Filing summary
Entity and period: The supplied filing is Gores Holdings II, Inc.’s Form 10-K for the fiscal year ended December 31, 2017, filed March 14, 2018. It is not a Verra Mobility Corp. operating-company 10-K: Gores Holdings II was a blank-check company seeking a business combination and had not identified a target as of year-end. The requested “2017 Q4” period is covered within the annual filing; separate quarterly results are not presented here.
Financial results and position
| Metric | FY 2017 / December 31, 2017 | Comparable period / December 31, 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Net income (loss) | $1.425 million | $(40,959), from inception on August 15, 2016 |
| Interest income | $3.016 million | $107 |
| Operating expenses and state franchise taxes | $780,280 | $41,066, from inception |
| Cash and investments in trust | $402.736 million | $0 |
| Cash outside trust | $826,201 | $3,185 |
| Total assets | $403.698 million | $418,227 |
| Total liabilities | $15.009 million, including $14.0 million deferred underwriting compensation | $434,186 |
| Working capital | $763,663 | $(15,959) |
| Stockholders’ equity | $5.000 million | $(15,959) |
FY 2017 net income primarily reflected interest earned on trust assets, not operating revenue. Operating margin is not meaningful for this pre-operating shell. Operating cash flow was $2.429 million; cash used in investing activities was $402.736 million, primarily the trust deposit and reinvested interest; financing cash flow was $401.130 million. The filing reports no long-term debt or off-balance-sheet financing arrangements. Trust investments were principally U.S. Treasury bills, with a reported annualized yield of approximately 0.79% at year-end.
Business context and material changes
The company completed its IPO on January 19, 2017, selling 40 million units at $10 each for $400 million gross proceeds, and sold 6.667 million private placement warrants for $10 million. It reported $402.736 million in the trust account at year-end; $14 million of deferred underwriting fees would be payable only if a business combination closed. The company had no operations or operating revenue and stated that it had not identified a target or begun substantive discussions about one as of December 31, 2017.
Compared with the 2016 inception period, trust assets, interest income, expenses, liabilities, and equity increased substantially following the IPO. The 2016 comparison covers only August 15 through December 31, 2016, so it is not a full-year comparison. The company reported net income in 2017 versus a small inception-period loss in 2016, largely because of trust interest.
Outlook, risks, and unusual items
- The company had until January 19, 2019—24 months after the IPO closing—to complete a business combination. If unsuccessful, it planned to redeem public shares from the trust, subject to applicable law and creditor claims, and liquidate; warrants would expire worthless.
- Management said available funds were expected to support the search through the deadline, but warned that actual search, diligence, and transaction costs could exceed estimates. No specific target, transaction, or third-party financing arrangement had been secured.
- Public shareholders could redeem shares in connection with a combination. Redemptions, minimum cash conditions, or inability to secure additional financing could prevent or reshape a transaction. The company had no specified maximum redemption threshold beyond the $5,000,001 net tangible asset floor and any transaction-specific requirements.
- Key risks include the limited $826,201 of cash outside the trust, competition for targets, the approaching deadline, potential dilution or debt from a transaction, conflicts of interest involving the Sponsor and Gores-affiliated funds, and claims that could reduce trust assets. The Sponsor’s trust-protection indemnity has exceptions, and the company said it had not verified the Sponsor’s ability to pay.
- Related-party arrangements included a $20,000 monthly administrative-services fee to The Gores Group. The filing also describes potential reimbursement, financing, or post-combination compensation involving the Sponsor, officers, directors, or affiliates.
- The 2017 $1.425 million profit was an unusual pre-combination result driven by trust interest; the company had no operating earnings. The filing reports an $810,926 income-tax provision and $806,445 income-tax payable at year-end.
Most important facts to verify
- Confirm the issuer: this document is for Gores Holdings II, Inc., not Verra Mobility Corp.; verify whether a later business-combination filing is the intended subject.
- Verify the reported $402.736 million trust balance, the $14 million deferred underwriting fee, and the $826,201 of cash outside the trust.
- Check subsequent filings for whether and when a business combination closed, shareholder redemptions, financing, and any change to the January 19, 2019 deadline.
- Review the definitive transaction disclosures for dilution, warrants, Sponsor-related interests, and the combined company’s operating financials; this 10-K provides no target-company results or operating guidance.
- Assess trust-account creditor exposure and the Sponsor’s capacity to satisfy its indemnification obligations.