of which $5.2 million was the current portion and $62.7 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 sheets. 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.
19
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.
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 March 31, 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 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 March 31, 2021, the potential future Earn-Out Shares issuable are between zero and 5.0 million.
12.
|
Commitments and Contingencies
|
The Company has issued various letters of credit under contractual arrangements with certain of its vendors and customers. Outstanding letters of credit under these arrangements totaled $6.2 million at March 31, 2021.
The Company has non-cancelable purchase commitments to certain vendors. The aggregate non-cancelable purchase commitments outstanding at March 31, 2021 were $32.3 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.
20
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. We were informed in March 2021 by the NYC Law Department that it had concluded its investigation, and we reached an agreement in principle to resolve the matter for approximately $1.3 million, subject to final administrative approvals.
Customer Guarantee
In the ordinary course of business, the Company occasionally employs contract terms that mitigate the customer’s risk of aggregate revenue decline in connection with the customer’s adoption of additional or changes to service models within its existing portfolio. These agreements require the customer to satisfy numerous conditions to trigger payment, including volume metrics and other operational requirements. The Company had one such guarantee outstanding for the one-year period ending March 31, 2021. The Company has not accrued any liability or corresponding contra revenue has been recorded in the Company’s financial statements, as the required conditions to trigger payment have not been met.
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.
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 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 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).
The following tables set forth financial information by segment for the three months ended March 31, 2021 and 2020, respectively:
21
|
|
For the Three Months Ended March 31, 2021
|
|
|
|
Commercial
|
|
|
Government
|
|
|
Corporate
|
|
|
|
|
|
($ in thousands)
|
|
Services
|
|
|
Solutions
|
|
|
and Other
|
|
|
Total
|
|
Service revenue
|
|
$
|
45,689
|
|
|
$
|
44,074
|
|
|
$
|
—
|
|
|
$
|
89,763
|
|
Product sales
|
|
|
—
|
|
|
|
95
|
|
|
|
—
|
|
|
|
95
|
|
Total revenue
|
|
|
45,689
|
|
|
|
44,169
|
|
|
|
—
|
|
|
|
89,858
|
|
Cost of service revenue
|
|
|
531
|
|
|
|
349
|
|
|
|
—
|
|
|
|
880
|
|
Cost of product sales
|
|
|
—
|
|
|
|
27
|
|
|
|
—
|
|
|
|
27
|
|
Operating expenses
|
|
|
14,206
|
|
|
|
16,092
|
|
|
|
—
|
|
|
|
30,298
|
|
Selling, general and administrative expenses
|
|
|
10,792
|
|
|
|
10,811
|
|
|
|
4,126
|
|
|
|
25,729
|
|
Other income, net
|
|
|
(2,070
|
)
|
|
|
(943
|
)
|
|
|
—
|
|
|
|
(3,013
|
)
|
Segment profit (loss)
|
|
$
|
22,230
|
|
