Verra Mobility(VRRM) - 2023 Q4 - Annual Report

PART I Item 1. Business Verra Mobility Corporation is a leading provider of smart mobility technology solutions across the United States, Australia, Europe, and Canada. The company operates through three segments: Commercial Services, Government Solutions, and Parking Solutions, offering integrated, data-driven solutions for toll and violations management, title and registration, automated safety, and commercial parking. Key markets include commercial fleets, governments, universities, and parking operators - Verra Mobility provides smart mobility technology solutions, including toll and violations management, title and registration, automated safety, and commercial parking management[14] - The company serves commercial fleet owners (RACs, Direct Fleets, FMCs), governments, universities, parking operators, healthcare facilities, and transportation hubs[14] 2023 Revenue by Segment | Segment | Revenue (Millions USD) | % of Total Revenue | | :------------------ | :--------------------- | :----------------- | | Commercial Services | $372.8 | 45.6% | | Government Solutions | $358.4 | 43.9% | | Parking Solutions | $86.1 | 10.5% | Overview Verra Mobility provides integrated, data-driven smart mobility technology solutions to enhance transportation safety, intelligence, and connectivity - Verra Mobility is a leading provider of smart mobility technology solutions, making transportation safer, smarter, and more connected through integrated, data-driven solutions[14] - The company's solutions include toll and violations management, title and registration services, automated safety and traffic enforcement, and commercial parking management[14] Segments The company operates through three distinct segments: Commercial Services, Government Solutions, and Parking Solutions - The company operates through three segments: Commercial Services, Government Solutions, and Parking Solutions[15] - Commercial Services focuses on automated toll and violations management and title/registration for commercial fleets in North America and violations processing/consumer tolling in Europe[16] - Government Solutions provides automated safety solutions (red-light, speed, school bus, work zone, city bus lane cameras) to state and local governments in the US, Canada, and Australia[17] - Parking Solutions, formed after the T2 Systems acquisition in December 2021, offers end-to-end commercial parking management solutions to universities, municipalities, healthcare, and commercial operators in North America[18][19] Markets and Competition The company faces strong competition across fragmented markets, but benefits from growing demand for automated safety solutions and trends in tolling and parking technology - The company faces strong competition across all markets, but no single competitor offers a similarly broad suite of solutions[20] - Automated safety solutions are increasingly seen as effective tools for traffic safety, with growing demand driven by initiatives like Vision Zero and positive reports from government agencies[21][22] - The tolling industry is fragmented and complex, with trends toward increased toll roads (including dynamic tolling) and cashless payments creating expansion opportunities[23] - The US RAC industry is highly consolidated, with the top three companies being long-standing customers, and trends in toll road usage create opportunities for fleet market expansion[24] - The parking industry is fragmented, with a growing need for technology solutions that provide mobile-first, self-service offerings to improve operational efficiency and reduce labor reliance[25] Products Verra Mobility offers diverse products across its segments, including outsourced toll and violations management, photo enforcement, and comprehensive parking management solutions - Commercial Services offers outsourced toll management (40.4% of 2023 revenue), violations management (4.6% of 2023 revenue), and title and registration solutions (0.6% of 2023 revenue)[26][27][28] - Government Solutions provides photo enforcement solutions for red-light, speed, school bus, and bus lane violations, with direct service revenue from these cameras accounting for 39.6% of 2023 total revenues[29][30] - Parking Solutions includes Parking Access and Revenue Control (PARCS) technology, UNIFI Mobile (launched Dec 2023 for mobile payments, permits, citations), Pay Stations (over 15,600 units), and Permits & Enforcement software[31][32][33][34] Intellectual Property The company safeguards its intellectual property through a combination of patents, trademarks, trade secrets, copyrights, and confidentiality agreements - The company protects its intellectual property through patents, trademarks, trade secrets, copyrights, and confidentiality agreements[35] - Verra Mobility owns approximately 88 U.S. and foreign-issued patents and pending applications, and approximately 220 registrations and pending applications for trademarks and service marks[36][39] Government Regulation The company is subject to evolving local, state, and national regulations concerning data privacy, photo enforcement, consumer protection, and anti-corruption - The company is subject to various local, state, and national laws and regulations, including those related to data privacy, photo enforcement, consumer protection, procurement, and anti-corruption[40] - Privacy and data security laws (e.g., U.S. Driver Privacy Protection Act, GDPR, CCPA) are constantly evolving, increasing compliance complexity and