Verra Mobility Corporation — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Comparisons are to the prior-year periods; 2020 figures are identified as restated. Verra Mobility provides toll and violation management, traffic safety enforcement, and related mobility technology through its Commercial Services and Government Solutions segments.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $162.1 million | $96.9 million | $380.6 million | $293.4 million |
| Operating income | $41.9 million | $15.3 million | $75.1 million | $27.7 million |
| Net income | $27.3 million | $11.1 million | $22.4 million | $9.5 million |
| Operating margin | 25.8% | 15.8% | 19.7% | 9.5% |
| Net margin | 16.8% | 11.4% | 5.9% | 3.2% |
- Revenue mix and growth: Q3 service revenue rose 70.9% to $141.8 million and product sales rose 45.6% to $20.3 million. For the nine months, service revenue rose 41.9% to $348.0 million, while product sales fell 32.3% to $32.6 million.
- Cash flow: Nine-month operating cash flow was $129.3 million, versus $44.4 million in 2020; investing cash outflow was $122.4 million, principally reflecting the Redflex acquisition. Financing cash flow was positive $5.3 million. Cash and cash equivalents were $128.2 million at quarter-end, plus $2.9 million restricted cash.
- Liquidity: Current assets were $372.1 million and current liabilities $116.9 million. The company reported $62.2 million available under its revolver, net of letters of credit, with no revolver borrowings outstanding. Management said cash, operating cash flow, and revolver availability should cover operating needs and debt service for at least 12 months.
- Debt: Debt carrying value was $974.8 million, including $9.4 million current. The balance included a $650 million term loan due 2028 and $350 million senior notes due 2029; the 2018 term loan was refinanced in March 2021. Term-loan interest was 3.4% and notes carry a fixed 5.50% rate. The company was compliant with debt covenants; substantially all assets secure the term loan.
Material changes versus prior periods
- Q3 revenue growth reflected recovering rental-car travel, growth in Government Solutions programs, and Redflex, acquired June 17, 2021. Redflex contributed $15.9 million of Q3 Government Solutions service revenue. The company reported an average 8,946 active camera systems in Q3, compared with 3,730 a year earlier.
- Nine-month revenue increased $87.2 million. Management attributed growth to Redflex, recovery in rental-car demand, and expansion in speed and red-light programs. Redflex contributed $22.8 million to nine-month revenue growth overall.
- Nine-month operating expenses and SG&A increased, including from expanded operations, Redflex, and acquisition costs. Redflex-related transaction costs were $9.0 million; the company also reported a $5.3 million debt-extinguishment loss.
- The company spent $100 million of cash to repurchase and retire 6.85 million shares in August. A separate secondary offering by the Platinum Stockholder generated no proceeds for the company.
- Comparative 2020 financial statements were restated for private-placement warrant accounting. The filing reports no cash-flow impact from that restatement.
Outlook, risks, contingencies, and unusual items
- Outlook: No formal numerical earnings or revenue guidance is provided. Management said speed-program revenue growth was expected to continue and cited summer travel seasonality in Commercial Services.
- NYCDOT receivables: NYCDOT represented 46.3% of net accounts receivable at September 30. The filing reports approximately $80.8–$80.9 million outstanding across two contracts, including $49.2 million aged beyond 45-day payment terms. Verra collected $87.5 million from NYCDOT during Q3 and says there is no material reserve, but warns that payment timing and resolution remain uncertain and could adversely affect results. The filing’s stated total varies slightly by section.
- Customer and operating risks: Commercial Services depends on major rental-car partners; Government Solutions has significant government-customer concentration. Risks include COVID-19 effects, government contract changes or payment delays, regulatory and legislative changes, competition, technology execution, cybersecurity, and acquisition integration.
- Acquisitions: Redflex purchase accounting remained preliminary, including certain acquired asset and liability values and contingencies. On November 1, 2021, the company agreed to acquire T2 Systems for $347 million cash-free/debt-free, subject to adjustments, closing conditions, and required approvals; closing was expected in Q4 2021. This was subsequent to quarter-end.
- Contingencies: The company accrued approximately $1.3 million for an agreement in principle resolving a New York City investigation, subject to final administrative approval. PlusPass antitrust litigation is ongoing; the motion to dismiss was denied and discovery had begun. A class action involving Redflex in Louisiana is under appeal; the company said it could not reasonably estimate a loss.
- Other exposures: A 1% change in the variable term-loan rate would change annual interest expense by approximately $6.5 million; the company reported no hedging. A $2.9 million Redflex PPP loan remained outstanding pending forgiveness approval. Non-cancelable purchase commitments were $39.8 million.
- Controls: Management stated disclosure controls were effective and that the material weakness reported in the prior annual filing was remediated during Q2 2021.
Key facts for investors to verify
- NYCDOT collections after September 30, aged receivables, and the collectibility assumptions behind the allowance.
- Redflex integration, final purchase-price allocation, and the contribution of acquired operations to future growth and costs.
- Closing, final price, financing, and expected returns for the announced T2 Systems acquisition.
- Debt service capacity, variable-rate exposure, covenant headroom, and use of remaining liquidity after the buyback and acquisitions.
- Developments in PlusPass and other legal matters, and any changes to accrued or unaccrued loss estimates.
- Effects of the warrant-accounting restatement when comparing 2020 earnings and per-share results with current periods.