UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 OR Commission File Number: 001-37979 VERRA MOBILITY CORPORATION (Exact name of registrant as specified in its charter) 1150 North Alma School Road 85201 Mesa, Arizona (Zip Code) (Address of Principal Executive Of ices) (480) 443-7000 (Registrant's telephone number, including area cod ...

VERRA Investor Overview Verra Mobility Q1 Investor Presentation For the Quarter Ended March 31, 2021 Forward-looking statements This presentation includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "forecast," "intend," "seek," "target," "anticipate," "believe," "expect," "estimate," "plan," "outlook," and "project" and other sim ...

Verra Mobility Corp (NASDAQ:VRRM) Q1 2021 Earnings Conference Call May 17, 2021 5:00 PM ET Company Participants Sajid Daudi - Vice President, Investor Relations David Roberts - President and Chief Executive Officer Patricia Chiodo - Chief Financial Officer Conference Call Participants Justin Forsythe - Crédit Suisse Daniel Moore - CJS Securities James Faucette - Morgan Stanley David Koning - Robert W. Baird & Co. Louie DiPalma - William Blair Keith Housum - Northcoast Research Partners Sameer Kalucha - Deut ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ___________. Commission File Number: 001-37979 VERRA MOBILITY CORPORATION (Exact name of registrant as specified in its charter) Delaware 81 ...

Financial Data and Key Metrics Changes - The company's fourth quarter revenue declined 11% year-over-year to $100.2 million, with adjusted EBITDA at $45.8 million, down 23% year-over-year [10] - For the full year 2020, revenue decreased 12% year-over-year to $393.6 million, and adjusted EBITDA fell 25% year-over-year to $181.8 million [10][26] - The adjusted EBITDA margin for the full year was 46.2%, reflecting strong cost control measures despite revenue declines [27] Business Segment Data and Key Metrics Changes - The Commercial Services segment reported Q4 revenues of $48.2 million and adjusted EBITDA of $25.2 million, with a 29% decline in service revenue year-over-year [11][32] - The Government Solutions segment saw revenues of $52 million in Q4, up from $44.3 million in the same quarter of the previous year, with adjusted EBITDA increasing 18.1% to $20.6 million [14][35] - Full year service revenue for the Government Solutions segment grew by 11% to $155.4 million, driven by the expansion of the school zone speed program [33] Market Data and Key Metrics Changes - The U.S. rental car market remains challenged due to COVID-19, impacting decision-making and resource availability for partners [13] - The company anticipates a slow recovery in the Commercial Services segment, expecting to return to 2019 service revenue levels by late 2021 or early 2022 [21] Company Strategy and Development Direction - The company views mergers and acquisitions as a strategic growth component, with a pending transaction with Redflex Holdings expected to close in late May 2021 [19][20] - The focus will be on geographic expansion and leveraging technology capabilities from the Redflex acquisition to enhance service offerings [45][47] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future as vaccination efforts progress, expecting a decline in pandemic-related impacts on business throughout 2021 [8][9] - The company remains cautious about providing specific guidance due to ongoing uncertainties related to COVID-19's impact on travel and school reopening [40] Other Important Information - The New York Department of Transportation accounted for 31.1% of total revenue in 2020, with outstanding receivables of approximately $99 million, representing nearly 59% of the company's accounts receivable balance [29] - The company generated $22.6 million in free cash flow for the full year, maintaining a cash balance of $120.3 million at year-end [28][39] Q&A Session Summary Question: Can you discuss the Redflex opportunity and potential cross-sell? - Management indicated that opportunities are more geographic-based rather than product-based, with potential for international expansion and synergies in the U.S. [45][47] Question: What is the timeline for achieving synergies post-acquisition? - Management expects to focus on identifying key areas for synergy in the first 12 months, with technology integration taking longer [51][52] Question: How do you see the service revenue trends for Q1 2021? - Management anticipates Q1 service revenue to be slightly below Q4, with year-over-year growth expected to resume in Q2 [54][55] Question: What is the status of the New York City contract and outstanding receivables? - Management does not expect the contract to be extended before payment for outstanding receivables, which are likely to remain unresolved into Q2 [58][69] Question: How has the tolling business performed during the pandemic? - Management clarified that while the overall adoption rate has not significantly changed, the number of billable days has improved, leading to higher revenue per rental agreement [72]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________. Commission File Number 001-37979 VERRA MOBILITY CORPORATION (Exact name of registrant as specified in its charter) (State of Incorporation) (I.R.S ...

S VERRITY MOBILE Spire Credit Suisse Investor Conference December 1, 2020 For the Quarter Ended September 30, 2020 Forward-looking statements This presentation includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "forecast," "intend," "seek," "target," "anticipate," "believe," "expect," "estimate," "plan," "outlook," and "project" ...

[Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section outlines the forward-looking nature of statements in the report, subject to various risks and uncertainties, with no obligation for future updates - This report contains forward-looking statements regarding future operating results, financial position, business strategy, plans, products, services, technology offerings, market conditions, growth, expansion, and objectives[8](index=8&type=chunk) - These statements are subject to risks and uncertainties, including disruptions from the COVID-19 pandemic, its impact on rental car and photo enforcement revenues, customer concentration, legislative changes, competition, technological developments, and cybersecurity breaches[9](index=9&type=chunk)[10](index=10&type=chunk) - The company does not undertake any obligation to update these forward-looking statements after the report date[11](index=11&type=chunk) [PART I—FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Financial Statements.](index=5&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited condensed consolidated financial statements for Verra Mobility Corporation, including the balance sheets, statements of operations and comprehensive income (loss), statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining significant accounting policies, acquisitions, and financial instrument details [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific dates Condensed Consolidated Balance Sheets (September 30, 2020 vs. December 31, 2019) | Metric (in thousands) | Sep 30, 2020 | Dec 31, 2019 | | :-------------------- | :----------- | :----------- | | Total assets | $1,371,971 | $1,407,426 | | Total liabilities | $1,028,049 | $1,068,079 | | Total stockholders' equity | $343,922 | $339,347 | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) This section presents the company's financial performance over periods, including revenue, operating income, and net income (loss) Condensed Consolidated Statements of Operations (Three Months Ended September 30) | Metric (in thousands) | 2020 | 2019 | | :-------------------- | :--- | :--- | | Total revenue | $96,908 | $128,240 | | Income from operations | $15,268 | $36,659 | | Net income (loss) | $6,686 | $17,752 | | Basic EPS | $0.04 | $0.11 | | Diluted EPS | $0.04 | $0.11 | Condensed Consolidated Statements of Operations (Nine Months Ended September 30) | Metric (in thousands) | 2020 | 2019 | | :-------------------- | :--- | :--- | | Total revenue | $293,430 | $336,276 | | Income from operations | $27,731 | $72,261 | | Net income (loss) | $(2,029) | $24,163 | | Basic EPS | $(0.01) | $0.15 | | Diluted EPS | $(0.01) | $0.15 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in the company's equity, including net income (loss) and stock-based compensation Changes in Stockholders' Equity (Nine Months Ended September 30, 2020) | Metric (in thousands) | Dec 31, 2019 | Sep 30, 2020 | | :-------------------- | :----------- | :----------- | | Total Stockholders' Equity | $339,347 | $343,922 | | Net income (loss) (9M) | N/A | $(2,029) | | Stock-based compensation (9M) | N/A | $9,192 | - The company issued **5,000,000 Earn-Out Shares** to the Platinum Stockholder due to stock price thresholds being met on April 26, 2019, and January 27, 2020[88](index=88&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Nine Months Ended September 30) | Metric (in thousands) | 2020 | 2019 | | :-------------------- | :--- | :--- | | Net cash provided by operating activities | $44,350 | $95,586 | | Net cash used in investing activities | $(18,250) | $(17,478) | | Net cash used in financing activities | $(27,949) | $(7,126) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(2,723) | $70,639 | | Cash, cash equivalents and restricted cash - end of period | $129,707 | $137,720 | - Operating cash flow decreased by **$51.2 million**, primarily due to a **$26.2 million decrease** in net income (loss) and a **$34.5 million decrease** in changes in operating assets and liabilities, including increased accounts receivable and decreased accounts payable[170](index=170&type=chunk)[171](index=171&type=chunk) - Financing cash flow increased by **$20.8 million**, mainly due to a **$19.7 million mandatory prepayment** of excess cash flows on the First Lien Term Loan and costs associated with its refinancing[173](index=173&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1. Description of Business](index=10&type=section&id=Note%201.%20Description%20of%20Business) This note describes Verra Mobility Corporation's business, including its integrated technology solutions and operating segments - Verra Mobility Corporation provides integrated technology solutions and services to commercial fleets, rental car companies, and state/local governments across the US, Canada, and Europe[27](index=27&type=chunk) - The company operates in two segments: Commercial Services (toll and violation management, title/registration) and Government Solutions (red-light, speed, school bus stop arm, and bus lane enforcement)[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) [Note 2. Significant Accounting Policies](index=10&type=section&id=Note%202.