[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)

[FORM 10-K Cover Page](index=1&type=section&id=FORM%2010-K%20Cover%20Page) Verra Mobility Corporation filed its Annual Report on Form 10-K for FY2019, outlining its filer status and stock information - Verra Mobility Corporation filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2019[2](index=2&type=chunk) - Trading Information for Each Class | Title of Each Class | Trading Symbol | Name of Each Exchange On Which Registered | | :------------------ | :------------- | :---------------------------------------- | | Class A Common Stock, par value $0.0001 per share | VRRM | Nasdaq Capital Market | | Warrants to purchase Class A Common Stock | VRRMW | OTC Pink Marketplace | - The Registrant is a **large accelerated filer** and is not a well-known seasoned issuer, not required to file reports under Section 13 or 15(d), and is not an emerging growth company[3](index=3&type=chunk)[4](index=4&type=chunk) - As of February 26, 2020, Verra Mobility Corporation had **161,650,055 shares of Class A Common Stock outstanding**[5](index=5&type=chunk) [INDEX](index=2&type=section&id=INDEX) This section provides a detailed table of contents for the Form 10-K, outlining various parts and items with corresponding page numbers - The index provides a detailed table of contents for the Form 10-K, outlining the various parts and items included in the report, with corresponding page numbers[9](index=9&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section warns that the Annual Report contains forward-looking statements subject to risks and uncertainties, and the Company undertakes no obligation to update them - This section warns that the Annual Report contains forward-looking statements about future operating results, financial position, business strategy, market conditions, and expansion plans, subject to risks, uncertainties, and assumptions detailed in 'Risk Factors'[11](index=11&type=chunk) - Readers are cautioned not to rely on forward-looking statements as predictions of future events, as actual results could differ materially and adversely, and the Company undertakes no obligation to update these statements after the filing date[12](index=12&type=chunk) [Explanatory Note](index=4&type=section&id=Explanatory%20Note) This note clarifies the company's corporate history, including its formation as Gores Holdings II, Inc. and subsequent business combination with Greenlight, which is treated as the accounting acquirer - Verra Mobility Corporation was originally incorporated as Gores Holdings II, Inc. on August 15, 2016, and completed its initial public offering on January 19, 2017[16](index=16&type=chunk) - On October 17, 2018, Gores completed a Business Combination with Greenlight Holding II Corporation, changing its name to Verra Mobility Corporation and its Nasdaq trading symbols to 'VRRM' and 'VRRMW'[17](index=17&type=chunk)[18](index=18&type=chunk) - For accounting purposes, the Business Combination is treated as a reverse acquisition and recapitalization, with Greenlight considered the accounting acquirer, and financial statements include Greenlight as 'Predecessor' for periods prior to October 17, 2018, and Verra Mobility Corporation thereafter[19](index=19&type=chunk) [PART I](index=5&type=section&id=PART%20I) [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Verra Mobility offers smart mobility technology solutions in North America and Europe, covering toll, violations, and automated safety management [Overview](index=5&type=section&id=Overview) Verra Mobility is a leading provider of smart mobility technology solutions and services in North America and Europe, offering integrated toll, violations, and automated safety solutions to diverse customers - Verra Mobility is a leading provider of smart mobility technology solutions and services in the United States, Canada, and Europe[21](index=21&type=chunk) - The company offers integrated technology solutions including toll and violations management, title and registration, automated safety solutions, and other data-driven solutions[21](index=21&type=chunk) - Customers include rental car companies (RACs), fleet management companies (FMCs), other large fleet owners, municipalities, school districts, and violation issuing authorities[21](index=21&type=chunk) [Segments](index=5&type=section&id=Segments) Verra Mobility operates through Commercial Services and Government Solutions segments, with Commercial Services generating **62% of 2019 revenue** and Government Solutions **38%** - Verra Mobility operates through two primary segments: Commercial Services and Government Solutions[22](index=22&type=chunk) - 2019 Revenue by Segment | Segment | Revenue (Millions USD) | % of Total Revenue | | :------------------ | :--------------------- | :----------------- | | Commercial Services | $276.5 | 62% | | Government Solutions | $172.3 | 38% | - Commercial Services provides automated toll and violations management and title and registration solutions to RACs, FMCs, and large fleet owners in North America, and violations collection in Europe, while Government Solutions offers automated safety solutions (red-light, speed, school bus, city bus lane cameras) to local government agencies[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk)[26](index=26&type=chunk) [The Industries in Which We Operate](index=6&type=section&id=The%20Industries%20in%20Which%20We%20Operate) The company operates in growing tolling, rental car, and automated safety industries, benefiting from trends like cashless tolling and increased traffic enforcement - The tolling industry in the U.S. collected nearly **$21 billion in 2018**, with a growing trend towards cashless and all-electronic tolling, presenting opportunities due to its fragmented nature[28](index=28&type=chunk) - The U.S. RAC industry is highly consolidated (**$32 billion in 2019**), driven by increased rental days and partnerships with ride-sharing providers, while the European FMC market is estimated at over **6 million vehicles**[29](index=29&type=chunk) - Automated safety solutions address increasing vehicle miles traveled and traffic enforcement challenges, with red-light cameras reducing fatalities by up to **21%** and speed cameras by up to **39%**, according to IIHS studies[30](index=30&type=chunk)[32](index=32&type=chunk) [Growth Strategies](index=7&type=section&id=Growth%20Strategies) The company pursues growth through industry tailwinds, expanding customer relationships, new product and market development, global footprint expansion, and accretive acquisitions - The company aims to benefit from strong industry tailwinds, including increasing toll roads and cashless tolling in Commercial Services, and intensifying public attention on traffic safety in Government Solutions[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk) - Growth is also driven by strengthening and expanding customer relationships, exemplified by the significant expansion of New York City's school zone speed enforcement program (**720 new camera systems by 2021**)[36](index=36&type=chunk) - Verra Mobility plans to expand its platform with new products and into new markets like ride-sharing, car-sharing, autonomous vehicles, urban enforcement, curb management, and smart parking solutions[37](index=37&type=chunk)[38](index=38&type=chunk)[40](index=40&type=chunk)[41](index=41&type=chunk) - Global footprint expansion is a key strategy, with a European headquarters in the Netherlands, a partnership with APRR in France, and