# VERRA MOBILITY Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [VERRA MOBILITY Corp](/companies/vrrm.md) (CIK 1682745)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 16:21 ET
- Period: 2023-09-30
- Accession: 0000950170-23-062105
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1682745/000095017023062105/vrrm-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1682745/000095017023062105/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $209.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $606.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $42.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $125.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $59.2m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $165.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $20.4m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $65.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $11.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $31.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $30.3m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $54.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.18 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.34 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.18 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.35 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 169,497,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 157,133,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $170.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $40.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2023-07-01 to 2023-09-30 | $100.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $100.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $114.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $411.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.76bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $197.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $1.35bn | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $1.03bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $9.0m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $404.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 49,843 characters.

*The following discussion and analysis should be read together with our Annual Report on Form 10-K for the year ended December 31, 2022, 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 Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. Please also refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements.”*

### Business Overview

We are a leading provider of smart mobility technology solutions throughout the United States, Australia, Canada and Europe. We make transportation safer, smarter and more connected through our integrated, data-driven solutions, including toll and violations management, title and registration services, automated safety and traffic enforcement and commercial parking management. We bring together vehicles, hardware, software, data, and people to solve transportation challenges for customers around the world, including fleet owners such as rental car companies (“***RACs”***) and fleet management companies (“***FMCs”***), governments, universities, healthcare facilities, commercial parking operators and other violation-issuing authorities. Our vision is to continue to develop and use technology and data intelligence to make transportation safer, smarter and more connected.

### Executive Summary

We operate under long-term contracts and a highly reoccurring service revenue model. We continue to execute our strategy to grow revenue organically year over year and focus on initiatives that support our long-term vision. During the periods presented, we:

- Increased total revenue by $50.8 million, or 9.1%, from $555.5 million in the nine months ended September 30, 2022 to $606.3 million in the same period in 2023. The increase was mainly due to service revenue resulting from increased travel volume and higher adoption of the all-inclusive product offering in the Commercial Services segment and the expansion of speed programs in the Government Solutions segment.
- Generated cash flows from operating activities of $170.4 million and $148.8 million for the nine months ended September 30, 2023 and 2022, respectively. Our cash on hand was $114.4 million as of September 30, 2023, due in part to $161.4 million of cash proceeds received from Warrant exercises partially offset by $100 million paid for share repurchases during the nine months ended September 30, 2023.
- Continued to focus on debt management and lowering our exposure to higher interest rates, and as a result, made early repayments totaling $172.5 million on our 2021 Term Loan during the nine months ended September 30, 2023.

### Recent Events

In November 2022, our Board of Directors authorized a share repurchase program for up to an aggregate amount of $100.0 million of our outstanding shares of Class A Common Stock over an 18-month period in open market, accelerated share repurchase (“***ASR”***) or privately negotiated transactions, each as permitted under applicable rules and regulations, any of which may use pre-arranged trading plans that are designed to meet the requirements of Rule 10b5-1 of the Exchange Act.

We paid $8.1 million to repurchase 449,432 shares of our Class A Common Stock through open market transactions during the third quarter of fiscal year 2023, which we subsequently retired. On September 5, 2023, we used the remaining availability under the share repurchase program for an ASR and paid approximately $91.9 million to receive an initial delivery of 4,131,551 shares of our Class A Common Stock in accordance with an ASR agreement with a third-party financial institution. The final settlement is expected to occur during the first quarter of fiscal year 2024, at which time, a volume-weighted average price calculation over the term of the ASR agreement will be used to determine the final number and the average price of shares repurchased and retired. We paid a total of $100.0 million for shares repurchases during the nine months ended September 30, 2023.

### Segment Information

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

- Our Commercial Services segment offers toll and violation management solutions and title and registration services for RACs and FMCs in North America. In Europe, we provide tolling and violations processing services.
- Our Government Solutions segment offers photo enforcement solutions and services to its customers. We provide complete, end-to-end speed, red-light, school bus stop arm and bus lane enforcement solutions within the United States and Canada. The international operations primarily involve the sale of traffic enforcement products and related maintenance services.
- Our Parking Solutions segment provides an integrated suite of parking software and hardware solutions to universities, municipalities, healthcare facilities and commercial parking operators in the United States and Canada.

Segment performance is based on revenues and income from operations before depreciation, amortization, and stock-based compensation. The measure also excludes interest expense, net, income taxes and certain other transactions and is inclusive of other income, net.

### Primary Components of Our Operating Results

### Revenues

*Service Revenue.* Our Commercial Services segment generates service revenue primarily through the operation and management of tolling programs and processing violations for RACs, FMCs and other large fleet customers. These solutions are full-service offerings by which we enroll the license plates of our customers’ vehicles and transponders with tolling authority accounts, pay tolls and violations on the customers’ behalf and, through proprietary technology, integrate with customer data to match the toll or violation 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 our Commercial Services segment through processing titles and registrations.

Our Government Solutions segment generates service revenue through the operation and maintenance of photo enforcement systems. Revenue drivers in this segment include the number of systems installed and the monthly revenue per system. Ancillary service revenue is generated in our Government Solutions segment from payment processing, pass-through fees for collection expense, and other fees.

Our Parking Solutions segment generates service revenue mainly from offering software as a service, subscription fees, professional services and citation processing services related to parking management solutions to its customers.

*Product Sales.* Product sales are generated by the sale of photo enforcement equipment in the Government Solutions segment and specialized hardware in the Parking Solutions segment. Customer buying patterns vary greatly from period to period related to product sales.

