Verra Mobility(VRRM) - 2020 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls for the reporting period Item 1. Financial Statements. This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, recent acquisitions, debt, and segment performance Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show the company's financial position at June 30, 2020, and December 31, 2019, indicating a decrease in total assets, liabilities, and stockholders' equity | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :--------------------------------- | :------------------------------- | :--------------------------------- | | Total assets | 1,355,122 | 1,407,426 | | Total liabilities | 1,023,372 | 1,068,079 | | Total stockholders' equity | 331,750 | 339,347 | | Cash and cash equivalents | 113,239 | 131,513 | Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income The statements of operations reveal a significant shift from net income to net loss for both the three and six months ended June 30, 2020, primarily driven by a decline in service revenue and increased credit loss expense, despite growth in product sales Three Months Ended June 30 (YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Total revenue | 79,809 | 109,575 | (29,766) | (27.2)% | | Service revenue | 62,815 | 103,057 | (40,242) | (39.0)% | | Product sales | 16,994 | 6,518 | 10,476 | 160.7% | | Net (loss) income | (15,388) | 3,591 | (18,979) | (528.5)% | | Diluted EPS | (0.10) | 0.02 | (0.12) | (600.0)% | Six Months Ended June 30 (YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Total revenue | 196,522 | 208,036 | (11,514) | (5.5)% | | Service revenue | 162,312 | 201,127 | (38,815) | (19.3)% | | Product sales | 34,210 | 6,909 | 27,301 | 395.2% | | Net (loss) income | (8,715) | 6,411 | (15,126) | (235.9)% | | Diluted EPS | (0.05) | 0.04 | (0.09) | (225.0)% | Condensed Consolidated Statements of Stockholders' Equity The statements of stockholders' equity show a decrease in total equity from December 31, 2019, to June 30, 2020, primarily due to net losses and other comprehensive losses, partially offset by stock-based compensation and the issuance of earn-out shares | Metric | December 31, 2019 ($ in thousands) | June 30, 2020 ($ in thousands) | | :----------------------------------- | :--------------------------------- | :----------------------------- | | Total Stockholders' Equity | 339,347 | 331,750 | | Net (loss) income (H1) | 6,673 (income) | (8,715) (loss) | | Stock-based compensation (H1) | 2,768 | 6,039 | | Other comprehensive loss, net of tax | (3,367) | (3,875) | - Earn-out shares issued to Platinum Stockholder amounted to $18.287 million for the six months ended June 30, 2020[21] Condensed Consolidated Statements of Cash Flows Cash flows from operating activities decreased significantly in the first half of 2020, while cash used in financing activities increased substantially due to mandatory debt prepayments and refinancing costs Six Months Ended June 30 (YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :-------------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Net cash provided by operating activities | 22,543 | 45,781 | (23,238) | (50.8)% | | Net cash used in investing activities | (14,252) | (14,178) | (74) | 0.5% | | Net cash used in financing activities | (25,501) | (4,704) | (20,797) | 442.1% | | Cash, cash equivalents and restricted cash - end of period | 113,950 | 93,990 | 19,960 | 21.2% | - The increase in cash used in financing activities was primarily due to a $19.7 million mandatory prepayment of excess cash flows and costs associated with refinancing the First Lien Term Loan in February 2020[173] Notes to the Condensed Consolidated Financial Statements These notes provide detailed explanations of the company's business, significant accounting policies, recent acquisition of Pagatelia, changes in accounts receivable and goodwill, debt structure, and segment-specific financial performance, offering crucial context to the condensed financial statements 1. Description of Business Verra Mobility Corporation, formed in 2018, operates in two segments: Commercial Services, offering toll and violation management for fleets and rental cars, and Government Solutions, providing traffic safety enforcement solutions for government agencies - Verra Mobility Corporation (formerly Gores Holdings II, Inc.) completed a business combination on October 17, 2018[29] - The Company is organized into two operating segments: Commercial Services and Government Solutions[30] - Commercial Services offers toll and violation management solutions for commercial fleets and rental car industries in North America and Europe[31] - Government Solutions provides end-to-end red-light, speed, school bus stop arm, and bus lane enforcement solutions for municipalities and law enforcement agencies[32] 2. Significant Accounting Policies The company's financial statements are prepared under GAAP, relying on management estimates. Key accounting standard