leveraging recent acquisitions of EPC and Pagatelia for pan-European tolling and violation services[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) - The company actively pursues accretive acquisitions, with a strong track record (HTA, EPC in 2018; Pagatelia in 2019) and a pipeline for future targets[45](index=45&type=chunk) [Products](index=8&type=section&id=Products) Commercial Services products include toll management (**52% of 2019 revenues**), violations management (**7%**), and title/registration (**3%**), while Government Solutions provides road safety cameras (**31%**). - Commercial Services products include fully outsourced toll management solutions (**52% of 2019 revenues**), violations management solutions (**7% of 2019 revenues**), and title and registration solutions (**3% of 2019 revenues**)[46](index=46&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) - Government Solutions provides road safety cameras for red-light, speed, school bus stop arm, and city bus lane enforcement (**31% of 2019 revenues**), including hardware, software, and administrative tasks[50](index=50&type=chunk)[51](index=51&type=chunk) [Customers](index=9&type=section&id=Customers) Verra Mobility serves a diverse customer base across North America and Europe, including major rental car companies, fleet management companies, and local government agencies - Verra Mobility serves a diverse customer base across the US, Canada, and Europe, including major RACs (Hertz, Avis Budget, Enterprise), FMCs (Element, ARI, Donlen, Wheels), and local government agencies (New York City, Seattle, Washington D.C., Austin Independent School District)[52](index=52&type=chunk) [Competition](index=9&type=section&id=Competition) The company faces competition in automated safety solutions and commercial services from other vendors, internal customer solutions, and new technology providers - The company faces competition in its Government Solutions segment from other automated safety solution vendors and in its Commercial Services segment from internal customer solutions and new technology providers[53](index=53&type=chunk) [Intellectual Property](index=10&type=section&id=Intellectual%20Property) Verra Mobility protects its intellectual property through patents, trademarks, trade secrets, copyrights, and confidentiality agreements - Verra Mobility protects its intellectual property through patents (approximately **65 U.S. and foreign-issued/pending**), trademarks (approximately **120 registrations/pending applications**), trade secrets, copyrights, and confidentiality agreements[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk)[58

[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q) This section details Verra Mobility Corporation's Form 10-Q filing information and registrant specifics - Verra Mobility Corporation filed a Quarterly Report on Form 10-Q for the period ended September 30, 2019[2](index=2&type=chunk) Registrant and Filing Details | Indicator | Value | | :--- | :--- | | Registrant Name | VERRA MOBILITY CORPORATION | | Commission File Number | 001-37979 | | State of Incorporation | Delaware | | Trading Symbol | VRRM | | Exchange | Nasdaq Capital Market | | Filer Status | Accelerated filer, Emerging growth company | | Class A Common Stock Outstanding (as of Nov 1, 2019) | 159,150,055 shares | [Cautionary Note Regarding Forward-Looking Statements](index=3&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section highlights forward-looking statements, subject to risks and uncertainties, with no obligation for updates - The report contains forward-looking statements regarding future operating results, financial position, business strategy, market conditions, and expansion plans, which are subject to risks, uncertainties, and assumptions detailed in Item 1A[8](index=8&type=chunk) - The company does not undertake any obligation to update these forward-looking statements after the filing date[9](index=9&type=chunk) [PART I—FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) This part presents the company's unaudited consolidated financial statements and management's analysis [Item 1. Financial Statements.](index=4&type=section&id=Item%201.%20Financial%20Statements.) This section presents Verra Mobility Corporation's unaudited condensed consolidated financial statements and notes [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 equity Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $135,564 | $65,048 | +$70,516 | | Total current assets | $288,098 | $185,148 | +$102,950 | | Total assets | $1,375,859 | $1,344,783 | +$31,076 | | Total current liabilities | $90,318 | $68,736 | +$21,582 | | Total liabilities | $1,048,268 | $1,042,727 | +$5,541 | | Total stockholders' equity | $327,591 | $302,056 | +$25,535 | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) This section details the company's financial performance, including revenue, income, and earnings per share Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $128,240 | $107,602 | $336,276 | $275,040 | | Income from operations | $36,659 | $26,195 | $72,261 | $30,716 | | Net income (loss) | $17,752 | $6,513 | $24,163 | $(20,440) | | Basic earnings (loss) per share | $0.11 | $0.09 | $0.15 | $(0.29) | | Diluted earnings (loss) per share | $0.11 | $0.09 | $0.15 | $(0.29) | - For the nine months ended September 30, 2019, the company reported a **net income of $24.16 million**, a significant improvement from a **net loss of $20.44 million** in the same period of 2018[16](index=16&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section outlines changes in the company's equity, including net income and stock transactions Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric (in thousands) | Dec 31, 2018 | Sep 30, 2019 | | :--- | :--- | :--- | | Total Shareholders' Equity | $302,056 | $327,591 | | Net income (9 months) | - | $24,163 | | Common Stock Contingent Consideration | $73,150 | $54,862 | | Additional Paid-in Capital | $348,017 | $369,670 | | Accumulated Deficit | $(113,306) | $(89,400) | - The company issued **2,500,000 earn-out shares** to the Platinum Stockholder, resulting in an **$18.3 million increase** in Common stock and Additional paid-in capital, and a corresponding decrease in Common stock contingent consideration[18](index=18&type=chunk)[103](index=103&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 Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $95,586 | $46,054 | | Net cash used in investing activities | $(17,478) | $(544,979) | | Net cash (used in) provided by financing activities | $(7,126) | $542,686 | | Net increase in cash, cash equivalents and restricted cash | $70,639 | $43,167 | | Cash, cash equivalents and restricted cash - end of period | $137,720 | $53,676 | - Operating cash flow significantly **increased by $49.5 million**, while cash used in investing activities **decreased substantially** due to fewer large acquisitions in 2019 compared to 2018[21](index=21&type=chunk)[189](index=189&type=chunk)[193](index=193&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. Basis of Presentation and Description of Business](index=9&type=section&id=1.