costs[41][42] - Automated photo enforcement programs are regulated at state and local levels, with 21 bills enacted in 2023 to authorize or expand such programs[43] - Tolling operations are subject to state and local regulations, with increasing scrutiny from state Attorneys General regarding RAC tolling programs and fees[46] Human Capital Management Verra Mobility focuses on attracting, retaining, and developing a diverse workforce through purposeful hiring, internal mobility, and performance-aligned compensation programs - As of December 31, 2023, Verra Mobility had 1,788 employees (1,581 full-time, 207 part-time), with 1,187 full-time in the US and 394 internationally[51] - The company focuses on attracting, retaining, and developing diverse talent through purposeful hiring, internal mobility, and a multifaceted talent development framework[52] - Compensation programs align with company and individual performance, offering cash compensation, health benefits, 401(k) plans, and equity awards for key leadership[53] Corporate Information Verra Mobility Corporation, incorporated in Delaware, trades its Class A Common Stock on the Nasdaq Capital Market under the symbol 'VRRM' - Verra Mobility Corporation was originally incorporated in Delaware on August 15, 2016, as Gores Holdings II, Inc., and changed its name after the Business Combination on October 17, 2018[55] - The company's principal executive office is located in Mesa, AZ, and its Class A Common Stock trades on the Nasdaq Capital Market under the symbol 'VRRM'[3][56] Item 1A. Risk Factors Investing in Verra Mobility common stock involves significant risks, including customer concentration in Commercial Services and Government Solutions, unique uncertainties in government contracts, intense competition, and challenges in new product development. The company also faces risks related to its acquisition strategy, data privacy and cybersecurity threats, international operations, intellectual property protection, substantial indebtedness, reliance on third-party vendors, and general economic conditions. Internal control weaknesses and potential litigation further contribute to the risk profile - Customer concentration is a significant risk, with the NYCDOT representing 16.9% of total revenues in fiscal 2023 and the contract expiring December 31, 2024[72][270] - Government contracts are subject to unique risks, including termination rights, payment delays (e.g., $36.1 million open receivable from NYCDOT as of Dec 31, 2023), audits, and investigations[73] - The company's substantial debt, including $704.6 million outstanding under its first lien term loan facility as of December 31, 2023, could restrict operating flexibility and increase vulnerability to adverse economic conditions[128] - A material weakness was identified in internal controls over financial reporting for fiscal year 2023, related to a lack of information technology general controls to prevent management override[163][332][535] Risk Factor Summary Investing in Verra Mobility common stock carries a high degree of risk across various operational, financial, and market-related areas - Investing in Verra Mobility common stock involves a high degree of risk, including those related to customers, industry, competition, acquisitions, data privacy, cybersecurity, international operations, intellectual property, indebtedness, and vendors[63][64][65][66][67][68][69][70] Risks Related to Our Customers, Industry and Competition Customer concentration, unique government contract risks, and intense competition pose significant challenges to the company's business and financial performance - Commercial Services and Government Solutions segments have customer concentration; NYCDOT represented 16.9% of total revenues in fiscal 2023, and its contract expires December 31, 2024[71][72] - Government contracts carry risks like termination rights, payment delays (e.g., $36.1 million open receivable from NYCDOT as of Dec 31, 2023), and audits, which could materially affect the business[73][74][75][76][78] - Decreases in political acceptance or increased governmental restrictions on automated photo enforcement and third-party tolling services could materially impact the Government Solutions and Commercial Services segments[79][80][81] - Intense competition, rapid technological changes, and evolving customer preferences pose risks, as competitors may have greater resources or offer more competitive pricing[82][83][85] Risks Related to Our Acquisitions The company faces risks in successfully implementing its acquisition strategy, integrating acquired businesses, and realizing anticipated financial benefits - Inability to successfully implement the acquisition strategy, including identifying suitable opportunities or consummating transactions on acceptable terms, could materially affect the business[88] - Difficulties in integrating acquired businesses (e.g., combining management, systems, personnel, or losing key customers) could cause significant disruption and additional costs[89][91] - Failure to realize anticipated benefits or encountering unanticipated expenses and liabilities from acquisitions could materially and adversely affect financial performance[92] Risks Related to Data Privacy and Cybersecurity Failures or breaches of networks and systems, along with non-compliance with evolving data privacy laws, could lead to significant financial and reputational harm - A failure or breach of networks or systems, including cyber-attacks, could have a material adverse effect due to the