### Costs and Expenses

*Cost of Service Revenue.* Cost of service revenue consists of recurring service costs, collection and other third-party costs in our segments.

*Cost of Product Sales.* Cost of product sales consists of the cost to acquire and install photo enforcement equipment purchased by Government Solutions customers and costs to develop and install hardware sold to Parking Solutions customers.

*Operating Expenses*. Operating expenses primarily include payroll and payroll-related costs (including stock-based compensation), subcontractor costs, payment processing and other operational costs, including print, postage and communication costs.

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

*Depreciation, Amortization and (Gain) Loss on Disposal of Assets, 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.

*Interest Expense, Net*. This includes interest expense and amortization of deferred financing costs and discounts and is net of interest income.

*Change in Fair Value of Private Placement Warrants*. Change in fair value of private placement warrants consists of liability adjustments related to the Private Placement Warrants originally issued to Gores Sponsor II, LLC re-measured to fair value at the end of each reporting period, and the final re-measurement upon their exercise.

*Tax Receivable Agreement Liability Adjustment*. This consists of adjustments made to our Tax Receivable Agreement liability due to changes in estimates.

*Loss (Gain) on Interest Rate Swap.* Loss (gain) on interest rate swap relates to the changes associated with the derivative instrument re-measured to fair value at the end of the reporting period and the related periodic cash payments.

*Loss (Gain) on Extinguishment of Debt.* Loss (gain) on extinguishment of debt consists of the write-off of pre-existing original issue discounts and deferred financing costs associated with debt extinguishment, and any gains recognized as a result of loan forgiveness.

*Other Income, Net*. Other income, net primarily consists of volume rebates earned from total spend on purchasing cards, gains or losses on foreign currency transactions and other non-operating expenses.

### Results of Operations

### Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

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

*($ in thousands)*

|  | Three Months Ended September 30, 2023 | 2022 | Percentage of Revenue 2023 | 2022 | Increase (Decrease) 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Service revenue | $201,029 | $180,617 | 95.8% | 91.4% | $20,412 | 11.3% |
| Product sales | 8,904 | 17,039 | 4.2% | 8.6% | (8,135) | (47.7)% |
| **Total revenue** | 209,933 | 197,656 | 100.0% | 100.0% | 12,277 | 6.2% |
| Cost of service revenue | 5,150 | 4,144 | 2.5% | 2.1% | 1,006 | 24.3% |
| Cost of product sales | 6,864 | 11,317 | 3.3% | 5.7% | (4,453) | (39.3)% |
| Operating expenses | 68,873 | 60,536 | 32.8% | 30.6% | 8,337 | 13.8% |
| Selling, general and administrative expenses | 42,276 | 41,126 | 20.1% | 20.8% | 1,150 | 2.8% |
| Depreciation, amortization and (gain) loss on disposal of assets, net | 27,597 | 35,035 | 13.1% | 17.7% | (7,438) | (21.2)% |
| Total costs and expenses | 150,760 | 152,158 | 71.8% | 76.9% | (1,398) | (0.9)% |
| **Income from operations** | 59,173 | 45,498 | 28.2% | 23.1% | 13,675 | 30.1% |
| Interest expense, net | 20,384 | 20,260 | 9.7% | 10.3% | 124 | 0.6% |
| Change in fair value of private placement warrants | (553) | (2,267) | (0.3)% | (1.1)% | 1,714 | (75.6)% |
| Loss on interest rate swap | 60 | — | 0.0% | — | 60 | n/a |
| Loss (gain) on extinguishment of debt | 1,975 | (3,005) | 1.0% | (1.5)% | 4,980 | (165.7)% |
| Other income, net | (4,498) | (2,462) | (2.1)% | (1.2)% | (2,036) | 82.7% |
| Total other expenses | 17,368 | 12,526 | 8.3% | 6.5% | 4,842 | 38.7% |
| Income before income taxes | 41,805 | 32,972 | 19.9% | 16.6% | 8,833 | 26.8% |
| Income tax provision | 11,497 | 8,396 | 5.5% | 4.2% | 3,101 | 36.9% |
| **Net income** | $30,308 | $24,576 | 14.4% | 12.4% | $5,732 | 23.3% |

30

*Service Revenue.* Service revenue increased by $20.4 million, or 11.3%, to $201.0 million for the three months ended September 30, 2023 from $180.6 million for the three months ended September 30, 2022, representing 95.8% and 91.4% of total revenue, respectively. The following table depicts service revenue by segment:

*($ in thousands)*

| Service revenue | Three Months Ended September 30, 2023 | 2022 | Percentage of Revenue 2023 | 2022 | Increase (Decrease) 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $98,149 | $86,056 | 46.8% | 43.5% | $12,093 | 14.1% |
| Government Solutions | 85,092 | 77,441 | 40.5% | 39.2% | 7,651 | 9.9% |
| Parking Solutions | 17,788 | 17,120 | 8.5% | 8.7% | 668 | 3.9% |
| Total service revenue | $201,029 | $180,617 | 95.8% | 91.4% | $20,412 | 11.3% |

Commercial Services service revenue increased by $12.1 million, or 14.1%, from $86.1 million for the three months ended September 30, 2022 to $98.1 million for the three months ended September 30, 2023, which was primarily due to increased travel volume and related tolling activity compared to the prior year. An increase in the volume of tolls incurred by RAC vehicles along with the continued adoption of the all-inclusive fee structure, shifting from an incidental or daily usage rate by our large RAC customers, contributed to a $11.3 million growth in revenue. In addition, the increase in enrolled vehicles as well as higher tolling activity for our FMC customers contributed to a $2.7 million growth in revenue during the three months ended September 30, 2023, compared to the same period in 2022. These increases were partially offset by lower revenue generated from processing titles and registrations compared to the prior year.