adoptions in January 2020 include ASU 2017-04 for goodwill impairment and ASU 2016-13 (CECL) for credit losses, which resulted in a $0.7 million adjustment to accumulated deficit - The Company adopted ASU 2017-04, simplifying the test for goodwill impairment, as of January 1, 2020[36] - The Company adopted ASU 2016-13 (CECL standard) as of January 1, 2020, through a cumulative effect adjustment of $0.7 million, net of tax, to the opening balance of Accumulated deficit[38] - ASU 2019-12 (Income Taxes) is effective for fiscal years beginning after December 15, 2020, and ASU 2020-04 (Reference Rate Reform) is in effect through December 31, 2022[39][40] 3. Acquisition On October 31, 2019, Verra Mobility acquired Pagatelia S.L. for $26.6 million, integrating its electronic consumer tolling and parking solutions into the Commercial Services segment and recognizing $17.5 million in goodwill - The Company completed the acquisition of Pagatelia S.L. on October 31, 2019, for a purchase consideration of $26.6 million[41] - Pagatelia provides electronic consumer tolling and parking solutions in Spain, Portugal, France, and Italy[41] - Goodwill of $17.528 million arising from Pagatelia was assigned to the Commercial Services segment[41] 4. Accounts Receivable, Net Accounts receivable, net, increased to $125.3 million by June 30, 2020. The allowance for credit loss significantly increased to $12.9 million, driven by the CECL standard adoption and a $3.5 million specific provision for a bankrupt Commercial Services customer (Hertz) | Metric | January 1, 2020 ($ in thousands) | June 30, 2020 ($ in thousands) | | :----------------------------------- | :------------------------------- | :----------------------------- | | Accounts Receivable, Net | 92,695 | 125,252 | | Allowance for credit loss | 8,456 | 12,930 | | Credit loss expense (H1 2020) | N/A | 10,723 | - The credit loss expense for the six months ended June 30, 2020, includes a specific provision of $3.5 million for accounts receivable due from one of our Commercial Services customers (Hertz Corporation) who filed for Chapter 11 bankruptcy[45] - The City of New York Department of Transportation represented 40.5% of total revenue for the three months ended June 30, 2020, and 42.2% of accounts receivable, net, as of June 30, 2020[46] 5. Prepaid Expenses and Other Current Assets Total prepaid expenses and other current assets decreased from $26.5 million at December 31, 2019, to $19.0 million at June 30, 2020, primarily due to reductions in prepaid tolls and prepaid services | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :----------------------------------- | :----------------------------- | :--------------------------------- | | Total prepaid expenses and other current assets | 18,964 | 26,491 | | Prepaid tolls | 7,947 | 10,116 | | Prepaid services | 3,176 | 5,201 | 6. Goodwill and Intangible Assets Goodwill slightly decreased to $581.6 million by June 30, 2020, mainly due to foreign currency adjustments. Intangible assets, net, also declined to $386.4 million. An interim goodwill impairment test was conducted due to market declines from COVID-19, but no impairment was found | Metric | December 31, 2019 ($ in thousands) | June 30, 2020 ($ in thousands) | | :----------------------------------- | :--------------------------------- | :----------------------------- | | Goodwill | 584,150 | 581,615 | | Intangible assets, net | 434,443 | 386,363 | | Amortization expense (H1) | 46,300 | 47,100 | - A foreign currency translation adjustment of $(2.535) million contributed to the decrease in goodwill for the Commercial Services segment[48] - An interim quantitative impairment test was performed as of March 31, 2020, and updated as of June 30, 2020, due to a significant decline in market capitalization and equity values amid COVID-19, concluding that fair values exceeded carrying values[51][52] 7. Impairment of Other Long-lived Assets The company performed a qualitative assessment and concluded no impairment of other long-lived assets as of June 30, 2020. However, a $5.9 million impairment charge was recognized in Q2 2019 in the Government Solutions segment due to a Texas ban on red-light photo enforcement programs - At June 30, 2020, the Company performed a qualitative assessment and concluded that there is no impairment of other long-lived assets[53] - A $5.9 million impairment charge was recognized in the Government Solutions segment for the three and six months ended June 30, 2019, due to Texas legislation banning red-light photo enforcement programs[54] 8. Accrued Liabilities Total accrued liabilities decreased from $25.3 million at December 31, 2019, to $19.6 million at June 30, 2020, primarily driven by lower accrued salaries and wages and a reduction in the current portion of the related party TRA liability | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :------------------------- | :----------------------------- | :--------------------------------- | | Total accrued