Verra Mobility Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Verra Mobility provides toll and violation management, traffic safety enforcement, and related mobility services to commercial fleets, rental-car companies, and government customers. Unless noted otherwise, figures below are in U.S. dollars.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $128.7M | $79.8M | $218.5M | $196.5M |
| Operating income (loss) | $31.5M | $(7.0)M | $33.3M | $12.5M |
| Net income (loss) | $4.0M | $(23.7)M | $(4.9)M | $(1.6)M |
| Operating margin | 24.5% | (8.7)% | 15.2% | 6.3% |
| Operating cash flow | Not separately provided | Not separately provided | $37.5M | $22.5M |
Q2 service revenue rose 85.3% to $116.4M, while product sales declined 28.0% to $12.2M. For the first half, service revenue increased 27.0% to $206.2M, but product sales fell 64.0% to $12.3M. Management attributed service growth mainly to recovery in rental-car travel and expansion of photo-enforcement programs; product-sales declines reflected installation timing for a customer’s school-zone program. Q2 net margin was 3.1%, versus (29.7)% a year earlier; first-half net margin was (2.3)%, versus (0.8)%.
- Segments: Q2 revenue was $66.5M in Commercial Services and $62.2M in Government Solutions. First-half revenue was $112.2M and $106.3M, respectively. The company’s segment-profit measure was $64.9M in Q2 versus $27.0M, and $100.8M for the first half versus $81.4M; this is a company-defined measure, not GAAP operating income.
- Cash and liquidity: June 30 cash and cash equivalents were $147.3M, plus $3.2M restricted cash. Current assets were $421.6M and current liabilities $106.7M. The company generated $37.5M operating cash flow and used $115.1M in investing activities, principally for Redflex. It reported $57.0M available under its revolver, with no revolver borrowings.
- Debt: Book debt totaled $975.5M, including $648.4M under the 2021 term loan, $350.0M principal of Senior Notes, and a $2.9M Redflex PPP loan, before discounts and financing costs. The term loan matures in 2028 and bore 3.4% interest at quarter-end; the 2029 Senior Notes carry a fixed 5.50% coupon. The company reported covenant compliance.
Material changes and significant transactions
- Revenue recovery versus the pandemic-affected prior-year quarter drove a return to operating and net income in Q2. Active camera systems, excluding Redflex, averaged 5,966 in Q2 versus 3,293 a year earlier.
- On June 17, 2021, Verra Mobility acquired Redflex for approximately $117.9M, expanding Government Solutions and its international reach. Redflex results were included only from the acquisition date and were described as not material to reported results. Preliminary purchase accounting included $55.2M of goodwill.
- In March, the company refinanced its prior $865.6M term loan with a $650M term loan and $350M of Senior Notes. First-half results included a $5.3M debt-extinguishment loss. Interest expense was $11.7M in Q2 and $20.8M for the first half.
- Comparative financial statements were restated for private-placement warrant accounting. The remeasurement created non-cash gains or losses in earnings; the filing states there was no cash-flow impact.
Outlook, risks, and unusual items
- Outlook: No numerical revenue or earnings guidance is provided. Management said it expects existing cash, operating cash flows, and revolver availability to cover operating needs and debt service for at least the next 12 months. It expects speed-program revenue growth to continue into future quarters.
- NYCDOT receivables: New York City DOT accounted for 59% of net accounts receivable, with $127.0M outstanding at June 30; $101.8M was past the contract’s 45-day terms. The company collected $28.1M in Q2, but the balance increased about $6M during the quarter. Management considered the receivables collectible and recorded no material reserve, while warning payment timing and resolution remain uncertain and could materially affect results.
- Customer and operating risks: Commercial Services revenue is concentrated among major rental-car partners; Government Solutions depends on government contracts and enforcement programs. The filing also identifies COVID-19 impacts, customer payment delays, competition, technology and cybersecurity risks, and risks associated with acquisitions.
- Contingencies: The company accrued approximately $1.3M to resolve a New York City investigation concerning installation work, subject to final approvals. A class action involving Redflex’s former camera program was certified; the appeal remained pending and the company could not estimate a loss. A separate antitrust suit by PlusPass continued, with the court’s final ruling on a motion to dismiss awaited at the filing date.
- Other unusual items: The six-month effective tax rate was 549.6%, primarily due to permanent tax differences from warrant fair-value accounting, and should not be read as a normalized rate. A $100M share-repurchase authorization over 12 months was approved July 29, 2021, after quarter-end; execution is discretionary and not guaranteed. Management reported that the previously disclosed material weakness related to warrant classification had been remediated and disclosure controls were effective.
Investor facts to verify
- Collections and aging of the $127.0M NYCDOT receivable, and whether the city’s payment pattern improves.
- Redflex integration, purchase-accounting finalization, and its contribution beyond the brief post-acquisition period included in Q2.
- Debt service capacity, variable-rate exposure (a 1 percentage-point rate change would change annual interest expense by approximately $6.5M), and covenant headroom.
- Whether cash generation supports the new $100M buyback while funding acquisition needs and debt obligations.
- Developments in the NYC camera-program litigation and investigation-related matters, plus the continuing effects of the warrant restatement and non-cash fair-value swings.