Government Solutions service revenue increased by $7.7 million to $85.1 million for the three months ended September 30, 2023 compared to $77.4 million in the same period in 2022. The increase was primarily driven by the expansion of speed programs, as speed is the largest product in this segment and contributed approximately $6.0 million to the service revenue growth. The remaining increase is attributable to expansions across red-light and bus lane programs.

Parking Solutions service revenue grew by $0.7 million to $17.8 million for the three months ended September 30, 2023, from $17.1 million for the three months ended September 30, 2022. The growth was primarily due to increased revenue from software as a service product offerings and citation processing services related to parking management solutions.

*Product Sales.* Product sales were $8.9 million and $17.0 million for the three months ended September 30, 2023 and 2022, respectively. Product sales decreased by approximately $8.1 million, which was mainly due to a $7.1 million decrease in product sales to Government Solutions customers and a decrease of $1.0 million in product sales in the Parking Solutions segment. Customer buying patterns vary greatly from period to period related to product sales.

*Cost of Service Revenue.* Cost of service revenue increased from $4.1 million for the three months ended September 30, 2022 to $5.2 million for the three months ended September 30, 2023. The $1.1 million increase was mainly due to increased recurring service costs in the Parking Solutions and the Commercial Services segments.

*Cost of Product Sales.* Cost of product sales decreased by $4.4 million from $11.3 million in the three months ended September 30, 2022 to $6.9 million in the three months ended September 30, 2023, which was in line with the decrease in product sales in the Government Solutions and Parking Solutions segments, discussed above.

*Operating Expenses.* Operating expenses increased by $8.3 million, or 13.8%, from $60.5 million for the three months ended September 30, 2022 to $68.9 million for the three months ended September 30, 2023. The increase in 2023 was primarily attributable to increases of $5.4 million in wages expense, $1.1 million of recurring service costs and $1.0 million for information technology expenses compared to the prior period. Operating expenses as a percentage of total revenue increased from 30.6% to 32.8% for the three months ended September 30, 2022 and 2023, respectively. The following table presents operating expenses by segment:

*($ in thousands)*

| Operating expenses | Three Months Ended September 30, 2023 | 2022 | Percentage of Revenue 2023 | 2022 | Increase (Decrease) 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $21,174 | $18,952 | 10.1% | 9.6% | $2,222 | 11.7% |
| Government Solutions | 42,395 | 36,868 | 20.2% | 18.6% | 5,527 | 15.0% |
| Parking Solutions | 4,676 | 4,385 | 2.2% | 2.2% | 291 | 6.6% |
| Total operating expenses before stock-based compensation | 68,245 | 60,205 | 32.5% | 30.4% | 8,040 | 13.4% |
| Stock-based compensation | 628 | 331 | 0.3% | 0.2% | 297 | 89.7% |
| Total operating expenses | $68,873 | $60,536 | 32.8% | 30.6% | $8,337 | 13.8% |

*Selling, General and Administrative Expenses.* Selling, general and administrative expenses increased by $1.1 million to $42.3 million for the three months ended September 30, 2023 compared to $41.1 million for the same period in 2022. The increase was primarily due to $2.3 million of higher wages expense, partially offset by decreases in professional services expense and credit loss expense based on customer payment trends in the last 12 months. Selling, general and administrative expenses as a percentage of total revenue decreased from 20.8% to 20.1% for the three months ended September 30, 2022 and 2023, respectively. The following table presents selling, general and administrative expenses by segment:

*($ in thousands)*

| Selling, general and administrative expenses | Three Months Ended September 30, 2023 | 2022 | Percentage of Revenue 2023 | 2022 | Increase (Decrease) 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $15,544 | $14,126 | 7.4% | 7.2% | $1,418 | 10.0% |
| Government Solutions | 15,181 | 15,034 | 7.2% | 7.6% | 147 | 1.0% |
| Parking Solutions | 6,002 | 6,218 | 2.9% | 3.1% | (216) | (3.5)% |
| Corporate and other | 1,734 | 1,435 | 0.8% | 0.7% | 299 | 20.8% |
| Total selling, general and administrative expenses before stock-based compensation | 38,461 | 36,813 | 18.3% | 18.6% | 1,648 | 4.5% |
| Stock-based compensation | 3,815 | 4,313 | 1.8% | 2.2% | (498) | (11.5)% |
| Total selling, general and administrative expenses | $42,276 | $41,126 | 20.1% | 20.8% | $1,150 | 2.8% |

*Depreciation, Amortization and (Gain) Loss on Disposal of Assets, Net.* Depreciation, amortization and (gain) loss on disposal of assets, net, decreased by $7.4 million to $27.6 million for the three months ended September 30, 2023 from $35.0 million for the same period in 2022. This was mainly due to certain non-compete and developed technology intangible assets being fully amortized for the three-month period ended September 30, 2023 as compared to the prior year which included the amortization expense. This decrease was partially offset by an increase in depreciation expense in the 2023 period.