%20Basis%20of%20Presentation%20and%20Description%20of%20Business) This section outlines the company's formation, business model, and operational segments - Verra Mobility Corporation, formerly Gores Holdings II, Inc., completed a reverse acquisition and recapitalization with Greenlight Holding II Corporation on October 17, 2018, with Greenlight treated as the accounting acquirer[25](index=25&type=chunk)[26](index=26&type=chunk)[27](index=27&type=chunk) - The company offers integrated technology solutions and services to commercial fleets, rental car companies, and state and local governments, operating through two divisions: Commercial Services and Government Solutions[29](index=29&type=chunk) - Commercial Services provides toll and violation management, and title and registration services, including violations processing in Europe through Euro Parking Collection plc (EPC)[30](index=30&type=chunk) - Government Solutions delivers end-to-end red-light, speed, school bus stop arm, and bus lane enforcement solutions to municipalities, counties, and law enforcement agencies[31](index=31&type=chunk) [2. Significant Accounting Principles and Policies](index=10&type=section&id=2.%20Significant%20Accounting%20Principles%20and%20Policies) This section details the key accounting standards adopted and their impact on financial reporting - The company adopted ASU 2016-01 (Financial Instruments) and ASU 2016-18 (Restricted Cash) in 2019 and 2018, respectively, with **immaterial impacts** on financial statements[35](index=35&type=chunk)[36](index=36&type=chunk) - ASC 606 (Revenue from Contracts with Customers) was adopted on January 1, 2019, resulting in a **$0.3 million reduction** to opening retained earnings for the Government Solutions segment due to deferral of revenue related to certain variable price contracts[39](index=39&type=chunk)[41](index=41&type=chunk) - Commercial Services revenue is recognized over time as a single stand-ready performance obligation, while Government Solutions recognizes product sales at a point in time (site acceptance/first citation) and service revenue over time as a single continuous service[43](index=43&type=chunk)[48](index=48&type=chunk) - Upcoming accounting standards not yet adopted include ASU 2016-02 (Leases), ASU 2016-13 (Credit Losses), and ASU 2017-04 (Goodwill Impairment), with impacts still being determined[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) [3. Mergers and Acquisitions](index=13&type=section&id=3.%20Mergers%20and%20Acquisitions) This section details the company's significant acquisition activities and their financial impact - The Business Combination on October 17, 2018, was treated as a reverse acquisition and recapitalization, with Greenlight as the accounting acquirer, resulting in **no step-up in basis** for intangible assets or goodwill[53](index=53&type=chunk) - On March 1, 2018, the company acquired Highway Toll Administration (HTA) for an aggregate purchase price of **$603.3 million**, allocating **$242.5 million** to customer relationships and **$233.3 million** to goodwill[56](index=56&type=chunk)[58](index=58&type=chunk) - On April 6, 2018, the company acquired Euro Parking Collection plc (EPC) for **$62.9 million**, allocating **$19.4 million** to customer relationships and **$40.8 million** to goodwill[61](index=61&type=chunk)[63](index=63&type=chunk) Pro Forma Financials (9 Months Ended Sep 30, 2018, in thousands) | Pro Forma Financials (9 Months Ended Sep 30, 2018, in thousands) | Amount | | :--- | :--- | | Revenue | $294,262 | | Income from operations | $50,922 | | Net income | $8,715 | | Earnings per share - basic | $0.13 | [4. Prepaid Expenses and Other Current Assets](index=16&type=section&id=4.%20Prepaid%20Expenses%20and%20Other%20Current%20Assets) This section details the composition and changes in the company's prepaid expenses and other current assets Prepaid Expense Category (in thousands) | Prepaid Expense Category (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Prepaid tolls | $10,609 | $8,434 | | Prepaid services | $4,710 | $3,017 | | Prepaid income taxes | $5,608 | $1,562 | | Total prepaid expenses and other current assets | $26,623 | $17,600 | - Total prepaid expenses and other current assets **increased by $9.0 million** from December 31, 2018, to September 30, 2019, primarily driven by increases in prepaid tolls and prepaid income taxes[67](index=67&type=chunk) [5. Goodwill and Intangible Assets](index=16&type=section&id=5.%20Goodwill%20and%20Intangible%20Assets) This section provides details on the company's goodwill and intangible assets, including changes and amortization Goodwill and Intangible Assets (in thousands) | Asset Category (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Goodwill | $563,452 | $564,723 | | Intangible assets, net | $444,506 | $514,542 | | Total | $1,007,958 | $1,079,265 | - Goodwill decreased slightly due to a foreign currency translation adjustment, while net intangible assets **decreased by $70.0 million**, primarily due to amortization[68](index=68&type=chunk)[69](index=69&type=chunk) Amortization Expense (in thousands) | Amortization Expense (in thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Amortization expense | $23,100 | $23,100 | $69,400 | $57,700 | Estimated Amortization Expense (in thousands) | Estimated Amortization Expense (in thousands) | Amount | | :--- | :--- | | Remainder of 2019 | $23,022 | | 2020 | $92,088 | | 2021 | $83,797 | | 2022 | $79,090 | | 2023 | $50,691 | | 2024 | $40,203 | | Thereafter | $75,615 | | Total | $444,506 | [6. Impairment of Property and Equipment](index=17&type=section&id=6.%20Impairment%20of%20Property%20and%20Equipment) This section discusses the impairment charge recognized on property and equipment and its underlying cause - The company recognized a **$5.9 million impairment charge** in the Government Solutions segment for the nine months ended September 30, 2019[72](index=72&type=chunk) - This impairment was a direct result of Texas legislation, effective June 1, 2019, which **banned most red-light photo enforcement programs** across the state[72](index=72&type=chunk) [7. Accrued Liabilities](index=18&type=section&id=7.%20Accrued%20Liabilities) This section details the composition and changes in the company's accrued liabilities Accrued Liability Category (in thousands) | Accrued Liability Category (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Accrued salaries and wages | $9,749 | $8,340 | | Gores equity infusion working capital adjustment payable to related party | $7,001 | $— | | Restricted cash due to customers | $2,156 | $2,033 | | Total accrued liabilities | $24,020 | $14,444 | - Total accrued liabilities **increased by $9.6 million** from December 31, 2018, to September 30, 2019, primarily due to a **$7.0 million Gores equity infusion working capital adjustment** payable to a related party[74](index=74&type=chunk) [8. Debt](index=18&type=section&id=8.%20Debt) This section provides details on the company's debt structure, including loan terms and compliance Debt (in thousands) | Debt Category (in thousands) | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | New First Lien Term Loan | $896,697 | $903,524 | | Less: original issue discounts | $(5,026) | $(5,819) | | Less: unamortized deferred financing costs | $(24,378) | $(28,352) | | Total debt (net) | $867,293 | $869,353 | | Current portion of long-term debt | $9,104 | $9,104 | | Long-term debt, net of current portion | $858,189 | $860,249 | - The company replaced its 2017 Credit Facilities with 2018 Credit Facilities, including a **New First Lien Term Loan of $910 million** (after amendment) and a **New Revolver of up to $75 million**, in connection with the HTA Merger[76](index=76&type=chunk)[78](index=78&type=chunk) - The New First Lien Term Loan matures on February 28, 2025, bears interest at LIBOR plus 3.75% (or alternate base rate plus 2.75%), with an interest rate of **5.79%** at September 30, 2019[79](index=79&type=chunk) - At September 30, 2019, the company had **$74.9 million available** under the New Revolver and was compliant with all 2018 Credit Facilities covenants[80](index=80&type=chunk)[82](index=82&type=chunk) [9. Fair Value Measurements](index=20&type=section&id=9.