|
$
|
17,833
|
|
|
$
|
(4,126
|
)
|
|
$
|
35,937
|
|
Segment profit (loss)
|
|
$
|
22,230
|
|
|
$
|
17,833
|
|
|
$
|
(4,126
|
)
|
|
$
|
35,937
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
28,214
|
|
|
|
28,214
|
|
Loss on disposal of assets, net
|
|
|
—
|
|
|
|
51
|
|
|
|
—
|
|
|
|
51
|
|
Change in fair value of private placement warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
2,067
|
|
|
|
2,067
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
2,908
|
|
|
|
2,908
|
|
Interest expense, net
|
|
|
—
|
|
|
|
—
|
|
|
|
9,164
|
|
|
|
9,164
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
5,334
|
|
|
|
5,334
|
|
Income (loss) before income tax benefit
|
|
$
|
22,230
|
|
|
$
|
17,782
|
|
|
$
|
(51,813
|
)
|
|
$
|
(11,801
|
)
|
|
|
For the Three Months Ended March 31, 2020
|
|
|
|
Commercial
|
|
|
Government
|
|
|
Corporate
|
|
|
|
|
|
|
|
Services
|
|
|
Solutions
|
|
|
and Other
|
|
|
Total
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
Service revenue
|
|
$
|
61,242
|
|
|
$
|
38,255
|
|
|
$
|
—
|
|
|
$
|
99,497
|
|
Product sales
|
|
|
—
|
|
|
|
17,216
|
|
|
|
—
|
|
|
|
17,216
|
|
Total revenue
|
|
|
61,242
|
|
|
|
55,471
|
|
|
|
—
|
|
|
|
116,713
|
|
Cost of service revenue
|
|
|
807
|
|
|
|
412
|
|
|
|
—
|
|
|
|
1,219
|
|
Cost of product sales
|
|
|
—
|
|
|
|
8,690
|
|
|
|
—
|
|
|
|
8,690
|
|
Operating expenses
|
|
|
16,530
|
|
|
|
15,509
|
|
|
|
—
|
|
|
|
32,039
|
|
Selling, general and administrative expenses
|
|
|
13,384
|
|
|
|
9,669
|
|
|
|
285
|
|
|
|
23,338
|
|
Other income, net
|
|
|
(2,889
|
)
|
|
|
(36
|
)
|
|
|
—
|
|
|
|
(2,925
|
)
|
Segment profit (loss)
|
|
$
|
33,410
|
|
|
$
|
21,227
|
|
|
$
|
(285
|
)
|
|
$
|
54,352
|
|
Segment profit (loss)
|
|
$
|
33,410
|
|
|
$
|
21,227
|
|
|
$
|
(285
|
)
|
|
$
|
54,352
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
—
|
|
|
|
29,250
|
|
|
|
29,250
|
|
Gain on disposal of assets, net
|
|
|
—
|
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
(4
|
)
|
Change in fair value of private placement warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
(15,467
|
)
|
|
|
(15,467
|
)
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
2,768
|
|
|
|
2,768
|
|
Interest expense, net
|
|
|
—
|
|
|
|
—
|
|
|
|
12,451
|
|
|
|
12,451
|
|
Income (loss) before income tax provision
|
|
$
|
33,410
|
|
|
$
|
21,231
|
|
|
$
|
(29,287
|
)
|
|
$
|
25,354
|
|
22
14.
|
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 March 31, 2021 and the related condensed consolidated statements of operations and comprehensive loss and condensed consolidated statements of cash flows for the three months ended March 31, 2021 for the Company, combined guarantor subsidiary and combined non-guarantor subsidiaries.
23
Verra Mobility Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
at March 31, 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
|
|
$
|
—
|
|
|
$
|
233,296
|
|
|
$
|
16,309
|
|
|
$
|
—
|
|
|
$
|
249,605
|
|
Restricted cash
|
|
|
—
|
|
|
|
819
|
|
|
|
—
|
|
|
|
—
|
|
|
|
819
|
|
Accounts receivable (net of allowance for credit loss of $12.1 million )
|
|
|
—
|
|
|
|
191,190
|
|
|
|
1,795
|
|
|
|
—
|
|
|
|
192,985
|
|
Unbilled receivables
|
|
|
—