*Interest Expense, Net.* Interest expense, net increased by $0.1 million from $20.3 million for the three months ended September 30, 2022 to $20.4 million for the same period in 2023 which is primarily attributable to rising interest rates offset by voluntary early repayments. See “*Liquidity and Capital Resources.”*

*Change in Fair Value of Private Placement Warrants*. We recorded gains of $0.6 million and $2.3 million for the three months ended September 30, 2023 and 2022, respectively, related to the changes in fair value of our Private Placement Warrants, which were accounted for as liabilities on our condensed consolidated balance sheets. The change in fair value was the result of re-measurement of the liability at the end of each reporting period, and the final re-measurement upon their exercise.

*Loss on Interest Rate Swap.* We recorded a $0.1 million loss during the three months ended September 30, 2023, of which approximately $0.2 million is associated with the derivative instrument re-measured to fair value at the end of the reporting period, offset by $0.1 million related to the monthly cash payments on the interest rate swap.

*Loss (Gain) on Extinguishment of Debt*. We recorded a $2.0 million loss on extinguishment of debt during the three months ended September 30, 2023 related to the write-off of pre-existing deferred financing costs and discounts in connection with the early repayment of $100 million on the 2021 Term Loan. We recorded a $3.0 million gain on extinguishment of debt during the three months ended September 30, 2022 related to the forgiveness of the PPP loan, discussed below.

*Other Income, Net.* Other income, net was $4.5 million for the three months ended September 30, 2023 compared to $2.5 million for the three months ended September 30, 2022. The increase of $2.0 million is primarily attributable to income resulting from volume rebates earned from total spend on purchasing cards from increasing tolling activity, and a one-time adjustment recognized in the third quarter of 2022 for a previous acquisition subsequent to the measurement period with no comparable amount in the 2023 period.

*Income Tax Provision.* Income tax provision was $11.5 million representing an effective tax rate of 27.5% for the three months ended September 30, 2023 compared to a tax provision of $8.4 million, representing an effective tax rate of 25.5% for the same period in 2022. The primary driver for the effective tax rate variance is due to the permanent differences related to the mark-to-market adjustment on the Private Placement Warrants and the PPP loan forgiveness recorded in 2022.

*Net Income.* We had net income of $30.3 million for the three months ended September 30, 2023, as compared to a net income of $24.6 million for the three months ended September 30, 2022. The $5.7 million increase in net income was primarily due to the increase in total revenue, decreased amortization expense and the other statement of operations activity discussed above.

### Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

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

*($ in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 | Percentage of Revenue 2023 | 2022 | Increase (Decrease) 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Service revenue | $581,777 | $516,253 | 96.0% | 92.9% | $65,524 | 12.7% |
| Product sales | 24,520 | 39,275 | 4.0% | 7.1% | (14,755) | (37.6)% |
| **Total revenue** | 606,297 | 555,528 | 100.0% | 100.0% | 50,769 | 9.1% |
| Cost of service revenue | 13,718 | 11,636 | 2.2% | 2.1% | 2,082 | 17.9% |
| Cost of product sales | 18,209 | 25,638 | 3.0% | 4.6% | (7,429) | (29.0)% |
| Operating expenses | 196,373 | 166,795 | 32.4% | 30.0% | 29,578 | 17.7% |
| Selling, general and administrative expenses | 125,494 | 122,913 | 20.7% | 22.1% | 2,581 | 2.1% |
| Depreciation, amortization and (gain) loss on disposal of assets, net | 87,018 | 105,881 | 14.4% | 19.1% | (18,863) | (17.8)% |
| Total costs and expenses | 440,812 | 432,863 | 72.7% | 77.9% | 7,949 | 1.8% |
| **Income from operations** | 165,485 | 122,665 | 27.3% | 22.1% | 42,820 | 34.9% |
| Interest expense, net | 65,842 | 49,024 | 10.9% | 8.8% | 16,818 | 34.3% |
| Change in fair value of private placement warrants | 24,966 | (5,133) | 4.1% | (0.9)% | 30,099 | (586.4)% |
| Tax receivable agreement liability adjustment | — | (965) | — | (0.2)% | 965 | (100.0)% |
| Gain on interest rate swap | (1,947) | — | (0.3)% | — | (1,947) | n/a |
| Loss (gain) on extinguishment of debt | 3,533 | (3,005) | 0.5% | (0.5)% | 6,538 | (217.6)% |
| Other income, net | (12,766) | (9,367) | (2.1)% | (1.7)% | (3,399) | 36.3% |
| Total other expenses | 79,628 | 30,554 | 13.1% | 5.5% | 49,074 | 160.6% |
| Income before income taxes | 85,857 | 92,111 | 14.2% | 16.6% | (6,254) | (6.8)% |
| Income tax provision | 31,864 | 27,854 | 5.3% | 5.0% | 4,010 | 14.4% |
| **Net income** | $53,993 | $64,257 | 8.9% | 11.6% | $(10,264) | (16.0)% |

*Service Revenue.* Service revenue increased by $65.5 million, or 12.7%, to $581.8 million for the nine months ended September 30, 2023 from $516.3 million for the nine months ended September 30, 2022, representing 96.0% and 92.9% of total revenue, respectively. The following table depicts service revenue by segment:

*($ in thousands)*

| Service revenue | Nine Months Ended September 30, 2023 | 2022 | Percentage of Revenue 2023 | 2022 | Increase (Decrease) 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $278,243 | $244,409 | 45.9% | 44.0% | $33,834 | 13.8% |
| Government Solutions | 253,319 | 225,337 | 41.8% | 40.6% | 27,982 | 12.4% |
| Parking Solutions | 50,215 | 46,507 | 8.3% | 8.3% | 3,708 | 8.0% |
| Total service revenue | $581,777 | $516,253 | 96.0% | 92.9% | $65,524 | 12.7% |

