UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM ~~10‑Q~~10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2019~~2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ___________.

Commission File Number: ~~001‑37979~~001-37979

~~VERRA MOBILITY CORPORATION~~

~~(Exact name of Registrant as specified in its charter)~~

~~Delaware~~		~~81‑3563824~~
(~~State of~~		(~~I.R.S. Employer~~
~~incorporation~~)		~~Identification No.~~)

~~1150 North Alma School Road~~		~~85201~~
~~Mesa, Arizona~~		(~~Zip Code~~)
(~~Address of Principal Executive Offices~~)

~~(480) 443-7000~~

(~~Registrant’s telephone number, including area code~~)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act:

~~Large accelerated filer~~	☐	~~Accelerated filer~~	☒
~~Non-accelerated filer~~	☐	~~Smaller reporting company~~	☐
		~~Emerging growth company~~	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

~~Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). YES~~ ☐ NO☒

~~Securities registered pursuant to Section 12(b) of the Act:~~

~~(Title of each class)~~		~~(Trading symbol)~~		~~(Name of each exchange on which registered)~~
~~Class A common stock, par value $0.0001 per share~~		~~VRRM~~		~~Nasdaq Capital Market~~

~~As of August 1, 2019, there were 158,609,946 shares of the Company’s Class A common stock, par value $0.0001 per share, issued and outstanding.~~

~~Table of Contents~~

~~VERRA MOBILITY CORPORATION~~

~~FORM 10-Q~~

~~FOR THE QUARTER ENDED JUNE 30, 2019~~

~~TABLE OF CONTENTS~~


~~PART I—FINANCIAL INFORMATION~~		4
~~Item 1. Financial Statements~~.		4
~~Condensed Consolidated Balance Sheets~~		4
~~Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)~~		5
~~Condensed Consolidated Statements of Stockholders’ Equity~~		6
~~Condensed Consolidated Statements of Cash Flows~~		7
~~Notes to Condensed Consolidated Financial Statements~~		9
~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~		31
~~Item 3. Quantitative and Qualitative Disclosures About Market Risk~~		46
~~Item 4. Controls and Procedures~~		46
~~PART II—OTHER INFORMATION~~		47
~~Item 1. Legal Proceedings~~		47
~~Item 1A. Risk Factors~~		47
~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~		47
~~Item 3. Defaults Upon Senior Securities~~		47
~~Item 4. Mine Safety Disclosures~~		47
~~Item 5. Other Information~~		47
~~Item 6. Exhibits~~		48
~~SIGNATURES~~		50

~~Table of Contents~~

~~Cautionary Note Regarding Forward-Looking Statements~~

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of federal securities laws. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future operating results and financial position, our business strategy and plans, products, services, and technology offerings, market conditions, growth and trends, expansion plans and opportunities and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “could,” “would,” “project,” “plan,” “potentially,” “preliminary,” “likely,” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in our Annual Report on Form 10-K/A for the year ended December 31, 2018, under Part I, Item 1A, “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely on forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations.

Unless the context indicates otherwise, as used in this Quarterly Report on Form 10-Q, the terms “Verra Mobility,” the “Company,” “we,” “us,” and “our” refer to Verra Mobility Corporation, a Delaware corporation, and its subsidiaries taken as a whole, unless otherwise noted.

~~Table of Contents~~

~~PART I—FINANCIAL INFORMATION~~

~~Item 1. Financial Statements.~~

VERRA MOBILITY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		81-3563824
(State of		(I.R.S. Employer
Incorporation)		Identification No.)

1150 North Alma School Road		85201
Mesa, Arizona		(Zip Code)
(Address of Principal Executive Offices)

(480) 443-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Class A Common Stock, par value $0.0001 per share		VRRM		Nasdaq Capital Market
(Title of Each Class)		(Trading Symbol)		(Name of Each Exchange on Which Registered)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act:

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). YES ☐ NO☒

As of July 31, 2020, there were 161,736,615 shares of the Company’s Class A Common Stock, par value $0.0001 per share, issued and outstanding.

VERRA MOBILITY CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2020

TABLE OF CONTENTS


PART I—FINANCIAL INFORMATION		5
Item 1. Financial Statements.		5
Condensed Consolidated Balance Sheets		5
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income		6
Condensed Consolidated Statements of Stockholders’ Equity		7
Condensed Consolidated Statements of Cash Flows		8
Notes to the Condensed Consolidated Financial Statements		10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3. Quantitative and Qualitative Disclosures About Market Risk		40
Item 4. Controls and Procedures		41
PART II—OTHER INFORMATION		42
Item 1. Legal Proceedings		42
Item 1A. Risk Factors		42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		43
Item 3. Defaults Upon Senior Securities		43
Item 4. Mine Safety Disclosures		43
Item 5. Other Information		43
Item 6. Exhibits		44
SIGNATURES		46

Cautionary Note Regarding Forward-Looking Statements

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q, Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2019. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Forward-looking statements are subject to inherent risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements include, among other things:

•

disruption to our business and results of operations as a result of the novel coronavirus (“COVID-19”) pandemic;

•

the impact of the COVID-19 pandemic on our revenues from key customers in the rental car industry and from photo enforcement programs;

•

historical data regarding our business, results of operations, financial condition and liquidity may not reflect the impact of COVID-19;

•

customer concentration in our Commercial Services and Government Solutions segments;

•

decreases in the prevalence of automated and other similar methods of photo enforcement or the use of tolling;

•

risks and uncertainties related to our government contracts, including legislative changes, termination rights, audits and investigations;

•

decreased interest in outsourcing from our customers;

•

our ability to properly perform under our contracts and otherwise satisfy our customers;

•

our ability to compete in a highly competitive and rapidly evolving market;

•

our ability to keep up with technological developments and changing customer preferences;

•

the success of our new products and changes to existing products and services;

•

our ability to successfully integrate our recent or future acquisitions; and

•

failures in or breaches of our networks or systems, including as a result of cyber-attacks.

You should not rely on forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update any of these forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or revised expectations.

Unless the context indicates otherwise, the terms “Verra Mobility,” the “Company,” “we,” “us,” and “our” as used in this Quarterly Report on Form 10-Q refer to Verra Mobility Corporation, a Delaware corporation, and its subsidiaries taken as a whole.

Part I—Financial Information

Item 1. Financial Statements.

VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

($ in thousands except per share data)	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	92,247		$	65,048		$	113,239		$	131,513
Restricted cash		1,743			2,033			711			917
Accounts receivable, net		106,261			87,511
Accounts receivable (net of allowance for credit loss of $12.9 million at June 30, 2020)								125,252			93,514
Unbilled receivables		13,571			12,956			12,532			20,003
Prepaid expenses and other current assets		21,646			17,600			18,964			26,491
Total current assets		235,468			185,148			270,698			272,438
Installation and service parts, net		10,028			9,282			8,672			8,841
Property and equipment, net		65,907			69,243			73,604			72,266
Operating lease assets								30,933			32,177
Intangible assets, net		468,213			514,542			386,363			434,443
Goodwill		564,638			564,723			581,615			584,150
Other non-current assets		2,197			1,845			3,237			3,111
Total assets	$	1,346,451		$	1,344,783		$	1,355,122		$	1,407,426
Liabilities and stockholders' equity
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	49,318		$	45,188		$	36,346		$	50,825
Accrued liabilities		20,295			14,444			19,570			25,277
Current portion of long-term debt		9,104			9,104			9,104			28,779
Total current liabilities		78,717			68,736			65,020			104,881
Long-term debt, net of current portion and deferred financing costs		859,133			860,249			834,317			837,686
Operating lease liabilities, net of current portion								29,240			30,130
Payable to related party pursuant to tax receivable agreement								65,620			61,174
Asset retirement obligation								6,237			6,309
Deferred tax liabilities, net								22,691			25,716
Other long-term liabilities		3,764			3,369			247			2,183
Payable related to tax receivable agreement		66,097			69,996
Asset retirement obligation		6,873			6,750
Deferred tax liabilities		22,039			33,627
Total liabilities		1,036,623			1,042,727			1,023,372			1,068,079
Commitments and Contingencies (Note 14)
Commitments and contingencies (Note 15)
Stockholders' equity
Preferred stock, $.0001 par value		—			—			—			—
Common stock, $.0001 par value		16			16			16			16
Common stock contingent consideration		54,862			73,150			36,575			54,862
Additional paid-in capital		367,995			348,017			391,240			367,266
Accumulated deficit		(107,152	)		(113,306	)		(89,629	)		(80,220	)
Accumulated other comprehensive loss		(5,893	)		(5,821	)		(6,452	)		(2,577	)
Total stockholders' equity		309,828			302,056			331,750			339,347
Total liabilities and stockholders' equity	$	1,346,451		$	1,344,783		$	1,355,122		$	1,407,426

See accompanying ~~notes~~Notes to the Condensed Consolidated Financial ~~Statements.~~Statements.

~~Table of Contents~~

VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE (LOSS) INCOME ~~(LOSS)~~

(~~Unaudited~~)(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
(In thousands, except per share data)	2019			2018			2019			2018			2020			2019			2020			2019
Service revenue	$	103,057		$	97,044		$	201,127		$	166,050		$	62,815		$	103,057		$	162,312		$	201,127
Product sales		6,518			1,153			6,909			1,388			16,994			6,518			34,210			6,909
Total revenue		109,575			98,197			208,036			167,438			79,809			109,575			196,522			208,036
Cost of service revenue		1,613			1,651			3,002			2,482			1,013			1,613			2,232			3,002
Cost of product sales		2,918			878			3,194			1,050			9,060			2,918			17,750			3,194
Operating expenses		31,795			28,800			61,133			52,481			26,699			31,795			58,958			61,133
Selling, general and administrative expenses		20,865			27,588			41,416			60,864			20,821			20,865			46,707			41,416
Depreciation, amortization and (gain) loss on disposal of assets, net		28,850			27,496			57,791			46,040			29,166			28,850			58,412			57,791
Impairment of property and equipment		5,898			—			5,898			—			—			5,898			—			5,898
Total costs and expenses		91,939			86,413			172,434			162,917			86,759			91,939			184,059			172,434
Income from operations		17,636			11,784			35,602			4,521
(Loss) income from operations														(6,950	)		17,636			12,463			35,602
Interest expense, net		15,656			19,579			31,689			32,226			9,539			15,656			21,990			31,689
Loss on extinguishment of debt		—			—			—			10,151
Loss from tax receivable agreement adjustment														4,446			—			4,446			—
Other income, net		(3,345	)		(2,766	)		(5,552	)		(4,059	)		(1,523	)		(3,345	)		(4,448	)		(5,552	)
Total other expenses		12,311			16,813			26,137			38,318			12,462			12,311			21,988			26,137
Income (loss) before income tax provision (benefit)		5,325			(5,029	)		9,465			(33,797	)
Income tax provision (benefit)		1,734			(234	)		3,054			(6,844	)
Net income (loss)	$	3,591		$	(4,795	)	$	6,411		$	(26,953	)
Other comprehensive income (loss):		—
Foreign currency translation adjustment		(1,396	)		(3,712	)		(72	)		(3,712	)
Total comprehensive income (loss)	$	2,195		$	(8,507	)	$	6,339		$	(30,665	)
Earnings (loss) per share:
Basic weighted average shares outstanding		157,846			72,484			156,956			67,520
Basic earnings (loss) per share	$	0.02		$	(0.07	)	$	0.04		$	(0.40	)
Diluted weighted average shares outstanding		161,977			72,484			159,223			67,520
Diluted earnings (loss) per share	$	0.02		$	(0.07	)	$	0.04		$	(0.40	)
(Loss) income before income tax (benefit) provision														(19,412	)		5,325			(9,525	)		9,465
Income tax (benefit) provision														(4,024	)		1,734			(810	)		3,054
Net (loss) income													$	(15,388	)	$	3,591		$	(8,715	)	$	6,411
Other comprehensive loss:
Change in foreign currency translation adjustment														(508	)		(1,396	)		(3,875	)		(72	)
Total comprehensive (loss) income													$	(15,896	)	$	2,195		$	(12,590	)	$	6,339
Net (loss) income per share:
Basic													$	(0.10	)	$	0.02		$	(0.05	)	$	0.04
Diluted													$	(0.10	)	$	0.02		$	(0.05	)	$	0.04
Weighted average shares used in per share calculation:
Basic outstanding														161,710			157,846			161,317			156,956
Diluted outstanding														161,710			161,977			161,317			159,223

See accompanying ~~notes~~Notes to the Condensed Consolidated Financial ~~Statements.~~Statements.

~~Table of Contents~~

VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

For the Three and Six Months Ended June 30, 2020																					For the Three and Six Months Ended June 30, 2020
																						Common Stock				Common Stock Contingent			Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Total Stockholders'
(In thousands)																						Shares		Amount		Consideration			Capital			Deficit			Loss			Equity
Balance as of December 31, 2019																							159,150	$	16	$	54,862		$	367,266		$	(80,220	)	$	(2,577	)	$	339,347
Net income																							—		—		—			—			6,673			—			6,673
Cumulative effect of adoption of the CECL accounting standard, net of tax																							—		—		—			—			(694	)		—			(694	)
Earn-out shares issued to Platinum Stockholder																							2,500		—		(18,287	)		18,287			—			—			—
Vesting of restricted stock units ("RSUs")																							42		—		—			—			—			—			—
Payment of employee tax withholding related to RSU vesting																							—		—		—			(327	)		—			—			(327	)
Stock-based compensation																							—		—		—			2,768			—			—			2,768
Other comprehensive loss, net of tax																							—		—		—			—			—			(3,367	)		(3,367	)
Balance as of March 31, 2020																							161,692		16		36,575			387,994			(74,241	)		(5,944	)		344,400
Net loss																							—		—		—			—			(15,388	)		—			(15,388	)
Vesting of RSUs																							45		—		—			—			—			—			—
Payment of employee tax withholding related to RSU vesting																							—		—		—			(25	)		—			—			(25	)
Stock-based compensation																							—		—		—			3,271			—			—			3,271
Other comprehensive loss, net of tax																							—		—		—			—			—			(508	)		(508	)
Balance as of June 30, 2020																							161,737	$	16	$	36,575		$	391,240		$	(89,629	)	$	(6,452	)	$	331,750

For the Three and Six Months Ended June 30, 2019	For the Three and Six Months Ended June 30, 2019																				For the Three and Six Months Ended June 30, 2019
		Common Stock				Common Stock Contingent			Additional Paid-in			Retained Earnings			Accumulated Other Comprehensive			Total Shareholders'
(In thousands)		Shares		Amount		Consideration			Capital			(Deficit)			Loss			Equity
Balance as of December 31, 2018			156,057	$	16	$	73,150		$	348,017		$	(113,306	)	$	(5,821	)	$	302,056				156,057	$	16	$	73,150		$	348,017		$	(113,306	)	$	(5,821	)	$	302,056
Net income			—		—		—			—			2,820			—			2,820				—		—		—			—			2,820			—			2,820
Cumulative effect of adoption of new accounting standard			—		—		—			—			(257	)		—			(257	)
Cumulative effect of adoption of the new revenue accounting standard																							—		—		—			—			(257	)		—			(257	)
Adjustment to equity infusion from Gores			—		—		—			(6,205	)		—			—			(6,205	)			—		—		—			(6,205	)		—			—			(6,205	)
Adjustment to tax receivable agreement liability			—		—		—			2,940			—			—			2,940				—		—		—			2,940			—			—			2,940
Stock-based compensation			—		—		—			2,143			—			—			2,143				—		—		—			2,143			—			—			2,143
Other comprehensive income			—		—		—			—			—			1,324			1,324
Other comprehensive gain																							—		—		—			—			—			1,324			1,324
Balance as of March 31, 2019			156,057		16		73,150			346,895			(110,743	)		(4,497	)		304,821				156,057		16		73,150			346,895			(110,743	)		(4,497	)		304,821
Net income			—		—		—			—			3,591			—			3,591				—		—		—			—			3,591			—			3,591
Earn-out shares issued to Platinum Stockholder			2,500		—		(18,288	)		18,288			—			—			—				2,500		—		(18,288	)		18,288			—			—			—
Vesting of restricted stock units			53		—		—			—			—			—			—
Vesting of RSUs																							53		—		—			—			—			—			—
Stock-based compensation			—		—		—			2,812			—			—			2,812				—		—		—			2,812			—			—			2,812
Other comprehensive loss			—		—		—			—			—			(1,396	)		(1,396	)			—		—		—			—			—			(1,396	)		(1,396	)
Balance as of June 30, 2019			158,610	$	16	$	54,862		$	367,995		$	(107,152	)	$	(5,893	)	$	309,828				158,610	$	16	$	54,862		$	367,995		$	(107,152	)	$	(5,893	)	$	309,828

For the Three and Six Months Ended June 30, 2018

Balance as of December 31, 2017			60,484	$	6	$	—		$	129,020		$	18,238		$	—		$	147,264
Net loss			—		—		—			—			(22,158	)		—			(22,158	)
Stock issued in exchange for HTA acquisition			6,051		1		—			57,270			—			—			57,271
Balance as of March 31, 2018			66,535		7		—			186,290			(3,920	)		—			182,377
Net loss			—		—		—			—			(4,795	)		—			(4,795	)
Stock issued in exchange for EPC acquisition			6,369		1		—			60,284			—			—			60,285
Other comprehensive loss			—		—		—			—			—			(3,712	)		(3,712	)
Balance as of June 30, 2018			72,904	$	8	$	—		$	246,574		$	(8,715	)	$	(3,712	)	$	234,155

See accompanying ~~notes~~Notes to the Condensed Consolidated Financial Statements.

~~Table of Contents~~

VERRA MOBILITY CORPORATION

condensed consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2019			2018			2020			2019
Cash Flows from Operating Activities:
Net income (loss)	$	6,411		$	(26,953	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net (loss) income							$	(8,715	)	$	6,411
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		57,804			46,047			58,409			57,804
Amortization of deferred financing costs and discounts		3,589			4,215			2,106			3,589
Impairment of property and equipment		5,898			—			—			5,898
Bad debt expense		2,736			2,437
Loss from tax receivable agreement adjustment								4,446			—
Credit loss expense								10,723			2,736
Deferred income taxes		(11,568	)		(10,949	)		(2,496	)		(11,568	)
Stock-based compensation		4,955			—			6,039			4,955
Loss on extinguishment of debt		—			10,151
Installation and service parts expense		643			244			559			643
Accretion expense		183			194			129			183
Write-downs of installation and service parts and (gain) on disposal of assets		(13	)		(7	)
Loss (gain) on disposal of assets								3			(13	)
Changes in operating assets and liabilities:
Accounts receivable, net		(21,433	)		(3,490	)		(43,183	)		(21,433	)
Unbilled receivables		(616	)		(8,017	)		7,476			(616	)
Prepaid expense and other current assets		(3,848	)		(428	)
Other assets		(351	)		(715	)
Prepaid expenses and other current assets								7,979			(4,199	)
Accounts payable and accrued liabilities		5,224			(467	)		(17,863	)		5,224
Other liabilities		(3,833	)		272			(3,069	)		(3,833	)
Net cash provided by operating activities		45,781			12,534			22,543			45,781
Cash Flows from Investing Activities:
Acquisition of businesses, net of cash and restricted cash acquired		—			(525,362	)
Purchases of installation and service parts and property and equipment		(14,192	)		(11,109	)		(14,301	)		(14,192	)
Cash proceeds from the sale of assets and insurance recoveries		14			3
Cash proceeds from the sale of assets								49			14
Net cash used in investing activities		(14,178	)		(536,468	)		(14,252	)		(14,178	)
Cash Flows from Financing Activities:
Borrowings on revolver		—			468
Repayment on revolver		—			(468	)
Borrowings of long-term debt		—			1,033,800
Repayment of long-term debt		(4,552	)		(450,475	)		(24,227	)		(4,552	)
Payment of debt issuance costs		(152	)		(29,512	)		(922	)		(152	)
Payment of debt extinguishment costs		—			(8,187	)
Net cash (used in) provided by financing activities		(4,704	)		545,626
Payment of employee tax withholding related to RSU vesting								(352	)		—
Net cash used in financing activities								(25,501	)		(4,704	)
Effect of exchange rate changes on cash and cash equivalents		10			(507	)		(1,270	)		10
Net increase in cash, cash equivalents and restricted cash		26,909			21,185
Net (decrease) increase in cash, cash equivalents and restricted cash								(18,480	)		26,909
Cash, cash equivalents and restricted cash - beginning of period		67,081			10,509			132,430			67,081
Cash, cash equivalents and restricted cash - end of period	$	93,990		$	31,694		$	113,950		$	93,990

See accompanying ~~notes~~Notes to the Condensed Consolidated Financial ~~Statements.~~Statements.

~~Table of Contents~~

VERRA MOBILITY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

	Six Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2020		2019
Supplemental cash flow information:
Interest paid	$	28,144	$	27,846	$	20,201	$	28,144
Income taxes paid, net		15,448		849		1,135		15,448
Supplemental non-cash investing and financing activities:
Reduction to tax receivable agreement liability		2,940		—		—		2,940
Gores equity infusion working capital adjustment payable to related party		6,205		—		—		6,205
Earn-out shares issued to Platinum Stockholder		18,288		—		18,287		18,288
Additions to ARO, property and equipment, and other		143		—		41		143
Purchases of installation and service parts and property and equipment in accounts payable and accrued liabilities at period-end		4,269		3,413		3,238		4,269
Capital contributions received in Parent common stock		—		117,556
Payable to HTA sellers in connection with business acquisition		—		12,056

See accompanying ~~notes~~Notes to the Condensed Consolidated Financial ~~Statements.~~Statements.

~~Table of Contents~~

VERRA MOBILITY CORPORATION

Notes to the CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	~~Basis of Presentation and Description of Business~~

~~Basis of Presentation~~

~~Verra Mobility Corporation (collectively with its subsidiaries, the “Company” or “Verra Mobility”), formerly known as Gores Holdings II, Inc. (“Gores~~”), was originally incorporated in Delaware on August 15, 2016, as a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more target businesses. On January 19, 2017, the Company consummated its initial public offering, following which its shares began trading on the Nasdaq Capital Market (“~~Nasdaq”).~~

~~On June 21, 2018, Gores, AM Merger Sub I, Inc., a direct, wholly-owned subsidiary of Gores (“First Merger Sub”), AM Merger Sub II, LLC, a direct, wholly-owned subsidiary of Gores (“Second Merger Sub”), Greenlight Holding II Corporation (“Greenlight”), and PE Greenlight Holdings, LLC entered into an Agreement and Plan of Merger as amended on August 23, 2018 by that certain Amendment No. 1 to Agreement and Plan of Merger (as amended, the “Merger Agreement”), which provided for, among other things, (i) the merger of First Merger Sub with and into Greenlight, with Greenlight continuing as the surviving corporation (the “First Merger~~”) and (ii) immediately following the First Merger and as part of the same overall transaction as the First Merger, the merger of Greenlight with and into Second Merger Sub, with Second Merger Sub continuing as the surviving entity (the “~~Second Merger” and, together with the First Merger, the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”).~~

~~In connection with the closing of the Business Combination on October 17, 2018 (the “Closing Date~~”), Gores changed its name from Gores Holdings II, Inc. to Verra Mobility Corporation, changed its trading symbols on Nasdaq from “GSHT,” and “GSHTW,” to “VRRM” and “VRRMW,” and Second Merger Sub changed its name from AM Merger Sub II, LLC to Verra Mobility Holdings, LLC. As a result of the Business Combination, Verra Mobility Corporation became the owner, directly or indirectly, of all of the equity interests of Verra Mobility Holdings, LLC and its subsidiaries. The Business Combination is treated as a reverse acquisition and recapitalization in which Greenlight is treated as the accounting acquirer (and legal acquiree) and Gores is treated as the accounting acquiree (and legal acquirer). Accordingly, as of the Closing Date, Greenlight’s historical results of operations replaced Gores’ historical results of operations for periods prior to the Business Combination, and the results of operations of both companies are included in the accompanying condensed consolidated financial statements for periods following the Merger (see Note 3).

~~On May 31, 2017, Greenlight Acquisition Corporation (“Parent”) acquired ATS Consolidated Inc. (“ATS”) pursuant to the Agreement and Plan of Merger, dated April 15, 2017 by and among ATS, Greenlight Merger Corporation, a wholly-owned subsidiary of Parent (“ATS Merger Sub”) and Parent whereby ATS merged with and into ATS Merger Sub with the former surviving (the “ATS Merger~~”). Prior to the Business Combination, Parent was ultimately owned by Greenlight, which in turn was owned by certain private equity investment vehicles sponsored by Platinum Equity, LLC (collectively, “~~Platinum”) (See Note 3).~~

Description of Business

~~Verra Mobility is a technology-enabled services company offering traffic safety and mobility solutions for state and local governments, commercial fleets and rental car companies.~~

Verra Mobility Corporation (collectively with its subsidiaries, the “Company” or “Verra Mobility”), formerly known as Gores Holdings II, Inc. (“Gores”), was originally incorporated in Delaware on August 15, 2016, as a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more target businesses. On January 19, 2017, the Company consummated its initial public offering (the “IPO”), following which its shares began trading on the Nasdaq Capital Market (“Nasdaq”). On June 21, 2018, Gores entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) with Greenlight Holding II Corporation, PE Greenlight Holdings, LLC, AM Merger Sub I, Inc., a direct, wholly-owned subsidiary of Gores and AM Merger Sub II, LLC, a direct, wholly-owned subsidiary of Gores. On October 17, 2018, the transactions contemplated by the Merger Agreement (the “Business Combination”) were consummated. In connection with the closing of the Business Combination, Gores changed its name to Verra Mobility Corporation. As a result of the Business Combination, Verra Mobility Corporation became the owner, directly or indirectly, of all of the equity interests of Verra Mobility Holdings, LLC and its subsidiaries.

Verra Mobility offers integrated technology solutions and services to commercial fleets, rental car companies and state and local governments. The Company has customers located throughout the United States, Canada ~~and Europe. The Company is organized into two operating divisions: Commercial Services and Government Solutions (See Note 15).~~

~~Table of Contents~~

The Commercial Services division offers toll and violation management solutions for the commercial fleet and rental car industries by partnering with the leading fleet management and rental car companies in North America and Europe. The Company is organized into 2 operating segments: Commercial Services and Government Solutions (see Note 16).

The Commercial Services segment offers toll and violation management solutions for the commercial fleet and rental car industries by partnering with the leading fleet management and rental car companies in North America. Electronic toll payment services enable fleet drivers and rental car customers to use high-speed cashless toll lanes or all-electronic cashless ~~toll lanes or cashless all-electronic~~ toll roads. The service helps commercial fleets reduce toll management costs, while it provides rental car companies with a revenue-generating, value-added service for their customers. Electronic violation processing services reduce the cost and risk associated with vehicle-issued violations, such as toll, parking or camera-enforced tickets. Title and registration services offer title and registration processing for individuals, rental car companies and fleet management companies. In Europe, the Company provides violations processing through Euro Parking Collection plc (“EPC”) and tolling services through Pagatelia S.L (“Pagatelia”).

The Government Solutions segment provides complete, end-to-end red-light, speed, school bus stop arm and bus lane enforcement solutions. The Company’s programs are designed to reduce traffic violations and resulting collisions, injuries, and fatalities. The Company implements and administers traffic safety programs for municipalities, counties, school districts and law enforcement agencies of all sizes.

2.	Significant Accounting Policies

Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.