substantial volumes of personal and financial information processed[93][95][96][97][98][99] - Non-compliance with evolving domestic and foreign laws and regulations relating to personal information, privacy, and data security (e.g., CCPA, GDPR) could lead to significant costs, fines, and reputational damage[100][101][102][103][104] - Failure to comply with laws related to processing financial transactions (e.g., debit/credit card transactions) could result in liability claims, fines, or restrictions on business operations[105][106] Risks Related to Human Capital Management The company's success depends on attracting and retaining key talent, and potential labor disputes or inability to do so could materially affect operations - The company's future success depends on attracting and retaining key executives and skilled personnel, and any inability to do so could materially affect the business[107][108][110] - Dependence on qualified subcontractors and potential labor union disagreements (for 26 employees in Staten Island, NY) could disrupt services and reduce revenues[51][108] Risks Related to our International Operations International operations expose the company to political instability, currency fluctuations, diverse legal environments, and compliance risks with anti-corruption laws - International operations in markets like the UK, Netherlands, France, Ireland, Spain, Australia, Canada, Hungary, and India expose the company to risks such as political instability, currency fluctuations, and varying legal/regulatory environments[111][114] - Failure to successfully implement the international expansion strategy, including adapting products to new markets and overcoming entry barriers, could adversely affect growth[113][115][117] - Non-compliance with anticorruption and anti-money laundering laws (e.g., FCPA, UK Bribery Act) in international operations could result in severe sanctions and reputational harm[118][119] - The proposed global minimum tax (OECD model rules) could increase and negatively impact the company's provision for income taxes as legislation becomes effective[120] Risks Related to Our Intellectual Property Failure to protect intellectual property or defend against infringement claims could adversely affect market share, competitive position, and incur significant costs - Failure to acquire necessary intellectual property or adequately protect existing rights could allow competitors to market similar products, dilute brands, and adversely affect market share[122][123] - Measures to monitor and protect intellectual property may be inadequate, leading to challenges, infringement, or misappropriation by third parties, incurring significant resources for defense or enforcement[124] - Third-party infringement claims or challenges to the validity of the company's intellectual property could harm its image, competitive position, and lead to significant defense or settlement costs[126][127] Risks Related to Our Indebtedness Substantial debt increases vulnerability to adverse economic conditions, limits operating flexibility through restrictive covenants, and poses risks of default - Substantial debt, including $704.6 million outstanding under the first lien term loan facility as of December 31, 2023, could increase vulnerability to adverse economic conditions and limit additional financing[128] - Restrictive covenants in debt agreements limit the company's ability to incur additional debt, pay dividends, make acquisitions, or dispose of assets, impacting operating flexibility[129][130] - Failure to comply with debt covenants could result in default, accelerating debt repayment and potentially leading to bankruptcy or insolvency[133][134] - Insufficient cash flows to service debt obligations or inability to obtain additional financing could materially and adversely affect the business and financial condition[135][137][138][139] Risks Related to Our Class A Common Stock, Related Party Transactions and Organizational Documents Stock repurchase programs, anti-takeover provisions, reliance on subsidiary distributions, and potential SEC filing issues present risks to shareholder value and corporate governance - Stock repurchase programs may not enhance long-term shareholder value, could increase stock price volatility, and diminish cash reserves, with a 1% excise tax on net repurchases applied after January 1, 2023[140][144] - Anti-takeover provisions in the certificate of incorporation and bylaws, along with Delaware law, could impair takeover attempts and make management removal more difficult[145][146] - The company's reliance on operating subsidiaries for distributions to meet financial obligations means their financial condition and debt agreements could limit dividend payments[148][149] - Failure to be current in SEC filings, as occurred in 2021, could adversely impact access to credit facilities, employee retention, and public market fundraising[150] Risks Related to Our Vendors Heavy reliance on third-party providers and communications networks means their failures or misconduct could significantly disrupt operations and harm reputation - Heavy reliance on third-party providers (subcontractors, manufacturers, software vendors, network providers) means their failure to meet obligations could materially affect business operations[153] - Misconduct or performance deficiencies by third-party providers could harm the company's reputation or lead to contractual breaches, despite due diligence efforts[155] - Reliance on communications networks and information systems