Verra Mobility(US:VRRM)2022-04-22 10:05PART I Item 1. Business Verra Mobility Corporation is a leading provider of smart mobility technology solutions and services across North America, Europe, and Australia, operating through three segments: Commercial Services, Government Solutions, and Parking Solutions, offering services like toll and violations management, automated safety, and parking enforcement, with key strategies including leveraging industry tailwinds, expanding product offerings into new markets, growing its global footprint, and pursuing strategic acquisitions - Verra Mobility is a leading provider of smart mobility technology solutions and services in the United States, Australia, Europe, and Canada17 - The company operates through three primary segments: Commercial Services, Government Solutions, and Parking Solutions18 2021 Revenue by Segment | Segment | Revenue (Millions USD) | % of Total Revenue | | :------------------ | :--------------------- | :----------------- | | Commercial Services | $260.9 | 47.4% | | Government Solutions | $283.2 | 51.4% | | Parking Solutions | $6.5 | (Post-acquisition) | - Growth strategies include benefiting from industry tailwinds (e.g., increased toll roads, demand for automated safety, mobile parking solutions), expanding into new markets (ridesharing, carsharing, autonomous vehicles, smart cities), and pursuing accretive acquisitions31364043 Item 1A. Risk Factors The company faces significant risks including adverse effects from the COVID-19 pandemic, high customer concentration, unique challenges with government contracts, acquisition integration failures, data privacy threats, dependence on key personnel, international operational complexities, intellectual property protection issues, substantial indebtedness, and regulatory compliance challenges - COVID-19 pandemic, including emerging variants, may adversely affect business and results of operations, potentially causing labor constraints, disruptions, or delays in strategic initiatives819596 - Customer concentration in Commercial Services (RACs like Avis, Enterprise, Hertz) and Government Solutions (e.g., NYCDOT representing 26.6% of 2021 revenue) poses a material adverse effect risk if key customers are lost or face business challenges839899 - Government contracts are subject to unique risks including termination rights, payment delays (e.g., $63.2 million receivable from NYCDOT, 39% of total A/R), audits, and investigations83104105 - Failure to successfully implement acquisition strategy or integrate acquired businesses (like Redflex and T2 Systems in 2021) could lead to significant disruption, increased costs, and failure to realize anticipated benefits84119121 - Substantial indebtedness ($895 million under first lien term loan, $350 million in Senior Unsecured Notes as of Dec 31, 2021) increases vulnerability to adverse economic conditions and limits financial flexibility88167 - Material weaknesses in internal controls over financial reporting were identified in 2021 related to Redflex acquisition accounting and third-party application controls, leading to a conclusion of ineffective internal control over financial reporting207614617 Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments were reported227 Item 2. Properties Verra Mobility leases all properties used in its business, including its corporate headquarters in Mesa, Arizona, and various other office and small warehouse locations, none of which are considered material to the overall business - The company leases all properties for its business operations, including a 108,956 square foot corporate headquarters in Mesa, Arizona228 - No individual property is considered material to the overall business228 Item 3. Legal Proceedings Verra Mobility is involved in various legal and regulatory actions arising in the ordinary course of business, including intellectual property, commercial arrangements, and consumer fraud claims, with a notable ongoing antitrust case, PlusPass, Inc. v. Verra Mobility, which the company believes is without merit - The company is subject to legal and regulatory actions in the ordinary course of business, including intellectual property, commercial, negligence, and consumer fraud claims230 - A class action lawsuit, Brantley v. City of Gretna, alleges violations in a safety camera program, with the company unable to reasonably estimate a range of loss585 - In PlusPass, Inc. v. Verra Mobility, the plaintiff alleges federal antitrust violations related to the 2018 merger of HTA and American Traffic Solutions, Inc., seeking injunctive relief, divestiture, and damages, which Verra Mobility denies231 Item 4. Mine Safety Disclosures There are no mine safety disclosures applicable to the company - No mine safety disclosures are applicable232 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Verra Mobility's Class A Common Stock trades on Nasdaq under 'VRRM', while its warrants trade on OTC Pink under 'VRRMW' after being delisted from Nasdaq in 2018; the company has not paid cash dividends and its ability to do so is