%20Significant%20Accounting%20Policies) This note details the significant accounting policies adopted by the company and the impact of recent accounting pronouncements - The company adopted ASU 2017-04 (simplifying goodwill impairment) as of January 1, 2020, with no material impact on financial statements[33](index=33&type=chunk) - The CECL standard (ASU 2016-13) was adopted on January 1, 2020, resulting in a **$0.7 million cumulative effect adjustment** (net of tax) to accumulated deficit, increasing the allowance for credit loss[34](index=34&type=chunk)[35](index=35&type=chunk) - ASU 2019-12 (simplifying income tax accounting) and ASU 2020-04 (reference rate reform) are effective for fiscal years beginning after December 15, 2020, and their impact is still being determined[36](index=36&type=chunk)[37](index=37&type=chunk) [Note 3. Acquisition](index=12&type=section&id=Note%203.%20Acquisition) This note provides details on the acquisition of Pagatelia S.L., including the purchase price and goodwill allocation - On October 31, 2019, Verra Mobility acquired Pagatelia S.L., a Spanish company providing electronic consumer tolling and parking solutions, for **$26.6 million**[38](index=38&type=chunk) Pagatelia Acquisition Purchase Price Allocation (in thousands) | Asset/Liability | Amount | | :-------------- | :----- | | Total assets acquired | $35,442 | | Total liabilities assumed | $8,846 | | Total purchase price | $26,596 | | Goodwill | $17,528 | - Goodwill from the Pagatelia acquisition was assigned to the Commercial Services segment and is not expected to be tax-deductible[38](index=38&type=chunk) [Note 4. Accounts Receivable, Net](index=12&type=section&id=Note%204.%20Accounts%20Receivable,%20Net) This note details accounts receivable, allowance for credit loss, and significant customer concentrations Accounts Receivable and Allowance for Credit Loss (September 30, 2020, in thousands) | Segment | Accounts Receivable, net | Allowance for Credit Loss | | :-------------------- | :----------------------- | :------------------------ | | Commercial Services (Driver-billed) | $8,909 | $1,368 | | Commercial Services (All other) | $53,866 | $5,242 | | Government Solutions | $78,244 | $3,536 | | **Total** | **$141,019** | **$10,146** | - Credit loss expense for the nine months ended September 30, 2020, was **$10.6 million**, with write-offs (net of recoveries) of **$8.9 million**[42](index=42&type=chunk) - The City of New York Department of Transportation (NYCDOT) represented **50.1% of accounts receivable, net**, as of September 30, 2020, with **$52.1 million** in outstanding invoices under the Emergency Contract for which no payments have been received[43](index=43&type=chunk)[168](index=168&type=chunk) [Note 5. Prepaid Expenses and Other Current Assets](index=14&type=section&id=Note%205.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) This note provides a breakdown of prepaid expenses and other current assets, including prepaid tolls and services Prepaid Expenses and Other Current Assets (in thousands) | Item | Sep 30, 2020 | Dec 31, 2019 | | :-------------------- | :----------- | :----------- | | Prepaid tolls | $7,214 | $10,116 | | Prepaid services | $4,014 | $5,201 | | Deposits | $3,627 | $3,642 | | **Total prepaid expenses and other current assets** | **$24,714** | **$26,491** | [Note 6. Goodwill and Intangible Assets](index=14&type=section&id=Note%206.%20Goodwill%20and%20Intangible%20Assets) This note details the company's goodwill and intangible assets, including amortization expense and impairment tests Goodwill by Segment (in thousands) | Segment | Dec 31, 2019 | Sep 30, 2020 | | :-------------------- | :----------- | :----------- | | Commercial Services | $424,404 | $423,595 | | Government Solutions | $159,746 | $159,746 | | **Total** | **$584,150** | **$583,341** | Intangible Assets, Net (in thousands) | Item | Sep 30, 2020 | Dec 31, 2019 | | :-------------------- | :----------- | :----------- | | Trademarks | $5,316 | $13,021 | | Non-compete agreements | $28,294 | $37,715 | | Customer relationships | $252,477 | $283,630 | | Developed technology | $77,439 | $100,077 | | **Total intangible assets, net** | **$363,526** | **$434,443** | - Amortization expense was **$23.6 million** for Q3 2020 and **$70.6 million** for 9M 2020, with estimated future amortization for 2021 at **$85.5 million**[46](index=46&type=chunk)[48](index=48&type=chunk) - An interim goodwill impairment test was performed as of March 31, 2020, and June 30, 2020, due to a significant decline in market capitalization related to COVID-19, but no impairment was found[50](index=50&type=chunk)[51](index=51&type=chunk) [Note 7. Impairment of Other Long-Lived Assets](index=15&type=section&id=Note%207.%20Impairment%20of%20Other%20Long-Lived%20Assets) This note discusses the assessment of impairment indicators for long-lived assets and any recognized impairment charges - No impairment indicators for other long-lived assets were identified as of September 30, 2020[53](index=53&type=chunk) - A **$5.9 million impairment charge** was recognized in the Government Solutions segment for the nine months ended September 30, 2019, due to Texas legislation banning red-light photo enforcement programs[54](index=54&type=chunk) [Note 8. Accrued Liabilities](index=16&type=section&id=Note%208.%20Accrued%20Liabilities) This note provides a breakdown of accrued liabilities, including related party TRA liability and accrued salaries Accrued Liabilities (in thousands) | Item | Sep 30, 2020 | Dec 31, 2019 | | :-------------------- | :----------- | :----------- | | Current portion of related party TRA liability | $4,636 | $5,730 | | Accrued salaries and wages | $3,313 | $10,319 | | Current portion of operating lease liabilities | $3,137 | $2,970 | | **Total accrued liabilities** | **$17,309** | **$25,277** | [Note 9. Long-term Debt](index=16&type=section&id=Note%209.%20Long-term%20Debt) This note details the company's long-term debt, including the First Lien Term Loan, refinancing, and interest rates Long-term Debt Summary (in thousands) | Item | Sep 30, 2020 | Dec 31, 2019 | | :-------------------- | :----------- | :----------- | | First Lien Term Loan, due Feb 28, 2025 | $867,918 | $894,421 | | Less: original issue discounts | $(4,218) | $(4,778) | | Less: unamortized deferred financing costs | $(20,972) | $(23,178) | | Total long-term debt | $842,728 | $866,465 | | Less: current portion of long-term debt | $(9,104) | $(28,779) | | **Total long-term debt, net of current portion** | **$833,624** | **$837,686** | - The First Lien Term Loan was refinanced in February 2020, reducing the applicable margin by **50 basis points**, resulting in an interest rate of **3.4%** at September 30, 2020[57](index=57&type=chunk)[64](index=64&type=chunk) - A **$19.7 million mandatory prepayment** of excess cash flow was made in Q1 2020[58](index=58&type=chunk) - The company had **$44.0 million** available under its Revolver as of September 30, 2020, with no outstanding borrowings[59](index=59&type=chunk) - Interest expense, net, decreased by **$5.4 million** for Q3 2020 (YoY) and **$15.0 million** for 9M 2020 (YoY), primarily due to lower interest rates and the refinancing[62](index=62&type=chunk)[144](index=144&type=chunk)[160](index=160&type=chunk) - The company was compliant with all 2018 Credit Facilities covenants as of September 30, 2020[61](index=61&type=chunk) [Note 10. Fair Value of Financial Instruments](index=17&type=section&id=Note%2010.%20Fair%20Value%20of%20Financial%20Instruments) This note provides information on the fair value of the company's financial instruments, including long-term debt Fair Value of Long-term Debt (in thousands) | Item | Fair Value Hierarchy Level | Carrying Amount (Sep 30, 2020) | Estimated Fair Value (Sep 30, 2020) | | :-------------------- | :----------------------- | :------------------------------- | :---------------------------------- | | Total long-term debt | 2 | $842,728 | $854,899 | - The carrying amounts for cash, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short-term maturity[69](index=69&type=chunk) [Note 11. Net Income (Loss) Per Share](index=18&type=section&id=Note%2011.%20Net%20Income%20(Loss)%20Per%20Share) This note presents the calculation of basic and diluted net income (loss) per share for the reported periods Net Income (Loss) Per Share (Three Months Ended September 30) | Metric | 2020 | 2019 | | :-------------------- | :--- | :--- | | Net income (loss) (in thousands) | $6,686 | $17,752 | | Basic EPS | $0.04 | $0.11 | | Diluted EPS | $0.04 | $0.11 | Net Income (Loss) Per Share (Nine Months Ended September 30) | Metric | 2020 | 2019 | | :-------------------- | :--- | :--- | | Net income (loss) (in thousands) | $(2,029) | $24,163 | | Basic EPS | $(0.01) | $0.15 | | Diluted EPS | $(0.01) | $0.15 | - Antidilutive shares excluded from diluted EPS calculations for the nine months ended September 30, 2020, totaled **28,969 thousand**, including contingently issuable shares and warrants[71](index=71&type=chunk) [Note 12. Income Taxes](index=18&type=section&id=Note%2012.%20Income%20Taxes) This note discusses the company's effective income tax rates, the impact of the CARES Act, and unrecognized tax benefits - The effective income tax rate was **37.4%** for Q3 2020 (vs. **27.4%** in Q3 2019) and **276.9%** for 9M 2020 (vs. **28.8%** in 9M 2019), primarily due to lower pre-tax income[76](index=76&type=chunk)[145](index=145&type=chunk)[163](index=163&type=chunk) - The company applied certain provisions of the CARES Act, including increased interest deduction and delayed FICA payments[75](index=75&type=chunk) - Unrecognized tax benefits decreased by **$1.0 million** during the nine months ended September 30, 2020, primarily due to the statute expiration of prior year tax positions[77](index=77&type=chunk) [Note 13. Stock-Based Compensation](index=19&type=section&id=Note%2013.%20Stock-Based%20Compensation) This note details the stock-based compensation expense recognized by the company across different expense categories Stock-Based Compensation Expense (in thousands) | Item | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 | | :-------------------- | :------ | :------ | :------ | :------ | | Operating expenses | $183 | $138 | $697 | $614 | | Selling, general and administrative expenses | $2,970 | $2,333 | $8,495 | $6,812 | | **Total stock-based compensation expense** | **$3,153** | **$2,471** | **$9,192** | **$7,426** | [Note 14. Related Party Transactions](index=19&type=section&id=Note%2014.%20Related%20Party%20Transactions) This note describes transactions with related parties, including the Tax Receivable Agreement liability and Earn-Out Shares - The Tax Receivable Agreement (TRA) liability increased by **$4.4 million** for the nine months ended September 30, 2020, due to higher estimated state tax rates, totaling **$70.2 million**[81](index=81&type=chunk)[82](index=82&type=chunk)[161](index=161&type=chunk) - **5,000,000 Earn-Out Shares** of Class A Common Stock were issued to the Platinum Stockholder in April 2019 and January 2020, as the stock price exceeded **$13.00** and **$15.50** thresholds, respectively[84](index=84&type=chunk)[88](index=88&type=chunk) - An additional **5,000,000 Earn-Out Shares** remain contingently issuable if further stock price thresholds (**$18.00** and **$20.50**) are met within five years of the Business Combination[84](index=84&type=chunk)[85](index=85&type=chunk)[87](index=87&type=chunk) [Note 15. Commitments and Contingencies](index=20&type=section&id=Note%2015.