# VERRA MOBILITY Corp: Form 10-Q for the period ended Mar 31, 2024

- Company: [VERRA MOBILITY Corp](/companies/vrrm.md) (CIK 1682745)
- Form: 10-Q
- Filed: 2024-05-02
- Accepted by EDGAR: May 2, 2024, 17:09 ET
- Period: 2024-03-31
- Accession: 0000950170-24-052307
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1682745/000095017024052307/vrrm-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1682745/000095017024052307/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $209.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2024-01-01 to 2024-03-31 | $48.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-01-01 to 2024-03-31 | $54.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $19.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $9.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $29.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.17 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $0.18 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 168,726,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $34.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $14.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $149.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-03-31 | $438.6m | us-gaap:AssetsCurrent |
| Total assets | at 2024-03-31 | $1.77bn | us-gaap:Assets |
| Current liabilities | at 2024-03-31 | $159.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-03-31 | $1.32bn | us-gaap:Liabilities |
| Long-term debt | at 2024-03-31 | $1.04bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-03-31 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-03-31 | $449.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,100 characters.

*The following discussion and analysis should be read together with our Annual Report, and our financial statements included in Part I, Item 1 “Financial Statements” of this Report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Please refer to the section in this Report entitled “Cautionary Note Regarding Forward-Looking Statements.”*

### Business Overview

We are a leading provider of smart mobility technology solutions, principally operating throughout the United States, Australia, Europe and Canada. 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 commercial fleet owners such as rental car companies (“***RACs”***), direct commercial fleet owner-operators (“***Direct Fleets”***) and fleet management companies (“***FMCs”***), as well as governments, universities, parking operators, healthcare facilities, transportation hubs 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 globally.

### 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 $17.8 million, or 9%, from $191.9 million in the three months ended March 31, 2023 to $209.7 million in the same period in 2024. The increase was mainly due to service revenue resulting from increased travel volume in the Commercial Services segment and the growth from speed and red light programs in the Government Solutions segment.
- Generated cash flows from operating activities of $34.3 million and $45.2 million for the three months ended March 31, 2024 and 2023, respectively. Our cash on hand was $149.5 million as of March 31, 2024.
- Continued to focus on debt management and lowering our exposure to higher interest rates, and as a result, we refinanced our debt and reduced our interest rate by 50 basis points and made an early repayment of approximately $2.3 million on our 2021 Term Loan during the three months ended March 31, 2024.

### Recent Events

We paid $8.1 million to repurchase 449,432 shares of our Class A Common Stock through open market transactions during 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 occurred on January 12, 2024, at which time, we received 534,499 additional shares calculated using a volume-weighted average price over the term of the ASR agreement.

On October 30, 2023, our Board of Directors authorized a new 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. The level at which we repurchase depends on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors our management may deem relevant. The timing, volume and nature of repurchases are subject to market conditions, applicable securities laws and other factors and may be amended, suspended or discontinued at any time. We have not yet repurchased shares under this repurchase program.

### 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 commercial fleet customers, including RACs, Direct Fleets 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, principally within the United States and Canada. Our 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, transaction processing 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, Excluding Depreciation and Amortization.* Cost of service revenue, excluding depreciation and amortization 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 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 the reporting period.

*(Gain) Loss on Interest Rate Swap.* (Gain) loss 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 receipts or payments.

*Loss on Extinguishment of Debt.* Loss on extinguishment of debt consists of the write-off of pre-existing original issue discounts and deferred financing costs associated with debt extinguishment.

*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 March 31, 2024 Compared to Three Months Ended March 31, 2023