liabilities | 19,570 | 25,277 | | Accrued salaries and wages | 4,228 | 10,319 | | Current portion of related party TRA liability | 4,636 | 5,730 | 9. Debt The company's total debt decreased to $843.4 million by June 30, 2020. The First Lien Term Loan was refinanced in February 2020, reducing the interest rate margin by 50 basis points, resulting in a lower effective interest rate of 3.6% and a significant decrease in interest expense. A $19.7 million mandatory prepayment was also made | Metric | June 30, 2020 ($ in thousands) | December 31, 2019 ($ in thousands) | | :----------------------------------- | :----------------------------- | :--------------------------------- | | Total debt | 843,421 | 866,465 | | First Lien Term Loan, due Feb 28, 2025 | 870,194 | 894,421 | - The First Lien Term Loan was refinanced on February 20, 2020, reducing the applicable margin by 50 basis points, resulting in an interest rate of 3.6% at June 30, 2020 (down from 5.5% at Dec 31, 2019)[57][64] - A $19.7 million mandatory prepayment of excess cash flow was made during the first quarter of fiscal 2020[58] Interest Expense, Net (YoY) | Period | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Q2 | 9,539 | 15,656 | (6,117) | (39.1)% | | H1 | 21,990 | 31,689 | (9,699) | (30.6)% | - The Company had $68.7 million available for borrowing under the Revolver at June 30, 2020, with no outstanding borrowings, and was compliant with all 2018 Credit Facilities covenants[59][61] 10. Fair Value of Financial Instruments The company categorizes the fair value of its financial instruments using a three-level hierarchy. The First Lien Term Loan's estimated fair value of $839.7 million at June 30, 2020, is classified as Level 2 - Fair value hierarchy categorizes inputs into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[65][66] | Metric | Fair Value Hierarchy Level | Carrying Amount ($ in thousands) | Estimated Fair Value ($ in thousands) | | :-------- | :------------------------- | :------------------------------- | :------------------------------------ | | Total debt (June 30, 2020) | 2 | 843,421 | 839,737 | | Total debt (Dec 31, 2019) | 2 | 866,465 | 905,601 | 11. Net (Loss) Income Per Share Basic and diluted net (loss) income per share shifted from positive in 2019 to negative in 2020, reflecting the company's net losses. A significant number of antidilutive shares were excluded from diluted EPS calculations in 2020 Net (Loss) Income Per Share (YoY) | Period | Metric | 2020 | 2019 | | :----- | :----- | :--- | :--- | | Q2 | Basic | (0.10) | 0.02 | | Q2 | Diluted| (0.10) | 0.02 | | H1 | Basic | (0.05) | 0.04 | | H1 | Diluted| (0.05) | 0.04 | Antidilutive Shares Excluded from Diluted EPS | Period | 2020 (in thousands) | 2019 (in thousands) | | :----- | :------------------ | :------------------ | | Q2 | 29,192 | 8,214 | | H1 | 29,192 | 19,150 | 12. Income Taxes The company's effective income tax rate changed significantly in 2020, moving from a provision to a benefit, primarily due to lower pre-tax income. The CARES Act provisions were applied, and unrecognized tax benefits decreased Effective Income Tax Rate (YoY) | Period | 2020 (%) | 2019 (%) | | :----- | :------- | :------- | | Q2 | (20.7)% | 32.6% | | H1 | (8.5)% | 32.3% | - The effective tax rate change was primarily due to lower pre-tax income in the current year, resulting in permanent book and tax differences having a proportionately greater impact[75] - The Company applied certain articles of the CARES Act, including increased interest deduction and delayed FICA payments[74] - Total unrecognized tax benefits decreased by $0.9 million during fiscal 2020 to $0.8 million as of June 30, 2020[76] 13. Stock-Based Compensation Stock-based compensation expense increased for both the three and six months ended June 30, 2020, compared to the prior year, reflecting higher expenses in both operating and selling, general and administrative categories Total Stock-Based Compensation Expense (YoY) | Period | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Q2 | 3,271 | 2,812 | 459 | 16.3% | | H1 | 6,039 | 4,955 | 1,084 | 21.9% | 14. Related Party Transactions This section details the Tax Receivable Agreement (TRA) and the Earn-Out Agreement. The TRA liability increased by $4.4 million due to changes in estimated state tax rates. Under the Earn-Out Agreement, two tranches of shares have been issued to the Platinum Stockholder, with $36.6 million remaining contingently issuable - A $4.4 million increase was recorded to the Payable related to tax receivable agreement in Q2 2020 due to higher estimated state tax rates, bringing the total TRA liability to approximately $70.2 million at June 30, 2020[81] - The Earn-Out Agreement entitles the Platinum Stockholder to receive up to 10 million Earn-Out Shares based on Common Stock Price thresholds over a five-year period[83][84] - The first and second tranches of Earn-Out Shares (totaling 5 million shares) were issued on April 26, 2019, and January 