Business context and reporting period
This Form 10-Q covers the three and nine months ended September 30, 2018, before the business combination. At that time, the registrant was Gores Holdings II, a blank-check company that had not begun operations or generated operating revenue. The business combination with Greenlight Holding II Corporation closed on October 17, 2018; the registrant then changed its name to Verra Mobility Corporation. Accordingly, the historical results below are those of the pre-combination entity, not Verra Mobility’s acquired operating business.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Net income (loss) | ($692,489) | $254,684 | ($1,438,874) | $948,225 |
| Interest income | $1,491,487 | $983,012 | $4,489,039 | $2,047,422 |
| Operating expenses and franchise taxes | $2,183,976 | $180,746 | $5,909,419 | $551,615 |
- At September 30, 2018, cash outside the trust was $7,533; trust investments and cash totaled $405,993,367. Current liabilities were $4,942,958 and working capital was negative $4,739,108, versus positive working capital of $763,663 at December 31, 2017.
- For the first nine months of 2018, operating activities provided $2,033,884 of cash; investing activities used $3,257,552, principally from reinvested trust interest; financing activities provided $405,000. Cash decreased by $818,668.
- The pre-combination entity reported no long-term debt or other long-term contractual obligations at September 30. This should not be confused with the acquired business’s debt at closing: the transaction disclosure cites approximately $852 million of assumed net indebtedness after partial repayment.
- Operating margins are not meaningful for the historical registrant because it reported no revenue and was not operating the acquired business.
Changes, transaction and pro forma information
- Compared with the prior-year periods, professional and other expenses increased materially, and the registrant moved from net income to net loss. Higher trust interest income partly offset those expenses.
- The combination consideration included approximately $610 million cash and 66,381,911 newly issued Class A shares. Separately, investors purchased 43,478,261 shares at $9.20 each in a private placement, generating approximately $400 million to help fund the cash consideration. The filing describes aggregate consideration of approximately $2.3 billion, including trust and private-placement proceeds, rollover indebtedness and stock consideration.
- At closing, $406,591,570 was withdrawn from the trust to fund the combination, transaction costs and share redemptions. 325,269 shares were redeemed at an average price of $10.16 each.
- Unaudited pro forma results assuming the combination had occurred at the start of each nine-month period show 2018 revenue of $275.0 million and operating income of $31.8 million, versus 2017 revenue of $168.9 million and an operating loss of $3.1 million. Pro forma net loss was $13.2 million in 2018 and $10.0 million in 2017; basic and diluted loss per share was $0.08 and $0.06, respectively. These are pro forma figures, not reported historical results of the registrant.
Outlook, risks and unusual items
- The filing provides no quantitative forward guidance. Management’s forward-looking statements address potential combination benefits, future financial performance, markets and expansion, and are subject to risks and uncertainties; no assurance is given that expected developments will occur.
- A tax receivable agreement requires payment to the former Greenlight stockholder of 50% of certain realized or deemed tax savings. The filing estimates the obligation at approximately $73 million.
- Eligible Greenlight stockholders may receive up to 10 million additional shares if specified stock-price thresholds are met during the five years after closing; the estimated fair value of the contingent shares was approximately $71.4 million.
- The $14 million deferred underwriting discount was payable upon and paid at the combination closing. The filing refers investors to risk factors in the prior Form 10-K and October 2, 2018 proxy statement and reports no other material changes to those risk factors. No legal proceedings or off-balance-sheet arrangements were reported. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Distinguish pre-combination actual financial statements from the pro forma operating results for Greenlight and the combined company.
- Review the final closing statements, including cash paid, redemptions, shares issued, transaction costs and the amount and terms of debt assumed or refinanced.
- Assess the acquired business’s subsequent reported revenue, profitability, cash generation, debt and liquidity; this filing does not provide actual post-combination operating results.
- Confirm the terms, timing and potential cost of the tax receivable agreement and contingent earn-out shares.
- Evaluate the referenced risk factors and transaction assumptions; the filing does not provide a standalone operating-company forecast.