Use of Estimates

The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited interim condensed consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the fair values assigned to net assets acquired (including identifiable intangibles) in business combinations, the carrying amounts of long-lived assets and goodwill, the carrying amount of installation and service parts, the allowance for credit loss, valuation allowances on deferred tax assets, asset retirement obligations, contingent consideration and the recognition and measurement of loss contingencies.

Management believes that its estimates and assumptions are reasonable in the circumstances; however, actual results could differ materially from those estimates.

Recent Accounting Pronouncements

Accounting Standards Adopted

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the accounting for goodwill impairment and removes Step 2 of the goodwill impairment test. Goodwill impairment is now the amount by which a reporting unit’s carrying value exceeds its fair value limited to the total amount of goodwill allocated to that reporting unit. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill for all reporting units, even those with zero or negative carrying amounts. The Company adopted the ASU as of January 1, 2020 and followed the one-step method in evaluating potential goodwill impairment for the first and second quarters of fiscal 2020, refer to Note 6, Goodwill and Intangible Assets. The adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and issued certain amendments within ASU 2019-04,ASU 2019-05 and ASU 2019-11, respectively. The guidance replaced the incurred loss impairment model and applies a new model, current expected credit losses (“CECL”), that requires entities to estimate expected credit losses measured over the contractual life of an instrument that consider supportable forecasts of future economic conditions in addition to information about past events and current conditions. An entity is required to measure and record an allowance for credit loss upon initial recognition of a financial asset, and present in-scope assets at amortized cost net of the amount expected to be collected. Under legacy GAAP, the Company recognized credit losses on trade receivables when it was probable that a loss has been incurred.

The Company adopted the 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. The adjustment increased Accumulated deficit and increased the Allowance for credit loss accounts. Subsequent impacts to the Allowance for credit loss have been recorded through the Credit loss expense account included within Selling, general and administrative expenses in our condensed consolidated statements of operations and as an Allowance for credit loss on our condensed consolidated balance sheet. See Note 4. Accounts Receivable, Net for additional information.

Accounting Standards Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU removes specific exceptions to the general principles in Topic 740 in U.S. GAAP including the exception to the incremental approach for intra-period tax allocation, exceptions to accounting for basis differences when there are ownership changes in foreign investments, and the exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also simplifies current guidance in relation to franchise taxes that are partially based on income, transactions with a government that result in a step-up in tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020and interim periods within those fiscal years. Early adoption is permitted. The impact of the implementation of this standard is still being determined by the Company.

On March 12, 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. It provides optional expedients and exceptions for applying GAAP to contract modifications, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is in effect for a limited time through December 31, 2022, to help stakeholders during the global market-wide reference rate transition period. The impact of the implementation of this standard is still being determined by the Company.

3.	Acquisition

Pagatelia Acquisition

On October 31, 2019, the Company completed the acquisition of all of the outstanding shares of Pagatelia S.L., (“Pagatelia”), a Spanish limited liability company that provides electronic consumer tolling and parking solutions in Spain, Portugal, France and Italy. The purchase consideration for Pagatelia was $26.6 million. Transaction costs were not material.

The allocation of the purchase consideration is summarized as follows:

($ in thousands)
Assets acquired
Cash	$	1,086
Other assets		5,047
Trademark		771
Customer relationships		5,946
Developed technology		4,624
Non-compete agreements		440
Goodwill		17,528
Total assets acquired		35,442

Liabilities assumed
Accounts payable and accrued expenses		6,045
Deferred tax liability		2,801
Total liabilities assumed		8,846
Total purchase price	$	26,596

Goodwill arising from Pagatelia was assigned to the Company’s Commercial Services segment and consists largely of the expected cash flows and future growth anticipated for the Company. The goodwill is not expected to be deductible for tax purposes. The customer relationships value was based on an excess earnings methodology utilizing projected cash flows. The trademark and the developed technology values were based on a relief-from-royalty method. The non-compete agreement values were based on the with-or-without method. The trademark, customer relationships, developed technology and non-compete agreements were assigned useful lives of 8.5 years, 9.5 years, 6.5 years and 3 years, respectively.

The Company did not provide pro forma financial information for Pagatelia as it was not material.

4.	Accounts Receivable, Net

Accounts receivable are uncollateralized customer obligations arising from the sale of products or services. Accounts receivable have normal trade terms less than one year and are initially stated at the amounts billed to the customers. Accounts receivable are subsequently measured at amortized cost net of allowance for credit loss. As part of its analysis for implementation of the CECL standard as of January 1, 2020, the Company reviewed historical loss rates, customer payment trends and collection rates on customer balances. Estimated loss rates were developed using historical credit loss experience, adjusted for future expectations using probability-weighted assumptions about potential outcomes. Receivables are written off against the allowance for credit loss when it is probable that amounts will not be collected based on terms of the customer contracts, and subsequent recoveries reverse the previous write-off and apply to the receivable in the period recovered. The Company periodically evaluates the adequacy of its allowance for expected credit losses by comparing its actual historical write-offs to its previously recorded estimates.

The Company identified portfolio segments based on type of business, industry in which the customer operates and historical credit loss patterns. The following presents by portfolio segment Accounts receivable, net and the activity in the Allowance for credit loss for the six months ended June 30, 2020:

($ in thousands)	Commercial Services (Driver-billed) ⁽¹⁾			Commercial Services (All other)			Government Solutions			Total
Accounts Receivable, Net at January 1, 2020 ⁽²⁾	$	9,793		$	51,158		$	31,744		$	92,695

Allowance for credit loss at January 1, 2020 ⁽²⁾	$	5,272		$	1,406		$	1,778		$	8,456
Credit loss expense		2,744			6,256			1,723			10,723
Write-offs, net of recoveries		(5,449	)		(334	)		(466	)		(6,249	)
Allowance for credit loss at June 30, 2020	$	2,567		$	7,328		$	3,035		$	12,930

Accounts Receivable, Net at June 30, 2020	$	7,926		$	48,934		$	68,392		$	125,252

(1)

Driver-billed consists of receivables from drivers of rental cars and fleet management ~~companies.~~

The Government Solutions division provides complete, end-to-end red-light, speed, school bus stop arm and bus lane enforcement solutions. The Company’s programs are designed to reduce traffic violations and resulting collisions, injuries, and fatalities. The Company implements and administers traffic safety programscompanies for ~~municipalities, counties, school districts and law enforcement agencies of all sizes.~~

2.	~~Significant Accounting Principles and Policies~~

~~Principles of Consolidation~~

The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company prepared in accordance with generally accepted accounting principles in the United States of America (“~~GAAP~~”). All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.

~~Use of Estimates~~

The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited interim condensed consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the fair values assigned to net assets acquired (including identifiable intangibles) in business combinations, the carrying amounts of long-lived assets and goodwill, the carrying amount of installation and service parts, the allowance for doubtful accounts, valuation allowances on deferred tax assets, asset retirement obligations, contingent consideration and the recognition and measurement of loss contingencies.

~~Management believes that its estimates and assumptions are reasonable in the circumstances; however, actual results could differ materially from those estimates.~~

~~Recent Accounting Pronouncements~~

~~Accounting Standards Adopted~~

~~In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~, which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We elected to early adopt the requirements of the new standard in the fourth quarter of 2018 using the retrospective transition method, as required by the new standard. The adoption of this ASU had an immaterial impact to the condensed consolidated statements of cash flows.

~~The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets as of~~ ~~June 30, 2019 and 2018, respectively, that sums to the total of such amounts in the condensed consolidated statements of cash flows for the six months ended~~ ~~June 30, 2019 and 2018, respectively:~~

($ in thousands)

June 30, 2019

June 30, 2018

Cash and cash equivalents

$
92,247

$
29,777

Restricted cash

1,743

1,917

Cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows

$
93,990

$
31,694

~~Table of Contents~~

~~Revenue Recognition~~

~~On January 1, 2019, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, Topic 606 (“ASC 606~~”) using the modified retrospective method applied to those contracts that were not completed as of the adoption date. Results for 2019 are presented under ASC 606, while prior periods were not adjusted and are reported under ASC Topic 605, ~~Revenue Recognition~~ (“~~ASC 605”).~~

The Company has evaluated its current accounting practices to the requirements of ASC 606. This evaluation included an assessment of representative contracts from each of the Company’s revenue streams. The adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows, however, there have been additions and modification to its existing financial disclosures. While the overall revenue, systems and controls were minimally impacted by the new standard, the underlying recognition methodology has changed.

Under the new standard, the Company now recognizes revenue when the Company satisfies the performance obligation, including, for some of its contracts, the processing of the violation on the customer’s behalf. The primary difference under ASC 606 within the Government Solutions segment is the deferral of revenue related to certain variable price contracts, until citation payment. The Company recorded a $0.3 million reduction to opening retained earnings as of January 1, 2019 for the cumulative impact of adoption related to the recognition of revenue in its Government Solutions segment. There was no cumulative impact of adoption related to the Commercial Services segment.

The comparative information was not restated and continues to be presented under ASC 605 for those periods. There was no material impact upon adoption related to the costs of obtaining or fulfilling a contract.

~~Nature of goods and services~~

~~The following is a description of principal activities – separated by reportable segments – from~~ which the Company ~~generates revenue:~~bills on behalf of its customers.Receivables not collected from drivers within a defined number of days are transferred to customers subject to applicable bad debt sharing agreements.

Commercial Services segment: The Commercial Services segment offers toll and violation management solutions for the commercial fleet and rental car industries by partnering with the leading fleet management and rental car companies in North America and Europe. The Company determined its performance obligation is a distinct stand-ready obligation, as there is an unspecified quantity of services provided that does not diminish, and the customer is being charged only when it uses the Company’s services, such as toll payment, title and registration, etc. Therefore, all services provided within the Commercial Services segment are accounted for as a single performance obligation, of a series of distinct items, with distinct time increments, as a stand-ready obligation. Payment terms for contracts with commercial fleet and rental car companies vary, but are usually billed as services are performed. Revenue from services provided in the Commercial Services segment is recognized over time as the customer simultaneously receives and consumes the benefits provided by the Company and as the Company performs the services.

Government Solutions segment: The Government Solutions segment principally generates revenue from providing complete, end-to-end red-light, speed, school bus stop arm, and bus lane enforcement solutions. Products, when sold, are typically sold together with the services in a bundle. The average initial term of a contract is 3 to 5 years. Payment terms for contracts with government agencies vary depending on whether the consideration is fixed or variable. Payment terms for contracts with fixed consideration are usually based on equal installments over the duration of the contract. Payment terms for contracts with variable consideration are usually billed and collected as citations are issued or paid.

~~For bundled packages, the Company accounts~~

(2)

This includes a $0.8 million increase to Allowance for ~~individual products and services separately if they are distinct – i.e., if a product or service is separately identifiable from other items in the bundle and if a customer can benefit from it~~credit loss as a ~~stand-alone item. The consideration is allocated between separate products and services in a bundle based on their stand-alone selling prices (“SSP”). The Company estimates~~result of adopting the ~~SSP of its services based upon observable evidence, market conditions and other relevant inputs.~~CECL standard.

The estimated 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 (All other) customers who filed for Chapter 11 bankruptcy.

Concentration of Credit Risk

Significant customers are those which represent more than 10% of the Company’s total revenue and accounts receivable. Revenue from one of the Government Solutions customers as a percent of total revenue is presented below for the three and six months ended June 30, 2020 and 2019, respectively:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
City of New York Department of Transportation		40.5	%		12.4	%		31.6	%		10.4	%

The City of New York Department of Transportation represents 42.2% of accounts receivable, net as of June 30, 2020. Significant customer revenue generated through the Company’s Commercial Services partners as a percent of total revenue is presented below for the three and six months ended June 30, 2020 and 2019, respectively:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020	2019			2020			2019
Hertz Corporation	(1)		19.6	%		13.0	%		19.0	%
Avis Budget Group, Inc.	(1)		16.5	%	(1)				13.1	%
Enterprise Holdings, Inc.	(1)		13.5	%	(1)				13.7	%

~~Product sales (sale of camera and installation) – The Company recognizes~~

(1)

Customer revenue when the installation process is completed and the camera is ready to perform the services as expected by the customer. Generally, it occurs at site acceptance or first citation. The Company recognizes revenue for the ~~sale~~period was below 10% of ~~the camera~~total revenue.

5.	Prepaid Expenses and ~~installation services at a point in time.~~Other Current Assets 11 ~~Table of Contents~~

Prepaid expenses and other current assets consist of the following at:

($ in thousands)	June 30, 2020		December 31, 2019
Prepaid tolls	$	7,947	$	10,116
Deposits		3,345		3,642
Prepaid services		3,176		5,201
Prepaid computer maintenance		2,559		2,923
Prepaid insurance		841		1,485
Photo enforcement equipment held for sale		416		1,410
Prepaid income taxes		230		1,025
Other		450		689
Total prepaid expenses and other current assets	$	18,964	$	26,491

•

Service revenue – The Company determined its performance obligation is to provide a complete end-to-end safety and enforcement solution. Promises include providing a system to capture images, processing images taken by the camera, forwarding eligible images to the local police department and processing payments on behalf of the municipality. The Company determined that certain of the promises to its customers are capable of being distinct, as they may provide some measure of benefit to the customer either on their own or together with other resources that are readily available to the customer. However, the Company determined that the promises to its customers do not meet the criterion of being distinct within the context of its contracts. The Company would not be able to fulfill its promises individually, as its customers could not obtain the intended benefit from the contract without the Company fulfilling all promises. Accordingly, the Company concluded that each contract represents one service offering and is a single performance obligation to our customer. Further, the Company accounts for all the services as a single continuous service. The Company applies the series guidance for those services as the nature of the service is to provide a service for a period of time with distinct time increments. The Company recognizes revenue from services over time, as they are performed.

~~Remaining Performance Obligations~~

As of June 30, 2019, the Company had approximately $0.2 million of remaining performance obligations in the Government Solutions segment, which include amounts that will be invoiced and recognized in future periods. The remaining performance obligations are limited only to arrangements that meet the definition of a contract under ASC 606 as of June 30, 2019. As these amounts relate to the initial deferral of revenue under a contract, the Company expects to recognize these amounts over a two month period at the end of the contract.

The Company applies the practical expedient in paragraph 606-10-50-14A of ASC 606 and does not disclose variable consideration allocated entirely to wholly unsatisfied stand-ready performance obligations for certain Government Solutions and Commercial Services contracts as part of the information about remaining performance obligations. The duration for these contracts ranges between 3 and 5 years for new contracts.

~~Significant Judgments~~

Under the new revenue standard, significant judgments are required in order to identify contracts with customers and estimate transaction prices. Additional judgments are required for the identification of distinct performance obligations, the estimation of standalone selling prices and the allocation of the transaction price by relative standalone selling prices. Assumptions regarding timing of when control transfers to the customer requires significant judgment in order to recognize revenue. The Company makes significant judgments related to identifying the performance obligation and determining whether the services provided are able to be distinct, determining the transaction price, specifically as it is related to the different variable consideration structures identified in the Company’s contracts, and in determining the timing of revenue recognition.

~~Accounting Standards Not Yet Adopted~~

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,~~ ~~and issued an amendment within ASU 2019-04~~, collectively Topic 825. The main objective of the updates is to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The new guidance addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, ASU 2016-01 requires the change in fair value of available for sale securities to be recognized in net income. The pronouncement also requires the use of the exit price notion, the separate presentation of financial assets and liabilities by measurement category and form of asset, and the separate presentation in other comprehensive income of changes in fair value resulting from a change in the instrument-specific credit risk. ASU 2016-01 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The impact of the implementation of this standard is still being determined by the Company, and it is not expected to be material to the consolidated financial statements.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~ and issued certain amendments within ASU 2018-01, 2018-10, 2018-11 and ASU 2019-01, respectively and collectively Topic 842 to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2019, and early adoption is permitted. The Company does not plan to early adopt this standard. The impact of the implementation of this standard is still being determined by the Company.

~~Table of Contents~~

~~In June 2016, the FASB issued ASU 2016-13,~~ ~~Financial Instruments—Credit Losses (Topic 326),~~ ~~and issued certain amendments within ASU 2019-04and~~ASU 2019-05, respectively and collectively Topic 326, which require companies to present assets held at amortized cost and available for sale debt securities net of the amount expected to be collected. The guidance requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectability. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2019 and early adoption is permitted. Different components of the guidance require modified retrospective or prospective adoption. The impact of the implementation of this standard is still being determined by the Company.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles—~~Goodwill and ~~Other (Topic 350)~~. ASU 2017-04 simplifies the accounting for goodwill impairment and removes Step 2 of the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value limited to the total amount of goodwill allocated to that reporting unit. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. The amendments in this ASU are effective for goodwill impairment tests in fiscal years beginning after December 15, 2021. The impact of the implementation of this standard is still being determined by the Company.Intangible Assets

~~In June 2018, the FASB issued ASU 2018-07,~~ ~~Compensation—Stock Compensation (Topic 718)~~: ~~Improvements to Nonemployee Share-Based Payment Accounting~~. These amendments expand the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. ASU 2018-07 is effective beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. At this time, the Company does not expect this standard to have a material effect on the Company’s financial position, results of operations or cash flows and disclosures.

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~(Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement~~. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. The Company does not plan to early adopt the standard. The impact of the implementation of this standard is still being determined by the Company, and it is not expected to be material to the consolidated financial statements.

The following table presents the changes in the carrying amount of goodwill by reportable segment:

3.	~~Mergers and Acquisitions~~

~~Verra Mobility Merger~~

~~As described in Note 1, Gores and Greenlight consummated the Business Combination on October 17, 2018. Pursuant to~~ ~~Business Combinations (Topic 805)~~, the Business Combination qualified as a reverse acquisition because immediately following completion of the transaction the stockholders of Greenlight immediately prior to the Business Combination maintained effective control of Verra Mobility, the post-combination company. For accounting purposes, Greenlight is deemed the accounting acquirer in the transaction and, consequently, the transaction is treated as recapitalization of Greenlight (i.e. a capital transaction involving the issuance of stock by Greenlight in exchange for the payment of cash by Gores to the selling shareholders of Greenlight). Accordingly, the consolidated assets, liabilities and results of operations of Greenlight are the historical financial statements of Verra Mobility and the Gores assets, liabilities and results of operations are consolidated with Greenlight beginning on the acquisition date. No step-up in basis of intangible assets or goodwill was recorded for this transaction. The Company effected this treatment through opening stockholders’ equity by adjusting the number of common shares outstanding. Other than underwriting and professional fees paid to consummate the transaction, the Business Combination primarily involved the exchange of cash and equity between Gores, Greenlight and the stockholders of the respective companies. During the six months ended June 30, 2019, the Company recorded a $6.2 million payable to Platinum, a related party, for the recapitalization related to the working capital adjustment required by the merger agreements. This resulted in a decrease to the additional paid-in capital account for $6.2 million, and a corresponding increase to accrued liabilities.

~~Table of Contents~~

~~ATS Merger~~

On May 31, 2017, ATS was acquired by Parent through the merger of ATS Merger Sub with and into ATS for a total purchase price of $548.2 million ($550.0 million less adjustments set forth in the ATS Merger agreement). The Company recognized approximately $9.9 million of costs related to the ATS Merger, which consisted of $8.0 million of payments for acquisition services to Platinum Equity Advisors, LLC, an affiliate of Platinum (“~~Advisors”), and $1.9 million of professional fees and other expenses related to the ATS Merger.~~

On May 31, 2017, ATS Merger Sub obtained debt financing pursuant to a credit agreement entered into with a syndicate of lenders. ATS Merger Sub was merged with and into ATS on the same date, effectively making ATS the sole borrower (see Note 8).

~~HTA Merger~~

~~On March 1, 2018, the Company acquired all of the issued and outstanding membership interests of Highway Toll Administration, LLC, and Canada Highway Toll Administration (collectively, “HTA”), pursuant to a unit purchase agreement (“Unit Agreement~~”) for a cash purchase price of $525.0 million subject to adjustments set forth in the Unit Agreement which aggregated $9.7 million, a $11.3 million payable to the HTA sellers for certain tax items and the issuance of 5.26 shares of Greenlight common stock resulting in an aggregate purchase price of $603.3 million (the “~~HTA Merger~~”). The Greenlight shares issued to the Company were determined to have a fair value of $57.3 million. The Company reflected the receipt of the Greenlight common shares as a capital contribution from Parent and then delivered these shares to the HTA sellers as non-cash purchase consideration.

The Company estimated the fair value of the Greenlight common shares issued in connection with this transaction with input from management and a contemporaneous third-party valuation of the Company. Management determined the fair value of Greenlight was the same as the Company as Greenlight’s only holdings were the Company. The valuation advisory firm prepared a valuation report as of March 1, 2018. The assumptions and inputs used in connection with the valuation reflected management’s best estimate of the Company’s business condition, prospects and operating performance on the valuation date. The Company averaged the results of a discounted cash flow analysis, comparable public company analysis and comparable acquisitions analysis to determine an enterprise value of $2.1 billion. The Company then deducted debt of $1.0 billion to arrive at a concluded equity value of $1.1 billion, which was used to derive a per share value.

~~The final allocation of the purchase consideration is summarized as follows:~~

Commercial

Government

($ in thousands)

Services

Solutions

Total

Balance at December 31, 2019

$
424,404

$
159,746

$
584,150

Foreign currency translation adjustment

(2,535
)

—

(2,535
)
Balance at June 30, 2020

$
421,869

$
159,746

$
581,615

Intangible assets consist of the following as of the respective period-ends:

	June 30, 2020						December 31, 2019
	Weighted						Weighted
	Average	Gross					Average	Gross
	Remaining	Carrying			Accumulated		Remaining	Carrying			Accumulated
($ in thousands)	Useful Life	Amount			Amortization		Useful Life	Amount			Amortization
Trademarks	0.9 years	$	32,067		$	24,209	1.5 years	$	32,127		$	19,106
Non-compete agreements	2.5 years		62,555			31,119	3.0 years		62,549			24,834
Customer relationships	6.4 years		365,368			103,204	6.9 years		366,533			82,903
Developed technology	2.8 years		165,520			80,615	3.3 years		165,708			65,631
Gross carrying value of intangible assets			625,510		$	239,147			626,917		$	192,474
Less: accumulated amortization			(239,147	)					(192,474	)
Intangible assets, net		$	386,363					$	434,443

Amortization expense was $23.5 million and $23.1 million for the three months ended June 30, 2020 and 2019, respectively, and was $47.1 million and $46.3 million for the six months ended June 30, 2020 and 2019, respectively.

Estimated amortization expense in future years is expected to be:

($ in thousands)
Remainder of 2020	$	46,823
2021		85,379
2022		80,654
2023		52,157
2024		41,671
Thereafter		79,679
Total	$	386,363

Interim Goodwill Impairment Review

During the fourth quarter of each fiscal year, we perform our annual goodwill impairment test for each of our reporting units. Our reporting units are the same as our two reportable segments (Government Solutions and Commercial Services). We also test goodwill for impairment whenever events or circumstances occur which, in our judgment, could more likely than not reduce the fair value of one or more reporting units below its carrying amount. Potential impairment indicators include, but are not limited to, (i) a deterioration of the business environments in which we operate; (ii) downward revisions to internal forecasts, and the magnitude thereof, if any; and (iii) declines in our market capitalization below our book value, and the magnitude and duration of those declines, if any.

During the first half of fiscal 2020, our market capitalization declined significantly compared to December 31, 2019. Over the same period, the equity value of our key Commercial Services customers, our peer group companies and the overall U.S. stock market also declined significantly amid market volatility. These declines were driven by the uncertainty surrounding the outbreak of the novel coronavirus (“COVID-19”) and other macroeconomic events. Based on these factors, we concluded that a triggering event occurred and, accordingly, an interim quantitative impairment test was performed as of March 31, 2020 and updated as of June 30, 2020.

Based upon the results of our interim impairment tests, we concluded that the fair values of the Government Solutions and Commercial Services reporting units exceeded their carrying value. The current economic conditions due to COVID-19 are still evolving and any significant adverse changes in future periods to our internal forecasts or the external market conditions, if any, could reasonably be expected to negatively affect our key assumptions and may result in a future goodwill impairment charge, which could be material.

($ in thousands)

Assets acquired

Cash

$
2,996

Accounts receivable

10,220

Prepaid expense and other current assets

5,266

Installation and service parts

296

Property and equipment

996

Customer relationships

242,500

Developed technology

72,800

Non-compete agreements

48,500

Trademark

5,500

Goodwill

233,271

Total assets acquired

622,345

Liabilities assumed

Accounts payable and accrued expenses

14,268

Deferred tax liability

4,733

Total liabilities assumed

19,001

Total purchase price

$
603,344

~~The excess~~Impairment of cost of the HTA Merger over the net amounts assigned to the fair value of the net assets acquired was recorded as goodwill and was assigned to the Company’s Commercial Services segment. The Company made certain immaterial adjustments to the preliminary purchase price allocation resulting in a $1.2 million net reduction to goodwill. The goodwill consists largely of the expected cash flows and future growth anticipated for the Company. Most of the goodwill isOther Long-lived Assets

~~Table of Contents~~

expected to be deductible for tax purposes. The customer relationship value was based on an excess earnings methodology utilizing projected cash flows. The non-compete agreement values were based on the with-or-without method. The trademark and the developed technology values were based on a relief-from-royalty method. The customer relationship, developed technology, non-compete and trademark intangibles were assigned useful lives of 9 years, 5.5 years, 5 years and 3 years, respectively.

The Company recognized $15.6 million of costs related to the HTA Merger, which were included in selling, general and administrative expenses in the condensed consolidated statement of operations in the six months ended ~~June 30, 2018. These costs consisted of $7.2 million for acquisition services to Advisors and $8.4 million of professional fees and other expenses related to the transaction.~~

~~EPC Merger~~

~~On April 6, 2018, the Company acquired all of the issued and outstanding capital stock of Euro Parking Collection plc (“EPC~~”), pursuant to a stock purchase agreement for purchase consideration of 5.54 shares of Greenlight common stock and working capital adjustments set forth in the stock purchase agreement, which aggregated $2.6 million, resulting in an aggregate purchase price of $62.9 million (the “~~EPC Merger”). The Company reflected the receipt of the Greenlight common shares as a capital contribution from Parent and then delivered these shares to the EPC sellers as non-cash purchase consideration.~~

~~The allocation of the purchase consideration is summarized as follows:~~

The Company reviews its other long-lived assets for impairment (including intangible assets with finite useful lives) whenever events or circumstances indicate that the carrying value of an asset may not be fully recoverable. The Company assesses recoverability by comparing the estimated undiscounted future cash flows expected to be generated by the assets with their carrying value. If the carrying value of the assets exceeds the estimated undiscounted future cash flows, an impairment loss is recognized for the difference between the estimated fair value of the assets and their carrying value. At June 30, 2020, the Company performed a qualitative assessment and concluded that there is 0 impairment, as the fair values of the asset groups exceeded their respective carrying amounts.

The state of Texas passed legislation as of June 1, 2019 to ban red-light photo enforcement programs across the state, with certain carve-outs for some existing programs. The Company considered this event an indicator for potential impairment and, as such, evaluated the recoverability of property and equipment used in the operations of red-light photo enforcement programs in Texas. As a result, the Company recognized an impairment charge in the Government Solutions segment of $5.9 million for the three and six months ended June 30, 2019, which is included in Impairment of property and equipment in the condensed consolidated statements of operations.