Commercial Services service revenue increased by $33.8 million, or 13.8%, from $244.4 million for the nine months ended September 30, 2022 to $278.2 million for the nine months ended September 30, 2023. The increase was primarily due to increased travel volume and related tolling activity compared to the prior year which was still recovering from the COVID-19 pandemic, especially during January and February of 2022. An increase in the volume of tolls incurred by RAC vehicles along with the continued adoption of the all-inclusive fee structure, shifting from an incidental or daily usage rate by our large RAC customers, contributed to a $29.6 million growth in revenue. In addition, the increase in enrolled vehicles as well as higher tolling activity for our FMC customers contributed to a $6.5 million growth in revenue during the nine months ended September 30, 2023, compared to the same period in 2022. These increases were partially offset by lower revenue generated from processing titles and registrations compared to the prior year.

Government Solutions service revenue increased by $28.0 million to $253.3 million for the nine months ended September 30, 2023 compared to $225.3 million in the same period in 2022. The increase was primarily driven by the expansion of speed programs, as speed is the largest product in this segment and contributed approximately $25.2 million to the service revenue growth. The remaining increase is attributable to expansions across red-light, school bus stop-arm and bus lane programs.

Parking Solutions service revenue grew by $3.7 million to $50.2 million for the nine months ended September 30, 2023, from $46.5 million for the nine months ended September 30, 2022. The growth was primarily due to increased revenue from software as a service product offerings, professional services and citation processing services related to parking management solutions.

*Product Sales.* Product sales were $24.5 million and $39.3 million for the nine months ended September 30, 2023 and 2022, respectively. Product sales decreased by approximately $14.8 million, which was mainly due to a $15.6 million decrease in product sales to Government Solutions customers, offset by a $0.8 million growth in product sales in the Parking Solutions segment. Customer buying patterns vary greatly from period to period related to product sales.

*Cost of Service Revenue.* Cost of service revenue increased from $11.6 million for the nine months ended September 30, 2022 to $13.7 million for the nine months ended September 30, 2023. The $2.1 million increase was mainly due to increased recurring service costs in the Parking Solutions segment.

*Cost of Product Sales.* Cost of product sales decreased by $7.4 million from $25.6 million in the nine months ended September 30, 2022 to $18.2 million in the nine months ended September 30, 2023, which was in line with the decrease in product sales in the Government Solutions segment offset by an increase in costs in the Parking Solutions segment.

*Operating Expenses.* Operating expenses increased by $29.6 million, or 17.7%, from $166.8 million for the nine months ended September 30, 2022 to $196.4 million for the nine months ended September 30, 2023. The increase in 2023 was primarily attributable to increases of $18.2 million in wages expense, $3.7 million of recurring service costs, $3.4 million for subcontractor costs and $2.4 million of information technology costs compared to the prior period. Operating expenses as a percentage of total revenue increased from 30.0% to 32.4% for the nine months ended September 30, 2022 and 2023, respectively. The following table presents operating expenses by segment:

*($ in thousands)*

| Operating expenses | Nine Months Ended September 30, 2023 | 2022 | Percentage of Revenue 2023 | 2022 | Increase (Decrease) 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $61,819 | $53,004 | 10.2% | 9.5% | $8,815 | 16.6% |
| Government Solutions | 119,398 | 103,660 | 19.7% | 18.7% | 15,738 | 15.2% |
| Parking Solutions | 13,649 | 9,302 | 2.3% | 1.7% | 4,347 | 46.7% |
| Total operating expenses before stock-based compensation | 194,866 | 165,966 | 32.2% | 29.9% | 28,900 | 17.4% |
| Stock-based compensation | 1,507 | 829 | 0.2% | 0.1% | 678 | 81.8% |
| Total operating expenses | $196,373 | $166,795 | 32.4% | 30.0% | $29,578 | 17.7% |

*Selling, General and Administrative Expenses.* Selling, general and administrative expenses increased to $125.5 million for the nine months ended September 30, 2023 compared to $122.9 million for the same period in 2022. This is primarily due to $3.9 million in higher wage expenses, and increases in professional services, information technology and other general expenses, which are partially offset by a decrease in $3.3 million of credit loss expense based on customer payment trends in the last 12 months and lower stock-based compensation expense compared to prior year. Selling, general and administrative expenses as a percentage of total revenue decreased from 22.1% to 20.7% for the nine months ended September 30, 2022 and 2023, respectively. The following table presents selling, general and administrative expenses by segment:

*($ in thousands)*

| Selling, general and administrative expenses | Nine Months Ended September 30, 2023 | 2022 | Percentage of Revenue 2023 | 2022 | Increase (Decrease) 2023 vs 2022 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $47,127 | $40,980 | 7.8% | 7.4% | $6,147 | 15.0% |
| Government Solutions | 45,747 | 45,732 | 7.5% | 8.2% | 15 | 0.0% |
| Parking Solutions | 18,991 | 21,184 | 3.1% | 3.8% | (2,193) | (10.4)% |
| Corporate and other | 2,790 | 2,190 | 0.5% | 0.4% | 600 | 27.4% |
| Total selling, general and administrative expenses before stock-based compensation | 114,655 | 110,086 | 18.9% | 19.8% | 4,569 | 4.2% |
| Stock-based compensation | 10,839 | 12,827 | 1.8% | 2.3% | (1,988) | (15.5)% |
| Total selling, general and administrative expenses | $125,494 | $122,913 | 20.7% | 22.1% | $2,581 | 2.1% |

*Depreciation, Amortization and (Gain) Loss on Disposal of Assets, Net.* Depreciation, amortization and (gain) loss on disposal of assets, net, decreased by $18.9 million to $87.0 million for the nine months ended September 30, 2023 from $105.9 million for the same period in 2022. This was mainly due to certain non-compete and developed technology intangible assets being fully amortized in the nine months ended September 30, 2023 as compared to the prior year. This decrease was partially offset by an increase in depreciation expense in the 2023 period.