%20Fair%20Value%20Measurements) This section describes the fair value of financial instruments, particularly debt - The carrying amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short-term maturity[89](index=89&type=chunk) Debt Fair Value (in thousands) | Debt (in thousands) | Level in Fair Value Hierarchy | Sep 30, 2019 Carrying Amount | Sep 30, 2019 Estimated Fair Value | Dec 31, 2018 Carrying Amount | Dec 31, 2018 Estimated Fair Value | | :--- | :--- | :--- | :--- | :--- | :--- | | Total debt | 2 | $867,293 | $902,301 | $869,353 | $889,971 | [10. Net Income (Loss) Per Share](index=20&type=section&id=10.%20Net%20Income%20(Loss)%20Per%20Share) This section presents the calculation of basic and diluted earnings per share EPS Metric (in thousands, except per share data) | EPS Metric (in thousands, except per share data) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $17,752 | $6,513 | $24,163 | $(20,440) | | Basic weighted average shares outstanding | 158,610 | 72,904 | 157,514 | 69,334 | | Basic earnings (loss) per share | $0.11 | $0.09 | $0.15 | $(0.29) | | Diluted weighted average shares outstanding | 163,705 | 72,904 | 160,723 | 69,334 | | Diluted earnings (loss) per share | $0.11 | $0.09 | $0.15 | $(0.29) | - For the nine months ended September 30, 2019, basic and diluted EPS significantly **improved to $0.15**, compared to a **loss of $(0.29)** in the prior year[91](index=91&type=chunk) - Antidilutive shares excluded from diluted EPS for the nine months ended September 30, 2019, totaled **15.3 million**, including **8.6 million contingently issuable shares** and **6.7 million warrants**[91](index=91&type=chunk) [11. Income Taxes](index=21&type=section&id=11.%20Income%20Taxes) This section discusses the company's effective income tax rate and unrecognized tax benefits Effective Income Tax Rate | Effective Income Tax Rate | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Effective tax rate | 27.4% | 26.2% | 28.8% | (18.1)% | - The effective income tax rate increased for both the three and nine months ended September 30, 2019, primarily due to **higher pretax income** across multiple jurisdictions and an increase in permanent differences[94](index=94&type=chunk) - As of September 30, 2019, the total amount of unrecognized tax benefits was **$2.0 million**, with **$0.7 million** accrued for interest and penalties[95](index=95&type=chunk) [12. Stock-Based Compensation](index=21&type=section&id=12.%20Stock-Based%20Compensation) This section details the stock-based compensation expense recognized by the company Stock-Based Compensation (in thousands) | Stock-Based Compensation (in thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Operating expenses | $138 | $— | $614 | $— | | Selling, general and administrative expenses | $2,333 | $— | $6,812 | $— | | Total stock-based compensation expense | $2,471 | $— | $7,426 | $— | - The company recognized **$7.4 million** in total stock-based compensation expense for the nine months ended September 30, 2019, with no comparable amounts in the prior year[97](index=97&type=chunk) [13. Related Party Transactions](index=21&type=section&id=13.%20Related%20Party%20Transactions) This section describes significant transactions and agreements with related parties - The company entered into a Tax Receivable Agreement (TRA) with PE Greenlight Holdings, LLC (Platinum Stockholder), agreeing to pay **50% of net cash savings** from tax basis increases due to the HTA acquisition; the TRA liability was approximately **$67.0 million** at September 30, 2019[98](index=98&type=chunk) - Under an Earn-Out Agreement, the Platinum Stockholder is entitled to receive up to **10,000,000 additional Class A Common Stock shares** if specific volume weighted average closing sale price thresholds are met within five years[99](index=99&type=chunk)[100](index=100&type=chunk) - On April 26, 2019, the first tranche of **2,500,000 Earn-Out Shares** was issued to the Platinum Stockholder, increasing Common stock and Additional paid-in capital by **$18.3 million**[103](index=103&type=chunk) - The Platinum Stockholder sold **17,250,000 shares** in a secondary offering in June/July 2019, from which the company received no proceeds but incurred **$1.1 million in expenses**[104](index=104&type=chunk) [14. Commitments and Contingencies](index=23&type=section&id=14.%20Commitments%20and%20Contingencies) This section outlines the company's outstanding commitments and potential liabilities from legal actions - As of September 30, 2019, the company had **$0.1 million** in outstanding letters of credit and **$16.5 million** in non-cancelable purchase commitments[107](index=107&type=chunk) - The company is subject to legal and regulatory actions in the ordinary course of business, but the resolution of pending matters is not expected to have a **material adverse impact** on its financial position or results of operations[109](index=109&type=chunk) [15. Segment Reporting](index=23&type=section&id=15.%20Segment%20Reporting) This section provides financial information broken down by the company's two reportable segments - The company operates in two reportable segments: Commercial Services and Government Solutions, with performance monitored based on revenues and income from operations before certain non-operating items[110](index=110&type=chunk)[111](index=111&type=chunk) Segment Financials (in thousands) | Segment Financials (in thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | **Commercial Services** | | | | | | Total revenue | $77,633 | $71,971 | $208,312 | $164,189 | | Segment profit (loss) | $51,057 | $49,418 | $133,226 | $88,456 | | **Government Solutions** | | | | | | Total revenue | $50,607 | $35,631 | $127,964 | $110,851 | | Segment profit (loss) | $19,784 | $12,542 | $48,548 | $43,064 | - Commercial Services revenue **increased by 26.9%** for the nine months ended September 30, 2019, driven by acquisitions (HTA, EPC) and improved volumes in tolling products[114](index=114&type=chunk)[171](index=171&type=chunk) - Government Solutions service revenue **decreased by 3.3%** for the nine months ended September 30, 2019, primarily due to the Texas red-light ban and exit from street light maintenance, partially offset by growth in speed programs[114](index=114&type=chunk)[172](index=172&type=chunk) [16. Guarantor/Non-Guarantor Financial Information](index=26&type=section&id=16.%20Guarantor%2FNon-Guarantor%20Financial%20Information) This section provides separate financial statements for the parent company and its guarantor subsidiary - VM Consolidated, Inc., a wholly-owned subsidiary, is the lead borrower of the New First Lien Term Loan and New Revolver, with its financial information presented separately alongside the ultimate parent (Verra Mobility Corporation) and consolidated totals[115](index=115&type=chunk) - The section provides detailed condensed consolidated balance sheets, statements of operations, and cash flows for the parent, guarantor subsidiary, and consolidated entity, with elimination entries for intercompany balances and transactions[116](index=116&type=chunk)[118](index=118&type=chunk)[121](index=121&type=chunk)[123](index=123&type=chunk)[125](index=125&type=chunk) [17. Subsequent Event](index=31&type=section&id=17.