VERRA MOBILITY Corp quarterly report, Q2 FY2018

Business context and reporting period

Gores Holdings II, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2018. Although the filing concerns the proposed Verra Mobility transaction, the registrant was a blank-check SPAC, not an operating mobility business; it reported no operating revenue or operations before a business combination.

Financial results and liquidity

Compared with 2017, second-quarter net results swung from $541,944 income to a $1.55 million loss, principally as professional and other expenses rose to $3.41 million from $140,899. Six-month results swung from $693,540 income to a $746,385 loss; expenses increased while interest income also rose.

At June 30, cash outside the trust was $168,794, versus $826,201 at year-end 2017. Trust assets were $404.61 million, predominantly U.S. Treasury bills. Working capital was negative $2.67 million, compared with positive $763,663 at year-end; current liabilities rose to $3.10 million from $198,119, largely reflecting accrued deal-related professional and advisory costs. Total liabilities were $17.10 million, including $14 million of deferred underwriting compensation payable only if a business combination closes. The company reported no long-term debt obligations. Operating cash flow was positive despite the loss, largely because accrued expenses increased.

Proposed transaction, outlook and risks

• On June 21, 2018, Gores Holdings II agreed to acquire Greenlight Holding II Corporation through a two-step merger. The filing estimates aggregate merger consideration of approximately $2.3 billion, based on assumed net indebtedness of about $852 million after partial repayment; consideration and adjustments depend on transaction terms and closing balances.
• Investors agreed to buy 43,478,261 Class A shares at $9.20 each, for expected gross proceeds of approximately $400 million to help fund cash consideration. The placement depends on the business combination closing. The sponsor also agreed to cancel 3,478,261 founder shares.
• Eligible Greenlight stockholders may receive earn-outs of up to 10 million shares if specified share-price thresholds are achieved during the five years after closing. A proposed tax receivable agreement would generally give the Platinum Stockholder 50% of specified realized or deemed tax savings.
• The company had until January 19, 2019 to complete a business combination; otherwise it was required to wind up and redeem public shares, and warrants would expire worthless. Public-share redemptions, closing cash conditions, deal completion and available operating funds are material uncertainties.
• Management said it believed available funds were sufficient to pursue a combination by the deadline, but cautioned that costs could exceed estimates. Trust funds were generally restricted pending a combination or specified redemption events. The filing states no material changes to the previously reported risk factors, no legal proceedings, and no material change in internal control; management judged disclosure controls effective.

Key facts for investors to verify

• Whether the merger and related $400 million private placement closed, and the final consideration, financing and redemption levels.
• Final target net debt, closing working capital and cash adjustments versus the filing’s approximately $852 million assumed net debt.
• Cash available outside the trust, continuing accrued transaction costs, and the effect of redemptions on liquidity and closing conditions.
• Final earn-out terms and the tax receivable agreement’s actual potential payments and realized tax benefits.
• Current status of any subsequent disclosures and transaction-related risks; this filing’s financial statements describe the SPAC, not Verra Mobility’s operating performance.