27, 2020, respectively, with $36.6 million remaining contingently issuable as of June 30, 2020[86][87] 15. Commitments and Contingencies The company has $6.3 million in outstanding letters of credit and $16.0 million in non-cancelable purchase commitments. It accrued $0.5 million for severance costs related to exit activities and does not anticipate material adverse impacts from legal proceedings or a customer guarantee | Commitment Type | Amount ($ in thousands) | | :------------------------------ | :---------------------- | | Outstanding letters of credit | 6,300 | | Non-cancelable purchase commitments | 16,000 | - The Company accrued $0.5 million for severance and other employee separation costs as of June 30, 2020, primarily related to the Commercial Services segment[91] - The likelihood of making payment under a customer guarantee for the one-year period ending March 31, 2021, is deemed remote, and no liability has been recorded[90] - Resolution of pending legal and regulatory actions is not probable to have a material adverse impact on the company's financial position[92] 16. Segment Reporting The company reports financial information for its Commercial Services and Government Solutions segments. In Q2 and H1 2020, Commercial Services revenue and profit significantly declined due to COVID-19, while Government Solutions saw revenue growth, particularly from speed programs, despite some COVID-19 related impacts Segment Revenue and Profit (Three Months Ended June 30, YoY) | Metric | Segment | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------- | :------------------ | :-------------------- | :-------------------- | :---------------------- | :--------- | | Total revenue | Commercial Services | 27,272 | 68,091 | (40,819) | (59.9)% | | Total revenue | Government Solutions| 52,537 | 41,484 | 11,053 | 26.7% | | Segment profit | Commercial Services | 7,192 | 44,133 | (36,941) | (83.7)% | | Segment profit | Government Solutions| 20,321 | 15,543 | 4,778 | 30.7% | Segment Revenue and Profit (Six Months Ended June 30, YoY) | Metric | Segment | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------- | :------------------ | :-------------------- | :-------------------- | :---------------------- | :--------- | | Total revenue | Commercial Services | 88,514 | 130,679 | (42,165) | (32.3)% | | Total revenue | Government Solutions| 108,008 | 77,357 | 30,651 | 39.6% | | Segment profit | Commercial Services | 40,602 | 82,169 | (41,567) | (50.6)% | | Segment profit | Government Solutions| 41,548 | 28,764 | 12,784 | 44.4% | 17. Guarantor/Non-Guarantor Financial Information This section provides disaggregated financial statements for Verra Mobility Corporation (ultimate parent), VM Consolidated Inc. (guarantor subsidiary), and non-guarantor subsidiaries, detailing their respective balance sheets, statements of operations, and cash flows for the specified periods - VM Consolidated, Inc., a wholly-owned subsidiary, is the lead borrower of the First Lien Term Loan and the Revolver[99] - The financial information presents condensed consolidated balance sheets, statements of operations and comprehensive loss, and statements of cash flows for the Company, combined guarantor subsidiaries, and combined non-guarantor subsidiaries[100] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, emphasizing the significant negative impact of the COVID-19 pandemic on revenues, particularly in the Commercial Services segment, and detailing segment performance, liquidity, and critical accounting policies Recent Events Affecting Our Operating Results The COVID-19 pandemic has severely impacted the company's operating results, leading to significant revenue decreases in Commercial Services due to reduced travel and rental car demand, and in Government Solutions from school closures and lower traffic. Hertz, a key customer, filed for bankruptcy - The COVID-19 pandemic has significantly disrupted the global economy and travel industry, leading to reduced airline travel and widespread travel restrictions[114] - Revenues from rental car companies (RACs) in the Commercial Services segment decreased significantly, and The Hertz Corporation, a key customer, filed for Chapter 11 bankruptcy in May 2020[115] - Government Solutions segment revenues were negatively impacted by school closures (school bus stop arm and school zone speed cameras) and reductions in vehicle traffic due to stay-at-home orders[116] Business Overview Verra Mobility is a leading provider of smart mobility technology solutions in North America and Europe, offering toll and violations management, title and registration, and automated safety solutions to a diverse customer base including rental car companies, fleet management companies, and government agencies - Verra Mobility is a leading provider of smart mobility technology solutions and services throughout the United States, Canada, and Europe[119] - Solutions include toll and violations management, title and registration, automated