%20Subsequent%20Event) This section discloses a significant event that occurred after the reporting period - On October 31, 2019, the company acquired Pagatelia S.L., a Spanish limited liability company providing electronic consumer tolling and parking solutions in Spain, Portugal, France, and Italy, for a preliminary purchase price of **$27.9 million**[128](index=128&type=chunk) - This acquisition is expected to accelerate the company's expansion of tolling solutions across Europe and will be included in the Commercial Services segment[129](index=129&type=chunk)[138](index=138&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Verra Mobility's financial condition and operational results [Business Overview](index=32&type=section&id=Business%20Overview) This section describes Verra Mobility's core business, including its solutions and target markets - Verra Mobility is a leading provider of smart mobility technology solutions and services across the United States, Canada, and Europe[132](index=132&type=chunk) - The company offers integrated solutions including toll and violations management, title and registration, and automated safety solutions to rental car companies, fleet management companies, municipalities, and school districts[132](index=132&type=chunk) [Segment Information](index=32&type=section&id=Segment%20Information) This section outlines the company's operational segments and how their performance is evaluated - The company operates in two segments: Commercial Services (toll and violation management, title and registration for commercial fleets and rental cars) and Government Solutions (red-light, speed, school bus stop arm, and bus lane enforcement solutions for government agencies)[135](index=135&type=chunk) - Segment performance is evaluated based on revenues and income from operations, excluding depreciation, amortization, impairment, stock-based compensation, interest expense, loss on debt extinguishment, and income taxes[133](index=133&type=chunk) [Executive Summary](index=32&type=section&id=Executive%20Summary) This section provides a high-level overview of the company's strategy, recent performance, and key financial highlights - Verra Mobility's strategy focuses on growing revenues with existing customers, expanding into adjacent markets through innovation or acquisition, and reducing operating costs[134](index=134&type=chunk) - Strategic acquisitions of HTA and EPC in 2018 strengthened the company's position in tolling and European violations processing[134](index=134&type=chunk)[135](index=135&type=chunk) Key Financial Metrics (9 Months Ended Sep 30) | Metric (9 Months Ended Sep 30) | 2019 (in millions) | 2018 (in millions) | Change | | :--- | :--- | :--- | :--- | | Service revenue | $311.9 | $271.3 | +$40.6M (+15.0%) | | SG&A as % of total revenue | 18.6% | 30.0% | -11.4 percentage points | | Cash flows from operating activities | $95.6 | $46.1 | +$49.5M | [Recent Events](index=33&type=section&id=Recent%20Events) This section highlights significant events that have occurred recently, impacting the company's operations - On October 31, 2019, the company acquired Pagatelia S.L., a Spanish provider of electronic consumer tolling and parking solutions, to accelerate its European expansion[138](index=138&type=chunk) [Factors Affecting Our Operating Results](index=33&type=section&id=Factors%20Affecting%20Our%20Operating%20Results) This section discusses key historical events and transactions that have influenced the company's financial performance - The Business Combination on October 17, 2018, transformed Gores Holdings II, Inc. into Verra Mobility Corporation through a reverse acquisition with Greenlight[139](index=139&type=chunk)[140](index=140&type=chunk) - The HTA acquisition (March 1, 2018) for **$603.3 million** led to a refinancing of credit facilities, resulting in a **$10.2 million loss** on extinguishment of debt[141](index=141&type=chunk)[142](index=142&type=chunk) - The EPC acquisition (April 6, 2018) for **$62.9 million** expanded the company's European operations[143](index=143&type=chunk) - The ATS Merger (May 31, 2017) involved Platinum Equity acquiring ATS Consolidated, Inc., which is now VM Consolidated, Inc[144](index=144&type=chunk) [Primary Components of Operating Results](index=34&type=section&id=Primary%20Components%20of%20Operating%20Results) This section defines the main revenue and expense categories contributing to the company's operating results - Total revenue comprises service revenue (from Commercial Services and Government Solutions) and product sales (from Government Solutions)[145](index=145&type=chunk) - Service revenue in Commercial Services is generated from tolling programs and title/registration, recognized over time, while Government Solutions service revenue from photo enforcement systems is recognized when services are performed or citations issued/paid[146](index=146&type=chunk)[147](index=147&type=chunk) - Key expense categories include cost of service revenue, cost of product sales, operating expenses (payroll, call centers), selling, general and administrative expenses (payroll, legal, corporate), depreciation, amortization, impairment, interest expense, loss on debt extinguishment, and other income[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance over specific periods [Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018](index=35&type=section&id=Three%20Months%20Ended%20September%2030,%202019%20Compared%20to%20Three%20Months%20Ended%20September%2030,%202018) This section compares the company's financial performance for the third quarter of 2019 against the same period in 2018 Financial Performance (in thousands) | Metric (in thousands) | Q3 2019 | Q3 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $128,240 | $107,602 | $20,638 | 19.2% | | Service revenue | $110,757 | $105,203 | $5,554 | 5.3% | | Product sales | $17,483 | $2,399 | $15,084 | 628.8% | | Income from operations | $36,659 | $26,195 | $10,464 | 39.9% | | Net income | $17,752 | $6,513 | $11,239 | 172.6% | | Adjusted EBITDA | $70,841 | $61,936 | $8,905 | 14.4% | - Commercial Services revenue **increased by 7.9%** due to improved volumes in billable days and tolls processed, while Government Solutions service revenue slightly **decreased by 0.3%** due to the Texas red-light ban and Florida program losses, offset by speed program growth[158](index=158&type=chunk)[159](index=159&type=chunk) - Product sales saw a substantial **628.8% increase**, primarily driven by sales to a single customer expanding their school zone speed program[161](index=161&type=chunk) - Selling, general and administrative expenses **decreased by 1.8%** due to lower transaction and integration expenses in the current period, partially offset by stock-based compensation[164](index=164&type=chunk) - Interest expense, net, **decreased by 26.5%** due to lower average debt balances, primarily from the full payoff of the New Second Lien Term Loan[165](index=165&type=chunk) [Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018](index=38&type=section&id=Nine%20Months%20Ended%20September%2030,%202019%20Compared%20to%20Nine%20Months%20Ended%20September%2030,%202018) This section compares the company's financial performance for the first nine months of 2019 against the same period in 2018 Financial Performance (in thousands) | Metric (in thousands) | 9M 2019 | 9M 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $336,276 | $275,040 | $61,236 | 