Verra Mobility Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise noted. Verra Mobility provides tolling and violation management, traffic enforcement, and parking technology and services through Commercial Services, Government Solutions, and Parking Solutions.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $191.9 million | $170.4 million | +12.6% |
| Service revenue | $184.7 million | $161.1 million | +14.6% |
| Product sales | $7.2 million | $9.3 million | −22.1% |
| Operating income | $50.1 million | $32.0 million | +56.5% |
| Operating margin | 26.1% | 18.8% | +7.3 percentage points |
| Net income | $4.6 million | $10.0 million | −54.4% |
| Diluted EPS | $0.03 | $0.06 | Lower |
| Cash provided by operating activities | $45.2 million | $31.2 million | +$14.0 million |
| Cash used in investing activities | $19.6 million | $11.9 million | Higher use |
| Cash used in financing activities | $66.6 million | $28.7 million | Higher use |
Revenue growth reflected higher travel and tolling activity and greater adoption of all-inclusive offerings in Commercial Services, plus expanded speed-enforcement programs in Government Solutions. Service revenue grew 16.6% in Commercial Services, 13.7% in Government Solutions, and 9.6% in Parking Solutions. Product sales declined mainly because of lower Government Solutions equipment sales.
Operating income improved as revenue growth and lower depreciation and amortization more than offset higher operating expenses. Operating expenses rose 21.1%, primarily from wages, recurring service costs, and subcontractors. Net income fell despite higher operating income, reflecting increased interest expense, a larger warrant remeasurement loss, swap expense, debt-extinguishment costs, and a higher effective tax rate. The $14.6 million warrant loss is a fair-value adjustment recorded in earnings.
Segment profit, the company’s operating measure before depreciation, amortization and stock-based compensation and certain other items, was $87.9 million versus $75.3 million: Commercial Services $53.6 million, Government Solutions $31.5 million, and Parking Solutions $2.9 million.
Balance sheet, debt, and liquidity
At March 31, 2023, cash and cash equivalents were $64.3 million, restricted cash was $3.6 million, and total current assets were $332.4 million. Total assets were $1.711 billion and stockholders’ equity was $237.1 million.
Total debt carrying value was $1.150 billion, comprising the term loan and senior notes; principal outstanding was $821.4 million on the term loan and $350.0 million on the notes. The company repaid $62.5 million early on the term loan during the quarter and made a further $10.0 million repayment on May 2, 2023. The term loan’s reported all-in rate was 8.17% at quarter-end; the notes bear fixed interest of 5.50%. Interest expense rose to $22.7 million from $14.3 million. A $675 million-notional interest-rate swap hedges some variable-rate exposure. Management estimated that a 1% interest-rate movement would change annual interest expense by approximately $8.2 million, based on the quarter-end term-loan balance.
The $75 million revolving facility had no borrowings and $74.8 million available, net of letters of credit. The company reported compliance with debt covenants. Cash, cash equivalents, and restricted cash totaled $67.8 million at quarter-end, down $41.3 million from year-end. Management said cash, operating cash flows, and revolver availability should meet operating needs and debt service for at least the next 12 months, while noting future performance and capital needs are subject to uncertainty.
Material developments, outlook, and risks
- The term loan was amended in March 2023 to transition from LIBOR to Term SOFR. The company also made early principal repayments and recognized a $1.3 million loss from writing off related debt discounts and financing costs.
- The effective tax rate was 63.2%, compared with 40.4% in Q1 2022; the filing attributes the increase primarily to permanent tax differences from private-placement warrant mark-to-market adjustments.
- No specific numerical revenue, earnings, or cash-flow guidance is provided in the filing.
- Risks highlighted include substantial indebtedness and interest-rate exposure; customer concentration; dependence on government contracts and possible delays, audits, or termination; competition and technology changes; cyber and third-party-provider risks; and litigation and regulatory matters.
- The City of New York Department of Transportation represented 17.8% of quarterly revenue and 26% of net accounts receivable at March 31, 2023. Hertz, Avis Budget, and Enterprise each represented more than 10% of quarterly revenue.
- In the PlusPass antitrust case, discovery was underway and trial was set for November 2023. The company said it believes the claims are without merit; it could not estimate a loss range for a separate Brantley class action and recorded no liability for that matter. The filing states pending matters were not considered probable to have a material adverse effect, but litigation outcomes remain uncertain.
- The company reported no material changes to the risk factors in its 2022 Form 10-K, no material off-balance-sheet financing arrangements, and effective disclosure controls and internal control over financial reporting as of March 31, 2023.
Important facts for investors to verify
- Whether service-revenue growth and segment profitability persist, particularly as travel volumes and government enforcement programs evolve.
- How rising or changing benchmark rates affect interest expense, including the hedge’s coverage, cost, and termination options.
- Debt repayment plans, covenant headroom, and the availability of the revolving facility; substantially all assets secure the term loan.
- The collectability and timing of NYCDOT receivables, given its share of accounts receivable, and the company’s broader customer concentration.
- Potential outcomes and financial exposure from the PlusPass and Brantley litigation, and the remaining warrant and earn-out share obligations.