|
|
|
|
14,481
|
|
|
|
400
|
|
|
|
—
|
|
|
|
14,881
|
|
Investment in subsidiary
|
|
|
139,259
|
|
|
|
73,936
|
|
|
|
—
|
|
|
|
(213,195
|
)
|
|
|
—
|
|
Prepaid expenses and other current assets
|
|
|
—
|
|
|
|
21,932
|
|
|
|
2,577
|
|
|
|
—
|
|
|
|
24,509
|
|
Total current assets
|
|
|
139,259
|
|
|
|
535,654
|
|
|
|
21,081
|
|
|
|
(213,195
|
)
|
|
|
482,799
|
|
Installation and service parts, net
|
|
|
—
|
|
|
|
8,597
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,597
|
|
Property and equipment, net
|
|
|
—
|
|
|
|
64,897
|
|
|
|
2,844
|
|
|
|
—
|
|
|
|
67,741
|
|
Operating lease assets
|
|
|
—
|
|
|
|
29,879
|
|
|
|
293
|
|
|
|
—
|
|
|
|
30,172
|
|
Intangible assets, net
|
|
|
—
|
|
|
|
293,988
|
|
|
|
25,161
|
|
|
|
—
|
|
|
|
319,149
|
|
Goodwill
|
|
|
—
|
|
|
|
524,766
|
|
|
|
61,454
|
|
|
|
—
|
|
|
|
586,220
|
|
Due from affiliates
|
|
|
169,259
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(169,259
|
)
|
|
|
—
|
|
Other non-current assets
|
|
|
—
|
|
|
|
2,520
|
|
|
|
15
|
|
|
|
—
|
|
|
|
2,535
|
|
Total assets
|
|
$
|
308,518
|
|
|
$
|
1,460,301
|
|
|
$
|
110,848
|
|
|
$
|
(382,454
|
)
|
|
$
|
1,497,213
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
—
|
|
|
$
|
30,256
|
|
|
$
|
11,078
|
|
|
$
|
—
|
|
|
$
|
41,334
|
|
Accrued liabilities
|
|
|
—
|
|
|
|
13,739
|
|
|
|
3,655
|
|
|
|
—
|
|
|
|
17,394
|
|
Payable to related party pursuant to tax receivable agreement, current portion
|
|
|
—
|
|
|
|
5,202
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,202
|
|
Current portion of long-term debt
|
|
|
—
|
|
|
|
6,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,500
|
|
Total current liabilities
|
|
|
—
|
|
|
|
55,697
|
|
|
|
14,733
|
|
|
|
—
|
|
|
|
70,430
|
|
Long-term debt, net of current portion
|
|
|
—
|
|
|
|
965,945
|
|
|
|
—
|
|
|
|
—
|
|
|
|
965,945
|
|
Operating lease liabilities, net of current portion
|
|
|
—
|
|
|
|
28,358
|
|
|
|
89
|
|
|
|
—
|
|
|
|
28,447
|
|
Payable to related party pursuant to tax receivable agreement, net of current portion
|
|
|
—
|
|
|
|
62,667
|
|
|
|
—
|
|
|
|
—
|
|
|
|
62,667
|
|
Private placement warrant liabilities
|
|
|
—
|
|
|
|
32,933
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,933
|
|
Due to affiliates
|
|
|
—
|
|
|
|
151,526
|
|
|
|
17,733
|
|
|
|
(169,259
|
)
|
|
|
—
|
|
Asset retirement obligation
|
|
|
—
|
|
|
|
6,406
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,406
|
|
Deferred tax liabilities, net
|
|
|
—
|
|
|
|
16,959
|
|
|
|
4,357
|
|
|
|
—
|
|
|
|
21,316
|
|
Other long-term liabilities
|
|
|
—
|
|
|
|
551
|
|
|
|
—
|
|
|
|
—
|
|
|
|
551
|
|
Total liabilities
|
|
|
—
|
|
|
|
1,321,042
|
|
|
|
36,912
|
|
|
|
(169,259
|
)
|
|
|
1,188,695
|
|
Total stockholders' equity
|
|
|
308,518
|
|
|
|
139,259
|
|
|
|
73,936
|
|
|
|
(213,195
|
)
|
|
|
308,518
|
|
Total liabilities and stockholders' equity
|
|
$
|
308,518
|
|
|
$
|
1,460,301
|
|
|
$
|
110,848
|
|
|
$
|
(382,454
|
)
|
|
$
|
1,497,213
|
|
24
Verra Mobility Corporation and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
Three Months Ended March 31, 2021
(Unaudited)
|
|
|
|
($ in thousands)
|
|
Verra Mobility
Corporation
(Ultimate Parent)
|
|
|
VM
Consolidated
Inc.