limited by debt covenants, with a significant share repurchase in August 2021 and an earn-out agreement for additional share issuance - Class A Common Stock is quoted on Nasdaq (VRRM); warrants are quoted on OTC Pink (VRRMW) after delisting from Nasdaq in 2018234197 Class A Common Stock High and Low Sales Prices (2020-2021) | Quarter | Fiscal Year 2021 High | Fiscal Year 2021 Low | Fiscal Year 2020 High | Fiscal Year 2020 Low | | :-------------- | :-------------------- | :------------------- | :-------------------- | :------------------- | | First Quarter | $15.38 | $12.54 | $17.20 | $5.63 | | Second Quarter | $15.94 | $13.38 | $13.17 | $6.16 | | Third Quarter | $17.50 | $14.26 | $11.95 | $9.14 | | Fourth Quarter | $17.01 | $13.47 | $14.07 | $9.33 | - As of December 31, 2021, there were 156,078,561 shares of Class A Common Stock outstanding and 19,999,967 warrants outstanding191237 - The company has not paid cash dividends and its ability to do so is limited by restrictive covenants in debt agreements239 - In August 2021, the company repurchased and retired 6,849,315 shares of Class A Common Stock from the Platinum Stockholder for $100 million246578 - An earn-out agreement provides for the issuance of up to 10,000,000 additional shares to the Platinum Stockholder if specific stock price thresholds are met within five years of the Business Combination, with two tranches (5,000,000 shares) already issued248250253572573576 Item 6. Selected Financial Data This item is not applicable for this report - Item 6. Selected Financial Data is not applicable254 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews Verra Mobility's financial condition and operations, detailing significant events like strategic acquisitions and COVID-19's impact, noting substantial 2021 revenue growth driven by travel recovery and acquisitions, resulting in a $41.4 million net income compared to a 2020 net loss, with liquidity primarily from operating cash flows and a revolving credit facility supporting significant long-term debt from acquisitions - Total revenue increased by $157.0 million (40%) from $393.6 million in FY2020 to $550.6 million in FY2021, with acquisitions contributing $45.0 million261 - Net income was $41.4 million in FY2021, a significant increase from a net loss of $4.6 million in FY2020, primarily due to travel industry recovery and acquisitions301 - Cash flows from operating activities increased by $146.3 million, from $46.9 million in 2020 to $193.2 million in 2021, driven by net income improvement and accounts receivable reduction261326 - The company completed strategic acquisitions in 2021: Redflex Holdings Limited (June 2021, $117.9 million), T2 Systems Parent Corporation (December 2021, $353.2 million), and NuPark (December 2021, $7.0 million)258259267268269264265500506509 - Long-term debt includes a $895.1 million 2021 Term Loan and $350 million Senior Unsecured Notes as of December 31, 2021, with an interest rate of 3.6% on the Term Loan and 5.50% on the Senior Notes336337338 Item 7A. Quantitative and Qualitative Disclosures About Market Risk Verra Mobility faces interest rate market risk from its $895 million variable rate 2021 Term Loan, where a 1% rate change impacts annual interest expense by approximately $9.2 million, and the company has not engaged in hedging activities - The company is exposed to interest rate market risk from its variable rate 2021 Term Loan379 Interest Rate Sensitivity (as of Dec 31, 2021) | Debt Instrument | Outstanding Balance | Interest Rate | Impact of 1% Rate Change on Annual Interest Expense | | :---------------- | :------------------ | :------------ | :------------------------------------------------ | | 2021 Term Loan | $895 million | 3.6% | ~$9.2 million | - No hedging activities were engaged in during fiscal year 2021, nor are they expected in the future380 Item 8. Financial Statements and Supplementary Data This section presents Verra Mobility's audited consolidated financial statements for fiscal years 2021, 2020, and 2019, including balance sheets, statements of operations, stockholders' equity, and cash flows, with an unqualified opinion on financial statements but an adverse opinion on internal control over financial reporting due to material weaknesses, and detailed notes on accounting policies, acquisitions, debt, and equity - The independent registered public accounting firm issued an unqualified opinion on the consolidated financial statements for the period ended December 31, 2021385 - An adverse opinion was issued on the effectiveness of internal control over financial reporting as of December 31, 2021, due to material weaknesses related to Redflex acquisition accounting and third-party application controls386393395 Consolidated Financial Highlights (2021 vs 2020) | Metric | 2021 (in thousands) | 2020 (in thousands) | Change (2021 vs 2020) | | :------------------------------------ | :------------------ | :------------------ | :-------------------- | | Total Revenue | $550,590 | $393,593 | +39.9% | | Net Income (Loss) | $41,449 | $(4,578) | +$46,027 | | Cash and Cash Equivalents | $101,283 | $120,259 | -15.78% | | Total Assets | $1,837,056 | $1,367,325 | +34.35% | | Total Liabilities | $1,577,092 | $1,051,753 | +49.95% | | Total Stockholders' Equity | $259,964 | $315,572 | -17.62% | - Key accounting policies include revenue recognition (distinct stand-ready obligations, point-in-time for product sales, over-time for services), allowance for credit losses, business combinations (acquisition method, early adoption of ASU 2021-08), goodwill and long-lived asset impairment, income taxes, and private placement warrant liabilities349356359362368376474486493 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported608 Item 9A. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of December 31, 2021, due to material weaknesses in internal control over financial reporting, specifically insufficient accounting resources for Redflex acquisition accounting and ineffective controls for a third-party application (Vena Solutions), with remediation efforts expected by end of 2022 - Disclosure controls and procedures were deemed not effective as of December 31, 2021610 - Material weaknesses identified include: (i) insufficient qualified accounting resources for Redflex acquisition revenue arrangements and valuation adjustments, and (ii) ineffective controls related to a third-party application (Vena Solutions) used in financial reporting614615617 - Remediation steps involve hiring additional technical accounting resources and implementing processes to independently validate revenue and reporting data, with completion expected by end of 2022618619 - Management's evaluation of internal control over financial reporting excluded the internal control activities of Redflex and T2 Systems, acquired in June and December 2021, respectively621 Item 9B. Other Information There is no other information to report under this item - No other information is reported under this item628 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - This item is not applicable629 PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement631 Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's Proxy Statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement632 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the company's Proxy Statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement633 Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the company's Proxy Statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement634 Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's Proxy Statement for the 2022 Annual Meeting of Stockholders - Information is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement635 PART IV Item 15. Exhibit and Financial Statement Schedules This section lists the financial statements filed as part of the Annual Report on Form 10-K, including consolidated financial statements and Appendix A, Schedule II – Consolidated Valuation and Qualifying Accounts, and provides a comprehensive exhibit index detailing various agreements, certificates, and other documents - Includes consolidated financial statements and Appendix A, Schedule II – Consolidated Valuation and Qualifying Accounts637638 - A detailed exhibit index lists various agreements (e.g., Merger Agreement, Revolving Credit Agreement, Indenture), certificates, and other documents639640641642643644 Item 16. Form 10-K Summary There is no Form 10-K Summary provided in this report - No Form 10-K Summary is provided647 SIGNATURES The report is signed on behalf of Verra Mobility Corporation by its President and Chief Executive Officer, David Roberts, as the Principal Executive Officer - The report is signed by David Roberts, President and Chief Executive Officer (Principal Executive Officer)650 POWER OF ATTORNEY A Power of Attorney grants David M. Roberts and Patricia D. Chiodo authority to sign and file Form 10-K amendments, with the report also signed by various directors and the Chief Financial Officer - David M. Roberts and Patricia D. Chiodo are granted power of attorney to sign and file amendments to the Form 10-K652 - The report is signed by the President, CEO, CFO, and several directors653 Appendix A, Schedule II Appendix A, Schedule II provides the Consolidated Valuation and Qualifying Accounts for Verra Mobility Corporation for the years ended December 31, 2021, 2020, and 2019, detailing activity in the Allowance for Credit Losses and Tax Valuation Allowance Consolidated Valuation and Qualifying Accounts (2019-2021) | Account | Year Ended December 31, 2021 | Year Ended December 31, 2020 | Year Ended December 31, 2019 | | :------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | | Allowance for Credit Losses | | Beginning Balance | $11,471 | $8,456 | $6,221 | | Charged to Net Income (Loss) | $9,588 | $14,391 | $8,100 | | Utilized/Write-offs | $(8,921) | $(11,376) | $(6,684) | | Ending Balance | $12,138 | $11,471 | $7,637 | | Tax Valuation Allowance | | Beginning Balance | $3,422 | $2,564 | $2,254 | | Charged to Net Income (Loss) | $363 | $858 | $310 | | Ending Balance | $3,785 | $3,422 | $2,564 |