safety solutions, and other data-driven solutions[119] - Customers include rental car companies (RACs), fleet management companies (FMCs), other large fleet owners, municipalities, school districts, and violation-issuing authorities[119] Segment Information The company operates through two reportable segments: Commercial Services, which manages toll and violation solutions for commercial fleets and rental cars, and Government Solutions, which provides traffic safety enforcement programs. Segment performance is assessed based on revenues and income from operations before certain non-operating expenses - The Company has two operating and reportable segments: Commercial Services and Government Solutions[121] - Commercial Services offers toll and violation management solutions, title and registration services for RACs and FMCs in North America and Europe[125] - Government Solutions provides complete, end-to-end red-light, speed, school bus stop arm, and bus lane enforcement solutions for municipalities and local government agencies[125] Executive Summary Verra Mobility's strategy focuses on revenue growth with existing customers, market expansion, and cost reduction. In the first half of 2020, total revenue decreased due to COVID-19's impact on service revenue, despite strong product sales growth. Cash flow from operations also declined, though financing costs were reduced through debt refinancing - The Company's strategy involves growing revenues with existing customers, expanding into adjacent markets through innovation or acquisition, and reducing operating costs[122] Key Financial Highlights (Six Months Ended June 30, YoY) | Metric | 2020 ($ in millions) | 2019 ($ in millions) | Change ($ in millions) | Change (%) | | :-------------------------------------- | :------------------- | :------------------- | :--------------------- | :--------- | | Total revenue | 196.5 | 208.0 | (11.5) | (5.5)% | | Cash flows from operating activities | 22.5 | 45.8 | (23.3) | (50.9)% | | Interest expense, net | 22.0 | 31.7 | (9.7) | (30.6)% | - Product sales grew by $27.3 million year over year, offsetting some of the decline in service revenue due to COVID-19[126] Primary Components of Our Operating Results This section outlines the key revenue streams, including service revenue from Commercial Services (tolling, violations, title/registration) and Government Solutions (photo enforcement), and product sales (equipment). It also details cost and expense categories such as cost of service/product, operating, SG&A, depreciation/amortization, interest, tax receivable agreement adjustments, and other income Revenues Total revenue is comprised of service revenue from Commercial Services (toll and violation management, title/registration) and Government Solutions (photo enforcement systems), along with product sales from Government Solutions (equipment sales) - Commercial Services generates service revenue from managing tolling programs for RACs, FMCs, and other large fleet customers, and from processing titles, registrations, and violations[123] - Government Solutions generates service revenue from the operation and maintenance of photo enforcement systems (red-light, speed, school bus stop arm, bus lane enforcement)[124] - Product sales are generated by the sale of photo enforcement equipment to certain Government Solutions customers, recognized upon acceptance or installation[125] Cost and Expenses Costs and expenses include cost of service revenue (third-party services), cost of product sales (equipment acquisition/installation), operating expenses (payroll, call center, transaction processing), selling, general and administrative expenses (payroll, leases, professional fees), depreciation/amortization, interest expense, tax receivable agreement adjustments, and other income (rebates, foreign currency) Results of Operations This section provides a detailed comparison of the company's financial performance for the three and six months ended June 30, 2020, versus 2019, highlighting the impact of COVID-19 on revenue, expenses, and net income, alongside specific segment performance drivers Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019 In Q2 2020, total revenue decreased by 27.2%, primarily due to a 59.9% drop in Commercial Services service revenue from COVID-19. Government Solutions service revenue saw a slight increase, driven by speed programs, while product sales surged by 160.7%. The company reported a net loss of $(15.4) million, a significant decline from net income in Q2 2019 Revenue Performance (Three Months Ended June 30, YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Total revenue | 79,809 | 109,575 | (29,766) | (27.2)% | | Service revenue | 62,815 | 103,057 | (40,242) | (39.0)% | | Product sales | 16,994 | 6,518 | 10,476 | 160.7% | - Commercial Services service revenue decreased by $40.8 million (59.9%) to $27.3 million, primarily due to the COVID-19 pandemic's impact on the rental car industry[134] - Government