*Interest Expense, Net.* Interest expense, net increased by $16.8 million from $49.0 million for the nine months ended September 30, 2022 to $65.8 million for the same period in 2023 which is primarily attributable to rising interest rates. The average variable interest rate on the 2021 Term Loan was 380 basis points higher for the nine months ended September 30, 2023 compared to the prior period. See “*Liquidity and Capital Resources.”*

*Change in Fair Value of Private Placement Warrants*. We recorded a loss of $25.0 million and a gain of $5.1 million for the nine months ended September 30, 2023 and 2022, respectively, related to the changes in fair value of our Private Placement Warrants, which were accounted for as liabilities on our condensed consolidated balance sheets. The change in fair value was the result of re-measurement of the liability at the end of each reporting period, and the final re-measurement upon their exercise.

*Tax Receivable Agreement Liability Adjustment*. We recorded a $1.0 million benefit for the nine months ended September 30, 2022 which was from lower estimated state tax rates due to changes in apportionment.

*Gain on Interest Rate Swap.* We recorded a $1.9 million gain during the nine months ended September 30, 2023, of which approximately $3.3 million is associated with the derivative instrument re-measured to fair value at the end of the reporting period and $1.4 million related to the monthly cash payments on the interest rate swap.

*Loss (Gain) on Extinguishment of Debt*. We recorded a $3.5 million loss on extinguishment of debt during the nine months ended September 30, 2023 related to the write-off of pre-existing deferred financing costs and discounts in connection with the early repayment of $172.5 million on the 2021 Term Loan. We recorded a $3.0 million gain on extinguishment of debt during the nine months ended September 30, 2022 related to the forgiveness of the PPP loan, discussed below.

*Other Income, Net.* Other income, net was $12.8 million for the nine months ended September 30, 2023 compared to $9.4 million for the nine months ended September 30, 2022. The increase of $3.4 million is primarily attributable to volume rebates earned from total spend on purchasing cards from increased tolling and travel activity.

*Income Tax Provision.* Income tax provision was $31.9 million representing an effective tax rate of 37.1% for the nine months ended September 30, 2023 compared to a tax provision of $27.9 million, representing an effective tax rate of 30.2% for the same period in 2022. The primary driver for the effective tax rate variance is due to the permanent differences related to the mark-to-market adjustments on the Private Placement Warrants.

*Net Income.* We had net income of $54.0 million for the nine months ended September 30, 2023, as compared to a net income of $64.3 million for the nine months ended September 30, 2022. The $10.3 million decrease in net income was primarily due to the change in fair value of Private Placement Warrants, increased interest expense, and the other statement of operations activity discussed above.

### Liquidity and Capital Resources

Our principal sources of liquidity are cash flows from operations and the available borrowing under our Revolver (defined below).

We have incurred significant long-term debt as a result of acquisitions completed in prior years.

We believe that our existing cash and cash equivalents, cash flows provided by operating activities and our ability 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 or strategic acquisitions. Should we pursue strategic acquisitions, we may need to raise additional capital, which may be in the form of additional long-term debt, borrowing on our Revolver, or equity financings, all of which may not be available to us on favorable terms or at all.

We have the ability to borrow under our Revolver to meet obligations as they come due. As of September 30, 2023, we had $74.8 million available for borrowing, net of letters of credit, under our Revolver.

We made early repayments totaling $100.0 million and $172.5 million on our 2021 Term Loan during the three and nine months ended September 30, 2023, respectively.

#### Warrants

During the nine months ended September 30, 2023, we processed the exercise of 19,999,333 Warrants in exchange for the issuance of 16,273,406 shares of Class A Common Stock. There were 14,035,449 shares issued in exchange for cash-basis warrant exercises resulting in the receipt of $161.4 million in cash proceeds as of September 30, 2023, and the remaining Warrant exercises were completed on a cashless basis. In addition, there were 634 Public Warrants that were redeemed and as a result, there were no outstanding Warrants as of September 30,2023 as further discussed in Note 10, *Stockholders' Equity.*

#### Share Repurchases and Retirement

In November 2022, our Board of Directors authorized a share repurchase program for up to an aggregate amount of $100.0 million of our outstanding shares of Class A Common Stock over an 18-month period in open market, ASR or privately negotiated transactions, each as permitted under applicable rules and regulations, any of which may use prearranged trading plans that are designed to meet the requirements of Rule 10b5-1 of the Exchange Act.

We paid $8.1 million to repurchase 449,432 shares of our Class A Common Stock through open market transactions during the third quarter of fiscal year 2023, which we subsequently retired. On September 5, 2023, we used the remaining availability under the share repurchase program for an ASR and paid approximately $91.9 million to receive an initial delivery of 4,131,551 shares of our Class A Common Stock in accordance with an ASR agreement with a third-party financial institution. The final settlement is expected to occur during the first quarter of fiscal year 2024, at which time, a volume-weighted average price calculation over the term of the ASR agreement will be used to determine the final number and the average price of shares repurchased and retired. We paid a total of $100.0 million for share repurchases during the nine months ended September 30, 2023.