($ in thousands)

Assets acquired

Cash

$
9,029

Other assets

1,948

Trademark

1,100

Customer relationships

19,400

Developed technology

3,900

Goodwill

40,826

Total assets acquired

76,203

Liabilities assumed

Accounts payable and accrued expenses

8,995

Deferred tax liability

4,273

Total liabilities assumed

13,268

Total purchase price

$
62,935

Goodwill arising from the EPC Merger was assigned to the Company’s Commercial Services segment and consists largely of the expected cash flows and future growth anticipated for the Company. The goodwill is not expected to be deductible for tax purposes. The customer relationship value was based on an excess earnings methodology utilizing projected cash flows. The trademark and the developed technology values were based on a relief-from-royalty method. The customer relationship, trademark, and developed technology intangibles were assigned useful lives of 10 years, 5 years and 4.5 years, respectively.Accrued Liabilities

The Company recognized $3.0 million of costs related to the EPC Merger in the three months ended June 30, 2018, which consisted of $2.5 million for acquisition services to Advisors and $0.5 million of professional fees and other expenses.

~~Table of Contents~~

~~Pro Forma Financial Information~~

~~The pro forma information below gives effect to the Merger, the HTA Merger and the EPC Merger (collectively, the “Transactions~~”) as if they had been completed on the first day of the period presented. The pro forma results of operations are presented for information purposes only. As such, they are not necessarily indicative of the Company’s results had the Transactions been completed on the first day of the period presented, nor do they intend to represent the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisitions and does not reflect additional revenue opportunities following the Transactions. The pro forma information includes adjustments to record the assets and

Accrued liabilities ~~associated with the Transactions at their respective fair values based on available information and to give effect to the financing for the Transactions.~~

Six Months Ended

($ in thousands)

June 30, 2018

Revenue

$
186,659

Income from operations

24,349

Net loss before income tax

(332
)
Net loss

(2,138
)
Loss per share - basic

$
(0.03
)

The pro forma results include adjustments to reflect additional amortization of intangibles associated with the acquired businesses and additional interest expense for debt issued in connection with the HTA Merger.

4.	~~Prepaid Expenses and Other Current Assets~~

~~Prepaid expenses and other current assets~~ consist of the following at:

($ in thousands)

June 30,
2019

December 31,
2018

Prepaid income taxes

$
2,466

$
1,562

Prepaid services

4,277

3,017

Prepaid tolls

9,878

8,434

Prepaid computer maintenance

2,556

1,709

Prepaid insurance

443

1,230

Deposits

1,331

839

Prepaid rent

490

406

Other

205

403

Total prepaid expenses and other current assets

$
21,646

$
17,600

5.
($ in thousands)

June 30,
2020

December 31,
2019

Accrued salaries and wages

$
4,228

$
10,319

Current portion of related party TRA liability

4,636

5,730

Current portion of operating lease liabilities

2,933

2,970

Advanced deposits payable

2,435

2,875

Income taxes payable

1,952

348

Restricted cash due to customers

711

917

Accrued sales commissions

480

612

Accrued interest payable

173

210

Other

2,022

1,296

Total accrued liabilities

$
19,570

$
25,277

Debt

The following table provides a summary of the Company’s debt at:

~~Goodwill and Intangible Assets~~

~~The following table presents the changes in the carrying amount of goodwill by reportable segment:~~

Commercial

Government

($ in thousands)

Services

Solutions

Total

Balance at December 31, 2018

$
404,977

$
159,746

$
564,723

Foreign currency translation adjustment

(85
)

—

(85
)
Balance at June 30, 2019

$
404,892

$
159,746

$
564,638

~~Table of Contents~~

~~Intangible assets consist of the following as of the respective period-ends:~~

June 30, 2019

December 31, 2018

Weighted

Weighted

Average

Gross

Average

Gross

Remaining

Carrying

Accumulated

Remaining

Carrying

Accumulated

($ in thousands)

Useful Life

Amount

Amortization

Useful Life

Amount

Amortization

Trademarks

2.1 years

$
31,297

$
13,984

2.7 years

$
31,302

$
8,902

Non-compete agreements

3.5 years

62,100

18,600

4.0 years

62,100

12,390

Customer relationships

7.4 years

359,683

62,409

7.9 years

359,768

42,201

Developed technology

3.8 years

160,835

50,709

4.3 years

160,852

35,987

Gross carrying value of intangible assets

613,915

$
145,702

614,022

$
99,480

Less: accumulated amortization

(145,702
)

(99,480
)

Intangible assets, net

$
468,213

$
514,542

~~Amortization expense was $23.1 million and $22.2 million for the three months ended~~ ~~June 30, 2019 and 2018, respectively, and was $46.3 million and $34.5 million for the six months ended~~ ~~June 30, 2019 and 2018, respectively.~~

~~Estimated amortization expense in future years is expected to be:~~

($ in thousands)

Remainder of 2019

$
46,096

2020

92,193

2021

83,902

2022

79,186

2023

50,755

2024

40,265

Thereafter

75,816

Total

$
468,213

6.	~~Impairment of Property and Equipment~~

The Company reviews its long-lived assets for impairment whenever events or circumstances indicate that the carrying value of an asset may not be fully recoverable. The Company assesses recoverability by comparing the estimated undiscounted future cash flows expected to be generated by the assets with their carrying value. If the carrying value of the assets exceeds the estimated undiscounted future cash flows expected to be generated by the assets, an impairment loss is recognized for the difference between the estimated fair value of the assets and their carrying value.

The state of Texas passed legislation as of June 1, 2019 to ban red-light photo enforcement programs across the state, with certain carve-outs for some existing programs. The Company considered this event an indicator for potential impairment and, as such, evaluated the recoverability of property and equipment used in the operations of red-light photo enforcement programs in Texas. As a result, the Company recognized an impairment charge in the Government Solutions segment of $5.9 million for the three and six months ended June 30, 2019, which is included in impairment of property and equipment in the condensed consolidated statements of operations.

~~Table of Contents~~

7.	~~Accrued Liabilities~~

~~Accrued liabilities consist of the following at:~~

($ in thousands)

June 30,
2019

December 31,
2018

Accrued salaries and wages

$
7,025

$
8,340

Restricted cash due to customers

1,743

2,033

Income taxes payable

190

862

Accrued interest payable

533

232

Advanced deposits payable

501

805

Gores equity infusion working capital adjustment payable to related party

6,205

—

Current portion of related party TRA liability

914

—

Deferred rent

428

523

Accrued sales commissions

431

463

Accrued self-insurance liability

1,203

423

Other

1,122

763

Total accrued liabilities

$
20,295

$
14,444

~~Debt~~

~~The following table provides a summary of the Company’s long-term debt at:~~

($ in thousands)

June 30,
2019

December 31,
2018

New First Lien Term Loan, due February 28, 2025

$
898,972

$
903,524

Less: original issue discounts

(5,260
)

(5,819
)
Less: unamortized deferred financing costs

(25,475
)

(28,352
)
Total debt

868,237

869,353

Less: Current portion of long-term debt

(9,104
)

(9,104
)
Total long-term debt, net of current portion

$
859,133

$
860,249

~~In connection with the ATS Merger, ATS Consolidated, Inc., subsequently renamed VM Consolidated, Inc., a wholly owned~~
($ in thousands)

June 30,
2020

December 31,
2019

First Lien Term Loan, due February 28, 2025

$
870,194

$
894,421

Less: original issue discounts

(4,469
)

(4,778
)
Less: unamortized deferred financing costs

(22,304
)

(23,178
)
Total debt

843,421

866,465

Less: current portion of long-term debt

(9,104
)

(28,779
)
Total long-term debt, net of current portion

$
834,317

$
837,686

In connection with an acquisition in 2018, VM Consolidated, Inc., a wholly-owned subsidiary of the Company, entered into a First Lien Term Loan Credit Agreement (the “First Lien Term Loan”), a Second Lien Term Loan Credit Agreement (the “Second Lien Term Loan”), (collectively the “Term Loans”) and a Revolving Credit Facility Agreement (the “Revolver”) with a syndicate of lenders (collectively, the “2018 Credit Facilities”). The 2018 Credit Facilities initially provided for committed senior secured financing of $1.115 billion, consisting of the Term Loans in an aggregate principal amount of $1.04 billion and the Revolver available for loans and letters of credit with an aggregate revolving commitment of up to $75 million (subject to borrowing eligibility requirements as described below). In July 2018, the Company amended the First Lien Term Loan to expand the aggregate principal loan amount from $840 million to $910 million. The additional $70 million along with funds contributed by Platinum Equity, LLC were used to repay the $200 million Second Lien Term Loan in full contemporaneously with the close of the Business Combination on October 17, 2018.

The First Lien Term Loan is repayable at 1.0% per annum of the amount initially borrowed, paid in quarterly installments. The First Lien Term Loan matures on February 28, 2025. The Company refinanced the entire outstanding amount under the First Lien Term Loan on February 20, 2020 which reduced the previous applicable margin by 50 basis points. The First Lien Term Loan now bears interest based, at our option, on either (1) LIBOR plus an applicable margin of 3.25% per annum, or (2) an alternate base rate plus an applicable margin of 2.25% per annum. As of June 30, 2020, the interest rate on the First Lien Term Loan was 3.6%.

In addition, the First Lien Term Loan requires mandatory prepayments equal to the product of the excess cash flows of the Company (as defined in the loan agreement) and the applicable prepayment percentages (calculated as of the last day of the fiscal year, beginning with the year ending December 31, 2019), as set forth in the following table:

Consolidated first lien net leverage ratio (as defined by the First Lien Term Loan ~~Credit Agreement (the “Old First Lien”), a Second Lien Term Loan Credit Agreement (the “Old Second Lien”), (collectively the “Old Term Loans”), and a Revolving Credit Agreement (the “Old Revolver”) with a syndicate of lenders (collectively, the “2017 Credit Facilities~~”). The 2017 Credit Facilities provided for committed senior secured financing of $490.0 million, consisting of the following: the Old Term Loans in an aggregate principal amount of $450.0 million; and the Old Revolver, available for loans and letters of credit with an aggregate revolving commitment of up to $40.0 million (based on borrowing based eligibility as described below).

~~In connection with the HTA Merger, the Company replaced the 2017 Credit Facilities by entering into a First Lien Term Loan Credit Agreement (the “New First Lien Term Loan”), a Second Lien Term Loan Credit Agreement (the “New Second Lien Term~~ ~~Loan”), (collectively the “New Term Loans”) and a Revolving Credit Facility Agreement (the “New Revolver”) with a syndicate of lenders (collectively, the “2018 Credit Facilities”).~~ The 2018 Credit Facilities provide for committed senior secured financing of $1.115 billion, consisting of the New Term Loans in an aggregate principal amount of $1.04 billion and the New Revolver available for loans and letters of credit with an aggregate revolving commitment of up to $75 million (based on borrowing based eligibility as described below).

The preexisting Old Term Loans were repaid concurrent with the closing on the 2018 Credit Facilities and the preexisting Old Revolver was undrawn at close. The outstanding balances at the date of close on the Old Term Loans, which were repaid with proceeds from the 2018 Credit Facilities, were $323.4 million and $125 million, respectively.

~~Table of Contents~~

~~In July 2018, the Company amended the New First Lien Term Loan (the “New First Lien Term Loan Amendment~~”) to expand the aggregate principal loan amount under the New First Lien Term Loan from $840 million to $910 million and to modify certain defined terms. In connection with this amendment, the Company incurred a consent fee of $0.4 million, which was capitalized as deferred financing costs and is being amortized over the remaining life of the New First Lien Term Loan. The additional $70 million along with funds contributed by Platinum were used to repay the $200 million New Second Lien Term Loan in full contemporaneously with the close of the Business Combination on October 17, 2018.

The New First Lien Term Loan is repayable at 1.0% per annum of the amount initially borrowed, paid in quarterly installments. The New First Lien Term Loan matures on February 28, 2025. The New First Lien Term Loan bears interest based, at our option, on either (1) LIBOR plus an applicable margin of 3.75% per annum, or (2) an alternate base rate plus an applicable margin of 2.75% per annum. At June 30, 2019, the interest rate on the New First Lien Term Loan was 6.15%.

In addition, the New First Lien Term Loan contains provisions that require mandatory prepayments of excess cash flow (as defined by the New First Lien Term Loan agreement) to be made as of the last day of the fiscal year, beginning with fiscal year ending December 31, 2019, in an amount equal to the percentages set forth in the following table:

~~Consolidated first lien net leverage ratio (as defined by the New First Lien Term Loan~~ agreement)		Applicable prepayment percentage
> 3.70:1.00		50%
< 3.70:1.00 and > 3.20:1.00		25%
< 3.20:1.00		0%
~~> 3.70:1.00~~

The Company made a $19.7 million mandatory prepayment of excess cash flow during the first quarter of fiscal 2020, which was classified as current portion of long-term debt in the condensed consolidated balance sheet at December 31, 2019.

The Revolver matures on February 28, 2023. The terms of the Revolver were not affected by the refinancing of the First Lien Term Loan discussed above. Borrowing eligibility under the Revolver is subject to a monthly borrowing base calculation based on (i) certain percentages of eligible accounts receivable and inventory, less (ii) certain reserve items, including outstanding letters of credit and other reserves. The Revolver bears interest on either (1) LIBOR plus an applicable margin, or (2) an alternate base rate, plus an applicable margin. The margin percentage applied to (1) LIBOR is either 1.25%, 1.50%, or 1.75%, or (2) the base rate is either 0.25%, 0.50%, or 0.75%, depending on the Company’s average availability to borrow under the commitment. At June 30, 2020, the Company had 0 outstanding borrowings on the Revolver and availability to borrow under the Revolver was $68.7 million, net of $6.3 million of outstanding letters of credit.

Interest on the unused portion of the Revolver is payable quarterly at 0.375%, and the Company is also required to pay participation and fronting fees at 1.38% on $6.3 million in outstanding letters of credit as of June 30, 2020.

All borrowings and other extensions of credits under the 2018 Credit Facilities are subject to the satisfaction of customary conditions and restrictive covenants including absence of defaults and accuracy in material respects of representations and warranties. At June 30, 2020, the Company was compliant with the 2018 Credit Facilities covenants. Substantially all of the Company’s assets are pledged as collateral to secure the Company’s indebtedness under the 2018 Credit Facilities.

The Company recorded interest expense, including amortization of deferred financing costs and discounts, of $9.5 million and $15.7 million for the three months ended June 30, 2020 and 2019, respectively, and $22.0 million and $31.7 million for the six months ended June 30, 2020 and 2019, respectively.

In connection with the refinancing of the First Lien Term Loan in February 2020, which the Company determined was to be accounted for as a modification, the Company incurred $0.8 million of lender fees which were capitalized as deferred financing costs and amortized over the remaining life of the First Lien Term Loan, and $0.2 million of legal fees that were expensed as Selling, general and administrative expenses on the condensed consolidated statement of operations.

The weighted average effective interest rates on the Company’s outstanding borrowing under the 2018 Credit Facilities were 3.6% and 5.5% at June 30, 2020 and December 31, 2019, respectively.

10.		~~50%~~
< ~~3.70:1.00 and > 3.20:1.00~~		~~25%~~
< ~~3.20:1.00~~		0%

The New Revolver matures on February 28, 2023. Borrowing eligibility under the New Revolver is subject to a monthly borrowing base calculation based on (i) certain percentages of eligible accounts receivable and inventory, less (ii) certain reserve items, including outstanding letters of credit and other reserves. The New Revolver bears interest on either (1) LIBOR plus an applicable margin, or (2) an alternate base rate, plus an applicable margin. The margin percentage applied to (1) LIBOR is either 1.25%, 1.50%, or 1.75%, or (2) the base rate is either 0.25%, 0.50%, or 0.75%, depending on the Company’s average availability to borrow under the commitment. At ~~June 30, 2019, the Company had no outstanding borrowings on the New Revolver and availability to borrow under the New Revolver was $74.9 million, net of $0.1 million of outstanding letters of credit.~~

~~Interest on the unused portion of the New Revolver is payable quarterly at 0.375% at~~ ~~June 30, 2019. The Company also is required to pay participation and fronting fees on $0.1 million in outstanding letters of credit at 1.38% as of~~ ~~June 30, 2019.~~

All borrowings and other extensions of credits under the 2018 Credit Facilities are subject to the satisfaction of customary conditions and restrictive covenants including absence of defaults and accuracy in material respects of representations and warranties. At ~~June 30~~, 2019, the Company was compliant with the 2018 Credit Facilities covenants. Substantially all of the Company’s assets are pledged as collateral to secure the Company’s indebtedness under the 2018 Credit Facilities.

~~The Company recognized a charge of $10.2 million in the six months ended~~ ~~June 30~~, 2018 consisting of a $3.8 million prepayment penalty on the Old Term Loan balances, a $2.0 million write-off of preexisting deferred financing costs and $4.4 million of lender and third-party costs associated with the issuance of the 2018 Credit Facilities.

~~The Company recorded interest expense, including amortization of deferred financing costs and discounts, of $15.7 million and $19.6 million for the three months ended~~ ~~June 30, 2019 and 2018, respectively, and $31.7 million and $32.2 million for the six months ended June 30, 2019 and 2018, respectively.~~

~~The weighted average effective interest rate of the Company’s outstanding borrowings under the 2018 Credit Facilities was 6.15% at~~ ~~June 30, 2019.~~

~~Table of Contents~~

9.	~~Fair Value Measurements~~

~~As of~~ ~~June 30, 2019 and December 31, 2018, the amounts of our assets and liabilities that were accounted for at fair value were immaterial.~~

ASC Topic 820, Fair Value Measurement includes a single definition of fair value to be used for financial reporting purposes, provides a framework for applying this definition and for measuring fair value under GAAP, and establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are summarized as follows:

~~Level 1 – Fair value is based on observable inputs such as quoted prices for identical assets or liabilities in active markets.~~

Level 2 – Fair value is determined using quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or inputs other than quoted prices that are directly or indirectly observable.

Level 3 – Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow or similar technique.

Fair Value of Financial Instruments

~~The carrying amounts reported in our unaudited interim condensed consolidated balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate~~

ASC Topic 820, Fair Value Measurement, includes a single definition of fair value to be used for financial reporting purposes, provides a framework for applying this definition and for measuring fair value under U.S. GAAP, and establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are summarized as follows:

Level 1 – Fair value ~~due to the immediate to short-term maturity of these financial instruments. The estimated fair value of our New First Lien Term Loan as of~~ ~~June 30, 2019 and December 31, 2018~~ is based on observable inputs such as quoted prices for identical assets or liabilities in active markets.

The carrying amounts reported in the Company’s condensed consolidated balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate fair value due to the immediate to short-term maturity of these financial instruments. The estimated fair value of the Company’s First Lien Term Loan as of June 30, 2020 and December 31, 2019 was categorized in Level 2 of the fair value hierarchy and was calculated based upon available market information. The carrying value and fair value of ~~our~~ debt is as follows:

Level in

June 30, 2019

December 31, 2018

Fair Value

Carrying

Estimated

Carrying

Estimated

($ in thousands)

Hierarchy

Amount

Fair Value

Amount

Fair Value

Total debt

2

$

868,237

$

904,591

$

869,353

$

889,971

~~10.~~

~~Net Income (Loss) Per Share~~

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average shares outstanding during the period, without consideration of common stock equivalents. Diluted net income (loss) per share is calculated by adjusting the weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method.

~~The components of basic and diluted net income (loss) per share are as follows:~~

Three Months Ended June 30,

Six Months Ended June 30,

(In thousands, except per share data)

2019

2018

2019

2018

Numerator:

Net income (loss)

$
3,591

$
(4,795
)

$
6,411

$
(26,953
)
Denominator:

Weighted average shares - basic

157,846

72,484

156,956

67,520

Common stock equivalents

4,131

—

2,267

—

Weighted average shares - diluted

161,977

72,484

159,223

67,520

Net income (loss) per common share - basic

$
0.02

$
(0.07
)

$
0.04

$
(0.40
)
Net income (loss) per common share - diluted

$
0.02

$
(0.07
)

$
0.04

$
(0.40
)
Antidilutive weighted average shares excluded from diluted net income (loss) per share:

Contingently issuable shares ⁽¹⁾

8,214

—

9,107

—

Warrants

—

20,000

10,000

20,000

Restricted stock units

—

—

43

—

Total antidilutive shares excluded

8,214

20,000

19,150

20,000

~~(1)~~

~~Contingently issuable shares relate to the earn-out agreement as discussed in Note 13,~~ ~~Related Party Transactions~~.

~~Table of Contents~~

~~11.~~

~~Income Taxes~~

Our interim income tax provision is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that period. The estimated annual effective tax rate requires judgment and is dependent upon several factors. We provide for income taxes under the liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the tax basis of assets or liabilities and their carrying amounts in the financial statements.

We provide a valuation allowance for deferred tax assets if it is more likely than not that these items will expire before we are able to realize their benefit. We calculate the valuation allowance in accordance with the authoritative guidance relating to income taxes, which requires an assessment of both positive and negative evidence regarding the realizability of these deferred tax assets, when measuring the need for a valuation allowance. Significant judgment is required in determining any valuation allowance against deferred tax assets.

~~Our effective income tax rate was 32.6% and (4.7)% for the three months ended~~ ~~June 30~~, 2019 and 2018, respectively, and 32.3% and (20.3)% for the six months ended June 30, 2019, and 2018, respectively. The increase, compared to the same periods in 2018, was primarily due to higher pretax income across multiple jurisdictions, and an increase in permanent differences between book and taxable income, including the 162(m) executive compensation limitation, non-deductible secondary offering transaction costs, and the Global Intangible Low Tax Income inclusion.

~~The total amount of unrecognized tax benefits as of~~ ~~June 30~~, 2019 was $2.7 million, of which $2.5 million would affect our effective tax rate if recognized. We recognize interest and penalties related to unrecognized tax benefits through income tax expense. As of ~~June 30, 2019, we had $0.9 million accrued for the payment of interest and penalties.~~

The Company is subject to examination by the Internal Revenue Service and taxing authorities in various states. The Company’s U.S. federal income tax return remains subject to income tax examinations by tax authorities for the years 2015 to 2018. The Company’s state income tax returns are under examination by certain states for tax years 2015 to 2017, and other state income tax returns are subject to examination for tax years 2014 to 2018. Tax returns for years prior to 2014 remain open in a number of states due to tax attributes generated but not utilized yet. The Company regularly assesses the likelihood of additional tax deficiencies in each of the tax jurisdictions and, accordingly, makes appropriate adjustments to the tax provision as deemed necessary.

~~12.~~

~~Stock-Based Compensation~~

~~The following details the components of stock-based compensation for the periods presented:~~

Three Months Ended June 30,

Six Months Ended June 30,

($ in thousands)

2019

2018

2019

2018

Operating expenses

$
272

$
—

$
476

$
—

Selling, general and administrative expenses

2,540

—

4,479

—

Total stock-based compensation expense

$
2,812

$
—

$
4,955

$
—

~~There were no corresponding stock compensation amounts in the three and six months ended~~ ~~June 30, 2018.~~

~~13.~~

~~Related Party Transactions~~

~~Tax Receivable Agreement~~

~~At the closing of the Business Combination, the Company entered into a Tax Receivable Agreement (“TRA”) with PE Greenlight Holdings, LLC (the “Platinum Stockholder~~”) and Greenlight as the stockholder representative. The TRA generally provides for the payment by the post-closing company to the Platinum Stockholder of 50% of the net cash savings, if any, in U.S. federal, state and local income tax that the post-closing company actually realizes (or is deemed to realize in certain circumstances) in periods after the closing of the Business Combination as a result of the increase in the tax basis of the intangible assets which resulted from the acquisition of HTA by Verra Mobility prior to the Business Combination. The post-closing company generally will retain the benefit of the remaining 50% of these cash savings. The Company estimated the potential maximum benefit to be paid will be approximately $70 million, and recorded an initial liability and corresponding charge to equity at the closing of the Business Combination. Subsequently, the Company adjusted this amount. At ~~June 30~~, 2019, the TRA was approximately $67.1 million of which $1.0 million was the current portion included in Accrued liabilities and $66.1 million included in Payable related to tax receivable agreement on the condensed consolidated balance sheets. Future adjustments to the liability under the TRA will be based upon changes to future anticipated taxable income and tax rates and will be recorded in the statement of operations.

~~Table of Contents~~

~~Earn-Out Agreement~~

~~Under the Merger Agreement, the Platinum Stockholder is entitled to receive additional shares of Class A Common Stock (the “Earn-Out Shares”~~) if the volume weighted average closing sale price of one share of Class A Common Stock on the Nasdaq exceeds certain thresholds for a period of at least 10 days out of 20 consecutive trading days at any time during the five-year period following the closing of the Business Combination (the “~~Common Stock Price”).~~

~~The Earn-Out Shares are issued by the Company to the Platinum Stockholder as follows:~~

~~a one-time issuance of 2,500,000 shares if the Common Stock Price is greater than $13.00;~~

~~a one-time issuance of 2,500,000 shares if the Common Stock Price is greater than $15.50;~~

~~a one-time issuance of 2,500,000 shares if the Common Stock Price is greater than $18.00; and~~

~~a one-time issuance of 2,500,000 shares if the Common Stock Price is greater than $20.50.~~

~~If any of the Common Stock Price thresholds described in the foregoing clauses (each, a “Triggering Event~~”) are not achieved within the five-year period following the closing of the Business Combination, the Company will not be required to issue the Earn-Out Shares in respect of such Common Stock Price threshold. In no event shall the Platinum Stockholder be entitled to receive more than an aggregate of 10,000,000 Earn-Out Shares.

If, during the earn-out period, there is a change of control (as defined in the Merger Agreement) that will result in the holders of Parent Class A Common Stock receiving a per share price equal to or in excess of the applicable Common Stock Price required in connection with any Triggering Event (an “~~Acceleration Event~~”), then immediately prior to the consummation of such change of control: (a) any such Triggering Event that has not previously occurred shall be deemed to have occurred; and (b) Parent shall issue the applicable Earn-Out Shares to the cash consideration stockholders (as defined in the Merger Agreement) (in accordance with their respective pro rata cash share), and the recipients of the issued Earn-Out Shares shall be eligible to participate in such change of control.

The Company has estimated the fair value of the contingently issuable shares to be $73.15 million. The Company used a Monte Carlo simulation option-pricing model to arrive at this estimate. Each tranche was valued separately giving specific consideration to the tranche’s price target. The simulation considered volatility and risk free rates utilizing a peer group based on a five year term. This was initially recorded as a distribution to shareholders and was presented as contingently issuable shares. Upon the occurrence of a Triggering Event, any issuable shares would be transferred from contingently issuable shares to common stock and additional paid-in capital. Any contingently issuable shares not issued as a result of a Triggering Event not being attained by the end of earn-out period will be cancelled.

On April 26, 2019, the Triggering Event for the issuance of the first tranche of Earn-Out Shares occurred, as the volume weighted average closing price per share of the Company’s Class A Common Stock as of that date had been greater than $13.00 for 10 out of 20 consecutive trading days. This Triggering Event resulted in the issuance of 2,500,000 shares of the Company’s Class A Common Stock and an increase in the Company’s common stock and additional paid-in capital accounts of $18.3 million, with a corresponding decrease to the common stock contingent consideration account.