Solutions service revenue increased by $0.6 million (1.7%) to $35.5 million, driven by a $4.8 million increase in speed program revenue, partially offset by declines from red-light programs ($2.8 million) and school bus stop arm camera suspensions ($1.6 million) due to COVID-19 and the Texas ban[135][136] Net (Loss) Income and Key Expenses (Three Months Ended June 30, YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :-------------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Net (loss) income | (15,388) | 3,591 | (18,979) | (528.5)% | | Interest expense, net | 9,539 | 15,656 | (6,117) | (39.1)% | | Loss from tax receivable agreement adjustment | 4,446 | — | 4,446 | n/a | Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019 For the first half of 2020, total revenue decreased by 5.5%, with Commercial Services service revenue down 32.3% due to COVID-19. Government Solutions service revenue increased by 4.8%, boosted by speed programs, and product sales grew by 395.2%. The company reported a net loss of $(8.7) million, a significant shift from net income in H1 2019, also impacted by a $10.7 million credit loss expense Revenue Performance (Six Months Ended June 30, YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :----------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Total revenue | 196,522 | 208,036 | (11,514) | (5.5)% | | Service revenue | 162,312 | 201,127 | (38,815) | (19.3)% | | Product sales | 34,210 | 6,909 | 27,301 | 395.2% | - Commercial Services service revenue decreased by $42.2 million (32.3%) to $88.5 million, primarily due to the COVID-19 pandemic's impact on the rental car industry[150][151] - Government Solutions service revenue increased by $3.4 million (4.8%) to $73.8 million, driven by a $10.7 million increase in speed program revenue, partially offset by declines from red-light programs ($5.5 million) and school bus stop arm camera suspensions ($1.6 million)[152] Net (Loss) Income and Key Expenses (Six Months Ended June 30, YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :-------------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Net (loss) income | (8,715) | 6,411 | (15,126) | (235.9)% | | Interest expense, net | 21,990 | 31,689 | (9,699) | (30.6)% | | Loss from tax receivable agreement adjustment | 4,446 | — | 4,446 | n/a | | Credit loss expense | 10,700 | 2,700 | 8,000 | 296.3% | Liquidity and Capital Resources The company's liquidity relies on operating cash flow and its Revolver. While management believes current resources are sufficient for 12 months, future acquisitions may require additional capital. Cash provided by operating activities decreased by $23.3 million, and cash used in financing activities increased significantly due to a $19.7 million mandatory debt prepayment and refinancing costs - Principal sources of liquidity are cash flow from operations and borrowings under the 2018 Credit Facilities[167] - Management believes existing cash, operating cash flows, and Revolver availability ($68.7 million at June 30, 2020) will be sufficient for at least the next 12 months[169][177] Cash Flow Summary (Six Months Ended June 30, YoY) | Metric | 2020 ($ in thousands) | 2019 ($ in thousands) | Change ($ in thousands) | Change (%) | | :-------------------------------------- | :-------------------- | :-------------------- | :---------------------- | :--------- | | Net cash provided by operating activities | 22,543 | 45,781 | (23,238) | (50.8)% | | Net cash used in financing activities | (25,501) | (4,704) | (20,797) | 442.1% | - A $19.7 million mandatory prepayment of excess cash flow was made during the first quarter of fiscal 2020, and the First Lien Term Loan was refinanced in February 2020, reducing the interest rate margin by 50 basis points[173][175] Off-Balance Sheet Arrangements The company reported no off-balance sheet arrangements as of June 30, 2020 - The Company does not have any off-balance sheet arrangements as of June 30, 2020[183] Critical Accounting Policies, Estimates and Judgments The preparation of the company's financial statements requires significant management estimates and assumptions, particularly concerning fair values in business combinations, carrying amounts of assets, credit loss allowances, and contingent liabilities, where actual results could materially differ from estimates - Significant items subject to estimates and assumptions include fair values assigned to net assets acquired, carrying amounts of long-lived assets and goodwill, allowance for credit loss, valuation allowances on deferred tax assets, asset retirement obligations, contingent consideration, and loss contingencies[184] Recent Accounting Pronouncements For a discussion of recent accounting pronouncements, refer to Note 2, Significant Accounting Policies, in Item 1, Financial Statements - Refer to Note 2, Significant Accounting Policies, in Item 1, Financial Statements, for a discussion of recent accounting