means any interruption (e.g., power outages, cyber-attacks, software errors) could significantly disrupt operations and damage reputation[156] General Risk Factors Uncertain economic conditions, internal control weaknesses, potential litigation, and changes in laws and regulations pose broad risks to the company's financial health and operations - Uncertainty about current and future economic conditions (e.g., higher interest rates, inflation, recession, political instability) can materially adversely affect demand for products and services[157][158] - Failure to maintain an effective system of internal controls or identify material weaknesses could adversely affect financial reporting, diminish investor confidence, and lead to a decline in securities value[159][160][162][163][164][165][166] - Litigation, disputes, and regulatory investigations (e.g., intellectual property, antitrust, consumer fraud, licensing) could be time-consuming, costly, and result in significant liabilities or reputational damage[168][169][170][171][172] - Changes in laws and regulations, or their interpretation, could limit solution adoption, increase costs, or lead to government scrutiny and penalties[173][174][175][177][178] Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[182] Item 1C. Cybersecurity Verra Mobility's Board, through the Audit Committee, oversees a comprehensive cybersecurity program integrated into its enterprise-wide risk management. The program focuses on governance, cross-functional collaboration, technical safeguards, incident response planning, third-party risk management, and employee education. Regular assessments and testing are conducted, with no current cybersecurity threats deemed likely to have a material effect on the company - The Board, via the Audit Committee, oversees the cybersecurity program as part of enterprise-wide risk management, based on NIST, ISO, and other industry frameworks[183][184] - Key areas of the cybersecurity program include governance (led by VP of Cybersecurity reporting to CTO), collaboration with third-party firms, technical safeguards (firewalls, intrusion detection, access controls), incident response, third-party risk management, and employee training[185][186][187][188][189][190] - As of the report date, no cybersecurity threats, including previous incidents, are believed to be reasonably likely to have a material effect on the company's business strategy, results of operations, cash flows, or financial condition[195] 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 these properties are considered material to the overall business - Verra Mobility leases all properties for its business, including its 108,956 square feet corporate headquarters in Mesa, Arizona[196] - No single property is considered material to the company's overall business[196] Item 3. Legal Proceedings Verra Mobility is subject to various legal and regulatory actions in the ordinary course of business. A significant antitrust lawsuit filed by PlusPass, Inc. in November 2020 was fully resolved in February 2024 through a confidential business arrangement, for which Verra Mobility accrued $31.5 million at December 31, 2023. Other pending matters are not expected to have a material adverse impact - The company is subject to legal and regulatory actions, including intellectual property, commercial arrangements, and class action lawsuits challenging automated photo enforcement[198] - An antitrust lawsuit filed by PlusPass, Inc. in November 2020 was resolved in February 2024 through a confidential business arrangement, involving the acquisition of certain assets from PlusPass[199][527] - Verra Mobility accrued $31.5 million for the PlusPass matter at December 31, 2023, presented within selling, general and administrative expenses[199][513] - The company is unable to estimate a reasonably possible range of loss for the Brantley v. City of Gretna class action lawsuit, which alleges violations in the city's safety camera program[512] Item 4. Mine Safety Disclosures This item is not applicable to Verra Mobility Corporation - The disclosure for mine safety is not applicable[200] 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 is quoted on Nasdaq under 'VRRM'. The company had eight holders of record as of February 23, 2024. All outstanding warrants expired or were exercised in 2023, generating $161.4 million in cash proceeds. The company has not paid cash dividends and its ability to do so is limited by debt covenants. Share repurchase programs were active in 2022 and 2023, with a new $100.0 million program authorized in October 2023. All earn-out shares under the Merger Agreement were issued by July 2023 - Class A Common Stock is quoted on Nasdaq under the symbol 'VRRM'[202] - As of February 23, 2024, there were eight holders of record for Class A Common Stock[203] - During fiscal year 2023, 19,999,333 warrants were exercised, resulting in the issuance of 16,273,406 shares of Class A Common Stock and $161.4 million in cash proceeds[205][227][269] - The company has not paid cash dividends on its Class A Common Stock, and future payments are dependent on revenues, earnings, capital requirements, and limited by debt covenants[206] - A new share repurchase program for up to $100.0 million was authorized in October 2023, following $100.0 million in repurchases during 2023 under a prior program[143][215][224][268] - All four tranches of Earn-Out Shares (totaling 10,000,000 shares) were issued to the Platinum Stockholder by July 26, 2023, upon meeting specified Common