~~Platinum Stockholder Secondary Offering~~

On June 10, 2019, the Platinum Stockholder sold 15,000,000 shares of the Company’s Class A Common Stock in a secondary offering. On July 8, 2019, the underwriters of the secondary offering fully exercised the overallotment option granted at the time of the secondary offering to purchase an additional 2,250,000 shares of the Company’s Class A Common Stock at the secondary offering price of $12.50 per share, less underwriting discounts and commissions, from the Platinum Stockholder. The Company received no proceeds from the secondary offering or the exercise of the overallotment option. The Company incurred $1.1 million in expenses related to the secondary offering, consisting of various registration, filing and professional services fees, which were included in the selling, general and administrative expenses in the condensed consolidated statements of operations. Specifically, pursuant to the Amended and Restated Registration Rights Agreement dated as of October 17, 2018, the Company was required to pay, among other things, all registration and filing fees, reasonable fees and expenses of legal counsel for the Platinum Stockholder, and road show and marketing expenses. After giving effect to the secondary offering and exercise of the overallotment option, the Platinum Stockholder held approximately 24.6% of the Company’s outstanding Class A Common Stock.

~~Table of Contents~~

~~Advisory Services Agreement~~

~~On January 7, 2019, the Company entered into a new corporate advisory services agreement with Platinum Equity Advisors, LLC (“Advisors~~”), whereby Advisors will provide certain transactional and corporate advisory services to the Company as mutually agreed by the parties. No fees are payable under the agreement, but the Company must reimburse Advisors for its out-of-pocket expenses incurred in connection with services rendered.

~~14.~~

~~Commitments and Contingencies~~

The Company has issued various letters of credit under contractual arrangements with certain of its vendors and customers. Outstanding letters of credit under these arrangements totaled $0.1 million at ~~June 30, 2019.~~

~~The Company has issued non-cancelable purchase commitments to certain vendors. The aggregate non-cancelable purchase commitments outstanding at~~ ~~June 30, 2019 were $17.9 million.~~

~~The Company is subject to tax audits in the normal course of business and does not have material contingencies recorded related to such audits.~~

~~Legal Proceedings~~

The Company is subject to legal and regulatory actions that arise from time to time in the ordinary course of business. The Company records a liability when it believes it is probable a loss will be incurred and the amount of loss or range of loss can be reasonably estimated. The assessment as to whether a loss is probable, reasonably possible or remote, and as to whether a loss or a range of such loss is estimable, often involves significant judgment about future events. The Company has determined that resolution of pending matters is not probable to have a material adverse impact on its condensed consolidated results of operations, cash flows, or financial position. However, the outcome of litigation is inherently uncertain. As additional information becomes available, the Company reassesses the potential liability.

~~15.~~

~~Segment Reporting~~

The Company has two operating and reportable segments, Commercial Services and Government Solutions. Commercial Services offers toll and violation management solutions to commercial fleet vehicle owners, rental car companies and violation issuing authorities. Government Solutions implements and administers traffic safety programs and products for municipalities and local government agencies of all sizes. The Company’s Chief Operating Decision Maker (“~~CODM~~”) function is comprised of the Company’s CEO and certain defined representatives of the Company’s executive management team. The Company’s CODM function monitors operating performance, allocates resources and deploys capital based on these two segments.

Segment performance is based on revenues and income (loss) from operations before depreciation, amortization, gain (loss) on disposal of assets, impairment of property and equipment, stock-based compensation, interest expense, net, loss on extinguishment of debt, income taxes and after other (income), net. The tables below refer to this measure as Segment profit (loss). The aforementioned items are not indicative of operating performance, and, as a result are not included in the measures that are reviewed by the CODM function for the operating and reportable segments. Other (income), net consists primarily of credit card rebates earned on the prepayment of tolling violations and therefore included in Segment profit (loss). There are no significant non-cash items reported in Segment profit (loss).

~~Table of Contents~~

~~The following tables set forth financial information by segment for the respective periods:~~

For the Three Months Ended June 30, 2019

Commercial

Government

Corporate

($ in thousands)

Services

Solutions

and Other

Total

Service revenue

$
68,091

$
34,966

$
—

$
103,057

Product sales

—

6,518

—

6,518

Total revenue

68,091

41,484

—

109,575

Cost of service revenue

915

698

—

1,613

Cost of product sales

—

2,918

—

2,918

Operating expenses

16,722

14,801

—

31,523

Selling, general and administrative expenses

9,629

7,561

1,135

18,325

Other income, net

(3,308
)

(37
)

—

(3,345
)
Segment profit (loss)

$
44,133

$
15,543

$
(1,135
)

$
58,541

Segment profit (loss)

$
44,133

$
15,543

$
(1,135
)

$
58,541

Depreciation and amortization

—

—

28,865

28,865

Gain on disposal of assets, net

—

(15
)

—

(15
)
Impairment of property and equipment

—

5,898

—

5,898

Stock-based compensation

—

—

2,812

2,812

Interest expense, net

—

—

15,656

15,656

Income (loss) before income tax provision

$
44,133

$
9,660

$
(48,468
)

$
5,325

Level in

June 30, 2020

December 31, 2019

Fair Value

Carrying

Estimated

Carrying

Estimated

($ in thousands)

Hierarchy

Amount

Fair Value

Amount

Fair Value

Total debt

843,421

839,737

866,465

905,601

For the Three Months Ended June 30, 2018

Commercial

Government

Corporate

($ in thousands)

Services

Solutions

and Other

Total

Service revenue

$
59,771

$
37,273

$
—

$
97,044

Product sales

—

1,153

—

1,153

Total revenue

59,771

38,426

—

98,197

Cost of service revenue

790

861

—

1,651

Cost of product sales

—

878

—

878

Operating expenses

13,989

14,811

—

28,800

Selling, general and administrative expenses

10,958

7,223

9,407

27,588

Other income, net

(2,681
)

(25
)

(60
)

(2,766
)
Segment profit (loss)

$
36,715

$
14,678

$
(9,347
)

$
42,046

Segment profit (loss)

$
36,715

$
14,678

$
(9,347
)

$
42,046

Depreciation and amortization

—

—

27,496

27,496

Interest expense

—

—

19,579

19,579

Income (loss) before income tax (benefit)

$
36,715

$
14,678

$
(56,422
)

$
(5,029
)

2411.

~~Table of Contents~~Net (Loss) Income Per Share

For the Six Months Ended June 30, 2019

Commercial

Government

Corporate

($ in thousands)

Services

Solutions

and Other

Total

Service revenue

$
130,679

$
70,448

$
—

$
201,127

Product sales

—

6,909

—

6,909

Total revenue

130,679

77,357

—

208,036

Cost of service revenue

1,779

1,223

—

3,002

Cost of product sales

—

3,194

—

3,194

Operating expenses

31,818

28,839

—

60,657

Selling, general and administrative expenses

20,391

15,411

1,135

36,937

Other income, net

(5,478
)

(74
)

—

(5,552
)
Segment profit (loss)

$
82,169

$
28,764

$
(1,135
)

$
109,798

Segment profit (loss)

$
82,169

$
28,764

$
(1,135
)

$
109,798

Depreciation and amortization

—

—

57,804

57,804

Gain on disposal of assets, net

—

(13
)

—

(13
)
Impairment of property and equipment

—

5,898

—

5,898

Stock-based compensation

—

—

4,955

4,955

Interest expense, net

—

—

31,689

31,689

Income (loss) before income tax provision

$
82,169

$
22,879

$
(95,583
)

$
9,465

Basic net (loss) income per share is calculated by dividing net (loss) income by the weighted average shares outstanding during the period, without consideration of common stock equivalents. Diluted net (loss) income per share is calculated by adjusting the weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method.

The components of basic and diluted net (loss) income per share are as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
(In thousands, except per share data)	2020			2019		2020			2019
Numerator:
Net (loss) income	$	(15,388	)	$	3,591	$	(8,715	)	$	6,411
Denominator:
Weighted average shares - basic		161,710			157,846		161,317			156,956
Common stock equivalents		—			4,131		—			2,267
Weighted average shares - diluted		161,710			161,977		161,317			159,223
Net (loss) income per share - basic	$	(0.10	)	$	0.02	$	(0.05	)	$	0.04
Net (loss) income per share - diluted	$	(0.10	)	$	0.02	$	(0.05	)	$	0.04
Antidilutive shares excluded from diluted net (loss) income per share⁽¹⁾:
Contingently issuable shares ⁽²⁾		5,000			8,214		5,000			9,107
Warrants		20,000			—		20,000			10,000
Non-qualified stock options		699			—		699			—
Performance share units		116			—		116			—
Restricted stock units		3,377			—		3,377			43
Total antidilutive shares excluded		29,192			8,214		29,192			19,150

For the Six Months Ended June 30, 2018

Commercial

Government

Corporate

($ in thousands)

Services

Solutions

and Other

Total

Service revenue

$
92,218

$
73,832

$
—

$
166,050

Product sales

—

1,388

—

1,388

Total revenue

92,218

75,220

—

167,438

Cost of service revenue

967

1,515

—

2,482

Cost of product sales

—

1,050

—

1,050

Operating expenses

23,630

28,851

—

52,481

Selling, general and administrative expenses

32,552

13,345

14,967

60,864

Other income, net

(3,969
)

(63
)

(27
)

(4,059
)
Segment profit (loss)

$
39,038

$
30,522

$
(14,940
)

$
54,620

Segment profit (loss)

$
39,038

$
30,522

$
(14,940
)

$
54,620

Depreciation and amortization

—

—

46,047

46,047

Gain on disposal of assets, net

—

—

(7
)

(7
)
Interest expense

—

—

32,226

32,226

Loss on extinguishment of debt

—

—

10,151

10,151

Income (loss) before income tax (benefit)

$
39,038

$
30,522

$
(103,357
)

$
(33,797
)

~~16.~~

~~Guarantor/Non-Guarantor Financial Information~~

~~VM Consolidated, Inc., a wholly-owned subsidiary of~~(1)

These amounts represent the Company, is the lead borrower of the New First Lien Term Loan and the New Revolver. VM Consolidated, Inc. is owned by the Company through a series of holding companies that ultimately end with the Company. VM Consolidated, Inc. is wholly-owned by Parent, which is wholly-owned by Greenlight Intermediate Holding Corporation, which is wholly-owned by Greenlight Holding Corporation, which is wholly-owned by Verra Mobility Holdings, LLC, which is wholly-owned by Verra Mobility Corporation or the Company. Prior to the Business Combination, VM Consolidated, Inc. was known as ATS Consolidated, Inc. and its financial information was the same as the lead borrower. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, including transactions with the Company’s wholly-owned subsidiary guarantors and non-guarantor subsidiaries.

~~The following financial information presents the Condensed Consolidated Balance Sheets as of~~ ~~June 30, 2019, the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)~~total antidilutive shares outstanding for the three and six months ended June 30, ~~2019~~2020 and the ~~Condensed Consolidated Statements of Cash Flows~~weighted average antidilutive shares for the three and six months ended June 30,~~, 2019 for~~ 2019.

(2)

Contingently issuable shares relate to the ~~Company, combined guarantor subsidiaries~~earn-out agreement as discussed in Note 14, Related Party Transactions.

12.	Income Taxes

Our interim income tax (benefit) provision is determined using an estimated annual effective tax rate, adjusted for discrete items arising in that period. The estimated annual effective tax rate requires judgment and is dependent upon several factors. We provide for income taxes under the liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the tax basis of assets or liabilities and their carrying amounts in the financial statements.

In December 2019, COVID-19 emerged in China and has since spread throughout the world causing severe disruption to the global economy. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic.On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. There were several income tax provisions and other non-tax matters incorporated into law as a result of the enactment of the CARES Act. The Company applied certain articles of the CARES Act in the interim income tax (benefit) provision, including the increased interest deduction allowed up to 50 percent of adjusted taxable income for tax years 2019 and 2020. In addition, the Company delayed the employer-side of the FICA payments until 2021. The Company will continue to assess other aspects of the CARES Act and will account for them accordingly, if applicable.

Our effective income tax rate was 20.7% and 32.6% for the three months ended June 30, 2020 and 2019, respectively, and 8.5% and 32.3% for the six months ended June 30, 2020 and 2019, respectively. The effective tax rate change was primarily due to lower pre-tax income in the current year, resulting in the Company’s permanent book and tax differences having a proportionately greater impact on the effective tax rate in the current year.

The total amount of unrecognized tax benefits decreased by $0.9 million during fiscal 2020 primarily from the statute expiration of prior year tax positions. As of June 30, 2020, the total amount of unrecognized tax benefits was $0.8 million, of which $0.7 million would affect our effective tax rate if recognized. We recognize interest and penalties related to unrecognized

tax benefits through income tax expense. As of June 30, 2020, we had less than $0.1 million accrued for the payment of interest and penalties.

The Company is subject to examination by the Internal Revenue Service and taxing authorities in various states. The Company’s U.S. federal income tax returns remain subject to examination by tax authorities for the years 2016 to 2019. The Company’s state income tax returns are under examination by certain states for tax years 2015 to 2017, and other state income tax returns are subject to examination for tax years 2014 to 2019. Tax returns for years prior to 2014 remain open in a number of states due to tax attributes generated but not yet utilized. The Company regularly assesses the likelihood of additional tax deficiencies in each of the tax jurisdictions and, accordingly, makes appropriate adjustments to the tax provision as deemed necessary.

13.	Stock-Based Compensation

The following details the components of stock-based compensation for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)	2020		2019		2020		2019
Operating expenses	$	294	$	272	$	514	$	476
Selling, general and administrative expenses		2,977		2,540		5,525		4,479
Total stock-based compensation expense	$	3,271	$	2,812	$	6,039	$	4,955

14.	Related Party Transactions

Tax Receivable Agreement

At the closing of the Business Combination, the Company entered into a tax receivable agreement (“TRA”) with PE Greenlight Holdings, LLC (the “Platinum Stockholder”) and Greenlight Holding II Corporation as the stockholder representative. The TRA generally provides for the payment by the post-closing company to the Platinum Stockholder of 50% of the net cash savings, if any, in U.S. federal, state and local income tax that the post-closing company actually realizes (or is deemed to realize in certain circumstances) in periods after the closing of the Business Combination as a result of the increase in the tax basis of the intangible assets which resulted from an acquisition by the Company prior to the Business Combination. The post-closing company generally will retain the benefit of the remaining 50% of these cash savings. The Company estimated the potential maximum benefit to be paid will be approximately $70.0 million, and recorded an initial liability and corresponding charge to equity at the closing of the Business Combination. Subsequently, the Company made adjustments to this amount.

At June 30, 2020, the Company recorded a $4.4 million increase to the Payable related to tax receivable agreement with an offsetting charge to Loss from tax receivable agreement adjustment in the condensed consolidated statements of operations for the three and six months ended June 30, 2020. The adjustment reflects the impact of an increase to the Company’s deferred tax rate arising from higher estimated state tax rates due to a change in apportionment. At June 30, 2020, the TRA was approximately $70.2 million of which $4.6 million was the current portion included in Accrued liabilities and $65.6 million included in Payable related to tax receivable agreement on the condensed consolidated balance sheets.

Earn-Out Agreement

Under the Merger Agreement, the Platinum Stockholder is entitled to receive additional shares of Class A Common Stock (the “Earn-Out Shares”) if the volume weighted average closing sale price of one share of Class A Common Stock on Nasdaq exceeds certain thresholds for a period of at least 10 days out of 20 consecutive trading days at any time during the five-year period following the closing of the Business Combination (the “Common Stock Price”).

The Earn-Out Shares are issued by the Company to the Platinum Stockholder as follows:

Common Stock Price thresholds	One-time issuance of shares
> $13.00 ^(a)		2,500,000
> $15.50 ^(a)		2,500,000
> $18.00		2,500,000
> $20.50		2,500,000

(a)

The first and ~~combined non-guarantor subsidiaries:~~

~~Table~~second tranches of ~~Contents~~Earn-Out Shares have been issued, as discussed below.

If any of the Common Stock Price thresholds above (each, a “Triggering Event”) are not achieved within the five-year period following the closing of the Business Combination, the Company will 0t be required to issue the Earn-Out Shares in respect of such Common Stock Price threshold. In no event shall the Platinum Stockholder be entitled to receive more than an aggregate of 10,000,000 Earn-Out Shares.

If, during the earn-out period, there is a change of control (as defined in the Merger Agreement) that will result in the holders of Greenlight Acquisition Corporation (“Parent”) Class A Common Stock receiving a per share price equal to or in excess of the applicable Common Stock Price required in connection with any Triggering Event (an “Acceleration Event”), then immediately prior to the consummation of such change of control: (a) any such Triggering Event that has not previously occurred shall be deemed to have occurred; and (b) Parent shall issue the applicable Earn-Out Shares to the cash consideration stockholders (as defined in the Merger Agreement) (in accordance with their respective pro rata cash share), and the recipients of the issued Earn-Out Shares shall be eligible to participate in such change of control.

The Company estimated the original fair value of the contingently issuable shares to be $73.15 million, of which $36.6 million remains contingently issuable as of June 30, 2020. The estimated value is not subject to future revisions during the five-year period discussed above. The Company used a Monte Carlo simulation option-pricing model to arrive at its original estimate. Each tranche was valued separately giving specific consideration to the tranche’s price target. The simulation considered volatility and risk free rates utilizing a peer group based on a 5 year term. This was initially recorded as a distribution to shareholders and was presented as Common stock contingent consideration. Upon the occurrence of a Triggering Event, any issuable shares would be transferred from Common stock contingent consideration to Common stock and Additional paid-in capital accounts. Any contingently issuable shares not issued as a result of a Triggering Event not being attained by the end of earn-out period will be cancelled.

On April 26, 2019 and on January 27, 2020, the Triggering Events for the issuance of the first and second tranches of Earn-Out Shares occurred, as the volume weighted average closing sale price per share of the Company’s Class A Common Stock as of that date had been greater than $13.00 and $15.50, respectively, for 10 out of 20 consecutive trading days. These Triggering Events resulted in the issuance of an aggregate 5,000,000 shares of the Company’s Class A Common Stock to the Platinum Stockholder and an increase in the Company’s Common stock and Additional paid-in capital accounts of $36.6 million, with a corresponding decrease to the Common stock contingent consideration account.

~~Verra Mobility Corporation~~15.

Commitments and ~~Subsidiaries~~Contingencies

The Company has non-cancelable purchase commitments to certain vendors. The aggregate non-cancelable purchase commitments outstanding at June 30, 2020 were $16.0 million.

The Company is subject to tax audits in the normal course of business and does not have material contingencies recorded related to such audits.

Customer Guarantee

In the ordinary course of business, the Company occasionally employs contract terms that mitigate the customer’s risk of aggregate revenue decline in connection with the customer’s adoption of additional or changes to service models within its existing portfolio. These agreements require the customer to satisfy numerous conditions to trigger payment, including volume metrics and other operational requirements. The Company has 1 such guarantee outstanding for the one-year period ending March 31, 2021. At June 30, 2020, the Company has concluded that the likelihood of making payment under this guarantee is remote, and consequently 0 liability or corresponding contra revenue has been recorded in the Company’s financial statements.

Exit Activities

We commenced exit activities related to severance and other employee separation costs during the three and six months ended June 30, 2020. We accrued $0.5 million as of June 30, 2020, of which $0.4 million related to the Commercial Services segment and the remaining related to the Government Solutions segment. The Company expects to pay the amount before the end of fiscal 2020.

Legal Proceedings

The Company is subject to legal and regulatory actions that arise from time to time in the ordinary course of business. The Company records a liability when it believes it is probable a loss will be incurred and the amount of loss or range of loss can be reasonably estimated. The assessment as to whether a loss is probable, reasonably possible or remote, and as to whether a loss or a range of such loss is estimable, often involves significant judgment about future events. The Company has determined that resolution of pending matters is not probable to have a material adverse impact on its condensed consolidated results of operations, cash flows, or financial position, and accordingly, no material contingency accruals are recorded. However, the outcome of litigation is inherently uncertain. As additional information becomes available, the Company reassesses the potential liability.

16.	Segment Reporting

The Company has 2 operating and reportable segments, Commercial Services and Government Solutions. Commercial Services offers toll and violation management solutions and title and registration services to commercial fleet vehicle owners, rental car companies and violation-issuing authorities. Government Solutions implements and administers traffic safety programs and products for municipalities and local government agencies of all sizes. The Company’s Chief Operating Decision Maker function (“CODM”) is comprised of the Company’s CEO and certain defined representatives of the Company’s executive management team. The Company’s CODM monitors operating performance, allocates resources and deploys capital based on these 2 segments.

Segment performance is based on revenues and (loss) income from operations before depreciation, amortization, gain (loss) on disposal of assets, net, and stock-based compensation. The measure also excludes interest expense, net, income taxes and is inclusive of other income, net. The tables below refer to this measure as Segment profit (loss). The aforementioned items are not indicative of operating performance, and, as a result are not included in the measures that are reviewed by the CODM for the segments. Other income, net consists primarily of credit card rebates earned on the prepayment of tolling transactions and is therefore included in Segment profit (loss). There are no significant non-cash items reported in Segment profit (loss).

The following tables set forth financial information by segment for the respective periods:

	For the Three Months Ended June 30, 2020
	Commercial			Government			Corporate
($ in thousands)	Services			Solutions			and Other			Total
Service revenue	$	27,272		$	35,543		$	—		$	62,815
Product sales		—			16,994			—			16,994
Total revenue		27,272			52,537			—			79,809
Cost of service revenue		646			367			—			1,013
Cost of product sales		—			9,060			—			9,060
Operating expenses		10,750			15,655			—			26,405
Selling, general and administrative expenses		10,191			7,150			503			17,844
Other income, net		(1,507	)		(16	)		—			(1,523	)
Segment profit (loss)	$	7,192		$	20,321		$	(503	)	$	27,010
Segment profit (loss)	$	7,192		$	20,321		$	(503	)	$	27,010
Depreciation and amortization		—			—			29,159			29,159
Loss on disposal of assets, net		5			2			—			7
Loss from tax receivable agreement adjustment		—			—			4,446			4,446
Stock-based compensation		—			—			3,271			3,271
Interest expense, net		—			—			9,539			9,539
Income (loss) before income tax benefit	$	7,187		$	20,319		$	(46,918	)	$	(19,412	)

	For the Three Months Ended June 30, 2019
	Commercial			Government			Corporate
($ in thousands)	Services			Solutions			and Other			Total
Service revenue	$	68,091		$	34,966		$	—		$	103,057
Product sales		—			6,518			—			6,518
Total revenue		68,091			41,484			—			109,575
Cost of service revenue		915			698			—			1,613
Cost of product sales		—			2,918			—			2,918
Operating expenses		16,722			14,801			—			31,523
Selling, general and administrative expenses		9,629			7,561			1,135			18,325
Other income, net		(3,308	)		(37	)		—			(3,345	)
Segment profit (loss)	$	44,133		$	15,543		$	(1,135	)	$	58,541
Segment profit (loss)	$	44,133		$	15,543		$	(1,135	)	$	58,541
Depreciation and amortization		—			—			28,865			28,865
Gain on disposal of assets, net		—			(15	)		—			(15	)
Impairment of property and equipment		—			5,898			—			5,898
Stock-based compensation		—			—			2,812			2,812
Interest expense, net		—			—			15,656			15,656
Income (loss) before income tax provision	$	44,133		$	9,660		$	(48,468	)	$	5,325

	For the Six Months Ended June 30, 2020
	Commercial			Government			Corporate
($ in thousands)	Services			Solutions			and Other			Total
Service revenue	$	88,514		$	73,798		$	—		$	162,312
Product sales		—			34,210			—			34,210
Total revenue		88,514			108,008			—			196,522
Cost of service revenue		1,453			779			—			2,232
Cost of product sales		—			17,750			—			17,750
Operating expenses		27,280			31,164			—			58,444
Selling, general and administrative expenses		23,575			16,819			788			41,182
Other income, net		(4,396	)		(52	)		—			(4,448	)
Segment profit (loss)	$	40,602		$	41,548		$	(788	)	$	81,362
Segment profit (loss)	$	40,602		$	41,548		$	(788	)	$	81,362
Depreciation and amortization		—			—			58,409			58,409
Loss (gain) on disposal of assets, net		5			(2	)		—			3
Loss from tax receivable agreement adjustment		—			—			4,446			4,446
Stock-based compensation		—			—			6,039			6,039
Interest expense, net		—			—			21,990			21,990
Income (loss) before income tax benefit	$	40,597		$	41,550		$	(91,672	)	$	(9,525	)

	For the Six Months Ended June 30, 2019
	Commercial			Government			Corporate
($ in thousands)	Services			Solutions			and Other			Total
Service revenue	$	130,679		$	70,448		$	—		$	201,127
Product sales		—			6,909			—			6,909
Total revenue		130,679			77,357			—			208,036
Cost of service revenue		1,779			1,223			—			3,002
Cost of product sales		—			3,194			—			3,194
Operating expenses		31,818			28,839			—			60,657
Selling, general and administrative expenses		20,391			15,411			1,135			36,937
Other income, net		(5,478	)		(74	)		—			(5,552	)
Segment profit (loss)	$	82,169		$	28,764		$	(1,135	)	$	109,798
Segment profit (loss)	$	82,169		$	28,764		$	(1,135	)	$	109,798
Depreciation and amortization		—			—			57,804			57,804
Gain on disposal of assets, net		—			(13	)		—			(13	)
Impairment of property and equipment		—			5,898			—			5,898
Stock-based compensation		—			—			4,955			4,955
Interest expense, net		—			—			31,689			31,689
Income (loss) before income tax provision	$	82,169		$	22,879		$	(95,583	)	$	9,465

17.	Guarantor/Non-Guarantor Financial Information

VM Consolidated, Inc., a wholly-owned subsidiary of the Company, is the lead borrower of the First Lien Term Loan and the Revolver. VM Consolidated, Inc. is owned by the Company through a series of holding companies that ultimately end with the Company. VM Consolidated, Inc. is wholly-owned by Greenlight Acquisition Corporation, which is wholly-owned by Greenlight Intermediate Holding Corporation, which is wholly-owned by Greenlight Holding Corporation, which is wholly-owned by Verra Mobility Holdings, LLC, which is wholly-owned by Verra Mobility Corporation or the Company. The principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions, including transactions with the Company’s wholly-owned subsidiary guarantors and non-guarantor subsidiaries.

The following financial information presents the condensed consolidated balance sheets as of June 30, 2020 and the related condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2020 and condensed consolidated statements of cash flows for the six months ended June 30, 2020 for the Company, combined guarantor subsidiaries and combined non-guarantor subsidiaries.

