Business context and reporting period
This is Gores Holdings II, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2017—not an operating-company filing under the name Verra Mobility. Gores Holdings II was a blank-check company formed to pursue a business combination. It completed its $400 million IPO on January 19, 2017 and reported that it had not identified a target or begun substantive discussions with one as of quarter-end.
Financial results and liquidity
| Metric | Quarter ended March 31, 2017 / quarter-end |
|---|---|
| Revenue | $0 |
| Operating expenses | $184,970, including $139,970 of professional fees and other expenses and $45,000 of state franchise taxes |
| Interest income | $336,567 |
| Net income | $151,597; basic and diluted earnings per share were $0.01 for Class A and $(0.00) for Class F |
| Trust Account | $400,335,394, including $400,333,840 in U.S. Treasury bills and $1,553 in cash |
| Cash outside Trust Account | $1,236,089 |
| Current liabilities / working capital | $431,965 / $1,078,598 |
| Debt | No long-term debt reported; $150,000 of sponsor notes were repaid at the IPO closing |
Net cash provided by operating activities was $59,273. Investing activities used $400.3 million, principally the Trust Account deposit; financing activities provided $401.5 million. The company reported no operating business or operating revenue, so operating margins are not meaningful. Trust funds are generally restricted pending a business combination, qualifying redemptions, or liquidation.
Material changes versus prior period
The IPO and private placement significantly changed the balance sheet from December 31, 2016: total assets rose from $418,227 to $401.8 million, with $400.3 million held in trust. Cash outside the trust rose from $3,185 to $1.24 million. Working capital moved from a deficit of $15,959 to a surplus of $1.08 million. The quarter’s results have no comparable prior-year quarter figures in the supplied filing; the company’s activity largely reflected its formation, IPO, and target search.
Outlook, risks and unusual items
- The company had until January 19, 2019—24 months after the IPO closing—to complete a business combination. If it failed, it generally was required to redeem public shares and liquidate; warrants would expire worthless.
- Management said it believed available funds were sufficient to pursue a transaction, but warned that higher-than-estimated search, due-diligence, and negotiation costs could leave insufficient operating cash. It also said additional financing might be needed to complete a transaction or meet obligations afterward.
- Of the $400 million IPO proceeds, $14 million of underwriting compensation was deferred and payable only if a business combination closes. The company also agreed to pay an affiliate $20,000 monthly for administrative services until a combination or liquidation.
- Public shares are redeemable, subject to a $5,000,001 net tangible asset floor; 38,241,399 of the 40 million public shares were classified outside permanent equity at $10 per share.
- The filing reported no legal proceedings, no material changes to the risk factors in the March 30, 2017 Form 10-K, effective disclosure controls, and no material subsequent events requiring disclosure.
Important facts for investors to verify
- Confirm the issuer and filing: the supplied 10-Q is for Gores Holdings II, Inc., not Verra Mobility.
- Verify the status, deadline, and terms of any contemplated business combination; none had been identified as of March 31, 2017.
- Assess accessible cash separately from the $400.3 million restricted Trust Account and consider potential redemptions and the deferred underwriting fee.
- Reconcile the MD&A statement referring to “$14,000,000” of deferred offering costs with the balance sheet and notes, which identify $14 million as deferred underwriting compensation.
- Review the filed 10-K risk factors and transaction documents for redemption, warrant, financing, and liquidation terms.