%20Commitments%20and%20Contingencies) This note outlines the company's outstanding commitments, contingencies, and the financial impact of legal settlements - Outstanding letters of credit totaled **$6.3 million**, and non-cancelable purchase commitments were **$8.1 million** as of September 30, 2020[89](index=89&type=chunk) - The company recognized a **$1.4 million gain** from the HTA Settlement Agreement and an additional **$1.4 million gain** from third-party insurance proceeds related to this matter in Q3 2020[94](index=94&type=chunk)[144](index=144&type=chunk)[162](index=162&type=chunk) - Legal and regulatory actions are not expected to have a material adverse impact on the company's financial position[93](index=93&type=chunk) - The company expensed **$0.6 million** in Q3 2020 and **$1.1 million** in 9M 2020 for severance and other employee separation costs[92](index=92&type=chunk) [Note 16. Segment Reporting](index=21&type=section&id=Note%2016.%20Segment%20Reporting) This note provides financial information by operating segment, detailing revenues and segment profit (loss) - The company operates in two segments: Commercial Services (toll and violation management, title and registration) and Government Solutions (traffic safety programs and products)[95](index=95&type=chunk) - Segment profit (loss) is measured based on revenues and income (loss) from operations before depreciation, amortization, gain (loss) on asset disposal, and stock-based compensation, and is inclusive of other income, net[96](index=96&type=chunk) Segment Revenue and Profit (Three Months Ended September 30, 2020, in thousands) | Segment | Total Revenue | Segment Profit (Loss) | | :-------------------- | :------------ | :-------------------- | | Commercial Services | $44,153 | $30,832 | | Government Solutions | $52,755 | $22,675 | | Corporate and Other | $0 | $(514) | | **Total** | **$96,908** | **$52,993** | Segment Revenue and Profit (Nine Months Ended September 30, 2020, in thousands) | Segment | Total Revenue | Segment Profit (Loss) | | :-------------------- | :------------ | :-------------------- | | Commercial Services | $132,667 | $71,434 | | Government Solutions | $160,763 | $64,223 | | Corporate and Other | $0 | $(1,302) | | **Total** | **$293,430** | **$134,355** | [Note 17. Guarantor/Non-Guarantor Financial Information](index=23&type=section&id=Note%2017.%20Guarantor/Non-Guarantor%20Financial%20Information) This note presents condensed consolidating financial information for the parent company, guarantor, and non-guarantor subsidiaries - This note provides condensed consolidating financial information for Verra Mobility Corporation (ultimate parent), its combined guarantor subsidiary (VM Consolidated, Inc.), and combined non-guarantor subsidiaries[99](index=99&type=chunk)[100](index=100&type=chunk) - VM Consolidated, Inc. is the lead borrower of the First Lien Term Loan and Revolver, and is a wholly-owned guarantor subsidiary[99](index=99&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, highlighting the significant negative impact of the COVID-19 pandemic on revenues, particularly in the Commercial Services segment (rental car industry) and Government Solutions segment (school closures, reduced traffic) It details revenue and expense trends for the three and nine months ended September 30, 2020, compared to 2019, and discusses liquidity, capital resources, and debt [Recent Events Affecting Our Operating Results](index=30&type=section&id=Recent%20Events%20Affecting%20Our%20Operating%20Results) This section discusses the significant impact of the COVID-19 pandemic on the company's revenues and operations - The COVID-19 pandemic significantly disrupted the global economy and travel industry, leading to reduced airline travel and widespread restrictions[114](index=114&type=chunk) - Commercial Services segment revenues decreased significantly due to reduced rental car demand and fleet sizes; Hertz, a key customer, filed for Chapter 11 bankruptcy[115](index=115&type=chunk) - Government Solutions segment revenues were negatively impacted by school closures affecting school bus stop arm and school zone speed cameras, and reductions in vehicle traffic[116](index=116&type=chunk) - The company shifted most of its workforce to remote operations in March 2020 but has not experienced significant operational disruptions[117](index=117&type=chunk) [Business Overview](index=30&type=section&id=Business%20Overview) This section provides an overview of Verra Mobility's business as a leading provider of smart mobility technology solutions - Verra Mobility is a leading provider of smart mobility technology solutions and services in the US, Canada, and Europe[119](index=119&type=chunk) - Solutions include toll and violations management, title and registration, automated safety solutions, and other data-driven solutions for RACs, FMCs, large fleet owners, municipalities, and school districts[119](index=119&type=chunk) [Segment Information](index=31&type=section&id=Segment%20Information) This section details the company's Commercial Services and Government Solutions segments and their respective offerings - Commercial Services offers toll and violation management and title/registration services for RACs and FMCs in North America, and violations processing/consumer tolling in Europe[125](index=125&type=chunk) - Government Solutions provides red-light, speed, school bus stop arm, and bus lane enforcement solutions for municipalities and local government agencies[125](index=125&type=chunk) - Segment performance is based on revenues and income (loss) from operations before depreciation, amortization, gain/loss on asset disposal, and stock-based compensation, and includes other income, net[121](index=121&type=chunk) [Executive Summary](index=31&type=section&id=Executive%20Summary) This section summarizes the company's strategic focus, key financial highlights, and cash position - The company's strategy focuses on growing existing customer revenues, expanding into adjacent markets through innovation or acquisition, and reducing operating costs[122](index=122&type=chunk) Key Financial Highlights (Nine Months Ended September 30, in millions) | Metric | 2020 | 2019 | | :-------------------- | :--- | :--- | | Total revenue | $293.4 | $336.3 | | Cash flows from operating activities | $44.4 | $95.6 | | Interest expense, net | $31.6 | $46.6 | - Cash on hand was **$129.2 million** as of September 30, 2020[126](index=126&type=chunk) [Primary Components of Our Operating Results](index=31&type=section&id=Primary%20Components%20of%20Our%20Operating%20Results) This section breaks down the main components of the company's revenue and expenses impacting operating results - Total revenue comprises service revenue (Commercial Services: toll/violation management, title/registration; Government Solutions: photo enforcement operations) and product sales (Government Solutions: photo enforcement equipment)[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) - Key expenses include cost of service revenue (third-party collection/professional services), cost of product sales (equipment acquisition/installation), operating expenses (payroll, call center, transaction processing), SG&A (payroll, leases, professional services), D&A, impairment, interest expense, TRA adjustment, and other income (volume rebates, foreign currency)[127](index=127&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk)[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance for the three and nine months ended September 30, 2020, compared to 2019 [Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019](index=33&type=section&id=Three%20Months%20Ended%20September%2030,%202020%20Compared%20to%20Three%20Months%20Ended%20September%2030,%202019) This section compares the company's financial performance for the third quarter of 2020 against the same period in 2019 - For Q3 2020, total revenue decreased by **24.4%** to **$96.9 million**, driven by a **43.1% decline** in Commercial Services revenue due to COVID-19's impact on rental car companies, partially offset by a **17.2% increase** in Government Solutions service revenue from speed program expansion Net income fell by **62.3%** to **$6.7 million**[135](index=135&type=chunk)[136](index=136&type=chunk)[146](index=146&type=chunk) Q3 2020 vs. Q3 2019 Financial Performance (in thousands) | Metric | 2020 | 2019 | Change ($) | Change (%) | | :-------------------- | :--- | :--- | :--------- | :--------- | | Total revenue | $96,908 | $128,240 | $(31,332) | (24.4)% | | Service revenue | $82,980 | $110,757 | $(27,777) | (25.1)% | | Product sales | $13,928 | $17,483 | $(3,555) | (20.3)% | | Income from operations | $15,268 | $36,659 | $(21,391) | (58.4)% | | Net income | $6,686 | $17,752 | $(11,066) | (62.3)% | - Operating expenses decreased by **$6.4 million (19.5%)** due to lower employee and transaction processing costs, while SG&A decreased by **$3.8 million (17.8%)** due to reduced credit loss expense and cost cutbacks[142](index=142&type=chunk)[143](index=143&type=chunk) - Other income, net, increased by **$2.3 million**, primarily due to gains from the HTA Settlement Agreement and insurance proceeds[144](index=144&type=chunk) [Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019](index=36&type=section&id=Nine%20Months%20Ended%20September%2030,%202020%20Compared%20to%20Nine%20Months%20Ended%20September%2030,%202019) This section compares the company's financial performance for the nine months ended September 30, 2020, against the same period in 2019 - For 9M 2020, total revenue decreased by **12.7%** to **$293.4 million** Commercial Services service revenue declined by **36.3%** due to COVID-19, while Government Solutions product sales surged by **97.4%** and service revenue grew by **8.7%** from speed program expansion The company reported a net loss of **$(2.0) million**, a significant decrease from **$24.2 million** net income in 2019[149](index=149&type=chunk)[150](index=150&type=chunk)[154](index=154&type=chunk)[164](index=164&type=chunk) 9M 2020 vs. 9M 2019 Financial Performance (in thousands) | Metric | 2020 | 2019 | Change ($) | Change (%) | | :-------------------- | :--- | :--- | :--------- | :--------- | | Total revenue | $293,430 | $336,276 | $(42,846) | (12.7)% | | Service revenue | $245,292 | $311,884 | $(66,592) | (21.4)% | | Product sales | $48,138 | $24,392 | $23,746 | 97.4% | | Income from operations | $27,731 | $72,261 | $(44,530) | (61.6)% | | Net (loss) income | $(2,029) | $24,163 | $(26,192) | (108.4)% | - Operating expenses decreased by **$8.6 million (9.1%)** due to lower employee wages and transaction processing costs[157](index=157&type=chunk) - SG&A expenses increased by **$1.5 million (2.4%)**, primarily due to a **$5.3 million increase** in credit loss expense under the new CECL standard and higher stock-based compensation, partially offset by cost cutbacks[158](index=158&type=chunk) - A **$4.4 million charge** was recorded for the tax receivable agreement adjustment due to higher estimated state tax rates[161](index=161&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's