Business context and reporting period
This Form 10-Q is filed by Gores Holdings II, Inc., a blank-check company—not under the name Verra Mobility shown in the request metadata. It covers the quarter and nine months ended September 30, 2017. The company completed its $400 million public offering in January 2017 and was formed to pursue a business combination; it had no operating business or revenue during the period.
Financial performance and position
| Metric | Three months ended September 30, 2017 | Nine months ended September 30, 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses and state franchise taxes | $180,746 | $551,615 |
| Interest income | $983,012 | $2,047,422 |
| Income tax provision | $547,582 | $547,582 |
| Net income | $254,684 | $948,225 |
Net income was generated by interest earned on trust assets, not operating activity. Operating margins are not meaningful because the company had no revenue.
At September 30, 2017, total assets were $402.9 million, including $402.0 million in the trust account, and unrestricted cash was $626,193. Current liabilities were $109,538; working capital was $717,660. Total liabilities were $14.7 million, including $14.0 million of deferred underwriting compensation payable only if a business combination closes. The filing reports no long-term debt.
For the first nine months, operating activities provided $1.5 million in cash, investing activities used $402.0 million as offering proceeds and trust interest were deposited into the trust, and financing activities provided $401.1 million. The trust held $402.0 million, primarily U.S. Treasury bills; the reported effective annualized interest rate was approximately 1.00%.
Changes versus the prior comparable period
Third-quarter net income of $254,684 compares with a net loss of $24,481 for the same three-month period in 2016. Nine-month net income of $948,225 compares with a net loss of $24,481 from inception through September 30, 2016; that prior-period figure covers only the company’s initial period after incorporation, so it is not a full nine-month comparison. The shift to income principally reflects interest earned after the January 2017 offering and trust funding.
Trust assets increased from zero at December 31, 2016 to $402.0 million at September 30, 2017 following the offering. Unrestricted cash rose from $3,185 to $626,193, and working capital improved from a deficit of $15,959 to positive $717,660.
Outlook, risks, and unusual items
- Management said it had reviewed potential opportunities but had not identified a target or begun substantive discussions as of September 30, 2017. It could not assure completion of a business combination.
- The company had until January 19, 2019 to complete a business combination. If it does not, it must wind up and redeem public shares from the trust, subject to taxes, permitted dissolution expenses, and creditor claims; warrants would expire worthless.
- Approximately $626,000 of cash outside the trust was available for working capital, while acquisition-search and due-diligence costs were continuing to accrue. Management warned that actual costs could exceed available funds. Additional financing may be needed for a transaction or subsequent operations.
- Public shareholders may redeem shares in connection with a business combination or specified charter amendments. At quarter-end, 38,321,227 public shares were classified outside permanent equity at $10 per share; redemptions are constrained by a $5,000,001 minimum net tangible asset requirement.
- The $14 million deferred underwriting discount is contingent on completing a business combination. The company also paid $172,258 under its sponsor-affiliate administrative services agreement through September 30, 2017.
- Management reported effective disclosure controls, no material change in internal control over financial reporting, no legal proceedings, and no material changes to the risk factors in its prior annual report. No material subsequent events were reported.
Important facts for investors to verify
- Confirm issuer identity: the supplied filing is for Gores Holdings II, Inc., not Verra Mobility.
- Verify the status and terms of any business-combination target, including whether the company met its January 19, 2019 deadline.
- Assess the amount of unrestricted cash available for operating costs versus trust assets, which were restricted primarily for a business combination or shareholder redemptions.
- Review redemption levels, the $5,000,001 net tangible asset constraint, and the potential effect of shareholder redemptions on transaction funding.
- Confirm the contingent $14 million underwriting fee and other transaction-related costs that may affect funds available at closing.