Verra Mobility(VRRM) - 2019 Q3 - Quarterly Report

FORM 10-Q Filing Information 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] 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 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] - The company does not undertake any obligation to update these forward-looking statements after the filing date[9] PART I—FINANCIAL INFORMATION This part presents the company's unaudited consolidated financial statements and management's analysis Item 1. Financial Statements. This section presents Verra Mobility Corporation's unaudited condensed consolidated financial statements and notes Condensed Consolidated Balance Sheets 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) 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] Condensed Consolidated Statements of Stockholders' Equity 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][103] Condensed Consolidated Statements of Cash Flows 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][189][193] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Basis of Presentation and Description of Business 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][26][27] - 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] - Commercial Services provides toll and violation management, and title and registration services, including violations processing in Europe through Euro Parking Collection plc (EPC)[30] - 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] 2. Significant Accounting Principles and Policies 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][36] - 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][41] - 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][48] - 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][49][50] 3. Mergers and Acquisitions 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] - 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][58] - 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][63] 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 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] 5. Goodwill and Intangible Assets 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][69] 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 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] - 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] 7. Accrued Liabilities 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] 8. Debt 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][78] - 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] - 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][82] 9. Fair Value Measurements 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] 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 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] - 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] 11. Income Taxes 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] - 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] 12. Stock-Based Compensation 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] 13. Related Party Transactions 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] - 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][100] - 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] - 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] 14. Commitments and Contingencies 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] - 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] 15. Segment Reporting 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][111] 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][171] - 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][172] 16. Guarantor/Non-Guarantor Financial Information 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] - 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][118][121][123][125] 17. Subsequent Event 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] - 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][138] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Verra Mobility's financial condition and operational results Business Overview 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] - 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] Segment Information 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] - 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] Executive Summary 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] - Strategic acquisitions of HTA and EPC in 2018 strengthened the company's position in tolling and European violations processing[134][135] 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 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] Factors Affecting Our Operating Results 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][140] - 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][142] - The EPC acquisition (April 6, 2018) for $62.9 million expanded the company's European operations[143] - The ATS Merger (May 31, 2017) involved Platinum Equity acquiring ATS Consolidated, Inc., which is now VM Consolidated, Inc[144] Primary Components of Operating Results This section defines the main revenue and expense categories contributing to the company's operating results - Total revenue comprises service revenue (from Commercial Services and Government Solutions) and product sales (from Government Solutions)[145] - Service revenue in Commercial Services is generated from tolling programs and title/registration, recognized over time, while Government Solutions service revenue from photo enforcement systems is recognized when services are performed or citations issued/paid[146][147] - Key expense categories include cost of service revenue, cost of product sales, operating expenses (payroll, call centers), selling, general and administrative expenses (payroll, legal, corporate), depreciation, amortization, impairment, interest expense, loss on debt extinguishment, and other income[149][150][151][152][153][154] Results of Operations This section provides a detailed analysis of the company's financial performance over specific periods Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018 This section compares the company's financial performance for the third quarter of 2019 against the same period in 2018 Financial Performance (in thousands) | Metric (in thousands) | Q3 2019 | Q3 2018 | Change ($) | 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 | $8,905 | 14.4% | - Commercial Services revenue increased by 7.9% due to improved volumes in billable days and tolls processed, while Government Solutions service revenue slightly decreased by 0.3% due to the Texas red-light ban and Florida program losses, offset by speed program growth[158][159] - Product sales saw a substantial 628.8% increase, primarily driven by sales to a single customer expanding their school zone speed program[161] - Selling, general and administrative expenses decreased by 1.8% due to lower transaction and integration expenses in the current period, partially offset by stock-based compensation[164] - Interest expense, net, decreased by 26.5% due to lower average debt balances, primarily from the full payoff of the New Second Lien Term Loan[165] Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018 This section compares the company's financial performance for the first nine months of 2019 against the same period in 2018 Financial Performance (in thousands) | Metric (in thousands) | 9M 2019 | 9M 2018 | Change ($) | 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] - 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] - 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] - A $5.9 million impairment charge on property and equipment was recognized in 2019 due to the Texas red-light photo enforcement ban[179] - 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] Liquidity and Capital Resources 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][187][199] - 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][190] - 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] - 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] Critical Accounting Policies, Estimates and Judgments 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][205][210] - 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][209] - 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] Recent Accounting Pronouncements 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] JOBS Act 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] Non-GAAP Financial Data 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] 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][183] - 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] - 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] - 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] Item 4. Controls and Procedures 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] - There were no material changes in the company's internal control over financial reporting during the quarter ended September 30, 2019[223] PART II—OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, and other relevant information Item 1. Legal Proceedings This section states that there are no material legal proceedings to report Item 1A. Risk Factors 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] - The Secured Overnight Financing Rate (SOFR) has been identified as the preferred alternative rate for USD LIBOR[225] - 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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 This section states that there were no defaults upon senior securities during the reporting period Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company Item 5. Other Information This section states that there is no other information to report Item 6. Exhibits 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 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]