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 March 31, 2024 | 2023 | Percentage of Revenue 2024 | 2023 | Increase (Decrease) 2024 vs 2023 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Service revenue | $202,721 | $184,698 | 96.7% | 96.2% | $18,023 | 9.8% |
| Product sales | 7,009 | 7,205 | 3.3% | 3.8% | (196) | (2.7)% |
| **Total revenue** | 209,730 | 191,903 | 100.0% | 100.0% | 17,827 | 9.3% |
| Cost of service revenue, excluding depreciation and amortization | 4,305 | 4,230 | 2.0% | 2.2% | 75 | 1.8% |
| Cost of product sales | 5,286 | 5,383 | 2.5% | 2.8% | (97) | (1.8)% |
| Operating expenses | 70,640 | 61,843 | 33.7% | 32.2% | 8,797 | 14.2% |
| Selling, general and administrative expenses | 48,171 | 40,013 | 23.0% | 20.9% | 8,158 | 20.4% |
| Depreciation, amortization and (gain) loss on disposal of assets, net | 26,975 | 30,333 | 12.9% | 15.8% | (3,358) | (11.1)% |
| Total costs and expenses | 155,377 | 141,802 | 74.1% | 73.9% | 13,575 | 9.6% |
| **Income from operations** | 54,353 | 50,101 | 25.9% | 26.1% | 4,252 | 8.5% |
| Interest expense, net | 19,635 | 22,687 | 9.3% | 11.8% | (3,052) | (13.5)% |
| Change in fair value of private placement warrants | — | 14,601 | — | 7.6% | (14,601) | (100.0)% |
| (Gain) loss on interest rate swap | (396) | 2,798 | (0.2)% | 1.5% | (3,194) | (114.2)% |
| Loss on extinguishment of debt | 595 | 1,349 | 0.3% | 0.7% | (754) | (55.9)% |
| Other income, net | (4,453) | (3,756) | (2.1)% | (2.0)% | (697) | 18.6% |
| Total other expenses | 15,381 | 37,679 | 7.3% | 19.6% | (22,298) | (59.2)% |
| Income before income taxes | 38,972 | 12,422 | 18.6% | 6.5% | 26,550 | 213.7% |
| Income tax provision | 9,823 | 7,845 | 4.7% | 4.1% | 1,978 | 25.2% |
| **Net income** | $29,149 | $4,577 | 13.9% | 2.4% | $24,572 | 536.9% |

26

*Service Revenue.* Service revenue increased by $18.0 million, or 9.8%, to $202.7 million for the three months ended March 31, 2024 from $184.7 million for the three months ended March 31, 2023, representing 96.7% and 96.2% of total revenue, respectively. The following table depicts service revenue by segment:

*($ in thousands)*

| Service revenue | Three Months Ended March 31, 2024 | 2023 | Percentage of Revenue 2024 | 2023 | Increase (Decrease) 2024 vs 2023 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $95,889 | $85,639 | 45.7% | 44.6% | $10,250 | 12.0% |
| Government Solutions | 90,275 | 83,233 | 43.0% | 43.4% | 7,042 | 8.5% |
| Parking Solutions | 16,557 | 15,826 | 8.0% | 8.2% | 731 | 4.6% |
| Total service revenue | $202,721 | $184,698 | 96.7% | 96.2% | $18,023 | 9.8% |

Commercial Services service revenue increased by $10.3 million, or 12.0%, from $85.6 million for the three months ended March 31, 2023 to $95.9 million for the three months ended March 31, 2024. The increase was primarily due to increased travel volume and related tolling activity compared to the prior year. The volume of tolls incurred by RAC vehicles contributed to a $5.7 million growth in revenue and an increase in enrolled vehicles as well as higher tolling activity for our FMC customers contributed to a $3.4 million growth in revenue during the three months ended March 31, 2024, compared to the same period in 2023. In addition, there was more revenue generated from processing violations compared to the prior year.

Government Solutions service revenue increased by $7.1 million to $90.3 million for the three months ended March 31, 2024 compared to $83.2 million in the same period in 2023. The increase was primarily driven by the expansion of speed programs which contributed $3.5 million and red light programs which contributed $2.4 million to the service revenue growth compared to the prior year. The remaining increase is attributable to expansions across school bus stop-arm and bus lane programs.

Parking Solutions service revenue grew by $0.7 million to $16.6 million for the three months ended March 31, 2024, from $15.8 million for the three months ended March 31, 2023. The growth was primarily due to increased revenue from software as a service product offerings, citation processing services and professional services related to parking management solutions.

*Product Sales.* Product sales were $7.0 million and $7.2 million for the three months ended March 31, 2024 and 2023, respectively. Product sales decreased by approximately $0.2 million, which was due to a $1.4 million decrease in product sales in the Parking Solutions segment, offset by a $1.2 million growth in product sales to Government Solutions customers. Customer buying patterns vary greatly from period to period related to product sales.

*Cost of Service Revenue, Excluding Depreciation and Amortization.* Cost of service revenue, excluding depreciation and amortization increased slightly from $4.2 million for the three months ended March 31, 2023 to $4.3 million for the three months ended March 31, 2024, mainly due to increased recurring service costs.