#### Concentration of Credit Risk

The City of New York Department of Transportation (“***NYCDOT”***) represented 13% and 22% of total accounts receivable, net as of September 30, 2023 and December 31, 2022, respectively. There is no material reserve related to NYCDOT open receivables as amounts are deemed collectible based on current conditions and expectations.

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

*($ in thousands)*

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $170,371 | $148,776 |
| Net cash used in investing activities | (41,693) | (36,434) |
| Net cash used in financing activities | (118,450) | (159,525) |

### Cash Flows from Operating Activities

Cash provided by operating activities increased by $21.6 million from $148.8 million for the nine months ended September 30, 2022 to $170.4 million for the nine months ended September 30, 2023. Net income year over year decreased by approximately $10.3 million, from $64.3 million in 2022 to $54.0 million in 2023. The aggregate adjustments to reconcile net income to net cash provided by operating activities increased $20.4 million mainly due to the change in fair value of private placement warrants, the change in deferred income taxes and the loss (gain) on extinguishment of debt, partially offset by decreased amortization expense year over year. The aggregate changes in operating assets and liabilities increased by $11.5 million in 2023 compared to prior year primarily due to the timing of accrued and other payables and fluctuation in inventory levels offset by an increase in accounts receivables and unbilled receivables.

### Cash Flows from Investing Activities

Cash used in investing activities was $41.7 million and $36.4 million for the nine months ended September 30, 2023 and 2022, respectively. There was an increase in cash used in 2023 related to the purchases of installation and service parts and property and equipment compared to the prior year, and due to the monthly cash payments on the interest rate swap entered into in December 2022 to hedge our exposure to rising interest rates.

### Cash Flows from Financing Activities

Cash used in financing activities was $118.5 million and $159.5 million for the nine months ended September 30, 2023 and 2022, respectively. The cash used in financing activities in 2023 was mainly due to early repayments totaling $172.5 million on our 2021 Term Loan and $100.0 million of share repurchases, which were partially offset by $161.4 million of proceeds from the exercise of warrants issued in connection with the IPO. The cash used in 2022 was mainly due to the repurchases of 6.9 million shares of our Class A Common Stock for $125.1 million, the repayment of $25.0 million of borrowing on the Revolver in January 2022 and the quarterly principal payments on the 2021 Term Loan.

### Long-term Debt

#### 2021 Term Loan

In March 2021, VM Consolidated, Inc. (“***VM Consolidated”***), our wholly owned subsidiary, entered into an Amendment and Restatement Agreement No.1 to the First Lien Term Loan Credit Agreement (the “***2021 Term Loan”***) with a syndicate of lenders. The 2021 Term Loan has an aggregate borrowing of $900.0 million, maturing on March 26, 2028, which includes the incremental borrowing of $250.0 million in December 2021 as a result of exercising the accordion feature available under the agreement. In connection with the 2021 Term Loan borrowings, we had $4.6 million of offering discount costs and $4.5 million in deferred financing costs, both of which were capitalized and are being amortized over the remaining life of the 2021 Term Loan.

During the nine months ended September 30, 2023, we made early repayments of $172.5 million on the 2021 Term Loan and as a result, the total principal outstanding was $706.8 million as of September 30, 2023. We recognized a loss on extinguishment of debt of $2.0 million and $3.5 million for the three and nine months ended September 30, 2023, respectively, related to the write-off of pre-existing deferred financing costs and discounts.

The 2021 Term Loan is repayable at 1.0% per annum of the amount initially borrowed, paid in quarterly installments. It 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. In March 2023, we amended our 2021 Term Loan agreement to transition away from LIBOR to Term SOFR with the cessation of LIBOR in June 2023. To compensate for the differences in reference rates utilized, the amended agreement also includes a credit spread adjustment of 0.11448% for an interest period of one-month duration, 0.26161% for a three-month duration, 0.42826% for a six-month duration, and 0.71513% for twelve-months duration in addition to Term SOFR and the applicable margin. As of September 30, 2023, the new all-in interest rate on the 2021 Term Loan was 8.7%.

In addition, the 2021 Term Loan requires mandatory prepayments equal to the product of the excess cash flows of the Company (as defined in the 2021 Term Loan agreement) and the applicable prepayment percentages (calculated as of the last day of the fiscal year), as set forth in the following table:

| Consolidated First Lien Net Leverage Ratio (As Defined by the 2021 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% |

#### Senior Notes

In March 2021, VM Consolidated issued an aggregate principal amount of $350.0 million in Senior Unsecured Notes (the “***Senior Notes”***), due on April 15, 2029. In connection with the issuance of the Senior Notes, we incurred $5.7 million in lender and third-party costs, which were capitalized as deferred financing costs and are being amortized over the remaining life of the Senior Notes.

Interest on the Senior Notes is fixed at 5.50% per annum and is payable on April 15 and October 15 of each year. On or after April 15, 2024, we may redeem all or a portion of the Senior Notes at the redemption prices set forth below in percentages by year, plus accrued and unpaid interest:

| Year | Percentage |
| --- | ---: |
| 2024 | 102.750% |
| 2025 | 101.375% |
| 2026 and thereafter | 100.000% |

In addition, we may redeem up to 40% of the Senior Notes before April 15, 2024, with the net cash proceeds from certain equity offerings.