pronouncements[186] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate market risk due to its variable-rate First Lien Term Loan, with a 1% change in interest rates potentially altering annual interest expense by approximately $8.7 million. The company has not engaged in and does not plan to engage in hedging activities - The Company is exposed to interest rate market risk due to the variable interest rate on its First Lien Term Loan, which had an outstanding balance of $870.2 million at June 30, 2020[187] - Each 1% movement in interest rates will result in an approximately $8.7 million change in annual interest expense[187] - The Company has not engaged in any hedging activities during the six months ended June 30, 2020, and does not expect to do so[188] Item 4. Controls and Procedures The company's disclosure controls and procedures were deemed ineffective as of June 30, 2020, due to a material weakness in internal control over financial reporting. No material changes occurred in internal control during the quarter, and a remediation plan is underway, expected to be completed by the end of fiscal 2020 Evaluation of Disclosure Controls and Procedures The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were not effective as of June 30, 2020, due to a material weakness in internal control over financial reporting - The Company's disclosure controls and procedures were not effective as of June 30, 2020, due to a material weakness in internal control over financial reporting[190] Changes in Internal Control Over Financial Reporting There have been no material changes in the company's internal control over financial reporting during the quarter ended June 30, 2020 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020[191] Remediation The company is actively implementing a remediation plan to address the identified material weakness in internal control over financial reporting, with completion expected before the end of fiscal year 2020 - A remediation plan is being implemented to address the material weakness in internal control over financial reporting[192] - The remediation of this material weakness is expected to be completed prior to the end of fiscal year 2020[192] PART II—OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, defaults, mine safety disclosures, other information, and a list of exhibits for the reporting period Item 1. Legal Proceedings The company reported no material legal proceedings - No material legal proceedings were reported[194] Item 1A. Risk Factors This section supplements prior risk factors, highlighting the severe adverse impact of the COVID-19 pandemic on the company's business, particularly affecting revenues from the rental car industry in Commercial Services and photo enforcement programs in Government Solutions. Historical data may not accurately reflect future performance due to these ongoing impacts - The COVID-19 pandemic has caused severe disruption to the global economy and travel industry, adversely affecting the company's business and results of operations[196][197] - Revenues from key rental car industry customers in the Commercial Services segment have been significantly impacted, with one major customer (Hertz) filing for bankruptcy[198] - Government Solutions revenues have been negatively affected by school closures and reductions in vehicle traffic due to COVID-19 containment measures[199] - Historical financial data may not reflect the full adverse impact of the COVID-19 pandemic and should not be unduly relied upon as representative of future performance[202] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds - No unregistered sales of equity securities or use of proceeds were reported[203] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[204] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the registrant[205] Item 5. Other Information The company reported no other information - No other information was reported[206] Item 6. Exhibits This section lists all exhibits filed as part of or incorporated by reference into the Quarterly Report on Form 10-Q, including key corporate documents, agreements, and certifications - Exhibits include the Merger Agreement, Certificate of Incorporation, Bylaws, Warrant Agreement, and certifications from the Principal Executive Officer and Principal Financial Officer[210] - The filing also includes Inline XBRL Instance Document and related taxonomy extension documents[210][211] SIGNATURES This section confirms the official signing and submission of the Quarterly Report on Form 10-Q by the company's principal executive and financial officers SIGNATURES The Quarterly Report on Form 10-Q was duly signed on August 6, 2020, by David Roberts, President and Chief Executive Officer, and Patricia Chiodo, Chief Financial Officer, on behalf of Verra Mobility Corporation - The report was signed by David Roberts, President and Chief Executive Officer, and Patricia Chiodo, Chief Financial Officer[216] - The signing date of the report was August 6, 2020[216]