Stock Price Thresholds[217][219][504][506] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Verra Mobility achieved a 10.2% increase in total revenue to $817.3 million in fiscal year 2023, driven by growth in Commercial Services and Government Solutions. Net income decreased by 38.3% to $57.0 million, primarily due to changes in warrant fair value, a legal settlement, and higher interest expenses. The company focused on debt management, making $172.5 million in early repayments on its 2021 Term Loan, and maintained strong liquidity with $136.3 million cash on hand and $74.8 million available under its Revolver Key Financial Highlights (FY2023 vs. FY2022) | Metric | FY2023 (Millions USD) | FY2022 (Millions USD) | Change ($) | Change (%) | | :------------------------------------------ | :-------------------- | :-------------------- | :--------- | :--------- | | Total Revenue | $817.3 | $741.6 | $75.7 | 10.2% | | Net Income | $57.0 | $92.5 | $(35.5) | (38.3)% | | Cash Flows from Operating Activities | $206.1 | $218.3 | $(12.2) | (5.6)% | | Cash on Hand (as of Dec 31) | $136.3 | $105.2 | $31.1 | 29.6% | | 2021 Term Loan Outstanding (as of Dec 31) | $704.6 | $886.1 | $(181.5) | (20.5)% | - The increase in total revenue was mainly due to service revenue from increased travel volume and higher adoption of all-inclusive product offerings in Commercial Services, and expansion of speed programs in Government Solutions[224] - Net income decreased primarily due to the change in fair value of Private Placement Warrants liability, a legal settlement, and higher interest expenses[260] Business Overview Verra Mobility is a global provider of smart mobility technology solutions, aiming to make transportation safer, smarter, and more connected - Verra Mobility is a leading provider of smart mobility technology solutions, operating globally, with a vision to make transportation safer, smarter, and more connected[222] - The company offers integrated, data-driven solutions for toll and violations management, title and registration, automated safety and traffic enforcement, and commercial parking management[222] Executive Summary Verra Mobility operates with a recurring service revenue model, focusing on organic growth, debt management, and shareholder returns through share repurchases - Verra Mobility operates under long-term contracts and a highly recurring service revenue model, focusing on organic revenue growth and long-term vision initiatives[223] Executive Summary Key Metrics (FY2023) | Metric | Value (Millions USD) | Change YoY | | :-------------------------------- | :------------------- | :--------- | | Total Revenue | $817.3 | +10% | | Cash Flows from Operating Activities | $206.1 | - | | Cash on Hand (Dec 31, 2023) | $136.3 | - | | Share Repurchases | $100.0 | - | | Early Debt Repayments (2021 Term Loan) | $172.5 | - | - The company authorized a new $100.0 million share repurchase program in October 2023, with no shares repurchased under it yet[224][226] - All 19,999,333 warrants were exercised in fiscal year 2023, generating $161.4 million in cash proceeds, with no outstanding warrants as of the report date[227] Segments Verra Mobility's performance is analyzed across its three operating segments: Commercial Services, Government Solutions, and Parking Solutions - Verra Mobility has three operating and reportable segments: Commercial Services, Government Solutions, and Parking Solutions[228] - Segment performance is based on revenues and income from operations before depreciation, amortization, and stock-based compensation, excluding interest expense, income taxes, and certain other transactions[228] Primary Components of Our Operating Results Operating results are driven by service revenue and product sales, offset by various costs and expenses including operating, selling, general, administrative, and interest expenses - Service revenue is generated from toll/violation management (Commercial Services), photo enforcement (Government Solutions), and SaaS/subscription/professional services (Parking Solutions)[229][230][231] - Product sales come from photo enforcement equipment (Government Solutions) and specialized hardware (Parking Solutions), with varying customer buying patterns[232] - Costs and expenses include cost of service revenue, cost of product sales, operating expenses (payroll, subcontractors, IT), selling, general and administrative expenses (legal settlement, wages), depreciation/amortization, interest expense, and other non-operating items[233][234][235][236][237][238][239] Results of Operations The company's financial performance in 2023 showed increased total revenue but decreased net income, influenced by service revenue growth, legal settlements, and higher interest expenses Consolidated Statements of Operations Data (FY2023 vs. FY2022) | Metric (in thousands) | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Service revenue | $783,595 | $695,218 | $88,377 | 12.7% | | Product sales | $33,715 | $46,380 | $(12,665) | (27.3)% | | Total revenue | $817,310 | $741,598 | $75,712 | 10.2% | | Total costs and expenses | $628,496 | $576,893 | $51,603 | 8.9% | | Income from operations | $188,814 | $164,705 | $24,109 | 14.6% | | Interest expense, net | $86,701 | $69,372 | $17,329 | 25.0% | | Net income | $57,015 | $92,475 | $(35,460) | (38.3)% | - Commercial Services service revenue increased by 14.4% to $372.8 million, driven by increased travel volume, tolling activity, and adoption of all-inclusive fee structures[242][243][244] - Government Solutions service revenue