22.3% | | Service revenue | $311,884 | $271,253 | $40,631 | 15.0% | | Product sales | $24,392 | $3,787 | $20,605 | 544.1% | | Income from operations | $72,261 | $30,716 | $41,545 | 135.3% | | Net income (loss) | $24,163 | $(20,440) | $44,603 | 218.2% | | Adjusted EBITDA | $181,787 | $150,316 | $31,471 | 20.9% | - Commercial Services revenue **increased by 26.9%**, with **$21.6 million** from HTA and EPC acquisitions and **$18.5 million** from improved volumes in existing tolling products[171](index=171&type=chunk) - Government Solutions service revenue **decreased by 3.3%** due to a **$6.8 million decline** from red-light photo enforcement programs (Texas ban, Florida losses) and a **$1.8 million decrease** from exiting street light maintenance, partially offset by a **$5.8 million increase** in speed program revenue[172](index=172&type=chunk) - Selling, general and administrative expenses **decreased by 24.0%** due to the absence of **$25.6 million** in transaction expenses, **$8.0 million** in transformation expenses, and **$4.1 million** in sponsor fees incurred in 2018[177](index=177&type=chunk) - A **$5.9 million impairment charge** on property and equipment was recognized in 2019 due to the Texas red-light photo enforcement ban[179](index=179&type=chunk) - Interest expense, net, **decreased by 11.3%** due to the full payoff of the higher-interest New Second Lien Term Loan in Q4 2018[180](index=180&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to generate and manage cash, including sources and uses of funds - The company's primary liquidity sources are cash flows from operations, long-term borrowings, and revolving credit facilities, with **$74.9 million available** under the New Revolver as of September 30, 2019[184](index=184&type=chunk)[187](index=187&type=chunk)[199](index=199&type=chunk) - Cash provided by operating activities **increased by $49.5 million to $95.6 million** for the nine months ended September 30, 2019, driven by net income growth and reduced one-time expenses from the prior year[189](index=189&type=chunk)[190](index=190&type=chunk) - Cash used in investing activities significantly **decreased to $17.5 million** for the nine months ended September 30, 2019, compared to **$545.0 million** in 2018, primarily due to the HTA and EPC acquisitions in the prior year[193](index=193&type=chunk) - Cash flows from financing activities shifted from **$542.7 million provided in 2018** to **$7.1 million used in 2019**, reflecting the 2018 Credit Facilities refinancing in the prior year[194](index=194&type=chunk) [Critical Accounting Policies, Estimates and Judgments](index=43&type=section&id=Critical%20Accounting%20Policies,%20Estimates%20and%20Judgments) This section highlights the accounting policies that require significant management judgment and estimation - Revenue recognition is identified as a critical accounting policy requiring significant judgment, particularly in identifying performance obligations, estimating standalone selling prices, and determining the timing of revenue recognition[203](index=203&type=chunk)[205](index=205&type=chunk)[210](index=210&type=chunk) - For Commercial Services, revenue is recognized over time as a single stand-ready performance obligation, while for Government Solutions, product sales are recognized at a point in time and service revenue over time as a single continuous service[205](index=205&type=chunk)[209](index=209&type=chunk) - As of September 30, 2019, the company had approximately **$0.2 million** of remaining performance obligations in the Government Solutions segment, expected to be recognized over a two-month period[208](index=208&type=chunk) [Recent Accounting Pronouncements](index=45&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 2 for a discussion of recently adopted and upcoming accounting standards - For a discussion of recent accounting pronouncements, refer to Note 2, Significant Accounting Principles and Policies, in Item 1, Financial Statements[211](index=211&type=chunk) [JOBS Act](index=45&type=section&id=JOBS%20Act) This section states the company's status as an "emerging growth company" under the JOBS Act - Verra Mobility is an 'emerging growth company' under the JOBS Act and has elected to use the extended transition period for complying with new or revised financial accounting standards[212](index=212&type=chunk) [Non-GAAP Financial Data](index=45&type=section&id=Non-GAAP%20Financial%20Data) This section defines and reconciles Adjusted EBITDA, a non-GAAP measure used for performance assessment - Adjusted EBITDA is a non-GAAP measure used by management and investors to assess performance, defined as net income (loss) adjusted for interest, taxes, depreciation, amortization, stock-based compensation, and certain non-recurring items[213](index=213&type=chunk) Adjusted EBITDA (in thousands) | Adjusted EBITDA (in thousands) | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income (loss) | $17,752 | $6,513 | $24,163 | $(20,440) | | EBITDA | $68,083 | $57,929 | $167,041 | $102,405 | | Adjusted EBITDA | $70,841 | $61,936 | $181,787 | $150,316 | - Adjusted EBITDA **increased by 14.4% to $70.8 million** for the three months ended September 30, 2019, and by **20.9% to $181.8 million** for the nine months ended September 30, 2019, reflecting growth in line with operations and adjustments for non-recurring expenses[168](index=168&type=chunk)[183](index=183&type=chunk) - Adjusted EBITDA has limitations as an analytical tool, as it does not reflect capital expenditures, working capital needs, interest or income tax expenses, or cash requirements for asset replacement[215](index=215&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, primarily interest rate risk, and its hedging strategy - The company is exposed to interest rate market risk due to its variable interest rate New First Lien Term Loan, which had an outstanding balance of **$896.7 million** at September 30, 2019[220](index=220&type=chunk) - Each **1% movement in interest rates** would result in an approximately **$9.0 million change** in annual interest expense based on the September 30, 2019, outstanding balance[220](index=220&type=chunk) - The company has not engaged in any hedging activities during the nine months ended September 30, 2019, and does not expect to do so[221](index=221&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and internal control over financial reporting - Management, with the participation of the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2019, and concluded they were **effective at the reasonable assurance level**[222](index=222&type=chunk) - There were **no material changes** in the company's internal control over financial reporting during the quarter ended September 30, 2019[223](index=223&type=chunk) [PART II—OTHER INFORMATION](index=47&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) This part includes disclosures on legal proceedings, risk factors, equity sales, and other relevant information [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) This section states that there are no material legal proceedings to report [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) This section identifies the phase-out of LIBOR as a new risk factor and confirms no other material changes - The phase-out of LIBOR by the end of 2021 may adversely affect the company's borrowing costs, as its debt instruments have interest rates based on LIBOR[225](index=225&type=chunk) - The Secured Overnight Financing Rate (SOFR) has been identified as the preferred alternative rate for USD LIBOR[225](index=225&type=chunk) - Other than the LIBOR phase-out, there have been **no material changes** to the risk factors disclosed in the Annual Report on Form 10-K/A filed on April 30, 2019[226](index=226&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section indicates that there were no unregistered sales of equity securities or use of proceeds to report during the period [Item 3. Defaults Upon Senior Securities](index=48&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period [Item 4. Mine Safety Disclosures](index=48&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company [Item 5. Other Information](index=48&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report [Item 6. Exhibits](index=48&type=section&id=Item%206.