Verra Mobility Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; this is an annual report, not a standalone fourth-quarter report. Filed April 22, 2022. Verra Mobility provides toll and violations management, automated traffic-safety enforcement, and parking technology and services.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $550.6 million | $393.6 million |
| Operating income | $111.9 million; 20.3% margin | $37.8 million; 9.6% margin |
| Net income (loss) | $41.4 million; 7.5% margin | ($4.6) million |
| Operating cash flow | $193.2 million | $46.9 million |
| Cash and cash equivalents at year-end | $101.3 million | $120.3 million |
- Service revenue rose 46.6% to $492.8 million; product sales were nearly flat at $57.7 million. Commercial Services generated $260.9 million of revenue, Government Solutions $283.2 million, and Parking Solutions $6.5 million, including only the post-acquisition period.
- Revenue increased 39.9%, reflecting the recovery in travel and rental-car activity, growth in Government Solutions, and acquired revenue. Redflex contributed $33.0 million to Government Solutions service-revenue growth; T2 Systems and NuPark were acquired late in the year.
- Costs and expenses totaled $438.7 million, up 23.3%; depreciation and amortization was $116.8 million. Interest expense was $44.9 million, and the income-tax provision was $26.5 million (39.0% effective rate).
- Cash flow from operations improved substantially, with management citing higher earnings and collection of approximately $182 million from New York City’s Department of Transportation (NYCDOT). Investing cash outflow was $476.0 million, primarily for acquisitions; financing cash inflow was $268.7 million.
- At year-end, debt principal included $895.1 million under the term loan, $350 million of senior notes, $25 million drawn on the revolver, and a $2.9 million PPP loan. The revolver was repaid in January 2022. The term loan carried a 3.6% rate at year-end; notes carry a fixed 5.50% rate. The company reported covenant compliance at December 31, 2021.
- Current assets were $348.1 million and current liabilities $175.2 million. NYCDOT represented 39% of net accounts receivable ($63.2 million); $26.0 million was past its 45-day payment terms. The company reported no material reserve against this balance.
Material changes and notable items
- FY2021 revenue rebounded from the pandemic-affected FY2020, when revenue fell 12.3% from FY2019 and the company recorded a $4.6 million net loss.
- Verra acquired Redflex in June for approximately $117.9 million, T2 Systems in December for approximately $353.2 million, and NuPark in December for approximately $7.0 million. The acquisitions expanded automated enforcement internationally and added a parking-solutions business. T2 purchase accounting remained preliminary at year-end.
- The company refinanced its prior term loan in March 2021, issuing $350 million of senior notes and entering a new term loan; it later borrowed an additional $250 million under the term loan to help fund T2. Debt extinguishment costs were $5.3 million.
- Verra repurchased and retired 6.85 million shares from its controlling stockholder for $100 million, funded with cash on hand. No cash dividends have been paid.
- NYCDOT contributed 26.6% of FY2021 revenue, down from 31.3% in FY2020. Three large rental-car customers each contributed more than 10% of FY2021 revenue.
Outlook, risks and contingencies
- Management said existing cash, operating cash flow, and revolver availability were expected to cover operating needs and debt service for at least the next 12 months. The filing provides no numerical revenue or earnings guidance.
- Management cited mobility, tolling, road-safety, and parking technology demand as growth opportunities, alongside cross-selling, international expansion, product development, and acquisitions. COVID-19, including new variants, remained a source of uncertainty for travel, traffic, schools, and parking demand.
- Key risks include dependence on government authorization and public acceptance of photo enforcement, customer concentration, government contract termination or payment delays, competition, acquisition integration, cybersecurity and privacy compliance, and substantial variable-rate debt. A 1% interest-rate change was estimated to affect annual interest expense by about $9.2 million; the company reported no hedging activity.
- NYCDOT’s receivable concentration and aging create collection exposure. Government contracts may be audited, reduced, or terminated; state or local legal changes can restrict automated enforcement.
- A PlusPass antitrust lawsuit was ongoing, seeking injunctive relief, divestiture, and damages; the company disputed the claims. A certified class action involving the City of Gretna’s camera program was on appeal; the company said it could not reasonably estimate a loss. No material legal contingency accruals were recorded.
- The company reported material weaknesses in financial-reporting controls tied to Redflex acquisition accounting and controls over a third-party reporting application. Management and the auditor concluded internal control over financial reporting was ineffective at December 31, 2021; the auditor issued an adverse ICFR opinion. Management expected remediation before year-end 2022. The company also disclosed a prior-period restatement related to private-placement warrant accounting, with remediation completed in 2021.
- The late 10-K filing led to a Nasdaq noncompliance notice and extension to May 2, 2022 to regain listing compliance. The filing says the late submission technically breached debt reporting requirements, but was cured within the agreements’ 30-day cure period. The financial-statement audit opinion was unqualified.
Important facts for investors to verify
- Whether the Redflex and third-party application control weaknesses were remediated and independently tested, and whether the delayed filing or internal review identified further accounting issues.
- NYCDOT collections, aging of its receivable, and the impact of this customer’s revenue and receivable concentration.
- Post-acquisition performance, integration costs, synergies, and final purchase-accounting valuations for T2 Systems and other acquisitions.
- Debt levels, leverage, floating-rate exposure, mandatory excess-cash-flow repayments, and capacity under covenants after acquisition financing.
- Developments in the PlusPass and Gretna matters, and changes in laws or contracts that could affect photo enforcement revenue.