Verra Mobility Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

at June 30, ~~2019~~2020

(Unaudited)

			VM
	Verra Mobility		Consolidated Inc.
	Corporation		(Guarantor
($ in thousands)	(Ultimate Parent)		Subsidiary)		Eliminations			Consolidated		Verra Mobility Corporation (Ultimate Parent)		VM Consolidated Inc. (Guarantor Subsidiary)		Non- guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	92,247	$	—		$	92,247	$	—	$	98,566	$	14,673	$	—		$	113,239
Restricted cash		—		1,743		—			1,743		—		711		—		—			711
Accounts receivable, net		—		106,261		—			106,261
Accounts receivable (net of allowance for credit loss of $12.9 million )											—		122,373		2,879		—			125,252
Unbilled receivables		—		13,571		—			13,571		—		12,244		288		—			12,532
Investment in subsidiary		146,774		—		(146,774	)		—		162,491		73,069		—		(235,560	)		—
Prepaid expenses and other current assets		—		21,646		—			21,646		—		16,655		2,309		—			18,964
Total current assets		146,774		235,468		(146,774	)		235,468		162,491		323,618		20,149		(235,560	)		270,698
Installation and service parts, net		—		10,028		—			10,028		—		8,672		—		—			8,672
Property and equipment, net		—		65,907		—			65,907		—		69,987		3,617		—			73,604
Operating lease assets											—		30,588		345		—			30,933
Intangible assets, net		—		468,213		—			468,213		—		360,280		26,083		—			386,363
Goodwill		—		564,638		—			564,638		—		524,766		56,849		—			581,615
Due from affiliates		169,259		—		(169,259	)		—		169,259		—		—		(169,259	)		—
Other non-current assets		—		2,197		—			2,197		—		3,223		14		—			3,237
Total assets	$	316,033	$	1,346,451	$	(316,033	)	$	1,346,451	$	331,750	$	1,321,134	$	107,057	$	(404,819	)	$	1,355,122
Liabilities and stockholders' equity
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	—	$	49,318	$	—		$	49,318	$	—	$	26,229	$	10,117	$	—		$	36,346
Accrued liabilities		6,205		14,090		—			20,295		—		16,546		3,024		—			19,570
Current portion of long-term debt		—		9,104		—			9,104		—		9,104		—		—			9,104
Total current liabilities		6,205		72,512		—			78,717		—		51,879		13,141		—			65,020
Long-term debt, net of current portion and deferred financing costs		—		859,133		—			859,133		—		834,317		—		—			834,317
Other long-term liabilities		—		3,764		—			3,764
Payable related to tax receivable agreement		—		66,097		—			66,097
Operating lease liabilities, net of current portion											—		29,070		170		—			29,240
Payable to related party pursuant to tax receivable agreement											—		65,620		—		—			65,620
Due to affiliates		—		169,259		(169,259	)		—		—		153,369		15,890		(169,259	)		—
Asset retirement obligation		—		6,873		—			6,873		—		6,237		—		—			6,237
Deferred tax liabilities		—		22,039		—			22,039
Deferred tax liabilities, net											—		17,904		4,787		—			22,691
Other long-term liabilities											—		247		—		—			247
Total liabilities		6,205		1,199,677		(169,259	)		1,036,623		—		1,158,643		33,988		(169,259	)		1,023,372
Total stockholders' equity		309,828		146,774		(146,774	)		309,828		331,750		162,491		73,069		(235,560	)		331,750
Total liabilities and stockholders' equity	$	316,033	$	1,346,451	$	(316,033	)	$	1,346,451	$	331,750	$	1,321,134	$	107,057	$	(404,819	)	$	1,355,122

2624

~~Table of Contents~~

Verra Mobility Corporation and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~Loss

Three Months Ended June 30, ~~2019~~2020

(Unaudited)

				VM
	Verra Mobility			Consolidated Inc.
	Corporation			(Guarantor
($ in thousands)	(Ultimate Parent)			Subsidiary)			Eliminations			Consolidated			Verra Mobility Corporation (Ultimate Parent)			VM Consolidated Inc. (Guarantor Subsidiary)			Non- guarantor Subsidiaries			Eliminations			Consolidated
Service revenue	$	—		$	103,057		$	—		$	103,057		$	—		$	59,784		$	3,031		$	—		$	62,815
Product sales		—			6,518			—			6,518			—			16,994			—			—			16,994
Total revenue		—			109,575			—			109,575			—			76,778			3,031			—			79,809
Cost of service revenue		—			1,613			—			1,613			—			451			562			—			1,013
Cost of product sales		—			2,918			—			2,918			—			9,060			—			—			9,060
Operating expenses		—			31,795			—			31,795			—			24,926			1,773			—			26,699
Selling, general and administrative expenses		—			20,865			—			20,865			—			19,649			1,172			—			20,821
Depreciation, amortization and (gain) loss on disposal of assets, net		—			28,850			—			28,850			—			27,876			1,290			—			29,166
Impairment of property and equipment		—			5,898			—			5,898
Total costs and expenses		—			91,939			—			91,939			—			81,962			4,797			—			86,759
Income from operations		—			17,636			—			17,636
(Income) from equity investment		(3,591	)		—			3,591			—
Loss from operations														—			(5,184	)		(1,766	)		—			(6,950	)
Loss from equity investment														15,388			1,521			—			(16,909	)		—
Interest expense, net		—			15,656			—			15,656			—			9,540			(1	)		—			9,539
Loss from tax receivable agreement adjustment														—			4,446			—			—			4,446
Other income, net		—			(3,345	)		—			(3,345	)		—			(1,494	)		(29	)		—			(1,523	)
Total other expense (income)		(3,591	)		12,311			3,591			12,311
Income before income tax provision		3,591			5,325			(3,591	)		5,325
Income tax provision		—			1,734			—			1,734
Net income	$	3,591		$	3,591		$	(3,591	)	$	3,591
Other comprehensive income (loss):
Foreign currency translation adjustment		—			(1,396	)		—			(1,396	)
Total comprehensive income (loss)	$	3,591		$	2,195		$	(3,591	)	$	2,195
Total other expenses (income)														15,388			14,013			(30	)		(16,909	)		12,462
Loss before income tax benefit														(15,388	)		(19,197	)		(1,736	)		16,909			(19,412	)
Income tax benefit														—			(3,809	)		(215	)		—			(4,024	)
Net loss													$	(15,388	)	$	(15,388	)	$	(1,521	)	$	16,909		$	(15,388	)
Other comprehensive loss:
Change in foreign currency translation adjustment														—			—			(508	)		—			(508	)
Total comprehensive loss													$	(15,388	)	$	(15,388	)	$	(2,029	)	$	16,909		$	(15,896	)

~~Table of Contents~~

Verra Mobility Corporation and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~Loss

Six Months Ended June 30, ~~2019~~2020

(Unaudited)

				VM
	Verra Mobility			Consolidated Inc.
	Corporation			(Guarantor
($ in thousands)	(Ultimate Parent)			Subsidiary)			Eliminations			Consolidated			Verra Mobility Corporation (Ultimate Parent)			VM Consolidated Inc. (Guarantor Subsidiary)			Non- guarantor Subsidiaries			Eliminations			Consolidated
Service revenue	$	—		$	201,127		$	—		$	201,127		$	—		$	155,434		$	6,878		$	—		$	162,312
Product sales		—			6,909			—			6,909			—			34,210			—			—			34,210
Total revenue		—			208,036			—			208,036			—			189,644			6,878			—			196,522
Cost of service revenue		—			3,002			—			3,002			—			1,119			1,113			—			2,232
Cost of product sales		—			3,194			—			3,194			—			17,750			—			—			17,750
Operating expenses		—			61,133			—			61,133			—			55,504			3,454			—			58,958
Selling, general and administrative expenses		—			41,416			—			41,416			—			43,624			3,083			—			46,707
Depreciation, amortization and (gain) loss on disposal of assets, net		—			57,791			—			57,791			—			55,871			2,541			—			58,412
Impairment of property and equipment		—			5,898			—			5,898
Total costs and expenses		—			172,434			—			172,434			—			173,868			10,191			—			184,059
Income from operations		—			35,602			—			35,602
(Income) from equity investment		(6,411	)		—			6,411			—
Income (loss) from operations														—			15,776			(3,313	)		—			12,463
Loss from equity investment														8,715			2,828			—			(11,543	)		—
Interest expense, net		—			31,689			—			31,689			—			22,002			(12	)		—			21,990
Loss from tax receivable agreement adjustment														—			4,446			—			—			4,446
Other income, net		—			(5,552	)		—			(5,552	)		—			(4,381	)		(67	)		—			(4,448	)
Total other expense (income)		(6,411	)		26,137			6,411			26,137
Income before income tax provision		6,411			9,465			(6,411	)		9,465
Income tax provision		—			3,054			—			3,054
Net income	$	6,411		$	6,411		$	(6,411	)	$	6,411
Other comprehensive income (loss):
Foreign currency translation adjustment		—			(72	)		—			(72	)
Total comprehensive income (loss)	$	6,411		$	6,339		$	(6,411	)	$	6,339
Total other expenses (income)														8,715			24,895			(79	)		(11,543	)		21,988
Loss before income tax benefit														(8,715	)		(9,119	)		(3,234	)		11,543			(9,525	)
Income tax benefit														—			(404	)		(406	)		—			(810	)
Net loss													$	(8,715	)	$	(8,715	)	$	(2,828	)	$	11,543		$	(8,715	)
Other comprehensive loss:
Change in foreign currency translation adjustment														—			—			(3,875	)		—			(3,875	)
Total comprehensive loss													$	(8,715	)	$	(8,715	)	$	(6,703	)	$	11,543		$	(12,590	)

~~Table of Contents~~

Verra Mobility Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, ~~2019~~2020

(Unaudited)

				VM
	Verra Mobility			Consolidated Inc.
	Corporation			(Guarantor
($ in thousands)	(Ultimate Parent)			Subsidiary)			Eliminations			Consolidated			Verra Mobility Corporation (Ultimate Parent)			VM Consolidated Inc. (Guarantor Subsidiary)			Non- guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from Operating Activities:
Net income	$	6,411		$	6,411		$	(6,411	)	$	6,411
Adjustments to reconcile net income to net cash provided by operating activities:
Net loss													$	(8,715	)	$	(8,715	)	$	(2,828	)	$	11,543		$	(8,715	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		—			57,804			—			57,804			—			55,873			2,536			—			58,409
Amortization of deferred financing costs and discounts		—			3,589			—			3,589			—			2,106			—			—			2,106
Impairment of property and equipment		—			5,898			—			5,898
Bad debt expense		—			2,736			—			2,736
Loss from tax receivable agreement adjustment														—			4,446			—			—			4,446
Credit loss expense														—			10,723			—			—			10,723
Deferred income taxes		—			(11,568	)		—			(11,568	)		—			(1,869	)		(627	)		—			(2,496	)
Stock-based compensation		—			4,955			—			4,955			—			6,039			—			—			6,039
Installation and service parts expense		—			643			—			643			—			559			—			—			559
Accretion expense		—			183			—			183			—			129			—			—			129
Write-downs of installation and service parts and (gain) on disposal of assets		—			(13	)		—			(13	)
(Income) loss from equity investment		(6,411	)		—			6,411			—
(Gain) loss on disposal of assets														—			(2	)		5			—			3
Loss from equity investment														8,715			2,828			—			(11,543	)		—
Changes in operating assets and liabilities:
Accounts receivable, net		—			(21,433	)		—			(21,433	)		—			(44,969	)		1,786			—			(43,183	)
Unbilled receivables		—			(616	)		—			(616	)		—			7,073			403			—			7,476
Prepaid expense and other current assets		—			(3,848	)		—			(3,848	)
Other assets		—			(351	)		—			(351	)
Prepaid expenses and other current assets														—			8,008			(29	)		—			7,979
Accounts payable and accrued liabilities		—			5,224			—			5,224			—			(13,865	)		(3,998	)		—			(17,863	)
Due to affiliates		—			—			—			—			—			(2,027	)		2,027			—			—
Other liabilities		—			(3,833	)		—			(3,833	)		—			(3,069	)		—			—			(3,069	)
Net cash provided by operating activities		—			45,781			—			45,781
Net cash provided by (used in) operating activities														—			23,268			(725	)		—			22,543
Cash Flows from Investing Activities:
Purchases of installation and service parts and property and equipment		—			(14,192	)		—			(14,192	)		—			(12,825	)		(1,476	)		—			(14,301	)
Cash proceeds from the sale of assets and insurance recoveries		—			14			—			14
Cash proceeds from the sale of assets														—			49			—			—			49
Net cash used in investing activities		—			(14,178	)		—			(14,178	)		—			(12,776	)		(1,476	)		—			(14,252	)
Cash Flows from Financing Activities:
Repayment of long-term debt		—			(4,552	)		—			(4,552	)		—			(24,227	)		—			—			(24,227	)
Payment of debt issuance costs		—			(152	)		—			(152	)		—			(922	)		—			—			(922	)
Payment of employee tax withholding related to RSU vesting														—			(352	)		—			—			(352	)
Net cash used in financing activities		—			(4,704	)		—			(4,704	)		—			(25,501	)		—			—			(25,501	)
Effect of exchange rate changes on cash and cash equivalents		—			10			—			10			—			—			(1,270	)		—			(1,270	)
Net increase in cash, cash equivalents and restricted cash		—			26,909			—			26,909
Net decrease in cash, cash equivalents and restricted cash														—			(15,009	)		(3,471	)		—			(18,480	)
Cash, cash equivalents and restricted cash - beginning of period		—			67,081			—			67,081			—			114,286			18,144			—			132,430
Cash, cash equivalents and restricted cash - end of period	$	—		$	93,990		$	—		$	93,990		$	—		$	99,277		$	14,673		$	—		$	113,950

2927

~~Table of Contents~~

Verra Mobility Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

Six Months Ended June 30, ~~2019~~2020

(Unaudited)

			VM
	Verra Mobility		Consolidated Inc.
	Corporation		(Guarantor
	(Ultimate Parent)		Subsidiary)		Eliminations		Consolidated		Verra Mobility Corporation (Ultimate Parent)		VM Consolidated Inc. (Guarantor Subsidiary)		Non- guarantor Subsidiaries		Eliminations		Consolidated
Supplemental cash flow information:
Interest paid	$	—	$	28,144	$	—	$	28,144	$	—	$	20,201	$	—	$	—	$	20,201
Income taxes paid, net		—		15,448		—		15,448		—		826		309		—		1,135
Supplemental non-cash investing and financing activities:
Reduction to tax receivable agreement liability		2,940		—		—		2,940
Gores equity infusion working capital adjustment payable to related party		6,205		—		—		6,205
Earn-out shares issued to Platinum Stockholder		18,288		—		—		18,288		18,287		—		—		—		18,287
Additions to ARO, property and equipment, and other		—		143		—		143		—		41		—		—		41
Purchases of installation and service parts and property and equipment in accounts payable and accrued liabilities at period-end		—		4,269		—		4,269		—		3,238		—		—		3,238

3028

~~Table of Contents~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis ~~of our financial condition and results of operations~~ should be read together with our Annual Report on Form ~~10-K/A~~10-K for the year ended December 31, ~~2018~~2019 and our financial statements included in Part I, Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in ~~the~~Part II, Item IA. “Risk Factors” in this Quarterly Report on Form 10-Q and those set forth in Part I, Item 1A. “Risk Factors” in our Annual Report on Form ~~10-K/A~~10-K for the year ended December 31, ~~2018.~~2019. Please also refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

Recent Events Affecting Our Operating Results

In December 2019, a novel coronavirus (“COVID-19”) emerged in China and has since spread throughout the world. The World Health Organization declared COVID-19 a pandemic in March 2020, and it continues to significantly disrupt the global economy. In the United States and abroad, many federal, state and local governments have instituted travel restrictions, stay-at-home orders, social distancing orders, and border closures in order to minimize the spread of the virus. We expect that COVID-19 will continue to have a significant negative impact on the global economy and travel industry, including rental car companies (“RACs”).

Revenues from RACs in our Commercial Services segment have decreased significantly in the first half of fiscal 2020 as a result of reduced airline travel and widespread travel restrictions related to COVID-19. Our RAC customers are experiencing increased rental cancellations and declining forward bookings, and many are actively reducing fleet sizes in response to the decline in customer demand. On May 22, 2020, The Hertz Corporation (“Hertz”), one of our key Commercial Services customers, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, as amended, in the United States Bankruptcy Court for the District of Delaware. The full extent and duration of COVID-19’s impact on the RAC industry and the financial health of our key RAC customers cannot be predicted at this time. These trends have had, and are expected to continue to have, a significant negative effect on revenues in our Commercial Services segment.

In our Government Solutions segment, school closures resulting from the COVID-19 pandemic have negatively impacted revenues from our school bus stop arm camera and school zone speed camera products. More generally, reductions in vehicle traffic as a result of stay-at-home orders in jurisdictions where we operate photo enforcement programs, as well as temporary inactivity of school zone speed cameras and payment rates for photo enforcement tickets, have negatively impacted service revenue in our Government Solutions segment. We cannot predict the duration or full impact of COVID-19 on our overall business and results of operations at this time, but we expect the impact to continue into the third quarter of 2020.

As a precautionary measure taken in response to COVID-19, we shifted most of our workforce to remote operations in March 2020 and we have implemented changes in our physical locations to ensure social distancing. We have not experienced any significant disruptions in our operations as a result of these measures.

In light of the extraordinary impact of COVID-19 and related containment measures on the global economy and our business, prior trends in our business may not be applicable to our operations for the duration of the pandemic.

Business Overview

We believe we are a leading provider of smart mobility technology solutions and services throughout the United States, Canada and Europe. ~~We provide integrated technology~~These solutions and services ~~which~~ include toll and violations management, title and registration, automated safety solutions, and other data-driven solutions, to our customers, which include ~~rental car companies (“RACs”),~~RACs, fleet management companies (“FMCs”), other large fleet owners, municipalities, school districts and violation-issuing authorities. Our solutions simplify the smart mobility ecosystem by utilizing what we believe are industry-leading capabilities, information and technology expertise, and integrated hardware and software to efficiently facilitate the automated processing of tolls and violations and safety solutions for hundreds of agencies and millions of end users annually, while also making cities and roadways safer for everyone.

Segment Information

We have two operating and reportable segments, Commercial Services and Government Solutions:

•

Our Commercial Services segment offers toll and violation management solutions, title and registration services for RACs and FMCs in North America. In Europe, we provide violations processing through Euro Parking Collection plc (“EPC”) and consumer tolling services through Pagatelia S.L (“Pagatelia”).

The Commercial Services division offers toll and violation management solutions for the commercial fleet and rental car industries by partnering with the leading fleet management and rental car companies in North America and Europe. The Commercial Services division also offers title and registration services and processing for individuals, rental car companies and fleet management companies.

The Government Solutions division provides complete, end-to-end red-light, speed, school bus stop arm and bus lane enforcement solutions. The Company implements and administers traffic safety programs and products for municipalities and local government agencies of all sizes.

•

Our Government Solutions segment provides complete, end-to-end red-light, speed, school bus stop arm and bus lane enforcement solutions. We implement and administer traffic safety programs and products for municipalities and local government agencies of all sizes.

Segment performance is based on revenues and (loss) income ~~(loss)~~ from operations before depreciation, amortization, gain (loss) on disposal of assets, ~~impairment of property~~net, and ~~equipment,~~ stock-based ~~compensation,~~compensation. The measure also excludes interest expense, net, ~~loss on extinguishment of debt,~~ income taxes and ~~after~~is inclusive of other ~~(income),~~income, net.

Executive Summary

We operate with long-term customer contracts and a highly ~~recurring~~reoccurring service revenue model. We continue to execute on our strategy of growing revenues with existing customers, expanding offerings into adjacent markets through innovation or acquisition and reducing operating costs. During the periods presented, we:

~~Executed on growth strategies by completing strategic acquisitions: we acquired Highway Toll Administration, LLC, and Canada Highway Toll Administration (collectively, “HTA”), a tolling company which strengthens our position in tolling and related services to RAC and FMC customers, in the first quarter of 2018; and we acquired Euro Parking Collection plc (“EPC”) in the second quarter of 2018, providing a platform to expand our RAC and FMC solutions into Europe.~~

•

Generated total revenue of $196.5 million and $208.0 million during the six months ended June 30, 2020 and 2019, respectively. We grew product sales by $27.3 million year over year; however, due to the impact of COVID-19, our service revenue declined significantly, as discussed below.

Grew service revenue from $166.1 million during the six months ended June 30, 2018 to $201.1 million during the six months ended June 30, 2019. Acquisitions contributed $21.6 million to the revenue growth, while expansion in existing products or customers contributed $13.4 million to the revenue growth.

•

Generated cash flows from operating activities of $22.5 million and $45.8 million for the six months ended June 30, 2020 and 2019, respectively. Our cash on hand was $113.2 million as of June 30, 2020.

~~Improved our cost structure, as operating expenses as a percentage of total revenue decreased from 31.3% in the six months ended June 30, 2018 to 29.4% in the six months ended June 30, 2019.~~

Generated cash flows from operating activities of $45.8 million for the six months ended June 30, 2019. Cash flows from operating activities for the six months ended June 30, 2018 were negatively impacted by $18.6 million of expenses associated with the HTA and EPC acquisitions.

•

Reduced our financing costs by refinancing our term loan in February 2020, which reduced the applicable margin on our interest rate by 50 basis points. Our interest expense, net for the six months ended June 30, 2020 was $22.0 million, a $9.7 million decrease compared to $31.7 million in the same period in 2019.

~~Table~~Primary Components of ~~Contents~~

~~Factors Affecting~~ Our Operating Results

~~Our operating results and financial performance are influenced by certain unique events during the periods discussed herein, including the following:~~

~~Business Combination~~

~~We were originally incorporated in Delaware on August 15, 2016 as Gores Holdings II, Inc. (“Gores~~”), a special purpose acquisition company formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or other similar business combination with one or more target businesses. On January 19, 2017, we consummated our initial public offering, following which our shares began trading on the Nasdaq Capital Market.

~~HTA Acquisition and Refinancing~~

On March 1, 2018, we acquired HTA for an aggregate purchase price of $603.3 million, consisting of $525.0 million in cash, $9.7 million in purchase price adjustments, a $11.3 million payment to the sellers for certain tax items, and the issuance of equity in Greenlight with a fair value of approximately $57.3 million. The receipt of the equity was treated for accounting purposes as a capital contribution from Greenlight Acquisition Corporation. We recognized $15.6 million of costs related to the transaction in the six months ended June 30, 2018. HTA contributed $28.1 million and $9.7 million in revenues for the six months ended June 30, 2019 and 2018, respectively. See Note 3, ~~Mergers and Acquisitions,~~ ~~in Item 1, Financial Statements.~~

In connection with the HTA acquisition, we refinanced the 2017 Credit Facilities (defined below) and entered into the 2018 Credit Facilities (defined below), which provided for term loans with an aggregate principal amount of $1.04 billion and a revolver with an aggregate commitment of up to $75.0 million. We recorded a loss on extinguishment of the 2017 Credit Facilities of approximately $10.2 million during the six months ended June 30, 2018, which included a prepayment penalty of $3.8 million related to one of the term loans. See Note 8, ~~Debt, in Item 1, Financial Statements.~~

~~EPC Acquisition~~

~~On April 6, 2018, we acquired~~ ~~EPC~~ for an aggregate purchase price of $62.9 million. The purchase consideration consisted primarily of equity in Greenlight and working capital adjustments, which aggregated $2.6 million. The receipt of the equity was treated for accounting purposes as a capital contribution from Greenlight Acquisition Corporation. EPC contributed $3.2 million in revenues for the six months ended June 30, 2019. We recognized $3.0 million of costs related to the transaction in the six months ended June 30, 2018. See Note 3, ~~Mergers and Acquisitions,~~ ~~in Item 1, Financial Statements.~~

~~ATS Merger~~

~~On May 31, 2017, private equity investment vehicles sponsored by Platinum Equity, LLC (collectively “Platinum~~”) acquired ATS Consolidated, Inc. (now VM Consolidated, Inc.) pursuant to the Agreement and Plan of Merger, dated April 15, 2017, by and among ATS Consolidated, Inc., Greenlight Merger Corporation, a wholly-owned subsidiary of Greenlight Acquisition Corporation, and Greenlight Acquisition Corporation, whereby ATS Consolidated, Inc. merged with and into Greenlight Merger Corporation with the former surviving the merger (such transaction, the “~~ATS Merger”).~~

~~Table of Contents~~

~~Primary Components of Operating Results~~

Revenues

Total ~~revenues consist~~revenue consists of service ~~revenues~~revenue generated by our Commercial Services and Government Solutions segments and product sales generated by ~~the~~our Government Solutions segment.

Service ~~Revenue.~~ ~~The~~Revenue. Our Commercial Services segment ~~primarily~~ generates service revenue primarily through the management and operation of tolling programs for RACs, FMCs and other large fleet customers. These solutions are full service offerings by which we enroll plates of our customers’ vehicles with tolling authorities, process payments on the customers’ behalf and, through proprietary technology, integrate with customer data to match the toll to the driver and then bill the driver (or our customer, as applicable) for use of the service. The cost of certain tolls, violations and our customers’ share of administration fees are netted against revenue. We also generate service revenue in ~~the~~our Commercial Services segment through processing titles, registrations and violations for our customers.

~~The~~Our Government Solutions segment generates service revenue through the operation and maintenance of photo enforcement systems. This revenue is generally tied to long-term contracts, and revenue is recognized either when services are performed or when citations are issued or paid, depending on the terms of the customer contract. Revenue drivers in this segment include the number of systems installed and the monthly revenue per system. Ancillary service revenue is generated in ~~the~~our Government Solutions segment from payment processing, pass-through fees for collection expense, and other fees.

Product Sales. Product sales are generated by the sale of photo enforcement equipment to certain Government Solutions customers. ~~There are a~~A small number of customers ~~who~~ purchase this equipment, and their buying patterns vary greatly from period to period. ~~Product~~We recognize product sales revenue ~~is recognized~~ when the equipment is accepted or installed.

Cost and Expenses

Cost of Service Revenue. Cost of service revenue consists of collection and other professional services ~~contracted with~~provided by third parties and associated with the delivery of certain ancillary services performed by both ~~the~~our Government Solutions and Commercial Services segments.

Cost of Product Sales. ~~Costs~~Cost of product sales ~~consist~~consists of the ~~costs~~cost to acquire and install photo enforcement equipment ~~that is~~ purchased by Government Solutions customers.

Operating ~~Expenses.~~ Expenses. Operating expenses include payroll and payroll-related costs (including stock-based compensation), costs related to the operation of our call centers and other operational costs, including transaction processing, print, postage and communication costs.

Selling, General and Administrative ~~Expenses.~~ Expenses. Selling, general and administrative expenses ~~includes~~include payroll and payroll-related costs (including stock-based compensation), real estate lease expense, insurance costs, ~~legal~~professional services fees and general corporate expenses.

Depreciation, Amortization and (Gain) Loss on Disposal of Assets, ~~Net.~~Net. Depreciation, amortization and (gain) loss on disposal of assets, net includes depreciation on property, plant and equipment, and amortization of definite-lived intangible assets. This line item also includes any one-time gains or losses incurred in connection with the disposal of certain assets.

~~Impairment~~Interest Expense, Net. Interest expense, net includes interest expense and amortization of ~~Property and Equipment.~~ ~~Impairment of property and equipment includes impairment charges for fixed assets used and held.~~

~~Loss on Extinguishment of Debt.~~ ~~Loss on extinguishment of debt generally consists of early payment penalties, the write-off of original issue discounts and~~ deferred financing costs ~~associated with debt extinguishment.~~and discounts and is net of interest income.

Loss from tax receivable agreement adjustment. This consists of adjustments made to the related party TRA liability due to changes in estimates.

Other Income, ~~Net.~~Net. Other income, net primarily consists of volume rebates from total spend on purchasing cards and gain or loss on foreign currency ~~translation.~~transactions.

3331

~~Table of Contents~~

Results of Operations

Three Months Ended June 30, ~~2019~~2020 Compared to Three Months Ended June 30, ~~2018~~2019

The following table sets forth ~~for each of the periods indicated~~ our statements of operations data ~~and other information~~ and expresses each item as a percentage of total ~~revenues~~revenue for the periods presented as well as the changes between periods. The tables and information provided were derived from exact numbers and may have immaterial rounding differences.