sources of liquidity, cash flow trends, and ability to meet financial obligations - The company's primary liquidity sources are cash flow from operations and borrowings under its 2018 Credit Facilities[165](index=165&type=chunk) - Cash provided by operating activities decreased by **$51.2 million** to **$44.4 million** for the nine months ended September 30, 2020, primarily due to lower net income and increased accounts receivable[170](index=170&type=chunk)[171](index=171&type=chunk) - Cash used in financing activities increased to **$27.9 million** for 9M 2020, mainly due to a **$19.7 million mandatory prepayment** of excess cash flows on the First Lien Term Loan[173](index=173&type=chunk) - As of September 30, 2020, the company had **$44.0 million** available for borrowing under its Revolver[178](index=178&type=chunk) - The company believes existing cash, operating cash flows, and Revolver availability will be sufficient to meet operating cash requirements and service debt obligations for at least the next 12 months[167](index=167&type=chunk) [Off-Balance Sheet Arrangements](index=41&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of any off-balance sheet arrangements as of the reporting date - The company had no off-balance sheet arrangements as of September 30, 2020[183](index=183&type=chunk) [Critical Accounting Policies, Estimates and Judgments](index=41&type=section&id=Critical%20Accounting%20Policies,%20Estimates%20and%20Judgments) This section highlights the significant estimates and judgments made by management in preparing the financial statements - The preparation of financial statements requires management to make significant estimates and assumptions, including fair values in business combinations, carrying amounts of long-lived assets and goodwill, allowance for credit loss, deferred tax asset valuation allowances, asset retirement obligations, contingent consideration, and loss contingencies[184](index=184&type=chunk) [Recent Accounting Pronouncements](index=41&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 2 for details on recent accounting pronouncements and their impact - Refer to Note 2, Significant Accounting Policies, in Item 1, Financial Statements, for details on recent accounting pronouncements[186](index=186&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate market risk due to its variable-rate First Lien Term Loan, which had an outstanding balance of $867.9 million at September 30, 2020 A 1% movement in interest rates would result in an approximately $8.7 million change in annual interest expense The company has not engaged in hedging activities and does not expect to - The company is exposed to interest rate market risk from its variable-rate First Lien Term Loan, with an outstanding balance of **$867.9 million** at September 30, 2020[187](index=187&type=chunk) - A **1% change** in interest rates would result in an approximately **$8.7 million change** in annual interest expense[187](index=187&type=chunk) - The company has not engaged in and does not expect to engage in hedging activities for market risk[188](index=188&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls and procedures were deemed ineffective as of September 30, 2020, due to a previously disclosed material weakness in internal control over financial reporting No material changes occurred in internal control over financial reporting during Q3 2020, and remediation efforts are underway, expected to be completed before the end of fiscal year 2020 - Disclosure controls and procedures were not effective as of September 30, 2020, due to a material weakness in internal control over financial reporting[189](index=189&type=chunk) - No material changes in internal control over financial reporting occurred during Q3 2020[190](index=190&type=chunk) - Remediation efforts for the material weakness are ongoing and expected to be completed before the end of fiscal year 2020[191](index=191&type=chunk) [PART II—OTHER INFORMATION](index=43&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This part contains other information, including legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no material legal proceedings - There are no material legal proceedings to report[193](index=193&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) This section supplements the risk factors from the Annual Report on Form 10-K, primarily focusing on the adverse impacts of the COVID-19 pandemic Key risks include significant negative effects on business, financial condition, and results of operations due to reduced travel, impacts on rental car customers (e.g., Hertz bankruptcy), and disruptions to photo enforcement programs from school closures and reduced traffic Historical data may not reflect these ongoing impacts - The COVID-19 pandemic has adversely affected the company's business and results of operations, leading to potential decreases in productivity, increased security risks, and delays in customer responses[196](index=196&type=chunk) - Revenues from key rental car customers (Commercial Services segment) and photo enforcement programs (Government Solutions segment) have been negatively impacted by COVID-19, with Hertz filing for bankruptcy[197](index=197&type=chunk)[198](index=198&type=chunk) - Historical financial data may not accurately reflect the ongoing adverse impacts of the COVID-19 pandemic[201](index=201&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds - There were no unregistered sales of equity securities or use of proceeds to report[202](index=202&type=chunk) [Item 3. Defaults Upon Senior Securities](index=44&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - There were no defaults upon senior securities to report[203](index=203&type=chunk) [Item 4. Mine Safety Disclosures](index=44&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable to the company[204](index=204&type=chunk) [Item 5. Other Information](index=44&type=section&id=Item%205.%20Other%20Information) The company reported no other information - There is no other information to report[205](index=205&type=chunk) [Item 6. Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q, including merger agreements, corporate documents, warrant agreements, and certifications - The exhibit index includes various documents such as merger agreements, corporate organizational documents, warrant agreements, and certifications (e.g., CEO/CFO certifications)[209](index=209&type=chunk)[210](index=210&type=chunk) [SIGNATURES](index=47&type=section&id=SIGNATURES) This section confirms the official signing of the report by the company's President, CEO, and CFO - The report was signed by David Roberts (President and CEO) and Patricia Chiodo (CFO) on November 5, 2020[214](index=214&type=chunk)

PART I—FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls for the reporting period [Item 1. Financial Statements.](index=5&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, recent acquisitions, debt, and segment performance [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The condensed consolidated balance sheets show the company's financial position at June 30, 2020, and December 31, 2019, indicating a decrease in total assets, liabilities, and stockholders' equity | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :--------------------------------- | :------------------------------- | :--------------------------------- | | Total assets | 1,355,122 | 1,407,426 | | Total liabilities | 1,023,372 | 1,068,079 | | Total stockholders' equity | 331,750 | 339,347 | | Cash and cash equivalents | 113,239 | 131,513 | [Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20(Loss)%20Income) The statements of operations reveal a significant shift from net income to net loss for both the three and six months ended June 30, 2020, primarily driven by a decline in service revenue and increased credit loss expense, despite growth in product sales Three Months Ended June 30 (YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Total revenue | 79,809 | 109,575 | (29,766) | (27.2)% | | Service revenue | 62,815 | 103,057 | (40,242) | (39.0)% | | Product sales | 16,994 | 6,518 | 10,476 | 160.7% | | Net (loss) income | (15,388) | 3,591 | (18,979) | (528.5)% | | Diluted EPS | (0.10) | 0.02 | (0.12) | (600.0)% | Six Months Ended June 30 (YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Total revenue | 196,522 | 208,036 | (11,514) | (5.5)% | | Service revenue | 162,312 | 201,127 | (38,815) | (19.3)% | | Product sales | 34,210 | 6,909 | 27,301 | 395.2% | | Net (loss) income | (8,715) | 6,411 | (15,126) | (235.9)% | | Diluted EPS | (0.05) | 0.04 | (0.09) | (225.0)% | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) The statements of stockholders' equity show a decrease in total equity from December 31, 2019, to June 30, 2020, primarily due to net losses and other comprehensive losses, partially offset by stock-based compensation and the issuance of earn-out shares | Metric | December 31, 2019 ($ in thousands) | June 30, 2020 ($ in thousands) | | :----------------------------------- | :--------------------------------- | :----------------------------- | | Total Stockholders' Equity | 339,347 | 331,750 | | Net (loss) income (H1) | 6,673 (income) | (8,715) (loss) | | Stock-based compensation (H1) | 2,768 | 6,039 | | Other comprehensive loss, net of tax | (3,367) | (3,875) | - Earn-out shares issued to Platinum Stockholder amounted to **$18.287 million** for the six months ended June 30, 2020[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flows from operating activities decreased significantly in the first half of 2020, while cash used in financing activities increased substantially due to mandatory debt prepayments and refinancing costs Six Months Ended June 30 (YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :-------------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Net cash provided by operating activities | 22,543 | 45,781 | (23,238) | (50.8)% | | Net cash used in investing activities | (14,252) | (14,178) | (74) | 0.5% | | Net cash used in financing activities | (25,501) | (4,704) | (20,797) | 442.1% | | Cash, cash equivalents and restricted cash - end of period | 113,950 | 93,990 | 19,960 | 21.2% | - The increase in cash used in financing activities was primarily due to a **$19.7 million** mandatory prepayment of excess cash flows and costs associated with refinancing the First Lien Term Loan in February 2020[173](index=173&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the company's business, significant accounting policies, recent acquisition of Pagatelia, changes in accounts receivable and goodwill, debt structure, and segment-specific financial performance, offering crucial context to the condensed financial statements [1. Description of Business](index=10&type=section&id=1.