*Cost of Product Sales.* Cost of product sales decreased slightly by $0.1 million from $5.4 million in the three months ended March 31, 2023 to $5.3 million in the three months ended March 31, 2024, which was in line with the decrease in product sales discussed above.

*Operating Expenses.* Operating expenses increased by $8.8 million, or 14.2%, from $61.8 million for the three months ended March 31, 2023 to $70.6 million for the three months ended March 31, 2024. The increase in 2024 was primarily attributable to increases of $6.1 million in wages expense and $2.4 million of information technology costs, partially offset by a decrease of $0.6 million in equipment maintenance expenses compared to the prior period. Operating expenses as a percentage of total revenue increased from 32.2% to 33.7% for the three months ended March 31, 2023 and 2024, respectively.

The following table presents operating expenses by segment:

*($ in thousands)*

| Operating expenses | Three Months Ended March 31, 2024 | 2023 | Percentage of Revenue 2024 | 2023 | Increase (Decrease) 2024 vs 2023 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $21,479 | $19,865 | 10.2% | 10.4% | $1,614 | 8.1% |
| Government Solutions | 43,602 | 37,604 | 20.8% | 19.6% | 5,998 | 16.0% |
| Parking Solutions | 4,493 | 4,042 | 2.2% | 2.1% | 451 | 11.2% |
| Total operating expenses before stock-based compensation | 69,574 | 61,511 | 33.2% | 32.1% | 8,063 | 13.1% |
| Stock-based compensation | 1,066 | 332 | 0.5% | 0.1% | 734 | 221.1% |
| Total operating expenses | $70,640 | $61,843 | 33.7% | 32.2% | $8,797 | 14.2% |

*Selling, General and Administrative Expenses.* Selling, general and administrative expenses increased to $48.2 million for the three months ended March 31, 2024 compared to $40.0 million for the same period in 2023. This is primarily due to a $3.6 million increase in credit loss expense, $2.3 million in higher wages expense, and overall increases in stock-based compensation expense, marketing and other general expenses compared to prior year. Selling, general and administrative expenses as a percentage of total revenue increased from 20.9% to 23.0% for the three months ended March 31, 2023 and 2024, respectively. The following table presents selling, general and administrative expenses by segment:

*($ in thousands)*

| Selling, general and administrative expenses | Three Months Ended March 31, 2024 | 2023 | Percentage of Revenue 2024 | 2023 | Increase (Decrease) 2024 vs 2023 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $17,497 | $15,452 | 8.3% | 8.1% | $2,045 | 13.2% |
| Government Solutions | 18,228 | 14,640 | 8.7% | 7.6% | 3,588 | 24.5% |
| Parking Solutions | 6,426 | 6,548 | 3.1% | 3.4% | (122) | (1.9)% |
| Corporate and other | 1,528 | 327 | 0.7% | 0.2% | 1,201 | 367.3% |
| Total selling, general and administrative expenses before stock-based compensation | 43,679 | 36,967 | 20.8% | 19.3% | 6,712 | 18.2% |
| Stock-based compensation | 4,492 | 3,046 | 2.2% | 1.6% | 1,446 | 47.5% |
| Total selling, general and administrative expenses | $48,171 | $40,013 | 23.0% | 20.9% | $8,158 | 20.4% |

*Depreciation, Amortization and (Gain) Loss on Disposal of Assets, Net.* Depreciation, amortization and (gain) loss on disposal of assets, net, decreased by approximately $3.3 million to $27.0 million for the three months ended March 31, 2024 from $30.3 million for the same period in 2023. This was mainly due to certain non-compete, trademark and developed technology intangible assets being fully amortized in the three months ended March 31, 2024 as compared to the prior year. This decrease was partially offset by an increase in depreciation expense in the 2024 period.

*Interest Expense, Net.* Interest expense, net decreased by $3.1 million from $22.7 million for the three months ended March 31, 2023 to $19.6 million for the same period in 2024. This was primarily attributable to voluntary principal prepayments made during 2023 which lowered the outstanding debt balance in 2024 coupled with a 50 basis-point reduction in the interest rate from refinancing our debt on February 8, 2024. See “*Liquidity and Capital Resources.”*

*Change in Fair Value of Private Placement Warrants*. We recorded a loss of $14.6 million for the three months ended March 31, 2023 related to the change 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 the reporting period.