	Three Months Ended June 30,																		Three Months Ended June 30,
							Percentage of Revenue						Increase (Decrease) 2019 vs 2018												Percentage of Revenue						Increase (Decrease) 2020 vs 2019
($ in thousands)	2019			2018			2019			2018			$			%			2020			2019			2020			2019			$			%
Service revenue	$	103,057		$	97,044			94.1	%		98.8	%	$	6,013			6.2	%	$	62,815		$	103,057			78.7	%		94.1	%	$	(40,242	)		(39.0	)%
Product sales		6,518			1,153			5.9	%		1.2	%		5,365			465.3	%		16,994			6,518			21.3	%		5.9	%		10,476			160.7	%
Total revenue		109,575			98,197			100.0	%		100.0	%		11,378			11.6	%		79,809			109,575			100.0	%		100.0	%		(29,766	)		(27.2	)%
Cost of service revenue		1,613			1,651			1.5	%		1.7	%		(38	)		(2.3	)%		1,013			1,613			1.3	%		1.5	%		(600	)		(37.2	)%
Cost of product sales		2,918			878			2.7	%		0.9	%		2,040			232.3	%		9,060			2,918			11.4	%		2.7	%		6,142			210.5	%
Operating expenses		31,795			28,800			29.0	%		29.3	%		2,995			10.4	%		26,699			31,795			33.4	%		29.0	%		(5,096	)		(16.0	)%
Selling, general and administrative expenses		20,865			27,588			19.0	%		28.1	%		(6,723	)		(24.4	)%		20,821			20,865			26.1	%		19.0	%		(44	)		(0.2	)%
Depreciation, amortization and (gain) loss on disposal of assets, net		28,850			27,496			26.3	%		28.0	%		1,354			4.9	%		29,166			28,850			36.5	%		26.3	%		316			1.1	%
Impairment of property and equipment		5,898			—			5.4	%		—			5,898		n/a				—			5,898			—			5.4	%		(5,898	)		(100.0	)%
Total costs and expenses		91,939			86,413			83.9	%		88.0	%		5,526			6.4	%		86,759			91,939			108.7	%		83.9	%		(5,180	)		(5.6	)%
Income from operations		17,636			11,784			16.1	%		12.0	%		5,852			49.7	%
(Loss) income from operations																				(6,950	)		17,636			(8.7	)%		16.1	%		(24,586	)		(139.4	)%
Interest expense, net		15,656			19,579			14.3	%		19.9	%		(3,923	)		(20.0	)%		9,539			15,656			11.9	%		14.3	%		(6,117	)		(39.1	)%
Loss on extinguishment of debt		—			—			—			—			—		n/a
Loss from tax receivable agreement adjustment																				4,446			—			5.6	%		—			4,446		n/a
Other income, net		(3,345	)		(2,766	)		(3.1	)%		(2.8	)%		(579	)		20.9	%		(1,523	)		(3,345	)		(1.9	)%		(3.1	)%		1,822			(54.5	)%
Total other expenses		12,311			16,813			11.2	%		17.1	%		(4,502	)		(26.8	)%		12,462			12,311			15.6	%		11.2	%		151			1.2	%
Income (loss) before income tax provision (benefit)		5,325			(5,029	)		4.9	%		(5.1	)%		10,354			205.9	%
Income tax provision (benefit)		1,734			(234	)		1.6	%		(0.2	)%		1,968			841.0	%
Net income (loss)	$	3,591		$	(4,795	)		3.3	%		(4.9	)%	$	8,386			174.9	%
(Loss) income before income tax (benefit) provision																				(19,412	)		5,325			(24.3	)%		4.9	%		(24,737	)		(464.5	)%
Income tax (benefit) provision																				(4,024	)		1,734			(5.0	)%		1.6	%		(5,758	)		(332.1	)%
Net (loss) income																			$	(15,388	)	$	3,591			(19.3	)%		3.3	%	$	(18,979	)		(528.5	)%

Three Months Ended June 30,

Percentage of Revenue

Increase (Decrease)
2019 vs 2018

($ in thousands)

2019

2018

2019

2018

$

%

Adjusted EBITDA⁽¹⁾

$
59,691

$
54,598

54.5
%

55.6
%

$
5,093

9.3
%

~~(1)~~

Adjusted EBITDA is a non-GAAP measure. Refer to the section entitled Non-GAAP Financial Data for a reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure, as well as a discussion of why management believes this information is useful to investors and its limitations.

Service Revenue. Service revenue ~~increased~~decreased by ~~$6.0~~$40.2 million, or ~~6.2%~~39.0%, to ~~$103.1~~$62.8 million for the three months ended June 30, 2020 from $103.0 million for the three months ended June 30, 2019, ~~from $97.0 million for the three months ended June 30, 2018,~~ representing ~~94.1%~~78.7% and ~~98.8%~~94.1% of total revenue, respectively. The following table depicts service revenue by segment:

	Three Months Ended June 30,																Three Months Ended June 30,
					Percentage of Revenue						Increase (Decrease) 2019 vs 2018										Percentage of Revenue						Increase (Decrease) 2020 vs 2019
($ in thousands)	2019		2018		2019			2018			$			%			2020		2019		2020			2019			$			%
Service Revenue
Service revenue
Commercial Services	$	68,091	$	59,771		62.2	%		60.8	%	$	8,320			13.9	%	$	27,272	$	68,091		34.2	%		62.2	%	$	(40,819	)		(59.9	)%
Government Solutions		34,966		37,273		31.9	%		38.0	%		(2,307	)		(6.2	)%		35,543		34,966		44.5	%		31.9	%		577			1.7	%
Total Service Revenue	$	103,057	$	97,044		94.1	%		98.8	%	$	6,013			6.2	%
Total service revenue																	$	62,815	$	103,057		78.7	%		94.1	%	$	(40,242	)		(39.0	)%

~~Table of Contents~~

Commercial Services service revenue ~~includes toll and violation management revenues from commercial fleet and rental car companies. Service revenue increased~~decreased by ~~$8.3~~$40.8 million, or ~~13.9%~~60%, from ~~$59.8~~$68.1 million for the three months ended June 30, ~~2018~~2019 to ~~$68.1~~$27.3 million for the three months ended June 30, 2020. This decrease was primarily due to the COVID-19 pandemic and related containment measures, which continue to have a significant negative impact on the RAC industry. Reduced airline travel and widespread travel restrictions beginning in March 2020 have continued in the second quarter, resulting in rental cancellations and declining forward bookings. Our revenues from RAC customers are anticipated to decrease for the remainder of fiscal 2020 as a result of COVID-19, and the full extent and duration of this impact is not yet known.

Government Solutions service revenue includes revenue from red-light, speed, school bus stop arm and bus lane photo enforcement systems. Service revenue increased by $0.6 million to $35.5 million for the three months ended June 30, 2020

from $34.9 million for the three months ended June 30, 2019. The increase is primarily due to a ~~$8.9~~$4.8 million increase in speed program revenue during the three months ended June 30, 2020 compared to the same period in 2019, resulting from ~~improved volumes~~the increase in ~~both billable days and tolls processed across our tolling products.~~the total number of camera systems installed. The increase in total installed cameras was partially offset by ~~$0.8 million decrease in title and registration~~temporarily inactive school-zone speed cameras due to COVID-19. Our red-light photo enforcement service revenue ~~representing~~declined $2.8 million during the three months ended June 30, 2020 compared to the same period in 2019 which was primarily due to a ~~22.5% decrease quarter over quarter.Title~~$1.3 million decline from the loss of certain Texas programs and ~~registration volumes fluctuate with activity and can create volatility between quarters.~~

~~Government Solutions~~the remaining from the impact of COVID-19. We also had a $1.6 million service revenue ~~includes revenue~~decline from ~~red-light, speed,~~the suspension of school bus stop arm ~~and bus lane photo enforcement systems.~~cameras as school buses were not operating. Service revenue ~~decreased~~overall for the quarter was negatively impacted by ~~$2.3 million, or 6.2%,~~COVID-19 which led to ~~$35.0~~reduction in vehicle traffic as a result of widespread stay-at-home orders and early school closures. To the extent that stay-at-home orders and school closures continue, we anticipate a negative impact in future quarters from COVID-19.

There were an average of 3,293 active camera systems during the three months ended June 30, 2020 compared to an average of 4,636 for the three months ended June 30, 2019. The decline in active camera systems was primarily due to 1,920 cameras that were temporarily inactive due to COVID-19, and the loss of Texas programs noted above. These declines were partially offset by the expansion of speed enforcement systems with existing customers.

Product Sales. Product sales of $17.0 million for the three months ended June 30, 2019 from $37.3 million for the three months ended June 30, 2018. Revenue from operation of our red-light photo enforcement programs represents 51% of segment service revenue and declined $2.2 million quarter over quarter. This decline was primarily due to the Miami program loss and from Texas programs loss on June 1, 2019 due to a legislative change that banned most red-light photo enforcement programs in the state. The remaining decline results from lower price per system in variable contracts. Pricing of red-light photo enforcement programs can be impacted by timing of transaction volume in our variable contracts as well as the pricing of contract renewals. The loss of most of our red-light photo enforcement programs in Texas will negatively impact service revenue for the next four quarters. The Company exited its street light maintenance offering at the end of first quarter in 2019, resulting in a $1.1 million decrease quarter over quarter. This street light maintenance offering was non-core and did not meet our profitability criteria. These declines were offset by an increase in speed programs revenue, which grew approximately $1.5 million due to increases in the total number of camera systems installed and higher average pricing. We believe that school zone speed programs will continue to be a growth product in fiscal 2019.

Our previous reporting of installed camera systems included systems connected to suspended programs or spare systems at client locations. We re-evaluated our metric during the first quarter of 2019, and are reporting only installed camera systems that are generating revenue, as we believe this is a more meaningful presentation. There were an average of 4,636 camera systems installed during the three months ended June 30, 2019, compared to an average of 4,212 for the same period in 2018. The increase in camera systems was primarily due to new installations of school bus arm systems and to a lesser extent the expansion of speed enforcement systems with existing customers. This increase was partially offset by a decline in red-light photo enforcement systems primarily due to the loss of Miami and Texas programs noted above.

~~Product Sales.~~ ~~Product sales includes~~2020 include revenue generated from Government Solutions customers who purchased their equipment. Product sales increased by ~~$5.4~~$10.5 million ~~from $1.2 million for the three months ended June 30, 2018~~compared to $6.5 million for the same period in ~~2019. The increase is~~2019 which was primarily driven by sales to a single customer ~~who~~that is ~~in the process of~~currently expanding ~~their~~its existing school zone speed program. ~~We anticipate continued growth in product sales for the remainder of 2019.~~

Cost of Service Revenue. Cost of service revenue ~~remained constant at~~decreased from $1.6 million for the three months ended June 30, 2019 ~~and 2018.~~

~~Cost of Product Sales.~~ ~~Cost of product sales increased by $2.0 million from $0.9 million during the quarter ended June 30, 2018~~ to ~~$2.9 million in the same period in 2019, and was consistent with the change in product sales.~~

~~Operating Expenses.~~ ~~Operating expenses increased by $3.0 million, or 10.4%, from $28.8~~$1.0 million for the three months ended June 30, ~~2018 to $31.8~~2020. The decrease resulted from decreased costs of collection and other third-party professional services and associated with the delivery of certain ancillary services performed by both of our segments.

Cost of Product Sales. Cost of product sales increased by $6.1 million ~~for~~from $2.9 million in the three months ended June 30, ~~2019. The increase is primarily due~~2019 to subcontractor expenses, payment processing and other recurring expenses during the quarter. Operating expenses as a percentage of revenue decreased slightly from 29.3% to 29.0 % for the three months ended June 30, 2018 and 2019, respectively. Operating expenses by segment appear$9.0 million in the ~~table below:~~same period in 2020, and was consistent with the increase in product sales.

Three Months Ended June 30,

Percentage of Revenue

Increase (Decrease)
2019 vs 2018

($ in thousands)

2019

2018

2019

2018

$

%

Operating Expenses

Commercial Services

$
16,722

$
13,989

15.3
%

14.2
%

$
2,733

19.5
%
Government Solutions

14,801

14,811

13.5
%

15.1
%

(10
)

(0.1
)%
Total operating expenses before stock-based compensation

31,523

28,800

28.8
%

29.3
%

2,723

9.5
%
Stock-based compensation

272

—

0.2
%

—

272

n/a

Total Operating Expenses

$
31,795

$
28,800

29.0
%

29.3
%

$
2,995

10.4
%

~~Table of Contents~~

~~Selling, General and Administrative~~Operating Expenses. ~~Selling, general and administrative~~ Operating expenses decreased by ~~$6.7~~$5.1 million, or 16.0%, from $31.8 million for the three months ended June 30, 2019 to ~~$20.9 million compared to $27.6~~$26.7 million for the three months ended June 30, ~~2018.~~2020. The decrease was primarily attributable to lower employee wage expense due to furloughs and reduced hours, transaction processing and related costs in our Commercial Services segment as a result of COVID-19. Operating expenses inas a percentage of total revenue increased from 29.0% to 33.4% for the three months ended June 30, ~~2018~~2019 and 2020, respectively. The following table presents operating expenses by segment:

	Three Months Ended June 30,
					Percentage of Revenue						Increase (Decrease) 2020 vs 2019
($ in thousands)	2020		2019		2020			2019			$			%
Operating expenses
Commercial Services	$	10,750	$	16,722		13.5	%		15.3	%	$	(5,972	)		(35.7	)%
Government Solutions		15,655		14,801		19.6	%		13.5	%		854			5.8	%
Total operating expenses before stock-based compensation		26,405		31,523		33.1	%		28.8	%		(5,118	)		(16.2	)%
Stock-based compensation		294		272		0.3	%		0.2	%		22			8.1	%
Total operating expenses	$	26,699	$	31,795		33.4	%		29.0	%	$	(5,096	)		(16.0	)%

Selling, General and Administrative Expenses. Selling, general and administrative expenses remained consistent at $20.8 million for ~~which there were no comparable amounts in~~ the current period including: $5.8 million of transaction expenses related to the EPC acquisition of which $2.4 million is included in Corporate and $3.4 million in Commercial Services, $5.4 million of non-recurring expenses associated with the integration of both HTA and EPC, and $1.3 million paid to Platinum Equity Advisors, LLC, an affiliate of Platinum (“~~Advisors~~”), under a previous corporate advisory services agreement pursuant to which we paid a management fee for services and related expenses incurred by Advisors in the provision of those services. The decreases were partially offset by $1.1 million of expenses incurred by us during the sixthree months ended June 30, ~~2019~~2020 compared to $20.9 million for the same period in 2019. The current quarter includes a $5.4 million credit loss expense related to the ~~sale~~CECL standard, which is further discussed in the notes to the condensed consolidated financial statements. The credit loss expense increased $3.9 million compared to the 2019 period, and is partially offset by an aggregate $2.7 million decrease in costs related to the bonus expense as a result of ~~15,000,000 shares of our Class A Common Stock by~~eliminating the ~~Platinum Stockholder in an underwritten secondary offering.~~bonus accrual, marketing and non-essential travel. Selling, general and administrative expenses as a percentage of total revenue ~~decreased~~increased from ~~28.1%~~19.0% to ~~19.0%~~26.1 % for the three months ended June 30, ~~2018~~2019 and ~~2019,~~2020, respectively. ~~Selling,~~The following table presents selling, general and administrative expenses by ~~segment appear in the table below:~~segment:

	Three Months Ended June 30,																Three Months Ended June 30,
					Percentage of Revenue						Increase (Decrease) 2019 vs 2018										Percentage of Revenue						Increase (Decrease) 2020 vs 2019
($ in thousands)	2019		2018		2019			2018			$			%			2020		2019		2020			2019			$			%
Selling, General and Administrative Expenses
Selling, general and administrative expenses
Commercial Services	$	9,629	$	10,958		8.8	%		11.2	%	$	(1,329	)		(12.1	)%	$	10,191	$	9,629		12.8	%		8.8	%	$	562			5.8	%
Government Solutions		7,561		7,223		6.9	%		7.3	%		338			4.7	%		7,150		7,561		9.0	%		6.9	%		(411	)		(5.4	)%
Corporate		1,135		9,407		1.0	%		9.6	%		(8,272	)		(87.9	)%
Corporate and other																		503		1,135		0.6	%		1.0	%		(632	)		(55.7	)%
Total selling, general and administrative expenses before stock-based compensation		18,325		27,588		16.7	%		28.1	%		(9,263	)		(33.6	)%		17,844		18,325		22.4	%		16.7	%		(481	)		(2.6	)%
Stock-based compensation		2,540		—		2.3	%		—			2,540		n/a				2,977		2,540		3.7	%		2.3	%		437			17.2	%
Total Selling, General and Administrative Expenses	$	20,865	$	27,588		19.0	%		28.1	%	$	(6,723	)		(24.4	)%
Total selling, general and administrative expenses																	$	20,821	$	20,865		26.1	%		19.0	%	$	(44	)		(0.2	)%

Depreciation, Amortization and Gain or Loss on Disposal of Assets, Net. Depreciation, amortization and gain or loss on disposal of assets, net, increased ~~by $1.4 million, or 4.9 %,~~slightly from ~~$27.5~~$28.9 million for the three months ended June 30, ~~2018~~2019 to ~~$28.9~~$29.2 million for the same period in ~~2019.~~2020. The increase is primarily due to ~~additional~~the increased amortization expense ~~associated~~resulting from the Pagatelia acquisition included in the three months ended June 30, 2020 with no comparable amount in the ~~EPC acquisition and to a lesser extent increased capital expenditures related to Product Sales noted above.~~

prior year.

Impairment of Property and ~~Equipment.~~ Equipment. Impairment of property and equipment for the three months ended June 30, 2019 includes a $5.9 million impairment charge as a result of ~~legislative ban of~~legislation that banned most red-light photo enforcement programs in Texas ~~as of~~on June 1, 2019, which was in the Government Solutions segment.

Interest Expense, Net. Interest expense, net decreased by ~~$3.9~~$6.1 million from ~~$19.6~~$15.6 million for the three months ended June 30, ~~2018~~2019 to ~~$15.7~~$9.5 million for the same period in ~~2019. The~~2020. This decrease is ~~due to~~primarily as a result of lower ~~average debt balances quarter over quarter primarily related to~~interest rates coupled with the ~~full pay off~~refinancing of ~~the New Second~~our First Lien Term ~~Loan. The average debt balance~~Loan (as defined and discussed below) in February 2020, which reduced the applicable margin on the interest rate by 50 basis points. See “Liquidity and Capital Resources.”

Loss from Tax Receivable Agreement Adjustment. We recorded a $4.4 million charge to Loss from tax receivable agreement adjustment for the three months ended June 30, ~~2018 was $1.04 billion compared~~2020. The adjustment reflects the impact of an increase to ~~$900.7 million for~~ the ~~same period~~Company’s deferred tax rate arising from higher estimated state tax rates due to a change in ~~2019. See “—Liquidity and Capital Resources~~.”apportionment.

Other Income, Net. Other income, net for the three months ended June 30, 2019 was $3.3 million compared to $2.8 million in the three months ended June 30, 2018. The increase is primarily due to increased tolling activity. We pay a high volume of tolls on behalf of our customers with purchasing cards which generate rebates based on volume, payment terms and rebate frequency.

~~Income Tax Provision (Benefit).~~ ~~Income tax provision (benefit) changed by $2.0~~ Other income, net was $1.5 million ~~from $(0.2) million, representing an effective tax rate of (4.7%),~~ for the three months ended June 30, ~~2018~~2020, compared to $3.3 million for the three months ended June 30, 2019. The decrease of $1.8 million was primarily due to the decreased volume in purchasing card rebates as a result of COVID-19 impacting toll usage. We anticipate lower rebates for the remainder of 2020.

Income Tax (Benefit) Provision. Income tax benefit was $(4.0) million representing an effective tax benefit of (20.7)% for the three months ended June 30, 2020 compared to a tax provision of $1.7 million, representing an effective tax rate of ~~32.6%~~32.6 % for the same period in 2019. The effective tax rate change was primarily due to ~~higher pretax~~lower pre-tax income ~~across multiple jurisdictions, and an increase~~ in the current period, resulting in the Company’s permanent ~~differences between~~ book and ~~taxable income, including~~tax differences having a proportionately greater impact on the ~~162(m) executive compensation limitation,~~ ~~non-deductible secondary offering transaction costs,~~ ~~and~~effective tax rate in the ~~Global Intangible Low Tax Income inclusion.~~current period.

3634

~~Table~~Net (Loss) Income. We had a net loss of ~~Contents~~

~~Net Income (Loss).~~ ~~We had~~$(15.4) million for the three months ended June 30, 2020, as compared to net income of $3.6 million for the three months ended June 30, ~~2019, compared to a~~2019. The $19.0 million change in net ~~loss of $4.8 million for the three months ended June 30, 2018. The improved net~~(loss) income was primarily due to the decline in ~~line with~~revenue related to the impact of COVID-19 on our RAC customers, credit loss expense related to the CECL standard, loss from tax receivable agreement adjustment, and increased cost related to product sales. These decreases to income were partially offset by growth in product sales revenue, ~~growth~~decrease in interest expense, net from lower interest rates and ~~other statements~~refinancing of ~~operations activity discussed above.~~

~~Adjusted EBITDA.~~ ~~For~~our First Lien Term Loan in February 2020, and due to the ~~three months ended June 30, 2019 adjusted EBITDA was $59.7 million, an increase of $5.1 million or 9.3 % from~~impairment on property and equipment in the ~~three months ended June 30, 2018. The growth was~~prior year for which there is no comparable amount in ~~line with~~ the ~~income statement activity discussed above, adjusted for certain transactions and non-recurring expenses.~~current period.

Six Months Ended June 30, ~~2019~~2020 Compared to Six Months Ended June 30, ~~2018~~2019

The following table sets forth ~~for each of the year-to-date periods indicated~~ our statements of operations data ~~and other information~~ and expresses each item as a percentage of total ~~revenues~~revenue for the periods presented as well as the changes between periods. The tables and information provided were derived from exact numbers and may have immaterial rounding differences.

	Six Months Ended June 30,																		Six Months Ended June 30,
							Percentage of Revenue						Increase (Decrease) 2019 vs 2018												Percentage of Revenue						Increase (Decrease) 2020 vs 2019
($ in thousands)	2019			2018			2019			2018			$			%			2020			2019			2020			2019			$			%
Service revenue	$	201,127		$	166,050			96.7	%		99.2	%	$	35,077			21.1	%	$	162,312		$	201,127			82.6	%		96.7	%	$	(38,815	)		(19.3	)%
Product sales		6,909			1,388			3.3	%		0.8	%		5,521			397.8	%		34,210			6,909			17.4	%		3.3	%		27,301			395.2	%
Total revenue		208,036			167,438			100.0	%		100.0	%		40,598			24.2	%		196,522			208,036			100.0	%		100.0	%		(11,514	)		(5.5	)%
Cost of service revenue		3,002			2,482			1.4	%		1.5	%		520			21.0	%		2,232			3,002			1.1	%		1.4	%		(770	)		(25.6	)%
Cost of product sales		3,194			1,050			1.6	%		0.6	%		2,144			204.2	%		17,750			3,194			9.1	%		1.6	%		14,556			455.7	%
Operating expenses		61,133			52,481			29.4	%		31.3	%		8,652			16.5	%		58,958			61,133			30.0	%		29.4	%		(2,175	)		(3.6	)%
Selling, general and administrative expenses		41,416			60,864			19.9	%		36.4	%		(19,448	)		(32.0	)%		46,707			41,416			23.8	%		19.9	%		5,291			12.8	%
Depreciation, amortization and (gain) loss on disposal of assets, net		57,791			46,040			27.8	%		27.5	%		11,751			25.5	%		58,412			57,791			29.7	%		27.8	%		621			1.1	%
Impairment of property and equipment		5,898			—			2.8	%		—			5,898		n/a				—			5,898			—			2.8	%		(5,898	)		(100.0	)%
Total costs and expenses		172,434			162,917			82.9	%		97.3	%		9,517			5.8	%		184,059			172,434			93.7	%		82.9	%		11,625			6.7	%
Income from operations		35,602			4,521			17.1	%		2.7	%		31,081			687.5	%		12,463			35,602			6.3	%		17.1	%		(23,139	)		(65.0	)%
Interest expense, net		31,689			32,226			15.2	%		19.2	%		(537	)		(1.7	)%		21,990			31,689			11.2	%		15.2	%		(9,699	)		(30.6	)%
Loss on extinguishment of debt		—			10,151			—			6.1	%		(10,151	)	n/a
Loss from tax receivable agreement adjustment																				4,446			—			2.2	%		—			4,446		n/a
Other income, net		(5,552	)		(4,059	)		(2.6	)%		(2.4	)%		(1,493	)		36.8	%		(4,448	)		(5,552	)		(2.3	)%		(2.6	)%		1,104			(19.9	)%
Total other expenses		26,137			38,318			12.6	%		22.9	%		(12,181	)		(31.8	)%		21,988			26,137			11.1	%		12.6	%		(4,149	)		(15.9	)%
Income (loss) before income tax provision (benefit)		9,465			(33,797	)		4.5	%		(20.2	)%		43,262			128.0	%
Income tax provision (benefit)		3,054			(6,844	)		1.4	%		(4.1	)%		9,898			144.6	%
Net income (loss)	$	6,411		$	(26,953	)		3.1	%		(16.1	)%	$	33,364			123.8	%
(Loss) income before income tax (benefit) provision																				(9,525	)		9,465			(4.8	)%		4.5	%		(18,990	)		(200.6	)%
Income tax (benefit) provision																				(810	)		3,054			(0.4	)%		1.4	%		(3,864	)		(126.5	)%
Net (loss) income																			$	(8,715	)	$	6,411			(4.4	)%		3.1	%	$	(15,126	)		(235.9	)%

Six Months Ended June 30,

Percentage of Revenue

Increase (Decrease)
2019 vs 2018

($ in thousands)

2019

2018

2019

2018

$

%

Adjusted EBITDA⁽¹⁾

$
110,946

$
88,380

53.3
%

52.8
%

$
22,566

25.5
%

~~(1)~~

~~Table of Contents~~

Service Revenue. Service revenue ~~increased~~decreased by ~~$35.1~~$38.8 million, or ~~21.1%~~19.3%, to $162.3 million for the six months ended June 30, 2020 from $201.1 million for the six months ended June 30, 2019, ~~from $166.1 million for the six months ended June 30, 2018,~~ representing ~~96.7%~~82.6% and ~~99.2%~~96.7% of total revenue, respectively. The following table depicts service revenue by segment:

	Six Months Ended June 30,																Six Months Ended June 30,
					Percentage of Revenue						Increase (Decrease) 2019 vs 2018										Percentage of Revenue						Increase (Decrease) 2020 vs 2019
($ in thousands)	2019		2018		2019			2018			$			%			2020		2019		2020			2019			$			%
Service Revenue
Service revenue
Commercial Services	$	130,679	$	92,218		62.8	%		55.1	%	$	38,461			41.7	%	$	88,514	$	130,679		45.0	%		62.8	%	$	(42,165	)		(32.3	)%
Government Solutions		70,448		73,832		33.9	%		44.1	%		(3,384	)		(4.6	)%		73,798		70,448		37.6	%		33.9	%		3,350			4.8	%
Total Service Revenue	$	201,127	$	166,050		96.7	%		99.2	%	$	35,077			21.1	%
Total service revenue																	$	162,312	$	201,127		82.6	%		96.7	%	$	(38,815	)		(19.3	)%

Commercial Services service revenue ~~includes toll and violation management revenues from commercial fleet and rental car companies. Service revenue increased~~decreased by ~~$38.5~~$42.2 million, or ~~41.7%~~32.3%, from ~~$92.2 million for the six months ended June 30, 2018 to~~ $130.7 million for the six months ended June 30, ~~2019. We acquired HTA, a toll and violation processor, on March 1, 2018, and EPC, a European violations processor, on April 6, 2018. These acquisitions contributed $21.6~~2019 to $88.5 million ~~to year over year service revenue growth. The remaining increase~~for the six months ended June 30, 2020. This decrease was ~~mainly~~primarily due to the COVID-19 pandemic and related containment measures, which continue to have a ~~$16.0 million increase resulting~~significant negative impact on the RAC industry beginning in March 2020. Reduced airline travel and widespread travel restrictions have continued and resulted in

rental cancellations and declining forward bookings. We expect revenues from ~~improved volumes~~RAC customers to decrease in ~~both billable days~~fiscal 2020 as a result of COVID-19, and ~~tolls processed across our tolling products.~~the full extent and duration of its impact is not yet known.

