Filing summary
Entity and period: This is Gores Holdings II, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2017, not a filing under the name Verra Mobility Corp. Gores Holdings II was a blank-check company formed to pursue a business combination; it reported no operating revenue and had not begun operating a target business.
Financial performance and position
- Revenue and earnings: Revenue was $0. For the three months ended June 30, 2017, net income was $541,944, including $727,843 of interest income and $185,899 of operating expenses and state franchise taxes. For the six months, net income was $693,540, including $1,064,410 of interest income and $370,870 of operating expenses and state franchise taxes. The filing reports basic and diluted earnings per share of $0.01 for Class A and $(0.00) for Class F for the quarter; for the six months, $0.02 and $(0.01), respectively.
- Cash flow: Six-month operating cash flow was $1,012,192; investing cash flow was $(401,061,237), primarily the deposit of offering proceeds and reinvested interest into the trust; financing cash flow was $401,128,354. Cash outside the trust was $1,082,494 at June 30.
- Liquidity and assets: Total assets were $402,398,683, including $401,061,237 held in the trust account. Current assets were $1,337,446 and current liabilities were $442,748, yielding reported working capital of $894,698. The trust held U.S. Treasury bills and cash; the reported annualized investment rate was approximately 0.73%.
- Liabilities and equity: Total liabilities were $14,442,748, including $14,000,000 of deferred underwriting compensation payable only if a business combination closes. The company reported no long-term debt. Of 40 million public Class A shares, 38,295,593 shares, valued at $382,955,930, were classified outside permanent equity as redeemable shares. Permanent stockholders’ equity was $5,000,005.
- Margins: Operating and gross margins are not meaningful because the company had no revenue.
Changes and context
- The company completed its IPO on January 19, 2017, selling 40 million units at $10 each for $400 million gross proceeds, and sold $10 million of private placement warrants to its sponsor. At June 30, the trust balance was approximately $401.1 million, including interest.
- Compared with December 31, 2016, total assets rose from $418,227 to $402.4 million, reflecting the IPO and trust funding. Cash outside the trust increased from $3,185 to $1.08 million; working capital improved from a $15,959 deficit to $894,698. These periods are not like-for-like operating comparisons because the IPO closed during the current period.
- The filing gives no prior-year quarterly earnings comparison; it states the company was not public as of June 30, 2016.
Outlook, risks, and unusual items
- As of June 30, management had not identified a business-combination target or begun substantive target discussions, though it was reviewing opportunities. No earnings or revenue guidance was provided.
- The company had until January 19, 2019—24 months after the IPO closing—to complete a business combination. If it fails, it must wind up and redeem public shares from the trust, subject to applicable terms; warrants would expire worthless.
- Management said the approximately $1.08 million of unrestricted cash was expected to fund the search and due diligence, but cautioned that actual costs could exceed estimates and that additional financing might be needed. The trust funds are generally restricted until a business combination or specified redemption/liquidation events.
- Other notable obligations include monthly administrative-service payments of $20,000 to a sponsor affiliate and the contingent $14 million deferred underwriting fee. The filing reported no legal proceedings, no off-balance-sheet arrangements, and no material changes to previously disclosed risk factors.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts to verify
- Confirm that the intended filing is Gores Holdings II’s 2017 Q2 10-Q; the supplied company metadata says Verra Mobility Corp.
- Check the treatment and availability of trust funds, redemption provisions, and the January 19, 2019 business-combination deadline.
- Reconcile the MD&A reference to “cash and deferred offering costs of $14,000,000” with the balance sheet and notes, which identify $14 million as deferred underwriting compensation.
- Assess whether unrestricted cash was sufficient for ongoing search expenses, given management’s warning that costs could exceed estimates.