#### PPP Loan

During fiscal year 2020, one of our wholly owned subsidiaries received a $2.9 million loan from the U.S. Small Business Administration (“***SBA”***) as part of the Paycheck Protection Program (“***PPP Loan”***) to offset certain employment and other allowable costs incurred as a result of the COVID-19 pandemic. In early 2021, the Company applied for forgiveness of this loan, and on September 23, 2022, it was notified by the SBA that the loan, together with accrued interest, had been fully forgiven under the provisions of the PPP Loan program. Accordingly, we recognized a $3.0 million gain on extinguishment of debt in the condensed consolidated statement of operations for the three and nine months ended September 30, 2022.

#### The Revolver

We have a Revolving Credit Agreement (the “***Revolver”***) with a commitment of up to $75.0 million available for loans and letters of credit. The Revolver matures on December 20, 2026. 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) Term SOFR plus an applicable margin, or (2) an alternate base rate, plus an applicable margin. The margin percentage applied to (1) Term SOFR 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. There is a credit spread adjustment of 0.10% for a one-month duration, 0.15% for a three-month duration, and 0.25% for a six-month duration, in addition to Term SOFR and the applicable margin percentages. There are no outstanding borrowings on the Revolver as of September 30, 2023 or December 31, 2022. The availability to borrow was $74.8 million, net of $0.2 million of outstanding letters of credit at September 30, 2023.

Interest on the unused portion of the Revolver is payable quarterly at 0.375% and we are also required to pay participation and fronting fees at 1.38% on $0.2 million of outstanding letters of credit as of September 30, 2023.

All borrowings and other extensions of credits under the 2021 Term Loan, Senior Notes and the Revolver are subject to the satisfaction of customary conditions and restrictive covenants including absence of defaults and accuracy in material respects of representations and warranties. Substantially all of our assets are pledged as collateral to secure our indebtedness under the 2021 Term Loan. At September 30, 2023, we were compliant with all debt covenants.

#### Interest Expense

We recorded interest expense, including amortization of deferred financing costs and discounts, of $20.4 million and $20.3 million for the three months ended September 30, 2023 and 2022, respectively, and $65.8 million and $49.0 million for the nine months ended September 30, 2023 and 2022, respectively.

See Note 2, *Significant Accounting Policies*, in Part I, Item 1, Financial Statements, for additional information on the interest rate swap entered into in December 2022 to hedge our exposure against rising interest rates.

### Off-Balance Sheet Arrangements

We do not have any material off-balance sheet financing arrangements as of September 30, 2023.

### Critical Accounting Policies, Estimates and Judgments

The preparation of condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Refer to our 2022 Annual Report on Form 10-K for our critical accounting policies, estimates and judgments. We believe that our estimates and assumptions are reasonable in the circumstances; however, actual results could differ materially from those estimates.

For a discussion of our significant accounting policies, refer to Note 2, *Significant Accounting Policies*, in Part I, Item 1, Financial Statements.

### Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, refer to Note 2, *Significant Accounting Policies*, in Part I, Item 1, Financial Statements.

## Market risk

As filed, 2,562 characters.

We are exposed to interest rate market risk due to the variable interest rate on the 2021 Term Loan described in Part I, Item 2. *Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.*

Interest rate risk represents our exposure to fluctuations in interest rates associated with the variable rate debt represented by the 2021 Term Loan, which has an outstanding balance of $706.8 million at September 30, 2023. The 2021 Term Loan 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. In March 2023, we amended our 2021 Term Loan agreement to transition away from LIBOR to Term SOFR with the cessation of LIBOR in June 2023. To compensate for the differences in reference rates utilized, the amended agreement also includes a credit spread adjustment of 0.11448% for an interest period of one-month duration, 0.26161% for a three-month duration, 0.42826% for a six-month duration, and 0.71513% for twelve-months duration in addition to Term SOFR and the applicable margin. At September 30, 2023, the new all-in interest rate on the 2021 Term Loan was 8.7%.

Based on the September 30, 2023 balance outstanding, each 1% movement in interest rates will result in an approximately $7.1 million change in annual interest expense. Due to the limited history of the use of the new benchmark rate, we are unable to estimate the future impact to our borrowing costs as a result of the discontinuation of the LIBOR benchmark.

In December 2022, we entered into a cancellable interest rate swap agreement to hedge our exposure to interest rate fluctuations associated with the LIBOR (now transitioned to Term SOFR) portion of the variable interest rate on our 2021 Term Loan. Under the interest rate swap agreement, we pay a fixed rate of 5.17% and the counterparty pays a variable interest rate which is net settled. The notional amount on the interest rate swap is $675.0 million. We have the option to effectively terminate the interest rate swap agreement starting in December 2023, and monthly thereafter until December 2025, in the event interest rates decrease. We recorded a $0.1 million loss for the three months ended September 30, 2023 and a $1.9 million gain on the interest rate swap for the nine months ended September 30, 2023. See Note 2, *Significant Accounting Policies*, in Part I, Item 1, Financial Statements for additional information on the interest rate swap.

## Controls and procedures

As filed, 1,336 characters.

#### Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, to allow timely decisions regarding disclosure. Our Chief Executive Officer and Chief Financial Officer, with assistance from other members of management, have reviewed the effectiveness of our disclosure controls and procedures. Based on the results of our assessment, our management concluded that our internal control over financial reporting was effective as of September 30, 2023.

#### Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 453 characters.

### Risks Related to Our Business

Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 includes a discussion of our risk factors. There have been no material changes from the risk factors described in our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future SEC filings.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-062105. Last ingested by Listed: Oct 31, 2026, 03:18 ET. No prices; not investment advice.