%20Description%20of%20Business) Verra Mobility Corporation, formed in 2018, operates in two segments: Commercial Services, offering toll and violation management for fleets and rental cars, and Government Solutions, providing traffic safety enforcement solutions for government agencies - Verra Mobility Corporation (formerly Gores Holdings II, Inc.) completed a business combination on October 17, 2018[29](index=29&type=chunk) - The Company is organized into two operating segments: Commercial Services and Government Solutions[30](index=30&type=chunk) - Commercial Services offers toll and violation management solutions for commercial fleets and rental car industries in North America and Europe[31](index=31&type=chunk) - Government Solutions provides end-to-end red-light, speed, school bus stop arm, and bus lane enforcement solutions for municipalities and law enforcement agencies[32](index=32&type=chunk) [2. Significant Accounting Policies](index=10&type=section&id=2.%20Significant%20Accounting%20Policies) The company's financial statements are prepared under GAAP, relying on management estimates. Key accounting standard adoptions in January 2020 include ASU 2017-04 for goodwill impairment and ASU 2016-13 (CECL) for credit losses, which resulted in a **$0.7 million** adjustment to accumulated deficit - The Company adopted ASU 2017-04, simplifying the test for goodwill impairment, as of January 1, 2020[36](index=36&type=chunk) - The Company adopted ASU 2016-13 (CECL standard) as of January 1, 2020, through a cumulative effect adjustment of **$0.7 million**, net of tax, to the opening balance of Accumulated deficit[38](index=38&type=chunk) - ASU 2019-12 (Income Taxes) is effective for fiscal years beginning after December 15, 2020, and ASU 2020-04 (Reference Rate Reform) is in effect through December 31, 2022[39](index=39&type=chunk)[40](index=40&type=chunk) [3. Acquisition](index=12&type=section&id=3.%20Acquisition) On October 31, 2019, Verra Mobility acquired Pagatelia S.L. for **$26.6 million**, integrating its electronic consumer tolling and parking solutions into the Commercial Services segment and recognizing **$17.5 million** in goodwill - The Company completed the acquisition of Pagatelia S.L. on October 31, 2019, for a purchase consideration of **$26.6 million**[41](index=41&type=chunk) - Pagatelia provides electronic consumer tolling and parking solutions in Spain, Portugal, France, and Italy[41](index=41&type=chunk) - Goodwill of **$17.528 million** arising from Pagatelia was assigned to the Commercial Services segment[41](index=41&type=chunk) [4. Accounts Receivable, Net](index=12&type=section&id=4.%20Accounts%20Receivable,%20Net) Accounts receivable, net, increased to **$125.3 million** by June 30, 2020. The allowance for credit loss significantly increased to **$12.9 million**, driven by the CECL standard adoption and a **$3.5 million** specific provision for a bankrupt Commercial Services customer (Hertz) | Metric | January 1, 2020 ($ in thousands) | June 30, 2020 ($ in thousands) | | :----------------------------------- | :------------------------------- | :----------------------------- | | Accounts Receivable, Net | 92,695 | 125,252 | | Allowance for credit loss | 8,456 | 12,930 | | Credit loss expense (H1 2020) | N/A | 10,723 | - The credit loss expense for the six months ended June 30, 2020, includes a specific provision of **$3.5 million** for accounts receivable due from one of our Commercial Services customers (Hertz Corporation) who filed for Chapter 11 bankruptcy[45](index=45&type=chunk) - The City of New York Department of Transportation represented **40.5%** of total revenue for the three months ended June 30, 2020, and **42.2%** of accounts receivable, net, as of June 30, 2020[46](index=46&type=chunk) [5. Prepaid Expenses and Other Current Assets](index=14&type=section&id=5.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) Total prepaid expenses and other current assets decreased from **$26.5 million** at December 31, 2019, to **$19.0 million** at June 30, 2020, primarily due to reductions in prepaid tolls and prepaid services | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :----------------------------------- | :----------------------------- | :--------------------------------- | | Total prepaid expenses and other current assets | 18,964 | 26,491 | | Prepaid tolls | 7,947 | 10,116 | | Prepaid services | 3,176 | 5,201 | [6. Goodwill and Intangible Assets](index=14&type=section&id=6.%20Goodwill%20and%20Intangible%20Assets) Goodwill slightly decreased to **$581.6 million** by June 30, 2020, mainly due to foreign currency adjustments. Intangible assets, net, also declined to **$386.4 million**. An interim goodwill impairment test was conducted due to market declines from COVID-19, but no impairment was found | Metric | December 31, 2019 ($ in thousands) | June 30, 2020 ($ in thousands) | | :----------------------------------- | :--------------------------------- | :----------------------------- | | Goodwill | 584,150 | 581,615 | | Intangible assets, net | 434,443 | 386,363 | | Amortization expense (H1) | 46,300 | 47,100 | - A foreign currency translation adjustment of **$(2.535) million** contributed to the decrease in goodwill for the Commercial Services segment[48](index=48&type=chunk) - An interim quantitative impairment test was performed as of March 31, 2020, and updated as of June 30, 2020, due to a significant decline in market capitalization and equity values amid COVID-19, concluding that fair values exceeded carrying values[51](index=51&type=chunk)[52](index=52&type=chunk) [7. Impairment of Other Long-lived Assets](index=15&type=section&id=7.%20Impairment%20of%20Other%20Long-lived%20Assets) The company performed a qualitative assessment and concluded no impairment of other long-lived assets as of June 30, 2020. However, a **$5.9 million** impairment charge was recognized in Q2 2019 in the Government Solutions segment due to a Texas ban on red-light photo enforcement programs - At June 30, 2020, the Company performed a qualitative assessment and concluded that there is no impairment of other long-lived assets[53](index=53&type=chunk) - A **$5.9 million** impairment charge was recognized in the Government Solutions segment for the three and six months ended June 30, 2019, due to Texas legislation banning red-light photo enforcement programs[54](index=54&type=chunk) [8. Accrued Liabilities](index=15&type=section&id=8.%20Accrued%20Liabilities) Total accrued liabilities decreased from **$25.3 million** at December 31, 2019, to **$19.6 million** at June 30, 2020, primarily driven by lower accrued salaries and wages and a reduction in the current portion of the related party TRA liability | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :------------------------- | :----------------------------- | :--------------------------------- | | Total accrued liabilities | 19,570 | 25,277 | | Accrued salaries and wages | 4,228 | 10,319 | | Current portion of related party TRA liability | 4,636 | 5,730 | [9. Debt](index=16&type=section&id=9.%20Debt) The company's total debt decreased to **$843.4 million** by June 30, 2020. The First Lien Term Loan was refinanced in February 2020, reducing the interest rate margin by **50 basis points**, resulting in a lower effective interest rate of **3.6%** and a significant decrease in interest expense. A **$19.7 million** mandatory prepayment was also made | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :----------------------------------- | :----------------------------- | :--------------------------------- | | Total debt | 843,421 | 866,465 | | First Lien Term Loan, due Feb 28, 2025 | 870,194 | 894,421 | - The First Lien Term Loan was refinanced on February 20, 2020, reducing the applicable margin by **50 basis points**, resulting in an interest rate of **3.6%** at June 30, 2020 (down from **5.5%** at Dec 31, 2019)[57](index=57&type=chunk)[64](index=64&type=chunk) - A **$19.7 million** mandatory prepayment of excess cash flow was made during the first quarter of fiscal 2020[58](index=58&type=chunk) Interest Expense, Net (YoY) | Period | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Q2 | 9,539 | 15,656 | (6,117) | (39.1)% | | H1 | 21,990 | 31,689 | (9,699) | (30.6)% | - The Company had **$68.7 million** available for borrowing under the Revolver at June 30, 2020, with no outstanding borrowings, and was compliant with all 2018 Credit Facilities covenants[59](index=59&type=chunk)[61](index=61&type=chunk) [10. Fair Value of Financial Instruments](index=17&type=section&id=10.%20Fair%20Value%20of%20Financial%20Instruments) The company categorizes the fair value of its financial instruments using a three-level hierarchy. The First Lien Term Loan's estimated fair value of **$839.7 million** at June 30, 2020, is classified as Level 2 - Fair value hierarchy categorizes inputs into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[65](index=65&type=chunk)[66](index=66&type=chunk) | Metric | Fair Value Hierarchy Level | Carrying Amount ($ in thousands) | Estimated Fair Value ($ in thousands) | | :-------- | :------------------------- | :------------------------------- | :------------------------------------ | | Total debt (June 30, 2020) | 2 | 843,421 | 839,737 | | Total debt (Dec 31, 2019) | 2 | 866,465 | 905,601 | [11. Net (Loss) Income Per Share](index=17&type=section&id=11.%20Net%20(Loss)%20Income%20Per%20Share) Basic and diluted net (loss) income per share shifted from positive in 2019 to negative in 2020, reflecting the company's net losses. A significant number of antidilutive shares were excluded from diluted EPS calculations in 2020 Net (Loss) Income Per Share (YoY) | Period | Metric | 2020 | 2019 | | :----- | :----- | :--- | :--- | | Q2 | Basic | (0.10) | 0.02 | | Q2 | Diluted| (0.10) | 0.02 | | H1 | Basic | (0.05) | 0.04 | | H1 | Diluted| (0.05) | 0.04 | Antidilutive Shares Excluded from Diluted EPS | Period | 2020 (in thousands) | 2019 (in thousands) | | :----- | :------------------ | :------------------ | | Q2 | 29,192 | 8,214 | | H1 | 29,192 | 19,150 | [12. Income Taxes](index=18&type=section&id=12.%20Income%20Taxes) The company's effective income tax rate changed significantly in 2020, moving from a provision to a benefit, primarily due to lower pre-tax income. The CARES Act provisions were applied, and unrecognized tax benefits decreased Effective Income Tax Rate (YoY) | Period | 2020 (%) | 2019 (%) | | :----- | :------- | :------- | | Q2 | (20.7)% | 32.6% | | H1 | (8.5)% | 32.3% | - The effective tax rate change was primarily due to lower pre-tax income in the current year, resulting in permanent book and tax differences having a proportionately greater impact[75](index=75&type=chunk) - The Company applied certain articles of the CARES Act, including increased interest deduction and delayed FICA payments[74](index=74&type=chunk) - Total unrecognized tax benefits decreased by **$0.9 million** during fiscal 2020 to **$0.8 million** as of June 30, 2020[76](index=76&type=chunk) [13. Stock-Based Compensation](index=19&type=section&id=13.%20Stock-Based%20Compensation) Stock-based compensation expense increased for both the three and six months ended June 30, 2020, compared to the prior year, reflecting higher expenses in both operating and selling, general and administrative categories Total Stock-Based Compensation Expense (YoY) | Period | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Q2 | 3,271 | 2,812 | 459 | 16.3% | | H1 | 6,039 | 4,955 | 1,084 | 21.9% | [14. Related Party Transactions](index=19&type=section&id=14.