(Guarantor
Subsidiary)
|
|
|
Non-
guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Service revenue
|
|
$
|
—
|
|
|
$
|
87,003
|
|
|
$
|
2,760
|
|
|
$
|
—
|
|
|
$
|
89,763
|
|
Product sales
|
|
|
—
|
|
|
|
95
|
|
|
|
—
|
|
|
|
—
|
|
|
|
95
|
|
Total revenue
|
|
|
—
|
|
|
|
87,098
|
|
|
|
2,760
|
|
|
|
—
|
|
|
|
89,858
|
|
Cost of service revenue
|
|
|
—
|
|
|
|
395
|
|
|
|
485
|
|
|
|
—
|
|
|
|
880
|
|
Cost of product sales
|
|
|
—
|
|
|
|
27
|
|
|
|
—
|
|
|
|
—
|
|
|
|
27
|
|
Operating expenses
|
|
|
—
|
|
|
|
28,083
|
|
|
|
2,409
|
|
|
|
—
|
|
|
|
30,492
|
|
Selling, general and administrative expenses
|
|
|
—
|
|
|
|
27,423
|
|
|
|
1,020
|
|
|
|
—
|
|
|
|
28,443
|
|
Depreciation, amortization and (gain) loss on disposal of assets, net
|
|
|
—
|
|
|
|
27,218
|
|
|
|
1,047
|
|
|
|
—
|
|
|
|
28,265
|
|
Total costs and expenses
|
|
|
—
|
|
|
|
83,146
|
|
|
|
4,961
|
|
|
|
—
|
|
|
|
88,107
|
|
Income (loss) from operations
|
|
|
—
|
|
|
|
3,952
|
|
|
|
(2,201
|
)
|
|
|
—
|
|
|
|
1,751
|
|
Loss from equity investment
|
|
|
8,915
|
|
|
|
1,869
|
|
|
|
—
|
|
|
|
(10,784
|
)
|
|
|
—
|
|
Interest expense, net
|
|
|
—
|
|
|
|
9,164
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,164
|
|
Change in fair value of private placement warrants
|
|
|
—
|
|
|
|
2,067
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,067
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
|
5,334
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,334
|
|
Other income, net
|
|
|
—
|
|
|
|
(3,014
|
)
|
|
|
1
|
|
|
|
—
|
|
|
|
(3,013
|
)
|
Total other expenses
|
|
|
8,915
|
|
|
|
15,420
|
|
|
|
1
|
|
|
|
(10,784
|
)
|
|
|
13,552
|
|
Loss before income tax benefit
|
|
|
(8,915
|
)
|
|
|
(11,468
|
)
|
|
|
(2,202
|
)
|
|
|
10,784
|
|
|
|
(11,801
|
)
|
Income tax benefit
|
|
|
—
|
|
|
|
(2,553
|
)
|
|
|
(333
|
)
|
|
|
—
|
|
|
|
(2,886
|
)
|
Net loss
|
|
$
|
(8,915
|
)
|
|
$
|
(8,915
|
)
|
|
$
|
(1,869
|
)
|
|
$
|
10,784
|
|
|
$
|
(8,915
|
)
|
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
(190
|
)
|
|
|
—
|
|
|
|
(190
|
)
|
Total comprehensive loss
|
|
$
|
(8,915
|
)
|
|
$
|
(8,915
|
)
|
|
$
|
(2,059
|
)
|
|
$
|
10,784
|
|
|
$
|
(9,105
|
)
|
25
Verra Mobility Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 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
|
|
$
|
(8,915
|
)
|
|
$
|
(8,915
|
)
|
|
$
|
(1,869
|
)
|
|
$
|
10,784
|
|
|
$
|
(8,915
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
27,167
|
|
|
|
1,047
|
|
|
|
—
|
|
|
|
28,214
|
|
Amortization of deferred financing costs and discounts
|
|
|
—
|
|
|
|
1,593
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,593