%20Exhibits) This section provides a comprehensive list of exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q [SIGNATURES](index=51&type=section&id=SIGNATURES) This section contains the official signatures certifying the accuracy of the report - The report is signed by David Roberts, President and Chief Executive Officer, on November 05, 2019[240](index=240&type=chunk)

Revenue Growth - Service revenue increased from $166.1 million for the six months ended June 30, 2018, to $201.1 million for the same period in 2019, with acquisitions contributing $21.6 million and existing product expansion contributing $13.4 million[132]. - Service revenue increased by $35.1 million, or 21.1%, to $201.1 million for the six months ended June 30, 2019[167]. - Service revenue increased by $6.0 million, or 6.2%, to $103.1 million for the three months ended June 30, 2019, compared to $97.0 million for the same period in 2018, representing 94.1% of total revenue[151]. - Total revenue for the three months ended June 30, 2019, was $109.6 million, an increase of $11.4 million or 11.6% from $98.2 million in the same period of 2018[150]. - Total revenue for the six months ended June 30, 2019 was $208.0 million, a 24.2% increase from $167.4 million in the same period in 2018[165]. - Product sales surged by $5.4 million, from $1.2 million in Q2 2018 to $6.5 million in Q2 2019, driven primarily by a single customer expanding their school zone speed program[155]. - Product sales rose significantly by 397.8% to $6.9 million for the six months ended June 30, 2019, compared to $1.4 million in the same period in 2018[165]. Operating Expenses and Profitability - Operating expenses as a percentage of total revenue decreased from 31.3% in the six months ended June 30, 2018, to 29.4% in the same period in 2019, indicating improved cost structure[132]. - Operating expenses rose by $3.0 million, or 10.4%, from $28.8 million in Q2 2018 to $31.8 million in Q2 2019, while operating expenses as a percentage of revenue decreased slightly from 29.3% to 29.0%[157]. - Selling, general and administrative expenses decreased by $6.7 million to $20.9 million in Q2 2019, down from $27.6 million in Q2 2018, with a percentage of revenue decline from 28.1% to 19.0%[158]. - Income from operations surged to $35.6 million for the six months ended June 30, 2019, compared to $4.5 million in the same period in 2018, reflecting a 687.5% increase[165]. - The company reported a net income of $3.6 million for the three months ended June 30, 2019, compared to a net loss of $4.8 million in the same period in 2018, marking a turnaround of $8.4 million[150]. - Net income improved to $3.6 million for the three months ended June 30, 2019, compared to a net loss of $4.8 million for the same period in 2018[162]. - Net income for the six months ended June 30, 2019, was $6.4 million, compared to a net loss of $26.9 million for the same period in 2018[214]. - Adjusted EBITDA increased by $5.1 million, or 9.3%, from $54.6 million in Q2 2018 to $59.7 million in Q2 2019, representing 54.5% and 55.6% of total revenue, respectively[150]. - Adjusted EBITDA for the three months ended June 30, 2019, was $59.7 million, compared to $54.6 million for the same period in 2018[214]. - Adjusted EBITDA increased by $22.6 million, or 25.5%, from $88.3 million in 2018 to $110.9 million in 2019[180]. Acquisitions - The acquisition of Highway Toll Administration, LLC, was completed for an aggregate purchase price of $603.3 million, contributing $28.1 million in revenue for the six months ended June 30, 2019[135]. - The acquisition of Euro Parking Collection plc was completed for $62.9 million, contributing $3.2 million in revenue for the six months ended June 30, 2019[137]. Cash Flow and Debt - Cash flows from operating activities for the six months ended June 30, 2019, were $45.8 million, compared to a negative impact of $18.6 million from acquisition-related expenses in the same period of 2018[132]. - Cash provided by operating activities rose from $12.5 million in 2018 to $45.8 million in 2019, an increase of $33.2 million[185]. - Average debt balance decreased from $1.04 billion in the three months ended June 30, 2018, to $900.7 million in the same period in 2019[160]. - Total borrowing under the New First Lien Term Loan was $899 million at June 30, 2019, with an interest rate of 6.15%[218]. - Each 1% movement in interest rates will result in an approximately $9.0 million change in annual interest expense based on the New First Lien Term Loan balance[218]. - Interest expense decreased from $32.2 million in 2018 to $31.7 million in 2019, a reduction of $0.5 million[177]. Tax and Impairment - The effective tax rate changed from (4.7%) in 2018 to 32.6% in 2019, primarily due to higher pretax income across multiple jurisdictions[161]. - The effective tax rate increased from (20.3%) in 2018 to 32.3% in 2019, reflecting higher pretax income[178]. - Impairment of property and equipment included a $5.9 million charge due to the legislative ban on most red-light photo enforcement programs in Texas, impacting the Government Solutions segment[159]. - Impairment charge of $5.9 million recorded in 2019 due to legislative changes affecting the Government Solutions segment[176]. Segment Performance - The company has two operating segments: Commercial Services and Government Solutions, with performance based on revenues and income from operations[130]. - The Government Solutions segment generates service revenue through long-term contracts, with revenue recognized based on service performance or citation issuance[141]. - Government Solutions service revenue decreased by $2.3 million, or 6.2%, to $35.0 million in Q2 2019, primarily due to losses in red-light photo enforcement programs in Miami and Texas[153]. - The average initial term of contracts in the Government Solutions segment is between 3 to 5 years[202]. Other Financial Information - Cash used in investing activities significantly decreased from $(536.5) million in 2018 to $(14.2) million in 2019[189]. - The company had $74.9 million available for borrowing under the New Revolver as of June 30, 2019[195]. - The company incurred $1.1 million in transaction and other related expenses for the six months ended June 30, 2019, primarily related to a secondary offering[214]. - Other income, net increased to $3.3 million for the three months ended June 30, 2019, up from $2.8 million in the same period in 2018, driven by increased tolling activity[160]. - Significant judgments are required to identify contracts with customers and estimate transaction prices under the new revenue standard[206]. - The company has not engaged in any hedging activities during the six months ended June 30, 2019[219].