*Gain (Loss) on Interest Rate Swap.* We recorded a $0.4 million gain during the three months ended March 31, 2024, of which $0.1 million is associated with the derivative instrument re-measured to fair value at the end of the reporting period and $0.3 million related to the monthly cash proceeds on the interest rate swap. We recorded a $2.8 million loss during the three months ended March 31, 2023, of which approximately $1.6 million is associated with the derivative instrument re-measured to fair value at the end of the reporting period and $1.2 million relates to the monthly cash payments made.

*Loss on Extinguishment of Debt*. We recorded a $0.6 million loss on extinguishment of debt during the three months ended March 31, 2024 related to the write-off of pre-existing deferred financing costs and discounts in connection with the refinancing of the 2021 Term Loan in February 2024. We recorded a $1.3 million loss on extinguishment of debt during the three months ended March 31, 2023 related to the write-off of pre-existing deferred financing costs and discounts in connection with the early repayments of $62.5 million on the 2021 Term Loan.

*Other Income, Net.* Other income, net was approximately $4.5 million for the three months ended March 31, 2024 compared to $3.8 million for the three months ended March 31, 2023. The increase of $0.7 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 $9.8 million representing an effective tax rate of 25.2% for the three months ended March 31, 2024 compared to a tax provision of $7.8 million, with an effective tax rate of 63.2% for the same period in 2023. The primary driver for the effective tax rate variance is due to the permanent difference related to the mark-to-market adjustments on the Private Placement Warrants that impacted the rate in the prior year without a comparable impact in the current period.

*Net Income.* We had net income of $29.1 million for the three months ended March 31, 2024, as compared to a net income of $4.6 million for the three months ended March 31, 2023. The $24.5 million increase in net income was primarily due to the change in fair value of Private Placement Warrants in the prior year period, decrease in amortization 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 believe that our existing cash and cash equivalents, cash flows provided by operating activities and our ability to borrow under our Revolver will be sufficient to meet operating cash requirements, service debt obligations and fund potential share repurchases for at least the next 12 months and thereafter for the foreseeable future. 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.

We have incurred significant long-term debt as a result of acquisitions completed in prior years. 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 March 31, 2024, we had $74.6 million available for borrowing, net of letters of credit, under our Revolver. Our cash on hand was $149.5 million as of March 31, 2024.

We made early repayments of $2.3 million and $62.5 million on our 2021 Term Loan during the three months ended March 31, 2024 and 2023, respectively. In addition, we entered into a third amendment to the 2021 Term Loan (the “***Third Amendment”***) to refinance the entire outstanding amount under the 2021 Term Loan and reduce the interest rate and eliminate the credit spread adjustment.

At March 31, 2024, the tax receivable agreement liability was approximately $53.5 million. We expect to make payments of approximately $5.0 million per year for the next 11 years.

#### Share Repurchases and Retirement

We paid $8.1 million to repurchase 449,432 shares of our Class A Common Stock through open market transactions during 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 occurred on January 12, 2024, at which time, we received 534,499 additional shares calculated using a volume-weighted average price over the term of the ASR agreement.

On October 30, 2023, our Board of Directors authorized a new 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. The level at which we repurchase depends on a number of factors, including our financial condition, capital requirements, cash flows, results of operations, future business prospects and other factors our management may deem relevant. The timing, volume and nature of repurchases are subject to market conditions, applicable securities laws and other factors and may be amended, suspended or discontinued at any time. We have not yet repurchased shares under this program.

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

*($ in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $34,332 | $45,217 |
| Net cash used in investing activities | (13,937) | (19,584) |
| Net cash used in financing activities | (6,281) | (66,626) |

### Cash Flows from Operating Activities

Cash provided by operating activities decreased by approximately $10.9 million from $45.2 million for the three months ended March 31, 2023 to $34.3 million for the three months ended March 31, 2024. Net income year over year increased by approximately $24.5 million, from $4.6 million in 2023 to $29.1 million in 2024. The aggregate adjustments to reconcile net income to net cash provided by operating activities decreased $11.4 million mainly due to the change in fair value of private placement warrants and lower amortization expense, partially offset by increased credit loss expense and changes in deferred income taxes year over year. The aggregate changes in operating assets and liabilities decreased by $24.1 million in 2024 compared to the prior year primarily due to payments for a legal settlement and other current liabilities that were previously accrued for, offset by a decrease in accounts receivables.