%20Related%20Party%20Transactions) This section details the Tax Receivable Agreement (TRA) and the Earn-Out Agreement. The TRA liability increased by **$4.4 million** due to changes in estimated state tax rates. Under the Earn-Out Agreement, two tranches of shares have been issued to the Platinum Stockholder, with **$36.6 million** remaining contingently issuable - A **$4.4 million** increase was recorded to the Payable related to tax receivable agreement in Q2 2020 due to higher estimated state tax rates, bringing the total TRA liability to approximately **$70.2 million** at June 30, 2020[81](index=81&type=chunk) - The Earn-Out Agreement entitles the Platinum Stockholder to receive up to **10 million** Earn-Out Shares based on Common Stock Price thresholds over a five-year period[83](index=83&type=chunk)[84](index=84&type=chunk) - The first and second tranches of Earn-Out Shares (totaling **5 million** shares) were issued on April 26, 2019, and January 27, 2020, respectively, with **$36.6 million** remaining contingently issuable as of June 30, 2020[86](index=86&type=chunk)[87](index=87&type=chunk) [15. Commitments and Contingencies](index=20&type=section&id=15.%20Commitments%20and%20Contingencies) The company has **$6.3 million** in outstanding letters of credit and **$16.0 million** in non-cancelable purchase commitments. It accrued **$0.5 million** for severance costs related to exit activities and does not anticipate material adverse impacts from legal proceedings or a customer guarantee | Commitment Type | Amount ($ in thousands) | | :------------------------------ | :---------------------- | | Outstanding letters of credit | 6,300 | | Non-cancelable purchase commitments | 16,000 | - The Company accrued **$0.5 million** for severance and other employee separation costs as of June 30, 2020, primarily related to the Commercial Services segment[91](index=91&type=chunk) - The likelihood of making payment under a customer guarantee for the one-year period ending March 31, 2021, is deemed remote, and no liability has been recorded[90](index=90&type=chunk) - Resolution of pending legal and regulatory actions is not probable to have a material adverse impact on the company's financial position[92](index=92&type=chunk) [16. Segment Reporting](index=21&type=section&id=16.%20Segment%20Reporting) The company reports financial information for its Commercial Services and Government Solutions segments. In Q2 and H1 2020, Commercial Services revenue and profit significantly declined due to COVID-19, while Government Solutions saw revenue growth, particularly from speed programs, despite some COVID-19 related impacts Segment Revenue and Profit (Three Months Ended June 30, YoY) | Metric | Segment | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------- | :------------------ | :-------------------- | :-------------------- | :---------------------- | :--------- | | Total revenue | Commercial Services | 27,272 | 68,091 | (40,819) | (59.9)% | | Total revenue | Government Solutions| 52,537 | 41,484 | 11,053 | 26.7% | | Segment profit | Commercial Services | 7,192 | 44,133 | (36,941) | (83.7)% | | Segment profit | Government Solutions| 20,321 | 15,543 | 4,778 | 30.7% | Segment Revenue and Profit (Six Months Ended June 30, YoY) | Metric | Segment | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------- | :------------------ | :-------------------- | :-------------------- | :---------------------- | :--------- | | Total revenue | Commercial Services | 88,514 | 130,679 | (42,165) | (32.3)% | | Total revenue | Government Solutions| 108,008 | 77,357 | 30,651 | 39.6% | | Segment profit | Commercial Services | 40,602 | 82,169 | (41,567) | (50.6)% | | Segment profit | Government Solutions| 41,548 | 28,764 | 12,784 | 44.4% | [17. Guarantor/Non-Guarantor Financial Information](index=23&type=section&id=17.%20Guarantor/Non-Guarantor%20Financial%20Information) This section provides disaggregated financial statements for Verra Mobility Corporation (ultimate parent), VM Consolidated Inc. (guarantor subsidiary), and non-guarantor subsidiaries, detailing their respective balance sheets, statements of operations, and cash flows for the specified periods - VM Consolidated, Inc., a wholly-owned subsidiary, is the lead borrower of the First Lien Term Loan and the Revolver[99](index=99&type=chunk) - The financial information presents condensed consolidated balance sheets, statements of operations and comprehensive loss, and statements of cash flows for the Company, combined guarantor subsidiaries, and combined non-guarantor subsidiaries[100](index=100&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, emphasizing the significant negative impact of the COVID-19 pandemic on revenues, particularly in the Commercial Services segment, and detailing segment performance, liquidity, and critical accounting policies [Recent Events Affecting Our Operating Results](index=29&type=section&id=Recent%20Events%20Affecting%20Our%20Operating%20Results) The COVID-19 pandemic has severely impacted the company's operating results, leading to significant revenue decreases in Commercial Services due to reduced travel and rental car demand, and in Government Solutions from school closures and lower traffic. Hertz, a key customer, filed for bankruptcy - The COVID-19 pandemic has significantly disrupted the global economy and travel industry, leading to reduced airline travel and widespread travel restrictions[114](index=114&type=chunk) - Revenues from rental car companies (RACs) in the Commercial Services segment decreased significantly, and The Hertz Corporation, a key customer, filed for Chapter 11 bankruptcy in May 2020[115](index=115&type=chunk) - Government Solutions segment revenues were negatively impacted by school closures (school bus stop arm and school zone speed cameras) and reductions in vehicle traffic due to stay-at-home orders[116](index=116&type=chunk) [Business Overview](index=29&type=section&id=Business%20Overview) Verra Mobility is a leading provider of smart mobility technology solutions in North America and Europe, offering toll and violations management, title and registration, and automated safety solutions to a diverse customer base including rental car companies, fleet management companies, and government agencies - Verra Mobility is a leading provider of smart mobility technology solutions and services throughout the United States, Canada, and Europe[119](index=119&type=chunk) - Solutions include toll and violations management, title and registration, automated safety solutions, and other data-driven solutions[119](index=119&type=chunk) - Customers include rental car companies (RACs), fleet management companies (FMCs), other large fleet owners, municipalities, school districts, and violation-issuing authorities[119](index=119&type=chunk) [Segment Information](index=30&type=section&id=Segment%20Information) The company operates through two reportable segments: Commercial Services, which manages toll and violation solutions for commercial fleets and rental cars, and Government Solutions, which provides traffic safety enforcement programs. Segment performance is assessed based on revenues and income from operations before certain non-operating expenses - The Company has two operating and reportable segments: Commercial Services and Government Solutions[121](index=121&type=chunk) - Commercial Services offers toll and violation management solutions, title and registration services for RACs and FMCs in North America and Europe[125](index=125&type=chunk) - Government Solutions provides complete, end-to-end red-light, speed, school bus stop arm, and bus lane enforcement solutions for municipalities and local government agencies[125](index=125&type=chunk) [Executive Summary](index=30&type=section&id=Executive%20Summary) Verra Mobility's strategy focuses on revenue growth with existing customers, market expansion, and cost reduction. In the first half of 2020, total revenue decreased due to COVID-19's impact on service revenue, despite strong product sales growth. Cash flow from operations also declined, though financing costs were reduced through debt refinancing - The Company's strategy involves growing revenues with existing customers, expanding into adjacent markets through innovation or acquisition, and reducing operating costs[122](index=122&type=chunk) Key Financial Highlights (Six Months Ended June 30, YoY) | Metric | 2020 ($ in millions) | 2019 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------------------------- | :------------------- | :------------------- | :--------------------- | :--------- | | Total revenue | 196.5 | 208.0 | (11.5) | (5.5)% | | Cash flows from operating activities | 22.5 | 45.8 | (23.3) | (50.9)% | | Interest expense, net | 22.0 | 31.7 | (9.7) | (30.6)% | - Product sales grew by **$27.3 million** year over year, offsetting some of the decline in service revenue due to COVID-19[126](index=126&type=chunk) [Primary Components of Our Operating Results](index=30&type=section&id=Primary%20Components%20of%20Our%20Operating%20Results) This section outlines the key revenue streams, including service revenue from Commercial Services (tolling, violations, title/registration) and Government Solutions (photo enforcement), and product sales (equipment). It also details cost and expense categories such as cost of service/product, operating, SG&A, depreciation/amortization, interest, tax receivable agreement adjustments, and other income [Revenues](index=30&type=section&id=Revenues) Total revenue is comprised of service revenue from Commercial Services (toll and violation management, title/registration) and Government Solutions (photo enforcement systems), along with product sales from Government Solutions (equipment sales) - Commercial Services generates service revenue from managing tolling programs for RACs, FMCs, and other large fleet customers, and from processing titles, registrations, and violations[123](index=123&type=chunk) - Government Solutions generates service revenue from the operation and maintenance of photo enforcement systems (red-light, speed, school bus stop arm, bus lane enforcement)[124](index=124&type=chunk) - Product sales are generated by the sale of photo enforcement equipment to certain Government Solutions customers, recognized upon acceptance or installation[125](index=125&type=chunk) [Cost and Expenses](index=31&type=section&id=Cost%20and%20Expenses) Costs and expenses include cost of service revenue (third-party services), cost of product sales (equipment acquisition/installation), operating expenses (payroll, call center, transaction processing), selling, general and administrative expenses (payroll, leases, professional fees), depreciation/amortization, interest expense, tax receivable agreement adjustments, and other income (rebates, foreign currency) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) This section provides a detailed comparison of the company's financial performance for the three and six months ended June 30, 2020, versus 2019, highlighting