Government Solutions service revenue includes revenue from red-light, speed, school bus stop arm and bus lane photo enforcement systems. Service revenue ~~decreased~~increased by $3.4 million ~~or 4.6%,~~ to $73.8 million for the six months ended June 30, 2020 from $70.4 million for the six months ended June 30, ~~2019 from $73.8 million for the six months ended June 30, 2018.~~2019. Our red-light photo enforcement service revenue declined ~~$4.0~~$5.5 million ~~year over year.~~during the six months ended June 30, 2020 compared to the same period in 2019. This was primarily due to a ~~$1.5~~$3.2 million decline from the loss of ~~our Miami program and $0.7 million due to the loss of~~certain Texas programs on June 1, 2019 due to a legislative change that banned most red-light photo enforcement programs in the state. The decline was also attributed to the impact from COVID-19 discussed below and the loss of ~~most~~several smaller programsand lower pricing per system. We discontinued our street light maintenance offering at the end of the first quarter of 2019, which resulted in a $0.8 million decrease for the six months ended June 30, 2020 compared to the same period in 2019. The street light maintenance offering was not part of our ~~red-light programs in Texas will negatively impact~~core business and did not meet our profitability criteria. We also had a $1.6 million service revenue ~~for~~decline from the ~~next four quarters. The remaining decline results from lower price per system in variable contracts. Pricing~~suspension of ~~red-light photo enforcement programs can be impacted by timing of transaction volume in our variable contracts~~school bus stop arm cameras as ~~well as the pricing of contract renewals.~~school buses were not operating. These declines were offset by speed program revenue, which grew approximately ~~$2.4~~$10.7 million in the six months ended June 30, 2020, compared to the same period in 2019, due to ~~increases~~an increase in the total number of camera systems ~~installed and higher average pricing. We believe that school zone speed programs will continue to be a growth product in fiscal 2019.~~installed.

Our previous reporting of installed camera systems included systems connected to suspended programs or spare systems at client locations. We re-evaluated our metric during the first quarter of 2019, and are reporting only installed camera systems that are generating revenue, as we believe this is a more meaningful presentation. There were an average of ~~4,620~~4,147 active camera systems ~~installed~~ during the six months ended June 30, ~~2019~~2020 compared to an average of ~~4,232~~4,620 for the ~~same period~~six months ended June 30, 2019. The decline in ~~2018. The increase in~~active camera systems was primarily due to ~~new installations~~960 cameras that are temporarily inactive due to COVID-19, and the loss of ~~school bus arm systems and to a lesser extent~~Texas programs noted above. These declines were partially offset by the expansion of speed enforcement systems with existing customers. ~~This increase~~

Service revenue for the year was ~~partially offset by~~negatively impacted from COVID-19 beginning in March which led to reduction in vehicle traffic as a ~~decline~~result of stay-at-home orders and early school closures in ~~red-light photo enforcement systems primarily due to~~certain jurisdictions in which we operate. To the ~~loss of Miami~~extent that stay-at-home orders and ~~Texas programs noted above.~~school closures continue, we anticipate a negative impact in future quarters from COVID-19.

Product Sales. Product sales ~~include~~were $34.2 million for the six months ended June 30, 2020 which relate to revenue generated from Government Solutions customers who purchased their equipment. Product sales increased by ~~$5.5~~$27.3 million ~~from $1.4 million for the six months ended June 30, 2018~~compared to $6.9 million ~~for the same period~~ in ~~2019. The increase is~~2019 which was primarily driven by sales to a single customer ~~who~~that is ~~in the process of~~currently expanding ~~their~~its existing school zone speed program. ~~We anticipate continued growth in product sales for the remainder of 2019.~~

Cost of Service Revenue. Cost of service revenue ~~increased by $0.5 million, to~~decreased year over year, from $3.0 million for the six months ended June 30, 2019 ~~from $2.5~~to $2.2 million for the six months ended June 30, ~~2018.~~2020. The ~~increase is primarily due to~~decrease resulted from decreased costs of collection and other third-party professional services and associated with the ~~inclusion~~delivery of ~~EPC operations for the entire period~~certain ancillary services performed by both of our segments.

Cost of Product Sales. Cost of product sales increased by $14.6 million from $3.2 million in the six months ended June 30, 2019 ~~compared~~ to ~~only three months in the prior period.~~

~~Cost of Product Sales.~~ ~~Cost of product sales increased by $2.1 million from $1.1 million in the six months ended June 30, 2018 to $3.2~~$17.8 million in the same period in ~~2019,~~2020, and was consistent with the ~~change~~increase in product sales.

~~Table of Contents~~

Operating Expenses. Operating expenses ~~increased~~decreased by ~~$8.7~~$2.2 million, or ~~16.5 %,~~3.6%, from ~~$52.5 million for the six months ended June 30, 2018 to~~ $61.1 million for the six months ended June 30, ~~2019. The increase is primarily due~~2019 to ~~the inclusion of HTA and EPC operations~~$58.9 million for ~~the entire six month period ended June 30, 2019 compared to four months of expenses for HTA and three months for EPC during~~ the six months ended June 30, ~~2018.~~2020. This decrease was primarily due to decreases in employee wages, transaction processing and related costs, which were partially offset by increases in subcontractor expenses and operational equipment costs. Operating expenses as a percentage of revenue ~~decreased~~increased from ~~31.3%~~29.4% to ~~29.4% for the six months ended June 30, 2018 and 2019, respectively, reflecting management's focus on operational efficiency. Operating expenses by segment appear in the table below:~~

Six Months Ended June 30,

Percentage of Revenue

Increase (Decrease)
2019 vs 2018

($ in thousands)

2019

2018

2019

2018

$

%

Operating Expenses

Commercial Services

$
31,818

$
23,630

15.3
%

14.1
%

$
8,188

34.7
%
Government Solutions

28,839

28,851

13.9
%

17.2
%

(12
)

(0.0
)%
Total operating expenses before stock-based compensation

60,657

52,481

29.2
%

31.3
%

8,176

15.6
%
Stock-based compensation

476

—

0.2
%

—

476

n/a

Total Operating Expenses

$
61,133

$
52,481

29.4
%

31.3
%

$
8,652

16.5
%

~~Selling, General and Administrative Expenses.~~ ~~Selling, general and administrative expenses~~30% for the six months ended June 30, 2019 ~~decreased~~and 2020, respectively. The following table presents operating expenses by ~~$19.5~~segment:

	Six Months Ended June 30,
					Percentage of Revenue						Increase (Decrease) 2020 vs 2019
($ in thousands)	2020		2019		2020			2019			$			%
Operating expenses
Commercial Services	$	27,280	$	31,818		13.9	%		15.3	%	$	(4,538	)		(14.3	)%
Government Solutions		31,164		28,839		15.8	%		13.9	%		2,325			8.1	%
Total operating expenses before stock-based compensation		58,444		60,657		29.7	%		29.2	%		(2,213	)		(3.6	)%
Stock-based compensation		514		476		0.3	%		0.2	%		38			8.0	%
Total operating expenses	$	58,958	$	61,133		30.0	%		29.4	%	$	(2,175	)		(3.6	)%

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $5.3 million to ~~$41.4 million, compared to $60.9~~$46.7 million for the six months ended June 30, ~~2018. The decrease was primarily related~~2020 compared to ~~expenses~~$41.4 million for the same period in 2019. We recorded a $10.7 million credit loss expense during the year as a result of the new CECL accounting standard, discussed further in the ~~six months ended June 30, 2018 for which there~~notes to the condensed consolidated financial statements. This contributed $8.0 million to the increase, in addition to a $1.0 million increase in stock-based compensation expense. These increases were ~~no comparable amounts~~partially offset by an aggregate $3.6 million decrease in ~~the current period. During the six months ended June 30, 2018, we incurred $23.9 million of transaction expenses~~costs related to the ~~acquisitions~~bonus expense as a result of ~~HTA~~eliminating the bonus accrual, marketing and EPC of which $19.1 million is included in Commercial Services and $4.8 million is included in Corporate, $7.1 million of other non-recurring expenses primarily associated with integration and $2.7 million paid to Advisors under the previous corporate advisory services agreement described above.

non-essential travel. Selling, general and administrative expenses as a percentage of revenue ~~decreased~~increased from ~~36.4%~~19.9% to ~~19.9%~~23.8% for the six months ended June 30, ~~2018~~2019 and ~~2019, respectively, as a result of items noted above. Selling,~~2020, respectively.The following table presents selling, general and administrative expenses by ~~segment appear in the table below:~~segment:

	Six Months Ended June 30,																Six Months Ended June 30,
					Percentage of Revenue						Increase (Decrease) 2019 vs 2018										Percentage of Revenue						Increase (Decrease) 2020 vs 2019
($ in thousands)	2019		2018		2019			2018			$			%			2020		2019		2020			2019			$			%
Selling, General and Administrative Expenses
Selling, general and administrative expenses
Commercial Services	$	20,391	$	32,552		9.8	%		19.5	%	$	(12,161	)		(37.4	)%	$	23,575	$	20,391		12.0	%		9.8	%	$	3,184			15.6	%
Government Solutions		15,411		13,345		7.4	%		8.0	%		2,066			15.5	%		16,819		15,411		8.6	%		7.4	%		1,408			9.1	%
Corporate		1,135		14,967		0.5	%		8.9	%		(13,832	)		(92.4	)%
Corporate and other																		788		1,135		0.4	%		0.5	%		(347	)		(30.6	)%
Total selling, general and administrative expenses before stock-based compensation		36,937		60,864		17.7	%		36.4	%		(23,927	)		(39.3	)%		41,182		36,937		21.0	%		17.7	%		4,245			11.5	%
Stock-based compensation		4,479		—		2.2	%		—			4,479		n/a				5,525		4,479		2.8	%		2.2	%		1,046			23.4	%
Total Selling, General and Administrative Expenses	$	41,416	$	60,864		19.9	%		36.4	%	$	(19,448	)		(32.0	)%
Total selling, general and administrative expenses																	$	46,707	$	41,416		23.8	%		19.9	%	$	5,291			12.8	%

Depreciation, Amortization and Gain or Loss on Disposal of Assets, Net. Depreciation, amortization and gain or loss on disposal of assets, net, increased ~~by $11.8 million, or 25.5%,~~ from ~~$46.0~~$57.8 million for the six months ended June 30, ~~2018~~2019 to ~~$57.8~~$58.4 million for the same period in ~~2019.~~2020. The increase is primarily due to the ~~inclusion of~~increased amortization expense resulting from the ~~HTA and EPC acquisitions for~~Pagatelia acquisition included in the ~~entire~~ six ~~month period~~months ended June 30, ~~2019 compared to partial periods~~2020 with no comparable amount in the ~~2018 period.~~prior year.

Impairment of Property and ~~Equipment.~~ Equipment. Impairment of property and equipment for the six months ended June 30, 2019 includes a $5.9 million impairment charge as a result of a legislation ~~ban of~~that banned most red-light photo enforcement programs in Texas on June 1, 2019, which was in the Government Solutions segment.

~~Table of Contents~~

Interest Expense, Net. Interest expense, net decreased by ~~$0.5~~$9.7 million from ~~$32.2~~$31.7 million for the six months ended June 30, ~~2018~~2019 to ~~$31.7~~$22.0 million for the same period in ~~2019. The~~2020. This decrease is ~~due to higher average debt balances for~~primarily as a result of lower interest rates coupled with the ~~majority~~refinancing of our First Lien Term Loan (as defined and discussed below) in February 2020, which reduced the ~~six month period ended June 30, 2018.~~applicable margin on the interest rate by 50 basis points. See “—“Liquidity and Capital Resources.” below.

Loss ~~on Extinguishment of Debt.~~ ~~Loss on extinguishment of debt of $10.2 million in the six months ended June 30, 2018 was~~from Tax Receivable Agreement Adjustment. We recorded a result of the 2017 Credit Facilities replaced with the 2018 Credit Facilities in connection with the HTA acquisition. The loss consisted of a $3.8 million prepayment penalty on the Old Term Loan balances, a $2.0 million write-off of preexisting deferred financing costs, and $4.4 million ~~of lender and third-party costs associated with the issuance of the 2018 Credit Facilities. See “—Liquidity and Capital Resources~~.”

~~Other Income, Net.~~ ~~Other income, net~~charge to Loss from tax receivable agreement adjustment for the six months ended June 30, ~~2019 was $5.6 million compared~~2020. The adjustment reflects the impact of an increase to ~~$4.1 million in~~ the ~~six months ended June 30, 2018. The is primarily~~Company’s deferred tax rate arising from higher estimated state tax rates due to ~~the increased purchasing card rebates resulting from the inclusion of HTA operations for the entire period~~a change in ~~the six months ended June 30, 2019 compared to four months in the 2018 period.~~apportionment.

Other Income, Net. We pay a high volume of tolls on behalf of our customers with purchasing cards which generate rebates based on volume, payment terms and rebate frequency. Other income, net was $4.4 million for the six months ended June 30, 2020, compared to $5.5 million for the six months ended June 30, 2019. This decrease of $1.1 million was primarily due to the decreased volume in purchasing card rebates from the decline in tolling activity beginning in March, as a result of COVID-19 impacting the rental car industry. We anticipate lower rebates for the remainder of 2020.

Income Tax ~~Provision~~ (Benefit). Provision. Income tax ~~provision (benefit) increased by $9.9 million from $(6.9)~~benefit was $(0.8) million representing an effective tax rate of ~~(20.3%),~~(8.5) % for the six months ended June 30, ~~2018~~2020 compared to a tax provision of $3.1 million, representing an effective tax rate of ~~32.3%~~32.3 % for the same period in 2019. The effective tax rate change was primarily due to ~~higher pretax~~lower pre-tax income ~~across multiple jurisdictions, and an increase~~ in the current year, resulting in the Company’s permanent ~~differences between~~ book and ~~taxable income, including~~tax differences having a proportionately greater impact on the ~~162(m) executive compensation limitation and~~effective tax rate in the ~~Global Intangible Low Tax Income inclusion.~~current year.

Net ~~Income~~ (Loss). Income. We had a net loss of $(8.7) million for the six months ended June 30, 2020, as compared to net income of $6.4 million for the six months ended June 30, ~~2019, as compared to a~~2019. The change in net ~~loss of $27.0 million for the six months ended June 30, 2018. The increase in net~~(loss) income was primarily due to ~~expenses~~the decline in revenue related to the impact of COVID-19 on RAC customers, credit loss expense related to the CECL standard, loss from tax receivable agreement adjustment, and increased cost related to product sales. These decreases to income were partially offset by growth in product sales revenue, decrease in interest expense, net from lower interest rates and refinancing of our First Lien Term Loan in February 2020, and due to the impairment on property and equipment in the ~~2018 period related to an aggregate of $43.9 million of acquisition, refinancing (including loss on extinguishment of debt) and integration costs associated with the HTA and EPC acquisitions~~prior year for which there is no comparable ~~amounts~~amount in the ~~six months ended June 30, 2019. This increase was partially offset by related amortization expense and an impairment charge, noted above.~~current year.

~~Adjusted EBITDA.~~ For the six months ended June 30, 2019 adjusted EBITDA was $110.9 million, an increase of $22.6 million or 25.5 % from the six months ended June 30, 2018. The growth was in line with the income statement activity discussed above, adjusted for certain transactions and non-recurring expenses.

Liquidity and Capital Resources

Our principal sources of liquidity are cash flow from operations ~~long-term borrowings~~ and borrowings under ~~revolving credit facilities.~~our 2018 Credit Facilities (as defined below).

We have incurred significant long-term debt as ~~described below, to fund the ATS Merger and the HTA acquisition.~~a result of acquisitions completed in prior years.

We believe that ~~the~~our existing cash and cash equivalents, ~~and~~ cash flows provided by operating activities and our availability to borrow under our Revolver (as defined below) will be sufficient to meet operating cash requirements and service debt obligations for at least the next 12 months. Our ability to generate sufficient cash from our operating activities depends on our future performance, which is subject to general economic, political, financial, competitive and other factors beyond our control. In addition, our future capital expenditures and other cash requirements could be higher than currently expected due to various factors, including any expansion of our business ~~that it undertakes, including~~or strategic acquisitions. Should we pursue ~~additional~~ strategic acquisitions, we may need to raise additional capital, which may be in the form of additional long-term debt, borrowings on our Revolver, or equity financings, all of which may not be available to us on favorable terms ~~borrowings on the revolver under the 2018 Credit Facilities (defined below), equity financings~~ or at all. See section entitled “Risk Factors.”

We have the ability to borrow under our ~~revolving credit facility~~Revolver to meet obligations as they come due. AtAs of June 30, ~~2019,~~2020, we had ~~$74.9~~$68.7 million available for borrowing, net of letters of credit, under ~~the New Revolver (defined below).~~our Revolver.

The following table sets forth certain captions ~~within~~indicated on our ~~condensed consolidated~~ statements of cash flows for the ~~respective periods:~~periods indicated:

	Six Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2019			2018			2020			2019
Net cash provided by operating activities	$	45,781		$	12,534		$	22,543		$	45,781
Net cash used in investing activities		(14,178	)		(536,468	)		(14,252	)		(14,178	)
Net cash (used in) provided by financing activities		(4,704	)		545,626
Net cash used in financing activities								(25,501	)		(4,704	)

~~Table of Contents~~

Cash Flows from Operating Activities

Cash provided by operating activities ~~increased $33.2~~decreased by $23.3 million, from ~~$12.5 million for the six months ended June 30, 2018 to~~ $45.8 ~~million for same period in 2019.~~

The change in cash provided by operating activities year over year was primarily due to net income increase of $33.4 million from a loss of $27.0 million in the six months ended June 30, 2018 to income of $6.4 million in the six months ended June 30, 2019. The growth in net income was driven by the inclusion of the results of HTA and EPC operations for the full six month period in 2019 versus only partial periods in the 2018 period. It is also attributable to $31.1 million of transaction and other non-recurring expenses and $10.2 million non-cash loss on extinguishment of debt in the six months ended June 30, 2018 for which there is no comparable amounts in the current period.

Adjustments to reconcile net income (loss) to net cash provided by operations increased by $11.9 million. The increase is primarily due to inclusion of the amortization of intangibles associated with the HTA and EPC acquisitions for the full six month period in 2019 versus partial periods in the 2018 period. The $10.2 million loss on extinguishment of debt in the six months ended June 30, 2018 for which there is no comparable amount in the current period was offset by a $5.9 million impairment charge and the $5.0 million stock-based compensation amounts in the 2019 period for which there were no comparable amounts in the prior period.

~~The aggregate change in operating assets and liabilities represents an aggregate decrease of $12.0~~ million for the six months ended June 30, 2019 ~~versus~~to $22.5 million for the ~~2018 period.~~six months ended June 30, 2020. Net income year over year decreased by $15.1 million, from $6.4 million in 2019 to a net loss of $(8.7) million in 2020. The aggregate adjustments to net (loss) income increased $15.7 million mainly due to a $10.7 million credit loss expense related to the CECL accounting standard and the $4.4 million loss from tax receivable agreement adjustment. This was offset by an aggregate $23.8 million decrease in changes in operating assets and liabilities, which was driven primarily ~~driven~~ by ~~a net~~an increase in accounts receivables ~~and unbilled receivables of $10.5 million during the 2019 period~~ due to collection delays on the ~~timing of billings~~accounts receivable associated with our fixed speed and ~~customer collections. Additionally, prepaid and other current assets increased $3.4 million due to the timing of payments. These amounts were partially offset by~~bus lane camera product sales, combined with a ~~net increase~~decrease in accounts payable and ~~other~~accrued liabilities ~~of $1.6 million~~ due to the ~~nature~~payout of the 2019 bonus accrual with no accrual for fiscal 2020 and ~~timing of~~ vendor ~~payments.~~payments for the fixed speed and bus lane cameras sold to a large Government Solutions customer.

Cash Flows from Investing Activities

Cash used in investing activities was ~~$(14.2)~~$14.3 million and ~~$(536.5)~~$14.2 million for the six months ended June 30, 2020 and 2019, ~~and June 30, 2018, respectively. The change in cash used in investing activities year over year~~respectively, which was ~~primarily due~~related to net cash paid in connection with the HTA and EPC acquisitions during the six months ended June 30, 2018. Cash consideration for the HTA acquisition was $531.7 million net of $3.0 million of cash acquired, and for EPC it was $2.6 million, net of $9.0 million of cash acquired. Additionally, purchases of installation and service parts and property ~~plant~~ and ~~equipment increased from $11.1 million in the six months ended June 30, 2018 to $14.2 million in the six months ended June 30, 2019.~~equipment.

Cash Flows from Financing Activities

Cash ~~(used in) provided by~~used in financing activities was ~~$(4.7)~~$25.5 million and ~~$545.6~~$4.7 million for the six months ended June 30, ~~2019~~2020 and ~~June 30, 2018,~~2019, respectively. The ~~change~~cash used in ~~cash (used in) provided by~~ financing activities ~~year over year was primarily due~~in 2020 increased as a result of a $19.7 million mandatory prepayment of excess cash flows we made pursuant to the ~~Company entering into the 2018 Credit Facilities during the six months ended June 30, 2018, which included the repayment~~terms of the ~~2017 Credit Facilities.~~First Lien Term Loan (as defined below), and costs associated with refinancing the First Lien Term Loan in February 2020.

Debt

In connection with ~~the HTA~~an acquisition wein 2018, VM Consolidated, Inc., a wholly-owned subsidiary, entered into a First Lien Term Loan Credit Agreement (the “~~New~~ First Lien Term Loan”), a Second Lien Term Loan Credit Agreement (the “~~New~~ Second Lien Term Loan,” and together with the ~~New~~ First Lien Term Loan, the “~~New~~ Term Loans”), and a Revolving Credit Facility Agreement (the “~~New~~ Revolver,” and together with the Term Loans, the “2018 Credit Facilities”) with a syndicate of ~~lenders (collectively with the New Term Loans, the “2018 Credit Facilities”).~~ lenders. The 2018 Credit Facilities ~~provide~~initially provided for committed senior secured financing of $1.115 billion, consisting of ~~the New Term Loans in~~ an aggregate principal amount of $1.04 billion ~~and~~under the ~~New Revolver available for loans~~Term Loans and ~~letters of credit with~~ an aggregate revolving commitment of up to $75 million ~~(based on~~available for loans and letters of credit under the Revolver (subject to borrowing ~~based~~ eligibility requirements as described below).

~~The~~In July 2018, ~~Credit Facilities replaced~~we amended the ~~previous~~ First Lien Term Loan ~~Credit Agreement (the “Old~~to expand the aggregate principal loan amount from $840 million to $910 million. The additional $70 million, along with funds contributed by Platinum Equity, LLC, were used to repay the $200 million Second Lien Term Loan in full contemporaneously with the closing of the Business Combination (see Note 1, Description of Business) on October 17, 2018.

On February 20, 2020, we refinanced the entire outstanding amount under the First Lien Term Loan,~~”),~~ which reduced the ~~Second Lien Term Loan Credit Agreement (the “Old Second Lien Term Loan” and together with the Old~~previous applicable interest rate by 50 basis points. The First Lien Term Loan ~~the “Old Term Loans~~”~~), which were repaid concurrent with the closing on the 2018 Credit Facilities, and a preexisting Revolving Credit Facility Agreement (the “Old Revolver”, collectively with the Old Term Loans, the “2017 Credit Facilities~~”), which was undrawn at close. The outstanding balances at the date of close on the Old Term Loans, which were repaid with proceeds from the 2018 Credit Facilities and are no longer outstanding, were $323 million and $125 million, respectively.

~~Table of Contents~~

The New First Lien Term Loan is repayable 1.0% per annum of the amount initially borrowed, paid in quarterly installments. The New First Lien Term Loan matures on February 28, 2025. The New First Lien Term Loannow bears interest based, at our option, on either (1) LIBOR plus an applicable margin of ~~3.75%~~3.25% per annum, or (2) an alternate base rate plus an applicable margin of ~~2.75%~~2.25% per annum. At The First Lien Term Loan is repayable at 1.0% per annum of the amount initially borrowed, paid in quarterly installments. The First Lien Term Loan matures on February 28, 2025. As of June 30 ~~2019,~~, 2020, the interest rate on the ~~New~~ First Lien Term Loan was ~~6.15%~~3.6%.

In addition, the ~~New~~ First Lien Term Loan ~~contains provisions that require~~requires mandatory prepayments equal to the product of the excess cash ~~flow~~flows of the Company (as defined byin the ~~New First Lien Term Loan~~loan agreement) ~~to be made~~and the applicable prepayment percentages (calculated as of the last day of the fiscal year, beginning with ~~fiscal~~the year ending December 31, ~~2019, in an amount equal to the percentages~~2019), as set forth in the following table:

Consolidated first lien net leverage ratio (as defined by the ~~New~~ First Lien Term Loan agreement)		Applicable prepayment percentage
> 3.70:1.00		50%
< 3.70:1.00 and > 3.20:1.00		25%
< 3.20:1.00		0%

~~On July 24, 2018, we secured~~We made a ~~$70~~$19.7 million ~~incremental loan commitment under~~mandatory prepayment of excess cash flow during the ~~New First Lien Term Loan. The proceeds~~first quarter of ~~this incremental borrowing, together with a~~fiscal 2020, which was classified as current portion of ~~the funds held~~long-term debt in the ~~Company upon the closing of the Business Combination, were used to repay our $200 million New Second Lien Term Loan in full.~~condensed consolidated balance sheet at December 31, 2019.

The ~~New~~ Revolver matures on February 28, 2023. The terms of the Revolver were not affected by the refinancing of the First Lien Term Loan discussed above. Borrowing eligibility under the ~~New~~ Revolver is subject to a monthly borrowing base calculation based on (i) certain percentages of eligible accounts receivable and inventory, less (ii) certain reserve items, including outstanding letters of credit and other reserves. ~~We may at any time, on not more than five occasions, request an increase to the New Revolver of up to an aggregate amount of $50 million.~~ The ~~New~~ Revolver bears interest on either (1) LIBOR plus an applicable margin, or (2) an alternate base rate, plus an applicable margin. The margin percentage applied to (1) LIBOR is either 1.25%, 1.50%, or 1.75%, or (2) the base rate is either 0.25%, 0.50%, or 0.75%, depending on our average availability to borrow under the commitment. At June 30 ~~2019,~~, 2020, we had no outstanding borrowings on the ~~New~~ Revolver and availability to borrow under the ~~New~~ Revolver was ~~$74.9~~ $68.7 million, net of ~~$0.1~~ $6.3 million of outstanding letters of credit.

