Verra Mobility Corporation — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 2, 2020. Verra Mobility provides toll and violations management, vehicle title and registration, and automated traffic-safety enforcement services. It reports Commercial Services and Government Solutions. The 2018 Business Combination is accounted for as a reverse acquisition; the 2019 and 2018 annual periods are presented as successor periods.
Financial results and liquidity
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Total revenue | $448.7 million | $370.1 million | Up 21.2% |
| Operating income | $96.5 million | $12.6 million | Up $83.8 million |
| Net income (loss) | $33.3 million | $(58.4) million | Improved $91.7 million |
| Adjusted EBITDA (non-GAAP) | $241.4 million | $197.6 million | Up 22.2% |
| Adjusted EBITDA margin | 53.8% | 53.4% | Up 0.4 percentage points |
| Cash from operating activities | $133.8 million | $46.0 million | Up $87.8 million |
Operating margin was 21.5%, compared with 3.4% in 2018; net margin was 7.4%, versus a 15.8% net loss margin. Adjusted EBITDA is a company-defined non-GAAP measure and should not be treated as cash flow or a substitute for GAAP results.
- Revenue mix: Service revenue was $416.7 million, up 14.1%; product sales were $32.0 million, up from $5.1 million, primarily from equipment sales to one customer expanding a school-zone speed program.
- Segments: Commercial Services revenue was $276.5 million, up 24.2%, including $21.6 million from acquisitions and growth in tolling volumes. Government Solutions revenue was $172.3 million, down 1.6%, including product sales; its service revenue fell $2.2 million.
- Cash and liquidity: Cash and cash equivalents were $131.5 million, versus $65.0 million. Current assets were $272.4 million and current liabilities $104.9 million. The company reported $63.5 million of available revolver capacity, net of letters of credit, with no revolver borrowings.
- Debt: First-lien term-loan principal was $894.4 million; balance-sheet debt, net of discounts, financing costs and current portion, was $837.7 million long-term plus $28.8 million current. Interest expense was $60.7 million, and the year-end loan rate was 5.5%. Substantially all assets secure the debt; the company reported covenant compliance.
- Cash uses: Investing activities used $55.0 million, including the Pagatelia acquisition; purchases of property, equipment and service parts were $29.7 million. Financing activities used $14.5 million, mainly for $9.1 million of scheduled debt repayments and $5.0 million of employee tax withholding related to vested stock units.
Material changes and unusual items
- Revenue growth reflected a full year of HTA and EPC results in 2019, compared with partial-year contributions in 2018, as well as higher tolling volumes. The 2019 Pagatelia acquisition expanded European tolling and parking services.
- Net income improved in part because 2018 included $97.1 million of acquisition, refinancing, transaction and integration-related expenses, including a $26.5 million debt-extinguishment loss. FY2019 included a $5.9 million impairment charge after Texas legislation prohibited most red-light camera programs.
- Government Solutions service revenue was affected by lost Florida and Texas red-light programs and the exit from a street-light maintenance offering. Speed-program growth, including additional installed systems, partly offset those declines.
- In February 2020, after year-end, the company refinanced its $894.4 million first-lien term loan, reducing its LIBOR margin by 50 basis points to LIBOR plus 3.25%; maturity remained February 28, 2025. It expected a roughly $19.7 million mandatory excess-cash-flow debt prepayment in Q1 2020.
- In January 2020, the $15.50 share-price earn-out threshold was met, resulting in 2.5 million additional shares issued to the Platinum Stockholder. A further 7.5 million shares remained potentially issuable at year-end 2019; a later tranche is contingent on share-price thresholds or qualifying change of control.
Outlook, risks and contingencies
The filing provides no consolidated revenue or earnings guidance. Management stated it anticipated continued product-sales growth in FY2020 and described growth opportunities in electronic tolling, school-zone speed enforcement and European expansion. New York City had issued a notice to proceed for 720 additional school-zone camera systems and planned installations through 2020.
- Key business risks include reliance on major rental-car and government customers, changes to laws or public support affecting tolling and photo enforcement, government contract termination and funding risks, competition, cybersecurity and privacy compliance, and acquisition integration and international expansion.
- Revenue concentration was significant: Hertz represented 18.7% of 2019 revenue; Avis Budget Group and Enterprise Holdings represented 14.5% and 13.5%, respectively. New York City DOT contributed 14.6%.
- The company disclosed a material weakness in IT general controls over user access to certain systems supporting financial reporting. Management concluded internal control over financial reporting and disclosure controls were ineffective at year-end; the auditor issued an adverse opinion on internal control. The weakness did not result in a reported financial-statement misstatement. Remediation was underway, with completion expected by the end of 2020.
- The company reported ordinary-course legal and regulatory matters and said their resolution was not probable to materially affect results, cash flows or financial position; outcomes remain uncertain. It reported no material off-balance-sheet financing arrangements.
Investor facts to verify
- How much of reported revenue and growth is recurring service revenue versus equipment sales, particularly sales tied to one customer?
- Whether Commercial Services customer concentration and Government Solutions contract renewals remain stable, and how Texas and Florida program losses affect future results.
- Progress on remediation and independent testing of the IT access-control material weakness.
- Debt repayment, interest-rate exposure, the impact of the February 2020 refinancing, and the expected excess-cash-flow prepayment.
- Actual installation pace and economics for New York City’s camera expansion, and the realization of benefits from Pagatelia and broader European growth.