the impact of COVID-19 on revenue, expenses, and net income, alongside specific segment performance drivers [Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019](index=32&type=section&id=Three%20Months%20Ended%20June%2030,%202020%20Compared%20to%20Three%20Months%20Ended%20June%2030,%202019) In Q2 2020, total revenue decreased by **27.2%**, primarily due to a **59.9%** drop in Commercial Services service revenue from COVID-19. Government Solutions service revenue saw a slight increase, driven by speed programs, while product sales surged by **160.7%**. The company reported a net loss of **$(15.4) million**, a significant decline from net income in Q2 2019 Revenue Performance (Three Months Ended June 30, YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Total revenue | 79,809 | 109,575 | (29,766) | (27.2)% | | Service revenue | 62,815 | 103,057 | (40,242) | (39.0)% | | Product sales | 16,994 | 6,518 | 10,476 | 160.7% | - Commercial Services service revenue decreased by **$40.8 million** (**59.9%**) to **$27.3 million**, primarily due to the COVID-19 pandemic's impact on the rental car industry[134](index=134&type=chunk) - Government Solutions service revenue increased by **$0.6 million** (**1.7%**) to **$35.5 million**, driven by a **$4.8 million** increase in speed program revenue, partially offset by declines from red-light programs (**$2.8 million**) and school bus stop arm camera suspensions (**$1.6 million**) due to COVID-19 and the Texas ban[135](index=135&type=chunk)[136](index=136&type=chunk) Net (Loss) Income and Key Expenses (Three Months Ended June 30, YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :-------------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Net (loss) income | (15,388) | 3,591 | (18,979) | (528.5)% | | Interest expense, net | 9,539 | 15,656 | (6,117) | (39.1)% | | Loss from tax receivable agreement adjustment | 4,446 | — | 4,446 | n/a | [Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019](index=35&type=section&id=Six%20Months%20Ended%20June%2030,%202020%20Compared%20to%20Six%20Months%20Ended%20June%2030,%202019) For the first half of 2020, total revenue decreased by **5.5%**, with Commercial Services service revenue down **32.3%** due to COVID-19. Government Solutions service revenue increased by **4.8%**, boosted by speed programs, and product sales grew by **395.2%**. The company reported a net loss of **$(8.7) million**, a significant shift from net income in H1 2019, also impacted by a **$10.7 million** credit loss expense Revenue Performance (Six Months Ended June 30, YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Total revenue | 196,522 | 208,036 | (11,514) | (5.5)% | | Service revenue | 162,312 | 201,127 | (38,815) | (19.3)% | | Product sales | 34,210 | 6,909 | 27,301 | 395.2% | - Commercial Services service revenue decreased by **$42.2 million** (**32.3%**) to **$88.5 million**, primarily due to the COVID-19 pandemic's impact on the rental car industry[150](index=150&type=chunk)[151](index=151&type=chunk) - Government Solutions service revenue increased by **$3.4 million** (**4.8%**) to **$73.8 million**, driven by a **$10.7 million** increase in speed program revenue, partially offset by declines from red-light programs (**$5.5 million**) and school bus stop arm camera suspensions (**$1.6 million**)[152](index=152&type=chunk) Net (Loss) Income and Key Expenses (Six Months Ended June 30, YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :-------------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Net (loss) income | (8,715) | 6,411 | (15,126) | (235.9)% | | Interest expense, net | 21,990 | 31,689 | (9,699) | (30.6)% | | Loss from tax receivable agreement adjustment | 4,446 | — | 4,446 | n/a | | Credit loss expense | 10,700 | 2,700 | 8,000 | 296.3% | [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity relies on operating cash flow and its Revolver. While management believes current resources are sufficient for 12 months, future acquisitions may require additional capital. Cash provided by operating activities decreased by **$23.3 million**, and cash used in financing activities increased significantly due to a **$19.7 million** mandatory debt prepayment and refinancing costs - Principal sources of liquidity are cash flow from operations and borrowings under the 2018 Credit Facilities[167](index=167&type=chunk) - Management believes existing cash, operating cash flows, and Revolver availability (**$68.7 million** at June 30, 2020) will be sufficient for at least the next 12 months[169](index=169&type=chunk)[177](index=177&type=chunk) Cash Flow Summary (Six Months Ended June 30, YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :-------------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Net cash provided by operating activities | 22,543 | 45,781 | (23,238) | (50.8)% | | Net cash used in financing activities | (25,501) | (4,704) | (20,797) | 442.1% | - A **$19.7 million** mandatory prepayment of excess cash flow was made during the first quarter of fiscal 2020, and the First Lien Term Loan was refinanced in February 2020, reducing the interest rate margin by **50 basis points**[173](index=173&type=chunk)[175](index=175&type=chunk) [Off-Balance Sheet Arrangements](index=40&type=section&id=Off-Balance%20Sheet%20Arrangements) The company reported no off-balance sheet arrangements as of June 30, 2020 - The Company does not have any off-balance sheet arrangements as of June 30, 2020[183](index=183&type=chunk) [Critical Accounting Policies, Estimates and Judgments](index=40&type=section&id=Critical%20Accounting%20Policies,%20Estimates%20and%20Judgments) The preparation of the company's financial statements requires significant management estimates and assumptions, particularly concerning fair values in business combinations, carrying amounts of assets, credit loss allowances, and contingent liabilities, where actual results could materially differ from estimates - Significant items subject to estimates and assumptions include fair values assigned to net assets acquired, carrying amounts of long-lived assets and goodwill, allowance for credit loss, valuation allowances on deferred tax assets, asset retirement obligations, contingent consideration, and loss contingencies[184](index=184&type=chunk) [Recent Accounting Pronouncements](index=40&type=section&id=Recent%20Accounting%20Pronouncements) For a discussion of recent accounting pronouncements, refer to Note 2, Significant Accounting Policies, in Item 1, Financial Statements - Refer to Note 2, Significant Accounting Policies, in Item 1, Financial Statements, for a discussion of recent accounting pronouncements[186](index=186&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate market risk due to its variable-rate First Lien Term Loan, with a **1%** change in interest rates potentially altering annual interest expense by approximately **$8.7 million**. The company has not engaged in and does not plan to engage in hedging activities - The Company is exposed to interest rate market risk due to the variable interest rate on its First Lien Term Loan, which had an outstanding balance of **$870.2 million** at June 30, 2020[187](index=187&type=chunk) - Each **1%** movement in interest rates will result in an approximately **$8.7 million** change in annual interest expense[187](index=187&type=chunk) - The Company has not engaged in any hedging activities during the six months ended June 30, 2020, and does not expect to do so[188](index=188&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's disclosure controls and procedures were deemed ineffective as of June 30, 2020, due to a material weakness in internal control over financial reporting. No material changes occurred in internal control during the quarter, and a remediation plan is underway, expected to be completed by the end of fiscal 2020 [Evaluation of Disclosure Controls and Procedures](index=41&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were not effective as of June 30, 2020, due to a material weakness in internal control over financial reporting - The Company's disclosure controls and procedures were not effective as of June 30, 2020, due to a material weakness in internal control over financial reporting[190](index=190&type=chunk) [Changes in Internal Control Over Financial Reporting](index=41&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) There have been no material changes in the company's internal control over financial reporting during the quarter ended June 30, 2020 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020[191](index=191&type=chunk) [Remediation](index=41&type=section&id=Remediation) The company is actively implementing a remediation plan to address the identified material weakness in internal control over financial reporting, with completion expected before the end of fiscal year 2020 - A remediation plan is being implemented to address the material weakness in internal control over financial reporting[192](index=192&type=chunk) - The remediation of this material weakness is expected to be completed prior to the end of fiscal year 2020[192](index=192&type=chunk) PART II—OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety disclosures, other information, and a list of exhibits for the reporting period [Item 1. Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no material legal proceedings - No material legal proceedings were reported[194](index=194&type=chunk) [Item 1A. Risk Factors](index=42&type=section&id=Item%201A.%20Risk%20Factors) This section supplements prior risk factors, highlighting the severe adverse impact of the COVID-19 pandemic on the company's business, particularly affecting revenues from the rental car industry in Commercial Services and photo enforcement programs in Government Solutions. Historical data may not accurately reflect future performance due to these ongoing impacts - The COVID-19 pandemic has caused severe disruption to the global economy and travel industry, adversely affecting the company's business and results of operations[196](index=196&type=chunk)[197](index=197&type=chunk) - Revenues from key rental car industry customers in the Commercial Services segment have been significantly impacted, with one major customer (Hertz) filing for bankruptcy[198](index=198&type=chunk) - Government Solutions revenues have been negatively affected by school closures and reductions in vehicle traffic due to COVID-19 containment measures[199](index=199&type=chunk) - Historical financial data may not reflect the full adverse impact of the COVID-19 pandemic and should not be unduly relied upon as representative of future performance[202](index=202&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds - No unregistered sales of equity securities or use of proceeds were reported[203](index=203&type=chunk) [Item 3. Defaults Upon Senior Securities](index=43&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities were reported[204](index=204&type=chunk) [Item 4. Mine Safety Disclosures](index=43&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable to the registrant[205](index=205&type=chunk) [Item 5. Other Information](index=43&type=section&id=Item%205.%20Other%20Information) The company reported no other information - No other information was reported[206](index=206&type=chunk) [Item 6. Exhibits](index=44&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of or incorporated by reference into the Quarterly Report on Form 10-Q, including key corporate documents, agreements, and certifications - Exhibits include the Merger Agreement, Certificate of Incorporation, Bylaws, Warrant Agreement, and certifications from the Principal Executive Officer and Principal Financial Officer[210](index=210&type=chunk) - The filing also includes Inline XBRL Instance Document and related taxonomy extension documents[210](index=210&type=chunk)[211](index=211&type=chunk) SIGNATURES This section confirms the official signing and submission of the Quarterly Report on Form 10-Q by the company's principal executive and financial officers [SIGNATURES](index=46&type=section&id=SIGNATURES) The Quarterly Report on Form 10-Q was duly signed on August 6, 2020, by David Roberts, President and Chief Executive Officer, and Patricia Chiodo, Chief Financial Officer, on behalf of Verra Mobility Corporation - The report was signed by David Roberts, President and Chief Executive Officer, and Patricia Chiodo, Chief Financial Officer[216](index=216&type=chunk) - The signing date of the report was August 6, 2020[216](index=216&type=chunk)

