Verra Mobility Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results compare with the corresponding 2021 periods. Verra Mobility provides commercial toll and violation management, government traffic-enforcement, and parking technology solutions. The company reported three segments: Commercial Services, Government Solutions, and Parking Solutions.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $197.7 million | $162.1 million | $555.5 million | $380.6 million |
| Operating income | $45.5 million | $41.9 million | $122.7 million | $75.1 million |
| Net income | $24.6 million | $27.3 million | $64.3 million | $22.4 million |
| Diluted earnings per share | $0.15 | $0.14 | $0.38 | $0.14 |
| Operating margin | 23.0% | 25.8% | 22.1% | 19.7% |
| Net margin | 12.4% | 16.8% | 11.6% | 5.9% |
Q3 service revenue rose 27.4% to $180.6 million, while product sales fell 16.0% to $17.0 million. For the nine months, service revenue increased 48.3% to $516.3 million and product sales increased 20.4% to $39.3 million. Nine-month segment profit was $159.5 million in Commercial Services, $85.1 million in Government Solutions, and $10.3 million in Parking Solutions; the company revised its segment-profit presentation in Q3 and recast prior periods.
Cash flow, liquidity and debt
- Cash from operations for the first nine months was $148.8 million, up from $129.3 million. Investing activities used $36.4 million; financing activities used $159.5 million, including $125.1 million of share repurchases and repayment of the $25.0 million revolver balance.
- Cash and cash equivalents were $51.6 million at September 30, 2022, with an additional $4.1 million restricted. Cash, including restricted cash, declined $48.8 million from the start of the year.
- Debt carrying value was $1.213 billion before unamortized discounts and financing costs; the balance sheet reported $1.204 billion of long-term debt, net of current portion, and $9.0 million current. Principal included an $888.4 million variable-rate term loan and $350.0 million of fixed-rate notes.
- The term loan rate was 6.1% at quarter-end; the notes bear 5.50% interest. Management estimated that a 1 percentage-point change in rates would change annual interest expense by approximately $8.9 million. No hedging was in place.
- The $75 million revolver had $72.1 million available, net of letters of credit. The company reported covenant compliance. Management said cash, operating cash flow and revolver access should cover operating needs and debt service for at least 12 months.
Changes, outlook and notable items
- Nine-month revenue increased $174.9 million year over year. Management attributed about $96.2 million of growth to the 2021 Redflex and T2 Systems acquisitions; the remainder was mainly stronger travel and tolling activity and expansion of Government Solutions speed programs. T2 Systems created the Parking Solutions segment, with no comparable 2021 segment revenue.
- Nine-month net income rose $41.9 million. In contrast, Q3 net income fell $2.7 million year over year, as higher interest expense and costs—including costs from T2 Systems—more than offset operating-income growth.
- Interest expense increased to $49.0 million for nine months from $32.5 million, reflecting higher average debt and variable rates. Operating cash flow increased, but growth in receivables and inventory was a use of cash.
- The SBA forgave Redflex’s PPP loan in September, producing a $3.0 million gain. Share repurchases totaled $125.0 million during the first nine months; the second accelerated repurchase was expected to receive final settlement in Q4 2022.
- No formal financial guidance is stated in the provided filing text. Management described continued organic growth and expansion into adjacent markets through innovation and acquisitions. Future results remain subject to economic conditions, customer and government-contract risks, technology and competition, acquisition integration, cybersecurity, and substantial indebtedness.
- Customer concentration is notable: New York City DOT accounted for 20.5% of Q3 revenue and 29% of net receivables at quarter-end. Hertz and Avis each exceeded 10% of Q3 revenue; Enterprise also exceeded 10%.
- Disclosure controls and procedures were deemed ineffective because previously reported material weaknesses in internal control over financial reporting had not been remediated. Remediation included improving revenue-recognition controls for acquisitions, staffing and training, and validating financial-reporting data.
- PlusPass antitrust litigation was ongoing, with trial set for September 2023; the company said it would defend the claims. In the Brantley camera-program class action, the company could not reasonably estimate a loss and recorded no liability. The filing states pending matters were not considered probable to have a material adverse impact, while acknowledging litigation uncertainty.
- Non-cancelable vendor purchase commitments were $39.3 million. The filing reported no material off-balance-sheet financing arrangements.
Important facts for investors to verify
- How much reported growth is recurring and organic versus attributable to Redflex and T2 Systems, and whether acquisition integration delivers expected performance.
- Whether receivables and credit losses remain manageable, particularly given New York City DOT’s share of receivables and the allowance for credit losses of $17.7 million.
- Exposure to variable-rate debt, future interest costs, mandatory excess-cash-flow prepayments, and continued covenant compliance.
- Progress in remediating the disclosed material weaknesses and the results of the year-end internal-control assessment.
- Final settlement of the second accelerated share repurchase, the effect of repurchases on liquidity, and developments in the PlusPass and Brantley proceedings.