Verra Mobility Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted. Verra Mobility provides commercial toll and violation management, government traffic-enforcement, and parking technology services. The 2022 results include Redflex and T2 Systems for more of the period than the 2021 comparison; Parking Solutions was added following the December 2021 T2 acquisition.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $187.5 | $128.7 | $357.9 | $218.5 |
| Operating income | $45.2 | $31.5 | $77.2 | $33.3 |
| Net income (loss) | $29.6 | $4.0 | $39.7 | $(4.9) |
| Operating margin | 24.1% | 24.5% | 21.5% | 15.2% |
| Net margin | 15.8% | 3.1% | 11.1% | (2.3)% |
| Diluted earnings (loss) per share | $0.15 | $0.02 | $0.23 | $(0.03) |
- Q2 revenue increased 45.7% year over year; six-month revenue increased 63.8%. Growth reflected acquisitions and higher travel and toll activity, as well as expansion of government speed-enforcement programs.
- Q2 service revenue was $174.5 million and product sales were $13.0 million. Q2 revenue by segment was Commercial Services $84.9 million, Government Solutions $83.5 million, and Parking Solutions $19.1 million.
- Six-month operating cash flow was $96.4 million, versus $37.5 million in 2021. Investing activities used $23.3 million, primarily for equipment and service parts. Financing activities used $86.5 million, including share repurchases and repayment of revolver borrowings.
- At June 30, cash and cash equivalents were $86.4 million; current assets were $348.4 million and current liabilities $165.5 million. Restricted cash was an additional $4.2 million.
- Debt carrying amount was $1.217 billion, including $890.6 million principal on the term loan, $350.0 million senior notes, and a $2.9 million PPP loan. The revolver was undrawn, with $68.8 million available after letters of credit. The company reported compliance with debt covenants.
Changes and management commentary
- Commercial Services Q2 service revenue rose 27.7%, mainly from increased rental-car and fleet tolling activity, higher pricing, and a shift toward all-inclusive fees.
- Government Solutions Q2 service revenue rose 49.5%; Redflex contributed approximately $13.9 million of the increase, with organic growth attributed mainly to school-zone speed programs and recovery in variable-rate programs.
- Parking Solutions contributed $19.1 million of Q2 revenue following the T2 Systems acquisition; it had no comparable-period revenue.
- Management reported that existing cash, operating cash flow, and revolver availability should be sufficient for operating needs and debt service for at least the next 12 months. No specific earnings or revenue guidance is provided in the filing.
- In May, the board authorized up to $125 million of repurchases over 12 months. The company paid $50 million for an accelerated share repurchase and paid $5.2 million for open-market repurchases during Q2; total Q2 repurchases were $55.3 million. Final settlement of the accelerated repurchase was expected in Q3.
Risks, contingencies, and unusual items
- The term loan is variable-rate and carried a 6.1% rate at June 30, up about 250 basis points from March 31. Management estimates that a 1% rate movement would change annual interest expense by approximately $8.9 million; the company reported no hedging activity.
- Customer concentration is material: New York City DOT accounted for 18.6% of Q2 revenue and 25% of accounts receivable at June 30. Hertz and Avis each exceeded 10% of Q2 revenue. Management considered the NYCDOT receivable collectible and reported no material reserve against it.
- The company reported disclosure controls and procedures were ineffective because previously identified material weaknesses in internal control over financial reporting had not been remediated. Remediation includes controls over acquired-business revenue recognition and reporting data; completion and effectiveness remain to be demonstrated.
- Pending matters include a PlusPass antitrust lawsuit, with trial set for September 2023, and the Brantley class action concerning a Redflex-supported traffic-camera program. The company said it could not estimate a loss range for Brantley and recorded no liability for it; it stated pending matters were not expected to have a material adverse impact, while noting litigation outcomes are uncertain.
- Non-cancelable vendor purchase commitments totaled $46.4 million. A $2.9 million Redflex PPP loan remained outstanding while forgiveness awaited SBA approval; its maturity had been extended to September 2022.
- Net income benefited from a $6.6 million Q2 gain on remeasurement of private-placement warrant liabilities. Six-month results also reflect a $2.9 million warrant fair-value gain; these are valuation items, not operating cash inflows.
Investor verification priorities
- Separate organic growth from Redflex and T2 acquisition contributions, and assess ongoing segment profitability and integration costs.
- Monitor NYCDOT receivable collection, customer concentration, and the allowance for credit losses, which increased to $17.1 million from $12.1 million at year-end.
- Track variable-rate debt costs, covenant headroom, revolver availability, and the effects of required excess-cash-flow prepayments.
- Confirm final accelerated-repurchase settlement, remaining repurchase activity, and the resulting cash and share-count effects.
- Follow remediation and testing of the disclosed material weaknesses, and developments in the PlusPass and Brantley litigation.