[PART I—FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the quarter [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2020, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with key notes on business segments, accounting standards, goodwill impairment, and segment performance [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity as of March 31, 2020, and December 31, 2019 Condensed Consolidated Balance Sheet Highlights (Unaudited) | ($ in thousands) | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $113,583 | $131,513 | | Total current assets | $265,906 | $272,438 | | Goodwill | $581,730 | $584,150 | | Total assets | $1,374,129 | $1,407,426 | | **Liabilities & Equity** | | | | Total current liabilities | $72,003 | $104,881 | | Long-term debt, net | $835,507 | $837,686 | | Total liabilities | $1,029,729 | $1,068,079 | | Total stockholders' equity | $344,400 | $339,347 | [Condensed Consolidated Statements of Operations and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) This section outlines the company's financial performance, including total revenue, operating income, net income, and diluted earnings per share for the three months ended March 31, 2020 and 2019 Condensed Consolidated Statements of Operations Highlights (Unaudited) | (In thousands, except per share data) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Total revenue | $116,713 | $98,461 | | Income from operations | $19,413 | $17,966 | | Net income | $6,673 | $2,820 | | Diluted EPS | $0.04 | $0.02 | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details the changes in stockholders' equity, primarily driven by net income and foreign currency translation adjustments, for the three months ended March 31, 2020 - Total stockholders' equity increased from **$339.3 million** at December 31, 2019, to **$344.4 million** as of March 31, 2020, primarily due to **net income of $6.7 million**, partially offset by a **foreign currency translation adjustment loss of $3.4 million**[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2020 and 2019 Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | ($ in thousands) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $14,841 | $37,351 | | Net cash used in investing activities | ($8,131) | ($9,167) | | Net cash used in financing activities | ($23,084) | ($2,313) | | Net (decrease) increase in cash | ($17,337) | $26,107 | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the company's business segments, significant accounting policies, goodwill impairment testing, debt refinancing, and segment-level financial performance - The company operates through two segments: **Commercial Services** (toll and violation management for fleets and rental cars) and **Government Solutions** (photo enforcement solutions for municipalities and school districts)[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - The company adopted the new **CECL accounting standard** for credit losses on January 1, 2020, resulting in a cumulative effect adjustment of **$0.7 million**, net of tax, to the opening balance of Accumulated deficit[36](index=36&type=chunk) - An interim goodwill impairment test as of March 31, 2020, concluded **no impairment** for either the Government Solutions or Commercial Services reporting units, despite a significant market capitalization decline due to COVID-19 uncertainty[51](index=51&type=chunk)[52](index=52&type=chunk) - On February 20, 2020, the company refinanced its First Lien Term Loan, reducing the applicable interest rate margin by **50 basis points**, with the interest rate at **4.24%** as of March 31, 2020[55](index=55&type=chunk) Segment Revenue and Profit (Q1 2020) | ($ in thousands) | Commercial Services | Government Solutions | Total | | :--- | :--- | :--- | :--- | | Total Revenue | $61,242 | $55,471 | $116,713 | | Segment Profit | $33,410 | $21,227 | $54,637 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial results for Q1 2020, emphasizing the emerging impact of the COVID-19 pandemic, with total revenue increasing 18.5% year-over-year to $116.7 million, primarily due to significant product sales growth in Government Solutions, while net income grew to $6.7 million benefiting from lower interest expense, and cash flow from operations decreased due to working capital changes - The **COVID-19 pandemic** began to significantly impact the rental car industry in March 2020, leading to decreased revenue in the Commercial Services segment, while the Government Solutions segment was also slightly affected by school closures and reduced traffic from stay-at-home orders[103](index=103&type=chunk)[118](index=118&type=chunk)[121](index=121&type=chunk) Revenue by Type and Segment (Q1 2020 vs Q1 2019) | ($ in thousands) | Q1 2020 | Q1 2019 | Change (%) | | :--- | :--- | :--- | :--- | | **Total Revenue** | **$116,713** | **$98,461** | **18.5%** | | Service Revenue | $99,497 | $98,070 | 1.5% | | - Commercial Services | $61,242 | $62,588 | (2.2)% | | - Government Solutions | $38,255 | $35,482 | 7.8% | | Product Sales | $17,216 | $391 | 4303.1% | - Net income increased to **$6.7 million** in Q1 2020 from **$2.8 million** in Q1 2019, driven by strong product sales growth and a **$3.5 million decrease in net interest expense** resulting from lower interest rates and a debt refinancing in February 2020[127](index=127&type=chunk)[129](index=129&type=chunk) - Cash provided by operating activities decreased by **$22.6 million** to **$14.8 million** in Q1 2020, primarily due to an increase in accounts receivable from large product sales and the timing of payments to vendors and tolling authorities[133](index=133&type=chunk)[134](index=134&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk exposure is to interest rate fluctuations on its variable-rate First Lien Term Loan, with a 1% change in interest rates impacting annual interest expense by approximately $8.7 million on the $872.5 million outstanding balance as of March 31, 2020, and no hedging activities are in place - The company is exposed to **interest rate risk** from its variable-rate First Lien Term Loan, which had an outstanding balance of **$872.5 million** at March 31, 2020[148](index=148&type=chunk) - Each **1% movement in interest rates** is estimated to result in an approximately **$8.7 million change in annual interest expense**, based on the outstanding debt balance[148](index=148&type=chunk) [Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2020, due to a previously disclosed material weakness in internal control over financial reporting, for which a remediation plan is underway and expected to be completed before the end of the 2020 fiscal year - The Chief Executive Officer and Chief Financial Officer concluded that **disclosure controls and procedures were not effective** as of March 31, 2020, due to a **material weakness in internal control over financial reporting** disclosed in the 2019 Form 10-K[150](index=150&type=chunk) - A remediation plan to address the material weakness is underway, with completion expected prior to the end of the **2020 fiscal year**[152](index=152&type=chunk) [PART II—OTHER INFORMATION](index=33&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This section includes disclosures on legal proceedings, updated risk factors, unregistered equity sales, defaults on senior securities, and a list of exhibits filed with the report [Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company reported no material legal proceedings during the quarter - The company reports that there were **no material legal proceedings** for the period[154](index=154&type=chunk) [Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) This section supplements the risk factors from the 2019 10-K, focusing on the significant new risks posed by the COVID-19 pandemic, including adverse effects on business operations, particularly the negative impact on key customers in the rental car industry and on photo enforcement programs due to reduced travel and traffic - The **COVID-19 pandemic** poses a significant risk to business operations, with potential for decreased productivity, information security breaches, and customers seeking to terminate or renegotiate contracts[156](index=156&type=chunk) - The **Commercial Services segment** is highly dependent on the rental car industry, which has been severely impacted by COVID-19 through reduced airline travel and widespread travel restrictions, leading to an expected decrease in revenues from key RAC customers[157](index=157&type=chunk) - The **Government Solutions segment's revenues** are negatively impacted by school closures (affecting school bus stop arm and school zone speed cameras) and general reductions in vehicle traffic from stay-at-home orders[159](index=159&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities or use of proceeds for the period - The company reports "None" for this item[160](index=160&type=chunk) [Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities for the period - The company reports "None" for this item[161](index=161&type=chunk) [Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's business - This item is not applicable to the company[162](index=162&type=chunk) [Other Information](index=34&type=section&id=Item%205.%20Other%20Information) The company reported no other material information for the period - The company reports "None" for this item[163](index=163&type=chunk) [Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section provides an index of all exhibits filed with or incorporated by reference into the Quarterly Report on Form 10-Q - This section lists the exhibits filed as part of the Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer[165](index=165&type=chunk)[167](index=167&type=chunk)