### Cash Flows from Investing Activities

Cash used in investing activities was $13.9 million and $19.6 million for the three months ended March 31, 2024 and 2023, respectively. There was a $4.1 million decrease in cash used for purchases of installation and service parts and property and equipment compared to the prior year.

### Cash Flows from Financing Activities

Cash used in financing activities was $6.3 million and $66.6 million for the three months ended March 31, 2024 and 2023, respectively. The cash used in 2024 was mainly due to $4.6 million of payments for employee withholding taxes related to RSUs and PSUs vesting and an early repayment of $2.3 million on our 2021 Term Loan. The cash used in 2023 was mainly due to the early repayments totaling $62.5 million on our 2021 Term Loan and $2.5 million of payments for employee withholding taxes related to RSUs and PSUs vesting.

### 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 24, 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.

In February 2024, VM Consolidated entered into the Third Amendment to refinance the 2021 Term Loan (the “***Refinancing Transaction”***). Pursuant to the Third Amendment, the interest rate was reduced by 50 basis points to SOFR + 2.75% from SOFR + 3.25% with the SOFR floor unchanged at 0.00%. The credit spread adjustment, ranging from 0.11448% to 0.71513%, was eliminated, which resulted in a total savings of 61.5 basis points. In addition, the 2021 Term Loan no longer contains a provision for principal repayments which were previously required to be paid in quarterly installments. During the three months ended March 31, 2024, we made an early repayment of approximately $2.3 million on the 2021 Term Loan and as a result, the total principal outstanding was $702.3 million as of March 31, 2024.

We evaluated the Refinancing Transaction on a lender-by-lender basis and accounted accordingly for debt extinguishment costs and debt modification costs (for the portion of the transaction that did not meet the accounting criteria for debt extinguishment). We recorded a $0.6 million loss on extinguishment of debt during the three months ended March 31, 2024 related to the write-off of pre-existing deferred financing costs and discounts in connection with the Refinancing Transaction. We recorded a $1.3 million loss on extinguishment of debt during the three months ended March 31, 2023 related to the write-off of pre-existing deferred financing costs and discounts in connection with the early repayments of $62.5 million on the 2021 Term Loan.

The 2021 Term Loan now bears interest based, at our option, on either (i) Term SOFR plus an applicable margin of 2.75% per annum, or (ii) an alternate base rate plus an applicable margin of 1.75% per annum. As of March 31, 2024, the interest rate on the 2021 Term Loan was 8.1%.

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. 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% |

#### 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 18, 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 March 31, 2024 or December 31, 2023. The availability to borrow was $74.6 million, net of $0.4 million of outstanding letters of credit at March 31, 2024.

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 $0.4 million of outstanding letters of credit as of March 31, 2024.

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 March 31, 2024, we were compliant with all debt covenants.

#### Interest Expense, Net

We recorded interest expense, including amortization of deferred financing costs and discounts, of $19.6 million and $22.7 million for the three months ended March 31, 2024 and 2023, 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 March 31, 2024.

### 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. Please refer to our Annual Report 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.

### 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, 1,805 characters.

We are exposed to interest rate 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 $702.3 million at March 31, 2024. The 2021 Term Loan now bears interest based, at our option, on either (i) Term SOFR plus an applicable margin of 2.75% per annum, or (ii) an alternate base rate plus an applicable margin of 1.75% per annum. As of March 31, 2024, the interest rate on the 2021 Term Loan was 8.1%.

Based on the March 31, 2024 balance outstanding, each 1% movement in interest rates will result in an approximately $7.0 million change in annual interest expense.

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 as of December 2023, and monthly thereafter until December 2025, in the event interest rates decrease. We recorded a $0.4 million gain and $2.8 million loss for the three months ended March 31, 2024 and 2023, respectively. 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, 1,946 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 disclosure controls and procedures were not effective as of March 31, 2024 due to a material weakness in internal control over financial reporting described in Part II, Item 9A. “Controls and Procedures” in our Annual Report.

#### Remediation

As previously noted in our Annual Report, 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 the material weakness will be completed by the end of our 2024 fiscal year.

#### 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 March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 344 characters.

### Risks Related to Our Business

Part I, Item 1A. “Risk Factors” in our Annual Report includes a discussion of our risk factors. There have been no material changes from the risk factors described in our Annual Report. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future SEC filings.

Filed May 2, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-052307. Last ingested by Listed: Nov 4, 2026, 17:42 ET. No prices; not investment advice.