Business context and reporting period
The filing is a Form 10-Q for the quarter ended March 31, 2018, filed by Gores Holdings II, Inc., a blank-check company formed to pursue a business combination. Although the request identifies Verra Mobility Corp, the supplied filing is not in that company’s name; investors should verify the issuer and filing attribution.
At quarter-end, Gores Holdings II said it had not identified a target or begun substantive discussions with a prospective target. It had no operating business and had generated no operating revenue.
Financial results and position
| Metric | Three months ended March 31, 2018 | Prior comparable period / balance |
|---|---|---|
| Revenue | $0 | $0 in Q1 2017 |
| Operating expenses and state franchise taxes | $264,544 | $184,970 in Q1 2017 |
| Interest income | $1,328,891 | $336,567 in Q1 2017 |
| Net income | $801,904 | $151,597 in Q1 2017 |
| Basic and diluted EPS | Class A: $0.02; Class F: ($0.01) | Class A: $0.01; Class F: ($0.00) |
| Cash and cash equivalents outside trust | $1,671,071 | $826,201 at Dec. 31, 2017 |
| Trust account investments and cash | $402,945,252 | $402,735,815 at Dec. 31, 2017 |
| Working capital | $559,255 | $763,663 at Dec. 31, 2017 |
| Operating cash flow | $1,054,307 provided | $59,273 provided in Q1 2017 |
Net income primarily reflected interest earned on trust assets, not sales or operating activity. Operating cash flow also reflects working-capital movements and should not be read as cash generated by an operating business. The filing reports no meaningful operating margin because revenue was zero.
Total assets were $404.8 million and total liabilities were $15.3 million at March 31, 2018. The company reported no long-term debt. The $14.0 million deferred underwriting compensation is payable only if a business combination is completed. Of the 40 million public Class A shares, 38.45 million were classified outside permanent equity as redeemable shares at $10 per share.
Changes, outlook and risks
- Compared with Q1 2017, net income increased to $801,904 from $151,597, principally as interest income rose; expenses also increased. Cash outside the trust rose from year-end, while working capital declined from $763,663.
- The company had until January 19, 2019, 24 months after its IPO closing, to complete a business combination. If it failed to do so, it would wind up and redeem public shares from the trust, subject to taxes, dissolution expenses and applicable requirements; warrants would expire worthless.
- Management said it believed funds were sufficient to pursue a combination through the deadline, but warned that higher-than-estimated search, due-diligence or negotiation costs could leave insufficient funds for operations. Management gave no specific transaction guidance and could not assure a combination would be completed.
- Trust funds were generally restricted to a business combination or specified redemption/liquidation events. Interest could be withdrawn for taxes and limited regulatory withdrawals. Management stated additional financing might be needed to complete a transaction or meet post-combination needs.
- The filing reported no legal proceedings and no material changes to the risk factors in the 2017 Form 10-K. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Investor verification points
- Confirm whether this Gores Holdings II filing is the intended filing for Verra Mobility Corp; the supplied document identifies Gores Holdings II as the registrant.
- Verify whether a target was identified or a transaction announced after March 31, 2018, and whether the January 19, 2019 deadline was extended or otherwise addressed.
- Assess the availability of trust assets separately from the $1.67 million of unrestricted cash, and review redemption rights, taxes, the $14 million deferred underwriting fee and potential financing needs.
- Reconcile the reported working-capital position and cash burn with continuing search costs; quarterly results are not indicative of a revenue-generating business.