increased by 11.8% to $344.0 million, primarily due to the expansion of speed programs ($29.9 million contribution)[242][245] - Selling, general and administrative expenses increased by $35.4 million, primarily due to a $31.5 million legal settlement and higher wage expenses, partially offset by lower credit loss expense[250] - Depreciation, amortization and (gain) loss on disposal of assets, net, decreased by $27.0 million due to certain intangible assets being fully amortized[252] - Interest expense, net, increased by $17.3 million due to higher interest rates, with the average variable interest rate on the 2021 Term Loan approximately 350 basis points higher in 2023[253] Liquidity and Capital Resources The company's liquidity is primarily supported by operating cash flows and available credit, with significant debt repayments and a recent term loan refinancing - Principal liquidity sources are cash flows from operations and available borrowing under the Revolver[261] - As of December 31, 2023, cash on hand was $136.3 million, and $74.8 million was available for borrowing under the Revolver[263] - Early repayments totaling $172.5 million were made on the 2021 Term Loan during fiscal year 2023, with the outstanding principal at $704.6 million[264][277] - The NYCDOT represented 18% of total accounts receivable, net, as of December 31, 2023, down from 22% in 2022[270] Cash Flow Summary (FY2023 vs. FY2022) | Cash Flow Activity (in thousands) | 2023 | 2022 | | :-------------------------------- | :--------- | :--------- | | Net cash provided by operating activities | $206,101 | $218,337 | | Net cash used in investing activities | $(58,290) | $(48,592) |\n| Net cash used in financing activities | $(117,793) | $(164,932) | - The 2021 Term Loan was refinanced in February 2024, reducing the interest rate by 50 basis points to SOFR + 2.75% and eliminating the credit spread adjustment, resulting in 61.5 basis points total savings[264][280][526] - The Senior Notes have a fixed interest rate of 5.50% per annum, due April 15, 2029[282][450] - The PPP Loan of $2.9 million was fully forgiven in September 2022, resulting in a $3.0 million gain on extinguishment of debt[283][451] Critical Accounting Estimates Key accounting estimates involve significant management judgment in areas such as revenue recognition, credit losses, business combinations, goodwill impairment, income taxes, and warrant fair value - Significant judgments are required for revenue recognition, particularly in estimating standalone selling prices (SSP) and allocating transaction prices for contracts with multiple performance obligations[291] - Allowance for credit losses involves reviewing historical losses and customer payment trends, with adjustments for current and future expectations using probability-weighted assumptions[293] - Business combinations are accounted for using the acquisition method, requiring considerable management judgment in allocating fair values to acquired assets and liabilities, including goodwill[294][295] - Goodwill impairment is assessed annually, involving significant judgment in determining reporting unit fair values using discounted cash flow and market approaches; no impairment was recognized for Parking Solutions in 2023[296][297][298][299] - Income tax accounting requires judgment in determining valuation allowances against deferred tax assets and recognizing tax benefits from uncertain tax positions[301] - Private Placement Warrants were classified as liabilities and re-measured to fair value at each reporting period using a Black-Scholes option pricing model until their exercise in 2023[302][304] Recent Accounting Pronouncements The company adopted ASU 2020-04 and is evaluating the impact of ASU 2022-03, ASU 2023-07, and ASU 2023-09 on its financial statements - The company adopted ASU 2020-04 (Reference Rate Reform) in March 2023, applying optional expedients for the transition from LIBOR to Term SOFR, with no material impact[428][429] - ASU 2022-03 (Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions) is effective after December 15, 2023, and is not expected to have a material impact[431] - ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes) are effective for fiscal years beginning after December 15, 2023, and 2024, respectively, and the company is evaluating their impact[432][433] Item 7A. Quantitative and Qualitative Disclosures About Market Risk Verra Mobility is exposed to interest rate market risk from its variable rate debt, which is partially hedged by an interest rate swap agreement - The company is exposed to interest rate market risk from its variable rate 2021 Term Loan, with an outstanding balance of $704.6 million at December 31, 2023[306] - Each 1% movement in interest rates would result in an approximately $7.0 million change in annual interest expense[307] - An interest rate swap agreement, entered in December 2022, hedges exposure to interest rate fluctuations, with the company paying a fixed rate of 5.17% on a notional amount of $675.0 million[308][395] - The company recorded a $0.8 million loss on the interest rate swap in fiscal year 2023, compared to a $1.0 million gain in fiscal year 2022[256][308][396] Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for Verra Mobility Corporation, including the balance sheets, statements of operations and comprehensive income, stockholders' equity, and cash flows, along with detailed notes. The independent registered public accounting firm issued an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting due to a material weakness. Key accounting policies, financial instrument fair values, and segment reporting are also detailed - Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements for the year ended December 31, 2023[313] - Deloitte & Touche LLP expressed an adverse opinion on the company's internal control over financial reporting as of December 31, 2023, due to a material weakness related to information technology general controls[314][326][332] - Critical audit matters included the evaluation of goodwill for the Parking Solutions reporting unit and revenue recognition in the Government Solutions segment, both involving significant management and auditor judgment[318][321] - The notes to consolidated financial statements provide detailed information on significant accounting policies, including revenue recognition, allowance for credit losses, acquisitions, goodwill and long-lived asset impairment, income taxes, and financial instruments[353][354][359][360][369][380][387][407] Reports of Independent Registered Public Accounting Firm The independent auditor issued an unqualified opinion on the financial statements but an adverse opinion on internal control over financial reporting due to a material weakness - Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements for the year ended December 31, 2023[313] - An adverse opinion was issued on the company's internal control over financial reporting as of December 31, 2023, due to a material weakness in IT general controls[314][326][332] - Critical audit matters included the evaluation of goodwill for the Parking Solutions reporting unit and revenue recognition in the Government Solutions segment, both requiring high auditor judgment[318][321] Consolidated Balance Sheets The consolidated balance sheets reflect the company's financial position, showing changes in assets, liabilities, and stockholders' equity Consolidated Balance Sheet Highlights (as of Dec 31, 2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | | :-------------------- | :----------- | :----------- | | Total Assets | $1,789,983 | $1,756,269 | | Total Liabilities | $1,368,516 | $1,525,199 | | Total Stockholders' Equity | $421,467 | $231,070 | | Cash and cash equivalents | $136,309 | $105,204 | | Long-term debt, net | $1,029,113 | $1,190,045 | - Total assets increased by $33.7 million, while total liabilities decreased by $156.7 million, leading to a significant increase in total stockholders' equity[340] Consolidated Statements of Operations and Comprehensive Income These statements detail the company's revenues, expenses, and net income, along with other comprehensive income, for the reported periods Consolidated Statements of Operations (FY2023 vs. FY2022) | Metric (in thousands) | 2023 | 2022 | 2021 | | :-------------------- | :--------- | :--------- | :--------- | | Total revenue | $817,310 | $741,598 | $550,590 | | Income from operations | $188,814 | $164,705 | $111,866 | | Net income | $57,015 | $92,475 | $41,449 | | Basic EPS | $0.36 | $0.61 | $0.26 | | Diluted EPS | $0.36 | $0.50 | $0.25 | - Total revenue increased by 10.2% in 2023, while net income decreased by 38.3% due to factors like warrant fair value changes and legal settlements[242][260][343] Consolidated Statements of Stockholders' Equity This statement outlines changes in the company's equity, including common stock, additional paid-in capital, and accumulated deficit Stockholders' Equity Summary (as of Dec 31, 2023 vs. 2022) | Metric (in thousands) | 2023 | 2022 | | :-------------------- | :----------- | :----------- | | Common Stock Shares | 166,555 | 148,962 | | Common Stock Amount | $17 | $15 | | Common Stock Contingent Consideration | $0 | $36,575 | | Additional Paid-in Capital | $557,513 | $305,423 | | Accumulated Deficit | $(125,887) | $(98,078) | | Total Stockholders' Equity | $421,467 | $231,070 | - Total stockholders' equity increased significantly from $231.1 million in 2022 to $421.5 million in 2023, driven by warrant exercises and net income[346] - The issuance of earn-out shares to the Platinum Stockholder resulted in a decrease in common stock contingent consideration and a corresponding increase in common stock and additional paid-in capital[346][506] Consolidated Statements of Cash Flows These statements categorize cash flows into operating, investing, and financing activities, providing insight into the company's cash generation and usage Consolidated Statements of Cash Flows (FY2023 vs. FY2022) | Cash Flow Activity (in thousands) | 2023 | 2022 | 2021 | | :-------------------------------- | :--------- | :--------- | :--------- | | Net cash provided by operating activities | $206,101 | $218,337 | $193,171 | | Net cash used in investing activities | $(58,290) | $(48,592) | $(475,970) |\n| Net cash used in financing activities | $(117,793) | $(164,932) | $268,722 | - Net cash provided by operating activities decreased by $12.2 million in 2023, primarily due to lower net income, partially offset by changes in operating assets and liabilities[272] - Cash used in financing activities decreased in 2023, mainly due to $161.4 million in proceeds from warrant exercises, offsetting $172.5 million in debt repayments and $100.0 million in share repurchases[274] Notes to Consolidated Financial Statements The notes provide detailed disclosures on the company's business, significant accounting policies, debt, income taxes, segment reporting, and subsequent events - Note 1 provides a description of Verra Mobility's business and its three operating segments: Commercial