|
|
Change in fair value of private placement warrants
|
|
|
—
|
|
|
|
2,067
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,067
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
|
5,334
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,334
|
|
Credit loss expense
|
|
|
—
|
|
|
|
2,362
|
|
|
|
40
|
|
|
|
—
|
|
|
|
2,402
|
|
Deferred income taxes
|
|
|
—
|
|
|
|
984
|
|
|
|
(703
|
)
|
|
|
—
|
|
|
|
281
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
2,908
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,908
|
|
Installation and service parts expense
|
|
|
—
|
|
|
|
29
|
|
|
|
—
|
|
|
|
—
|
|
|
|
29
|
|
Accretion expense
|
|
|
—
|
|
|
|
53
|
|
|
|
—
|
|
|
|
—
|
|
|
|
53
|
|
Loss on disposal of assets
|
|
|
—
|
|
|
|
51
|
|
|
|
—
|
|
|
|
—
|
|
|
|
51
|
|
Loss from equity investment
|
|
|
8,915
|
|
|
|
1,869
|
|
|
|
—
|
|
|
|
(10,784
|
)
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
—
|
|
|
|
(26,802
|
)
|
|
|
130
|
|
|
|
—
|
|
|
|
(26,672
|
)
|
Unbilled receivables
|
|
|
—
|
|
|
|
(1,033
|
)
|
|
|
174
|
|
|
|
—
|
|
|
|
(859
|
)
|
Prepaid expenses and other assets
|
|
|
—
|
|
|
|
(395
|
)
|
|
|
133
|
|
|
|
—
|
|
|
|
(262
|
)
|
Accounts payable and accrued liabilities
|
|
|
—
|
|
|
|
3,634
|
|
|
|
(1,304
|
)
|
|
|
—
|
|
|
|
2,330
|
|
Due to affiliates
|
|
|
—
|
|
|
|
(1,063
|
)
|
|
|
1,063
|
|
|
|
—
|
|
|
|
—
|
|
Other liabilities
|
|
|
—
|
|
|
|
459
|
|
|
|
—
|
|
|
|
—
|
|
|
|
459
|
|
Net cash provided by operating activities
|
|
|
—
|
|
|
|
10,302
|
|
|
|
(1,289
|
)
|
|
|
—
|
|
|
|
9,013
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of installation and service parts and property and equipment
|
|
|
—
|
|
|
|
(3,548
|
)
|
|
|
(156
|
)
|
|
|
—
|
|
|
|
(3,704
|
)
|
Cash proceeds from the sale of assets
|
|
|
—
|
|
|
|
56
|
|
|
|
—
|
|
|
|
—
|
|
|
|
56
|
|
Cash contribution to subsidiary
|
|
|
—
|
|
|
|
(1,212
|
)
|
|
|
—
|
|
|
|
1,212
|
|
|
|
—
|
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
(4,704
|
)
|
|
|
(156
|
)
|
|
|
1,212
|
|
|
|
(3,648
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings of long-term debt
|
|
|
—
|
|
|
|
996,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
996,750
|
|
Repayment of long-term debt
|
|
|
—
|
|
|
|
(865,642
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(865,642
|
)
|
Payment of debt issuance costs
|
|
|
—
|
|
|
|
(5,732
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,732
|
)
|
Payment of debt extinguishment costs
|
|
|
—
|
|
|
|
(604
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(604
|
)
|
Capital contribution from VM Consolidated Inc.
