Verra Mobility(VRRM) - 2020 Q1 - Quarterly Report

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