Interest on the unused portion of the ~~New~~ Revolver is payable quarterly at 0.375% ~~at June 30, 2019. We~~, and we are also required to pay participation and fronting fees at 1.38% on ~~$0.1~~ $6.3 million in outstanding letters of credit ~~at 1.38%~~ as of June 30 ~~2019.~~, 2020.

All borrowings and other extensions of credits under the 2018 Credit Facilities are subject to the satisfaction of customary conditions and restrictive covenants including absence of defaults and accuracy in material respects of representations and warranties. At June 30 ~~2019,~~, 2020, we were compliant with the 2018 Credit Facilities covenants. Substantially all of our assets are pledged as collateral to secure ~~our~~the Company’s indebtedness under the 2018 Credit Facilities.

We ~~recognized a charge~~recorded interest expense, including amortization of ~~$10.2 million in the six months ending June 30, 2018 consisting of a $3.8 million prepayment penalty on the Old Term Loan balances, a $2.0 million write-off of preexisting~~ deferred financing costs and ~~$4.4~~discounts, of $9.5 million and $15.7 million for the three months ended June 30, 2020 and June 30, 2019, respectively, and $22.0 million and $31.7 million for the six months ended June 30, 2020 and 2019, respectively.

In connection with the refinancing of the First Lien Term Loan in February 2020, which we determined was to be accounted for as a modification, we incurred $0.8 million of lender ~~and third-party~~fees which were capitalized as deferred financing costs ~~associated with~~and

amortized over the ~~issuance~~remaining life of the ~~2018 Credit Facilities.~~First Lien Term Loan, and $0.2 million of legal fees that were expensed as Selling, general and administrative expenses on the condensed consolidated statement of operations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as of June 30, 2020.

Critical Accounting Policies, Estimates and Judgments

The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Significant items subject to such estimates and assumptions include the fair values assigned to net assets acquired (including identifiable intangibles) in business combinations, the carrying amounts of long-lived assets, goodwill and installation and service parts, the allowance for ~~doubtful accounts,~~credit loss, valuation allowances on deferred tax assets, asset retirement obligations, contingent consideration and the recognition and measurement of loss contingencies. Management believes that ~~our~~its estimates and assumptions are reasonable in the circumstances; however, actual results could differ materially from those estimates.

We believe that the critical accounting policy listed below involves our more significant judgments, assumptions, and estimates and, therefore, could have the greatest potential impact on the financial statements. Refer to our ~~2018~~2019 Annual Report on Form ~~10-K/A~~10-K for ~~a comprehensive list of~~ our critical accounting policies, estimates and judgments.

~~Table of Contents~~

~~Revenue Recognition~~

~~Commercial Services~~. The Commercial Services segment offers toll and violation management solutions for the commercial fleet and rental car industries by partnering with the leading fleet management and rental car companies in North America and Europe. We have determined our performance obligation is a distinct stand-ready obligation as there is an unspecified quantity of services provided that does not diminish, and the customer is being charged only when it uses our services, such as toll payment, title and registration, etc. Therefore, all services provided within the Commercial Services segment are accounted for as a single performance obligation, of a series of distinct items, with distinct time increments, as a stand ready obligation. Payment terms for contracts with commercial fleet and rental car companies vary, but are usually billed as services are performed. Revenue from services provided in the Commercial Services segment are recognized over time as the customer simultaneously receives and consumes the benefits provided by us as we perform the services.

~~Government Solutions.~~ The Government Solutions segment principally generates revenue from providing complete, end-to-end red-light, speed, school bus stop arm, and bus lane enforcement solutions. Products, when sold, are typically sold together with the services in a bundle. The average initial term of a contract is 3 to 5 years. Payment terms for contracts with government agencies vary depending on whether the consideration is fixed or variable. Payment terms for contracts with fixed consideration are usually based on equal installments over the duration of the contract. Payment terms for contracts with variable consideration are usually billed and collected as citations are issued or paid.

For bundled packages, we account for individual products and services separately if they are distinct – i.e., if a product or service is separately identifiable from other items in the bundle and if a customer can benefit from it as a stand-alone item. The consideration is allocated between separate products and services in a bundle based on their stand-alone selling prices (“~~SSP”). We estimate the SSP of our services based upon observable evidence, market conditions and other relevant inputs.~~

Product sales (sale of camera and installation) – we recognize revenue when the installation process is completed and the camera is ready to perform the services as expected by the customer. Generally, it occurs at site acceptance or first citation. We recognize revenue for the sale of the camera and installation services at a point in time.

Service revenue – we account for all the services as a single continuous service. We have determined our performance obligation is to provide a complete end-to-end safety and enforcement solution. Promises include providing a system to capture images, processing images taken by the camera, forwarding eligible images to the local police department and processing payments on behalf of the municipality. We determined certain of the promises to our customers are capable of being distinct as they are capable of providing some measure of benefit to the customer either on their own or together with other resources that are readily available to the customer. However, we have determined the promises to our customers do not meet the criterion of being distinct within the context of our contracts. We would not be able to fulfill our promises individually as our customers could not obtain the intended benefit from the contract without us fulfilling all promises. Accordingly, we concluded that each contract represents one service offering and is a single performance obligation to our customer. Further, we applied the series guidance for those services as the nature of the service is to provide a service for a period of time with distinct time increments. We recognize revenue from services over time, as it is performed, ~~which is consistent with the pattern in which our customers receive and consume the benefits.~~

~~Remaining Performance Obligations~~

As of June 30, 2019, we had approximately $0.2 million of remaining performance obligations in the Government Solutions segment, which includes amounts that will be invoiced and recognized in future periods. The remaining performance obligations are limited only to arrangements that meet the definition of a contract as of June 30, 2019. As these amounts relate to the initial deferral of revenue under a contract, we expect to recognize these amounts over a two month period at the end of the contract.

We apply the practical expedient and do not disclose variable consideration allocated entirely to wholly unsatisfied stand-ready performance obligations for certain Government Solutions and Commercial Services contracts as part of the information about remaining performance obligations. The duration for these contracts ranges between 3 and 5 years for new contracts.

~~Significant Judgments~~

~~Table of Contents~~

revenue. We used significant judgment related to identifying the performance obligation and determining whether the services provided are able to be distinct, determining the transaction price, specifically as it is related to the different variable consideration structures identified in our contracts, and in determining the timing of revenue recognition.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, refer to Note 2, ~~Summary of~~ Significant Accounting ~~Principles and~~ Policies, in Item 1, Financial Statements.

~~JOBS Act~~

~~We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act~~”). The JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have not elected to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public and private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

~~Non-GAAP Financial Data~~

~~We define “Adjusted EBITDA~~” as net income (loss) adjusted to exclude (i) interest expense, net (ii) income tax provision (benefit), (iii) depreciation and amortization, (iv) stock-based compensation and (v) as further adjusted to eliminate the impact of certain non-recurring items that we do not consider indicative of our ongoing operating performance. These further adjustments are itemized below. Adjusted EBITDA margin % represents Adjusted EBITDA as a percentage of total revenue. We use these metrics to measure our performance from period to period both at the consolidated level as well as within our operating segments, to evaluate and fund incentive compensation programs and to compare our results to those of our competitors. In addition to Adjusted EBITDA being a significant measure of performance for management purposes, we also believe that this presentation provides useful information to investors regarding financial and business trends related to our results of operations and that when non-GAAP financial information is viewed with GAAP financial information, investors are provided with a more meaningful understanding of our ongoing operating performance.

You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments set forth below. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

Adjusted EBITDA should not be considered as an alternative to net income (loss), operating income, cash flows from operating activities or any other performance measures derived in accordance with GAAP, or measures of operating performance or cash flows as measures of liquidity. Adjusted EBITDA and Adjusted EBITDA margin % have important limitations as analytical tools, and should not be considered either in isolation, or as a substitute for analysis of our results as reported under GAAP. In addition, our definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies and may, therefore, have limitations as a comparative analytical tool. For example, Adjusted EBITDA and Adjusted EBITDA margin %:

~~do not reflect our capital expenditures, future requirements for capital expenditures or contractual commitments;~~

~~do not reflect changes in, or cash requirements for, our working capital needs;~~

~~do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;~~

~~do not reflect income tax expense or the cash necessary to pay income taxes; and~~

~~does not reflect any cash requirements for the assets being depreciated and amortized that may have to be replaced in the future.~~

~~Our non-GAAP information below should be read in conjunction with our unaudited interim condensed consolidated financial statements and the related notes included elsewhere in this quarterly report.~~

~~Table of Contents~~

~~The following table sets forth our reconciliation of Adjusted EBITDA to net income (loss) (unaudited):~~

Three Months Ended June 30,

Six Months Ended June 30,

($ in thousands)

2019

2018

2019

2018

Net income (loss)

$
3,591

$
(4,795
)

$
6,411

$
(26,953
)
Interest expense, net

15,656

19,579

31,689

32,226

Income tax provision (benefit)

1,734

(234
)

3,054

(6,844
)
Depreciation and amortization

28,865

27,496

57,804

46,047

EBITDA

49,846

42,046

98,958

44,476

Transaction and other related expenses ⁽ⁱ⁾

1,135

5,816

1,135

23,920

Transformation expenses ⁽ⁱⁱ⁾

—

5,393

—

7,133

Impairment of property and equipment ⁽ⁱⁱⁱ⁾

5,898

—

5,898

—

Loss on extinguishment of debt ^(iv)

—

—

—

10,151

Sponsor fees and expenses ^(v)

—

1,343

—

2,700

Stock-based compensation ^(vi)

2,812

—

4,955

—

Adjusted EBITDA

$
59,691

$
54,598

$
110,946

$
88,380

~~(i)~~

Transaction and other related expenses for the six months ended June 30, 2019 included offering costs incurred by us for the secondary offering by the Platinum Stockholder. Transaction and other related expenses incurred in the six months ended June 30, 2018 included $23.9 million of costs related to the HTA and EPC acquisitions, primarily consisting of $9.7 million for acquisition services to Advisors, $8.9 million of professional fees processed through the funds flow and $5.3 million of professional fees paid directly by us.

~~(ii)~~

~~Transformation expenses for the three and six months ended June 30, 2018 represent~~ ~~one-time costs related to optimizing the expense structure and defining the Company’s growth strategy.~~

~~(iii)~~

~~This represents an impairment charge on fixed assets during the three and six months ended June 30, 2019.~~

~~(iv)~~

~~Loss on extinguishment of debt related to the 2017 Credit Facilities which were replaced by the 2018 Credit facilities in conjunction with the HTA acquisition.~~

~~(v)~~

~~We incurred expenses in the 2018 periods associated with the previous corporate advisory services agreement with Advisors.~~

~~(vi)~~

Stock-based compensation for the three and six months ended June 30, 2019 represents the non-cash charge related to the issuance of awards under the Verra Mobility Corporation 2018 Equity Incentive Plan.

~~Table of Contents~~

Item 3. Quantitative and ~~Qualitati~~veQualitative Disclosures About Market Risk

We are exposed to interest rate market risk due to the variable interest ~~rates~~rate on the ~~New~~First Lien Term ~~Loans~~Loan described in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations--~~Operations—Liquidity and Capital Resources.”

Interest rate risk represents our exposure to ~~movements~~fluctuations in interest rates associated with the variable rate debt represented by the ~~New First Lien Term Loan. Total borrowing under the New~~ First Lien Term Loan, ~~was $899~~which has an outstanding balance of $870.2 million at June 30, ~~2019. The New~~2020. We refinanced the First Lien Term Loan on February 20, 2020 which reduced the previous applicable margin by 50 basis points. The First Lien Term Loan now bears interest based, at our option, on either (1) LIBOR plus an applicable margin of ~~3.75%~~3.25% per annum, or (2) an alternate base rate plus an applicable margin of ~~2.75%~~2.25% per annum. At June 30, ~~2019,~~2020, the interest rate on the ~~New~~ First Lien Term Loan was ~~6.15%~~3.6%. Based on the June 30, ~~2019 New First Lien Term Loan~~2020 balance outstanding, each 1% movement in interest rates will result in an approximately ~~$9.0~~$8.7 million change in annual interest expense.

We have not engaged in any hedging activities during the six months ended June 30, ~~2019.~~2020. We do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.

Item 4. Controls and Procedures

~~We maintain “disclosure~~Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures~~” as~~ (as defined in Rules 13a-15(e) ~~and~~or 15d-15(e) under the Exchange ~~Act, that~~Act) are designed to ensure that information required to be disclosed ~~by a company~~ in the reports that ~~it files~~we file or ~~submits~~submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and ~~forms. Disclosure controls~~forms and ~~procedures include, without limitation, controls and procedures designed~~ to ensure that information required to be disclosed ~~by a company in the reports that it files or submits under the Exchange Act~~ is accumulated and communicated to ~~the company’s~~ management, including ~~its~~our principal executive and ~~principal~~ financial officers, ~~as appropriate~~ to allow timely decisions regarding ~~required~~ disclosure. Our ~~management, with the participation of our~~ Chief Executive Officer and ~~our~~ Chief Financial Officer, ~~evaluated~~with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures as of June 30, ~~2019. Based~~2020 and, based on ~~the~~their evaluation, ~~of our disclosure controls and procedures as of June 30, 2019, our Chief Executive Officer and Chief Financial Officer~~have concluded ~~that, as of such date, our disclosure~~the controls and procedures were not effective atas of that date due to a material weakness in internal control over financial reporting that was disclosed in our Annual Report on Form 10-K for the ~~reasonable assurance level.~~year ended December 31, 2019.

~~During the quarter ended~~ ~~June 30, 2019, there has~~Changes in Internal Control Over Financial Reporting

There have been no ~~change~~changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that ~~has~~occurred during the quarter ended June 30, 2020 that have materially affected, or isare reasonably likely to materially affect, ~~our~~the Company’s internal control over financial reporting.

46Remediation

As previously described in Part II, Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for the year ended December 31, 2019, we began implementing a remediation plan to address the material weakness mentioned above. The weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of our 2020 fiscal year.

~~Table of Contents~~Part II—Other Information

~~PART II—OTHER~~ ~~INFORMATION~~

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

~~Factors that could cause~~Risks Related to Our Business

Part I, Item 1A. “Risk Factors” in our ~~actual results to differ materially~~Annual Report on Form 10-K for the year ended December 31, 2019 includes a discussion of our risk factors. The information presented below supplements, and should be read in conjunction with, the risk factors and information disclosed in our Annual Report on Form 10-K. Except as presented below, there have been no material changes from ~~those in this report are any of~~ the ~~risks~~risk factors described in our Annual Report on Form 10‑K/A filed with the SEC on April 30, 2019. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

~~As of the date of this Quarterly Report on Form 10‑Q,~~ ~~there have been no material changes to the risk factors disclosed in our Annual Report on Form 10‑K/A with the SEC on April 30, 2019.~~10-K. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future ~~filings~~SEC filings.

Our business and results of operations may be adversely affected by the recent COVID-19 pandemic.

On March 11, 2020, the World Health Organization designated COVID-19 a pandemic. In the United States and abroad, many federal, state and local governments have instituted travel restrictions, stay-at-home orders, social distancing orders, and border closures in order to minimize the spread of the virus. COVID-19 has caused severe disruption to the global economy.

As a result of these restrictions, we have shifted most of our workforce to remote operations and have implemented changes in our physical locations to ensure social distancing. While we have not experienced any significant disruptions in our operations to date, these measures may result in decreases in productivity, an increased risk of information security breaches and delays in responses to our customers, which could harm customer relations and adversely impact our business. COVID-19 may also cause us to temporarily suspend or ultimately forego strategic acquisitions, business initiatives or expansions into new markets. Also, our existing customers may seek to terminate or renegotiate their contracts with us or seek pricing concessions as a result of changes in their business needs or financial condition. In addition, certain of our customers have reduced their operations during the pandemic, and government restrictions could further restrict our operations or result in supply chain interruptions. The measures implemented to contain COVID-19 have had, and we expect will continue to have, a significant negative effect on our business, financial condition, results of operations, cash flows and liquidity position, both in the near term and on a year-over-year basis.

The COVID-19 pandemic has adversely affected our revenues from key customers in the rental car industry, on which our Commercial Services segment is dependent, and from photo enforcement programs in our Government Solutions segment.

Our Commercial Services segment is dependent on certain key customers, including those in the RAC industry, such as Hertz, Avis Budget Group, Inc. and Enterprise Holdings, Inc. COVID-19 continues to have a significant negative impact on the RAC industry. Reduced airline travel and widespread travel restrictions have resulted in declining customer demand and many RACs have responded by reducing fleet sizes. In addition, in May 2020, Hertz, one of our key Commercial Services customers, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code, as amended, in the United States Bankruptcy Court for the District of Delaware. The full extent and duration of COVID-19’s impact on the RAC industry and the financial health of our key RAC customers cannot be predicted at this time. However, we expect that if our RAC customers continue to experience adversity in their businesses or file for bankruptcy, they may delay or default on their payment commitments to us or request to modify or renegotiate pre-existing contractual commitments on terms that are less favorable to us, any of which could have a material adverse effect on our business, financial condition and results of operations.

In our Government Solutions segment, school closures and reductions in vehicle traffic resulting from COVID-19 and the related containment measures have negatively impacted revenues. The COVID-19 pandemic is a highly fluid and rapidly evolving situation, and we cannot anticipate with any certainty the length, scope or severity of such impacts in the jurisdictions in which we operate. Moreover, any additional measures or changes in laws or regulations, whether in the United States or abroad, that further impair the ability or desire of individuals to gather or travel due to the risk of the spreading of COVID-19, including laws or regulations banning travel or requiring the closure of schools, may exacerbate the negative impact of the COVID-19 pandemic on our Government Solutions segment.

The full extent and duration of COVID-19’s impact on customers in our Commercial Services and Government Solutions segments, or the ways that COVID-19 may fundamentally alter the travel industry remains to be seen, and this ongoing impact could result in a material adverse impact on our business, financial condition, results of operations and cash flows, potentially for a prolonged period.

Historical data regarding our business, results of operations, financial condition and liquidity may not reflect the impact of the COVID-19 pandemic and related containment measures and therefore does not purport to be representative of our future performance.

The information included in this Quarterly Report on Form 10-Q and our other reports filed with the ~~SEC.~~SEC includes information regarding our business, properties, results of operations, financial condition and liquidity as of dates and for periods before the impact of COVID-19 and related containment measures (including quarantines and governmental orders requiring the closure of certain businesses, limiting travel, requiring that individuals stay at home or shelter in place and closing borders). This historical information therefore may not reflect the adverse impacts of COVID-19 and the related containment measures. Accordingly, investors are cautioned not to unduly rely on historical information regarding our business, results of operations, financial condition or liquidity, as that data does not reflect the adverse impact of COVID-19 and therefore does not purport to be representative of the future results of operations, financial condition, liquidity or other financial or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

~~EXHIBIT INDEX~~Exhibit Index

Incorporated by Reference

Exhibit Number
Description
Form
File No.
Exhibit
Filing Date
Filed Herewith
2.1
Merger Agreement, dated as of June 21, 2018, by and among Gores Holdings II, Inc., AM Merger Sub I, Inc., AM Merger Sub II, LLC, Greenlight Holding II Corporation and PE Greenlight Holdings, LLC, in its capacity as the Stockholder Representative.
8-K
001-37979
2.1
June 21, 2018

2.2
Amendment No. 1 to Agreement and Plan of Merger, dated as of August 23, 2018, by and among Gores Holdings II, Inc., AM Merger Sub I, Inc., AM Merger Sub II, LLC, Greenlight Holding II Corporation and PE Greenlight Holdings, LLC, in its capacity as the Stockholder Representative.
8-K
001-37979
2.1
Aug. 24, 2018

3.1
Second Amended and Restated Certificate of Incorporation of Verra Mobility Corporation.
8-K
001-37979
3.1
Oct. 22, 2018

3.2
Amended and Restated Bylaws of Verra Mobility Corporation.
8-K
001-37979
3.2
Oct. 22, 2018

4.1
Specimen Class A Common Stock Certificate.
S-1
333-21503
4.2
Dec. 9, 2016

4.2
Specimen Warrant Certificate.
S-1
333-21503
4.3
Dec. 9, 2016

4.3
Warrant Agreement, dated January 12, 2017, between the Registrant and Continental Stock Transfer & Trust Company, as warrant agent.
8-K
001-37979
4.1
Jan. 19, 2017

10.1
Employee Offer Letter by and between VM Consolidated, Inc. and Garrett Miller, dated as of April 24, 2019.

X
31.1
Certification of Principal Executive Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X
31.2
Certification of Principal Financial Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X
32.1*
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X
32.2*
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X


		Incorporated by Reference
Exhibit Number	Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
2.1	Merger Agreement, dated as of June 21, 2018, by and among Gores Holdings II, Inc., AM Merger Sub I, Inc., AM Merger Sub II, LLC, Greenlight Holding II Corporation and PE Greenlight Holdings, LLC, in its capacity as the Stockholder Representative.	8-K	001-37979	2.1	June 21, 2018
2.2	Amendment No. 1 to Agreement and Plan of Merger, dated as of August 23, 2018, by and among Gores Holdings II, Inc., AM Merger Sub I, Inc., AM Merger Sub II, LLC, Greenlight Holding II Corporation and PE Greenlight Holdings, LLC, in its capacity as the Stockholder Representative.	8-K	001-37979	2.2	Aug. 24, 2018
3.1	Second Amended and Restated Certificate of Incorporation of Verra Mobility Corporation.	8-K	001-37979	3.1	Oct. 22, 2018
3.2	Amended and Restated Bylaws of Verra Mobility Corporation.	8-K	001-37979	3.2	Oct. 22, 2018
4.1	Specimen Class A Common Stock Certificate.	S-1	333-21503	4.2	Dec. 9, 2016
4.2	Specimen Warrant Certificate.	S-1	333-21503	4.3	Dec. 9, 2016
4.3	Warrant Agreement, dated January 12, 2017, between the Registrant and Continental Stock Transfer & Trust Company, as warrant agent.	8-K	001-37979	4.1	Jan. 19, 2017
4.4	First Amendment to Warrant Agreement, dated January 15, 2020, by and among the Registrant, Continental Stock Transfer & Trust Company and American Stock Transfer & Trust Company.	10-K	001-37979	4.4	March 2, 2020
31.1	Certification of Principal Executive Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
31.2	Certification of Principal Financial Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
32.1*	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
32.2*	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
101.INS	Inline XBRL Instance Document (the instance does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).					X
101.SCH	Inline XBRL Taxonomy Extension Schema Document.					X

4844


		Incorporated by Reference
Exhibit Number	Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
~~101~~101.CAL	~~The following financial statements from the Quarterly Report on Form 10-Q of Verra Mobility Corporation for the quarter ended~~ ~~June 30~~, 2019, formatted in eXtensible Business Reporting Language (XBRL): (i) Balance Sheets, (ii) Statements of Income, (iii) Statements of Changes in Shareholders’ Equity, (iv) Statement of Cash Flows and (v) Notes to Financial StatementsInline XBRL Taxonomy Extension Calculation Linkbase Document.					X

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.	X
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.	X
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.	X
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)	X
*			This certification is deemed not filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.

4945

~~SIGNATURES~~Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	VERRA MOBILITY CORPORATION

Date: August ~~06, 2019~~6, 2020	By:	/s/ David Roberts
		David Roberts
		President and Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Patricia Chiodo
		Patricia Chiodo
		Chief Financial Officer (Principal Financial and Accounting Officer)

5046

	Six Months Ended
($ in thousands)	June 30, 2018
Revenue	$	186,659
Income from operations		24,349
Net loss before income tax		(332	)
Net loss		(2,138	)
Loss per share - basic	$	(0.03	)

	June 30, 2019						December 31, 2018
	Weighted						Weighted
	Average	Gross					Average	Gross
	Remaining	Carrying			Accumulated		Remaining	Carrying			Accumulated
($ in thousands)	Useful Life	Amount			Amortization		Useful Life	Amount			Amortization
Trademarks	2.1 years	$	31,297		$	13,984	2.7 years	$	31,302		$	8,902
Non-compete agreements	3.5 years		62,100			18,600	4.0 years		62,100			12,390
Customer relationships	7.4 years		359,683			62,409	7.9 years		359,768			42,201
Developed technology	3.8 years		160,835			50,709	4.3 years		160,852			35,987
Gross carrying value of intangible assets			613,915		$	145,702			614,022		$	99,480
Less: accumulated amortization			(145,702	)					(99,480	)
Intangible assets, net		$	468,213					$	514,542

($ in thousands)
Remainder of 2019	$	46,096
2020		92,193
2021		83,902
2022		79,186
2023		50,755
2024		40,265
Thereafter		75,816
Total	$	468,213

	For the Six Months Ended June 30, 2018
	Commercial			Government			Corporate
($ in thousands)	Services			Solutions			and Other			Total
Service revenue	$	92,218		$	73,832		$	—		$	166,050
Product sales		—			1,388			—			1,388
Total revenue		92,218			75,220			—			167,438
Cost of service revenue		967			1,515			—			2,482
Cost of product sales		—			1,050			—			1,050
Operating expenses		23,630			28,851			—			52,481
Selling, general and administrative expenses		32,552			13,345			14,967			60,864
Other income, net		(3,969	)		(63	)		(27	)		(4,059	)
Segment profit (loss)	$	39,038		$	30,522		$	(14,940	)	$	54,620
Segment profit (loss)	$	39,038		$	30,522		$	(14,940	)	$	54,620
Depreciation and amortization		—			—			46,047			46,047
Gain on disposal of assets, net		—			—			(7	)		(7	)
Interest expense		—			—			32,226			32,226
Loss on extinguishment of debt		—			—			10,151			10,151
Income (loss) before income tax (benefit)	$	39,038		$	30,522		$	(103,357	)	$	(33,797	)


		Incorporated by Reference
Exhibit Number	Description	Form	File No.	Exhibit	Filing Date	Filed Herewith
2.1	Merger Agreement, dated as of June 21, 2018, by and among Gores Holdings II, Inc., AM Merger Sub I, Inc., AM Merger Sub II, LLC, Greenlight Holding II Corporation and PE Greenlight Holdings, LLC, in its capacity as the Stockholder Representative.	8-K	001-37979	2.1	June 21, 2018
2.2	Amendment No. 1 to Agreement and Plan of Merger, dated as of August 23, 2018, by and among Gores Holdings II, Inc., AM Merger Sub I, Inc., AM Merger Sub II, LLC, Greenlight Holding II Corporation and PE Greenlight Holdings, LLC, in its capacity as the Stockholder Representative.	8-K	001-37979	2.1	Aug. 24, 2018
3.1	Second Amended and Restated Certificate of Incorporation of Verra Mobility Corporation.	8-K	001-37979	3.1	Oct. 22, 2018
3.2	Amended and Restated Bylaws of Verra Mobility Corporation.	8-K	001-37979	3.2	Oct. 22, 2018
4.1	Specimen Class A Common Stock Certificate.	S-1	333-21503	4.2	Dec. 9, 2016
4.2	Specimen Warrant Certificate.	S-1	333-21503	4.3	Dec. 9, 2016
4.3	Warrant Agreement, dated January 12, 2017, between the Registrant and Continental Stock Transfer & Trust Company, as warrant agent.	8-K	001-37979	4.1	Jan. 19, 2017
10.1	Employee Offer Letter by and between VM Consolidated, Inc. and Garrett Miller, dated as of April 24, 2019.					X
31.1	Certification of Principal Executive Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
31.2	Certification of Principal Financial Officer Pursuant to Rules 13a‑14(a) and 15d‑14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
32.1*	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
32.2*	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X