|
|
|
—
|
|
|
|
—
|
|
|
|
1,212
|
|
|
|
(1,212
|
)
|
|
|
—
|
|
Payment of employee tax withholding related to RSUs vesting
|
|
|
—
|
|
|
|
(857
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(857
|
)
|
Net cash provided by financing activities
|
|
|
—
|
|
|
|
123,915
|
|
|
|
1,212
|
|
|
|
(1,212
|
)
|
|
|
123,915
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
—
|
|
|
|
—
|
|
|
|
252
|
|
|
|
—
|
|
|
|
252
|
|
Net increase in cash, cash equivalents and restricted cash
|
|
|
—
|
|
|
|
129,513
|
|
|
|
19
|
|
|
|
—
|
|
|
|
129,532
|
|
Cash, cash equivalents and restricted cash - beginning of period
|
|
|
—
|
|
|
|
104,602
|
|
|
|
16,290
|
|
|
|
—
|
|
|
|
120,892
|
|
Cash, cash equivalents and restricted cash - end of period
|
|
$
|
—
|
|
|
$
|
234,115
|
|
|
$
|
16,309
|
|
|
$
|
—
|
|
|
$
|
250,424
|
|
26
Verra Mobility Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
Three Months Ended March 31, 2021
(Unaudited)
|
|
Verra Mobility
Corporation
(Ultimate Parent)
|
|
|
VM
Consolidated
Inc.
(Guarantor
Subsidiary)
|
|
|
Non-
guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
—
|
|
|
$
|
6,996
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,996
|
|
Income taxes paid, net of refunds
|
|
|
—
|
|
|
|
233
|
|
|
|
5
|
|
|
|
—
|
|
|
|
238
|
|
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
|
|
|
—
|
|
|
|
1,355
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,355
|
|
Accrued debt issuance costs
|
|
|
—
|
|
|
|
635
|
|
|
|
—
|
|
|
|
—
|
|
|
|
635
|
|
Accrued debt extinguishment costs
|
|
|
—
|
|
|
|
665
|
|
|
|
—
|
|
|
|
—
|
|
|
|
665
|
|
15. Subsequent Event
Pending Acquisition
On January 22, 2021, the Company entered into a Scheme Implementation Agreement (the “Scheme Agreement”) with Redflex Holdings Limited, a public company limited by shares, incorporated in Australia and listed on the Australian Securities Exchange (“Redflex”), pursuant to which all of the holders of Redflex’s outstanding shares as of the record date will sell, and the Company will cause one of its subsidiaries to purchase, one hundred percent (100%) of the outstanding equity of Redflex (the “Scheme”).
On April 29, 2021, the Company entered into a Deed of Amendment and Consent (the “Scheme Amendment”) with Redflex to amend the Scheme Agreement to increase the consideration payable to Redflex shareholders in the transaction from A$0.92 in cash per share to A$0.96 in cash per share (the “Price Increase”), resulting in an increase in the aggregate consideration payable by us under the Scheme Agreement from A$146.1 million to A$152.5 million (or approximately US $112.9 million to US $117.9 million) based on the exchange rate between the Australian Dollar and U.S. Dollar as of the date of this Quarterly Report on Form 10-Q. Except for the Price Increase, the material terms of the Scheme Agreement remained unchanged.
On May 9, 2021, Redflex shareholders approved the Scheme, including the Price Increase. Separately, at a hearing held on May 13, 2021, the second Federal Court of Australia approved the Scheme, including a change approved by the Redflex shareholder vote that allows the regulatory approval from the General Authority for Competition in the Kingdom of Saudi Arabia (the “GAC Approval”), which is currently a condition precedent to the transaction, to become a condition subsequent that can be satisfied on or before August 13, 2021 (the “Outside Date”). If the GAC Approval is not obtained on or before the Outside Date, the transaction would not close.
The aggregate consideration payable by us will be A$152.5 million, and the closing of the acquisition is projected to take place in the second or third quarter of 2021 (approximately 7 business days after receiving notification of GAC approval), subject to timely receipt of the GAC Approval.
27