Verra Mobility Corporation — Q1 2021 Form 10-Q
Business context and period: For the three months ended March 31, 2021. Verra Mobility provides tolling, violation-management, title and registration, and traffic-safety enforcement services through Commercial Services and Government Solutions. Comparative Q1 2020 figures are identified in the filing as restated.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $89.9 million | $116.7 million |
| Operating income | $1.8 million | $19.4 million |
| Operating margin | 1.9% | 16.6% |
| Net income (loss) | $(8.9) million | $22.1 million |
| Basic and diluted EPS | $(0.05) | $0.14 basic; $0.04 diluted |
| Cash from operating activities | $9.0 million | $14.8 million |
| Cash and cash equivalents, March 31 | $249.6 million | — |
| Total debt, carrying value, March 31 | $972.4 million | — |
Revenue fell 23.0%. Service revenue declined 9.8% to $89.8 million, while product sales fell to $0.1 million from $17.2 million. Commercial Services revenue decreased 25.4% to $45.7 million; Government Solutions service revenue increased 15.2% to $44.1 million. Segment profit, the company’s measure before specified corporate and non-operating items, was $22.2 million for Commercial Services and $17.8 million for Government Solutions, versus $33.4 million and $21.2 million, respectively, a year earlier.
Current assets were $482.8 million and current liabilities $70.4 million at quarter-end. The company reported $49.4 million available under its revolving credit facility, net of letters of credit, with no revolver borrowings outstanding. Cash and cash equivalents increased substantially during the quarter, primarily reflecting refinancing proceeds; management said cash, operating cash flow and revolver availability should cover operating needs and debt service for at least 12 months.
Material changes and financing
- Q1 revenue and operating income were lower year over year, primarily reflecting pandemic-related weakness in rental-car activity and the absence of the prior-year quarter’s substantial equipment sales to a Government Solutions customer.
- Government Solutions service revenue benefited from expanded speed-camera installations; the company reported an average of 4,738 active camera systems versus 5,002 a year earlier, including 1,036 temporarily inactive due to COVID-19.
- In March, the company refinanced its prior term loan with a $650 million term loan due 2028 and issued $350 million of 5.50% senior notes due 2029. The term loan carried a 3.45% interest rate at March 31 and has a variable rate; the senior notes have a fixed rate. The refinancing generated a $5.3 million debt-extinguishment loss. Debt covenants were met at quarter-end.
- Cash interest-rate exposure is material: the filing estimates each 1 percentage-point rate change would affect annual interest expense by approximately $6.5 million on the term loan balance. The company reported no hedging activity.
Outlook, risks and unusual items
- Management said COVID-19 would likely continue to affect results into Q2 2021. It expected 2021 Commercial Services revenue might not return to pre-pandemic levels; Government Solutions speed-program growth was expected to continue, while school-related and other programs remained exposed to pandemic effects. No numerical earnings or revenue guidance was provided.
- NYCDOT represented 24.4% of Q1 revenue and 63% of accounts receivable at March 31. The company disclosed approximately $121.0 million of outstanding NYCDOT receivables, including $41.3 million under the legacy contract (of which $33.1 million was past the 45-day terms) and $79.4 million invoiced under the emergency contract, for which no payments had been received. The company said administrative and contract-registration hurdles delayed payment, deemed the amounts collectible, and warned that delayed resolution could materially harm results and liquidity.
- The company was pursuing the acquisition of Redflex for A$152.5 million, approximately $112.9–$117.9 million at the filing’s stated exchange-rate basis. Shareholders and an Australian court had approved the transaction, but Saudi regulatory approval remained outstanding; failure to obtain it by August 13, 2021 would prevent closing. Management intended to use refinancing proceeds and cash on hand in part to fund the acquisition.
- The New York City Law Department investigation into installation matters had concluded; the company reached an agreement in principle to resolve it for approximately $1.3 million, subject to final administrative approvals. The company stated the installation issues did not affect camera operations or program effectiveness.
- The Q1 financial statements include a restatement related to accounting for private placement warrants. The filing says the Q1 2020 restatement increased reported net income by $15.5 million and had no net cash-flow impact. In addition, disclosure controls were ineffective at March 31 because of a previously disclosed material weakness; management expected remediation by the June 30, 2021 reporting period, subject to testing.
Important facts for investors to verify
- Whether and when NYCDOT pays the approximately $121.0 million receivable, and the collectibility, aging and reserve treatment of those balances.
- Whether the Redflex acquisition closes, the final funding requirements, and the status of Saudi regulatory approval.
- Commercial Services recovery trends, especially rental-car volumes, and whether Government Solutions camera installations offset pandemic-related weakness.
- Debt service capacity and exposure to variable rates, particularly after the refinancing and any acquisition funding.
- Completion and effectiveness of controls remediation, and the implications of the warrant-accounting restatement for reported comparatives.