Services, Government Solutions, and Parking Solutions[354][355][356][357] - Note 2 details significant accounting policies, including revenue recognition, allowance for credit losses, goodwill impairment, and fair value measurements[359][369][380][398] - Note 8 outlines long-term debt, including the 2021 Term Loan ($704.6 million outstanding) and Senior Notes ($350.0 million), and the subsequent refinancing of the Term Loan in February 2024[443][444][449][526] - Note 11 details income tax provisions, including a reconciliation to the statutory U.S. federal income tax rate and significant deferred tax assets and liabilities[467][468] - Note 17 provides segment reporting, showing revenue and segment profit for Commercial Services, Government Solutions, and Parking Solutions, along with asset allocation[515][520][521][522] - Note 18 discloses subsequent events, including the Third Amendment to the 2021 Term Loan and the confidential business arrangement with PlusPass[526][527] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Verra Mobility reported no changes in or disagreements with accountants on accounting and financial disclosure - There were no changes in or disagreements with accountants on accounting and financial disclosure[529] Item 9A. Controls and Procedures Verra Mobility's disclosure controls and procedures were deemed not effective as of December 31, 2023, due to a material weakness in internal control over financial reporting. This material weakness stems from a lack of information technology general controls to prevent management override, specifically system limitations in segregation of duties and insufficient mitigating controls for manual journal entries and revenue invoices. The company is committed to remediation efforts, including a comprehensive assessment, enhancing segregation of duties with new software, implementing compensating controls, and employee training - Disclosure controls and procedures were not effective as of December 31, 2023, due to a material weakness in internal control over financial reporting[531] - A material weakness was identified in the design and operation of internal controls related to a lack of information technology general controls to prevent management override[535] - Specific issues include system limitations preventing proper segregation of duties and a lack of mitigating business process level controls for manual journal entries and certain manual revenue invoices[535] - Remediation efforts include a comprehensive assessment, enhancing segregation of duties (with new software), implementing compensating controls, and employee training[537][538][539][540] Item 9B. Other Information Executive compensation is heavily weighted towards performance-based equity awards to align with stockholder interests. Executive officers may engage in open-market sales of shares from these awards or other transactions, which are governed by the company's Insider Trading Policy and may utilize Rule 10b5-1 trading plans. No directors or executive officers adopted, modified, or terminated such trading plans during the three months ended December 31, 2023 - Executive compensation emphasizes performance-based equity awards to align with stockholder value[545][546] - Executive officers' transactions in company securities are governed by the Insider Trading Policy and may use Rule 10b5-1 trading plans[547] - No directors or executive officers adopted, modified, or terminated Rule 10b5-1 trading plans during Q4 2023[548] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to Verra Mobility Corporation - The disclosure regarding foreign jurisdictions that prevent inspections is not applicable[548] 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 2024 annual meeting of stockholders - Information is incorporated by reference from the 2024 annual meeting of stockholders proxy statement[549] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's proxy statement for the 2024 annual meeting of stockholders - Information is incorporated by reference from the 2024 annual meeting of stockholders proxy statement[550] 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 2024 annual meeting of stockholders - Information is incorporated by reference from the 2024 annual meeting of stockholders proxy statement[551] 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 2024 annual meeting of stockholders - Information is incorporated by reference from the 2024 annual meeting of stockholders proxy statement[552] 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 2024 annual meeting of stockholders - Information is incorporated by reference from the 2024 annual meeting of stockholders proxy statement[553] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists the financial statements and supplementary data filed as part of the Annual Report, including consolidated financial statements and Schedule II. It also provides a comprehensive exhibit index, detailing various agreements, certificates, and policies incorporated by reference or filed herewith - The section lists consolidated financial statements and Appendix A, Schedule II – Consolidated Valuation and Qualifying Accounts[555][556] - A detailed exhibit index is provided, including merger agreements, certificates of incorporation, bylaws, credit agreements, employment agreements, equity incentive plans, and certifications[557][558][560][561][563][564][565][567] Item 16. Form 10-K Summary The company did not provide a summary for Form 10-K in this report - No Form 10-K Summary is provided[570]