Revenue Growth - Service revenue increased from $69.0 million in Q1 2018 to $98.1 million in Q1 2019, a growth of 42.1%[130] - Total revenue for Q1 2019 was $98.5 million, up 42.2% from $69.2 million in Q1 2018[148] - Service revenue increased by $29.1 million, or 42.1%, to $98.1 million for the three months ended March 31, 2019, compared to $69.0 million for the same period in 2018[150] - Commercial Services revenue rose by $30.1 million, or 92.9%, from $32.4 million in Q1 2018 to $62.6 million in Q1 2019, with acquisitions contributing $21.6 million to this growth[150] - Government Solutions service revenue decreased by $1.1 million, or 2.9%, to $35.5 million, primarily due to a decline in red light program revenues[151] Profitability - Net income improved significantly from a loss of $22.2 million in Q1 2018 to a net income of $2.8 million in Q1 2019[148] - Operating income for Q1 2019 was $18.0 million, a significant turnaround from an operating loss of $7.3 million in Q1 2018[148] - Net income for Q1 2019 was $2.8 million, a significant improvement from a net loss of $22.2 million in Q1 2018, largely due to reduced acquisition-related expenses[161] - Net income increased by $25.0 million, from a loss of $22.2 million in Q1 2018 to income of $2.8 million in Q1 2019, driven by full-period results from HTA and EPC operations[169] Operating Expenses - Operating expenses as a percentage of total revenue decreased from 34.2% in Q1 2018 to 29.8% in Q1 2019[130] - Operating expenses increased by $5.7 million, or 23.9%, from $23.7 million in Q1 2018 to $29.3 million in Q1 2019, but as a percentage of revenue, they decreased from 34.2% to 29.8%[156] - Total selling, general and administrative expenses decreased by $12.7 million to $20.6 million in Q1 2019, down from $33.3 million in Q1 2018[157] Cash Flow - Cash flows from operating activities for Q1 2019 were $37.4 million, recovering from the $15.6 million impact of HTA acquisition expenses in Q1 2018[130] - Cash provided by operating activities increased by $40.6 million from $(3.2) million in Q1 2018 to $37.4 million in Q1 2019[168] - Cash used in investing activities decreased significantly from $(537.4) million in Q1 2018 to $(9.2) million in Q1 2019, primarily due to the HTA acquisition costs in the prior year[172] - Cash provided by financing activities changed from $548.0 million in Q1 2018 to $(2.3) million in Q1 2019, mainly due to the entry into the 2018 Credit Facilities in the prior year[173] Debt and Financing - The average debt balance increased from $744.2 million in Q1 2018 to $902.4 million in Q1 2019, contributing to a rise in interest expense by $3.4 million[158] - The company had $70.0 million available for borrowing under its revolving credit facility as of March 31, 2019[166] - Total borrowing under the New First Lien Term Loan was $901 million as of March 31, 2019, with an interest rate of 6.25%[202] - Each 1% movement in interest rates will result in an approximately $9.0 million change in annual interest expense based on the New First Lien Term Loan balance[202] - The company incurred $16.033 million in interest expense for Q1 2019, up from $12.647 million in Q1 2018[199] Strategic Acquisitions - The company completed strategic acquisitions, including Highway Toll Administration for $603.3 million and Euro Parking Collection for $62.9 million[130] Adjusted EBITDA - Adjusted EBITDA for Q1 2019 was $51.3 million, representing a 51.7% increase from $33.8 million in Q1 2018[148] - Adjusted EBITDA for Q1 2019 was $51.255 million, compared to $33.781 million in Q1 2018, representing a year-over-year increase of 51.8%[199] Other Financial Metrics - The company recognized a charge of $10.2 million in Q1 2018 related to the extinguishment of the Old Term Loans and associated costs[182] - The company reported a depreciation and amortization expense of $28.939 million in Q1 2019, compared to $18.550 million in Q1 2018[199] - Stock-based compensation for Q1 2019 was $2.143 million, reflecting non-cash charges related to the 2018 Equity Incentive Plan[201] - Transformation expenses in Q1 2018 included one-time costs related to optimizing the expense structure and defining the company's growth strategy[200] - The company did not engage in any hedging activities during Q1 2019 and does not expect to do so in the future[203] - Remaining performance obligations in the Government Solutions segment amounted to approximately $0.3 million as of March 31, 2019, expected to be recognized over a two-month period[190]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K | | | For the fiscal year ended December 31, 2018 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 81‑3563824 (State of Incorporation) (I.R.S. Employer Identification No.) 1150 North Alma School Road ...