# VERRA MOBILITY Corp: Form 10-Q for the period ended Sep 30, 2024

- Company: [VERRA MOBILITY Corp](/companies/vrrm.md) (CIK 1682745)
- Form: 10-Q
- Filed: 2024-10-31
- Accepted by EDGAR: Oct 31, 2024, 17:05 ET
- Period: 2024-09-30
- Accession: 0000950170-24-119627
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1682745/000095017024119627/vrrm-20240930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1682745/000095017024119627/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-07-01 to 2024-09-30 | $225.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-01-01 to 2024-09-30 | $657.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Selling, general and administrative | 3 months, 2024-07-01 to 2024-09-30 | $47.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-01-01 to 2024-09-30 | $142.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-07-01 to 2024-09-30 | $63.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-01-01 to 2024-09-30 | $179.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-07-01 to 2024-09-30 | $18.7m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2024-01-01 to 2024-09-30 | $57.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-07-01 to 2024-09-30 | $13.8m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-01-01 to 2024-09-30 | $37.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-07-01 to 2024-09-30 | $34.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2024-01-01 to 2024-09-30 | $98.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.21 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.58 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.21 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | $0.59 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 167,624,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 168,318,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $183.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $52.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $51.5m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-09-30 | $206.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2024-09-30 | $529.0m | us-gaap:AssetsCurrent |
| Total assets | at 2024-09-30 | $1.85bn | us-gaap:Assets |
| Current liabilities | at 2024-09-30 | $202.5m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2024-09-30 | $1.36bn | us-gaap:Liabilities |
| Long-term debt | at 2024-09-30 | $1.04bn | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-09-30 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2024-09-30 | $486.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 52,193 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 believe 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 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.

Our business is susceptible to a number of industry-specific and global macroeconomic factors that may cause our actual results of operations to differ from our historical results of operations or current expectations. The factors and trends that we currently believe are or will be most impactful to our results of operations and financial condition include the following: the inflationary impact on items such as wages and travel-related costs, future travel demand, and legislation regarding the adoption, expansion or prohibition of automated enforcement and traffic safety technology by local or state governments. We continue to monitor the potential favorable or unfavorable impacts of these and other factors on our business, operations, financial condition, and future results of operations.

### 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 $51.4 million, or 8.5%, from $606.3 million in the nine months ended September 30, 2023 to $657.7 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, red light and maintenance programs in the Government Solutions segment.
- Generated cash flows from operating activities of $183.2 million and $170.4 million for the nine months ended September 30, 2024 and 2023, respectively. Our cash on hand was $206.1 million as of September 30, 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 early repayments of approximately $4.5 million on our 2021 Term Loan during the nine months ended September 30, 2024.

### Recent Events

#### Cancellation of the Interest Rate Swap

We exercised our option to cancel the interest rate swap agreement, effective September 30, 2024, which was previously used to hedge our exposure to higher interest rates associated with the variable portion of the interest rate on our 2021 Term Loan. Refer to Note 2, *Significant Accounting Policies,* in Part I, Item 1, Financial Statements, for additional information.

#### Share Repurchases and Retirement

In October 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. On June 6, 2024, we entered into a share repurchase agreement with a stockholder, pursuant to which we repurchased, directly from the stockholder, 2.0 million shares of our Class A Common Stock for an aggregate purchase price of $51.5 million. The repurchased shares were subsequently retired. As of September 30, 2024, $48.5 million remains available under the share repurchase program. Refer to Note 10, *Stockholders' Equity*, in Part I, Item 1, Financial Statements for additional information on our share repurchases.

### NYCDOT Contract

The New York City Department of Transportation (“***NYCDOT”***) represented approximately 16% and 17% of our total revenue for the nine months ended September 30, 2024 and 2023, respectively, and 13% and 18% of total accounts receivable, net as of September 30, 2024 and December 31, 2023, respectively. Our contract with NYCDOT expires on December 31, 2024, and we are presently participating in a competitive procurement for a new NYCDOT automated enforcement program contract. We are in discussions with NYCDOT on an extension and expect to conclude those discussions in a way that will allow NYCDOT to continue to utilize our automated enforcement program until the competitive procurement process is completed. However, there is no assurance that we will be successful in extending the contract at the conclusion of its term or winning the competitive procurement for the new automated enforcement contract. If we are unable to extend the contract with NYCDOT or win the competitive procurement for a new contact with NYCDOT, it would have a material adverse effect on our business, financial condition and results of operations.

### 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. Our international operations primarily involve the sale of traffic enforcement products and recurring maintenance services related to the equipment and software.
- 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 (“***SaaS”***), 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 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, and the final re-measurement upon their exercise.

*Loss (Gain) on Interest Rate Swap.* Loss (gain) on interest rate swap related 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 credit card transactions, gains or losses on foreign currency transactions and other non-operating expenses.

### Results of Operations

### Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 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 September 30, 2024 | 2023 | Percentage of Revenue 2024 | 2023 | Increase (Decrease) 2024 vs 2023 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Service revenue | $217,267 | $201,029 | 96.3% | 95.8% | $16,238 | 8.1% |
| Product sales | 8,284 | 8,904 | 3.7% | 4.2% | (620) | (7.0)% |
| **Total revenue** | 225,551 | 209,933 | 100.0% | 100.0% | 15,618 | 7.4% |
| Cost of service revenue, excluding depreciation and amortization | 5,378 | 5,150 | 2.4% | 2.5% | 228 | 4.4% |
| Cost of product sales | 5,621 | 6,864 | 2.5% | 3.3% | (1,243) | (18.1)% |
| Operating expenses | 76,026 | 68,873 | 33.7% | 32.8% | 7,153 | 10.4% |
| Selling, general and administrative expenses | 47,918 | 42,276 | 21.2% | 20.1% | 5,642 | 13.3% |
| Depreciation, amortization and (gain) loss on disposal of assets, net | 26,718 | 27,597 | 11.9% | 13.1% | (879) | (3.2)% |
| Total costs and expenses | 161,661 | 150,760 | 71.7% | 71.8% | 10,901 | 7.2% |
| **Income from operations** | 63,890 | 59,173 | 28.3% | 28.2% | 4,717 | 8.0% |
| Interest expense, net | 18,723 | 20,384 | 8.3% | 9.7% | (1,661) | (8.1)% |
| Change in fair value of private placement warrants | — | (553) | — | (0.3)% | 553 | (100.0)% |
| Loss on interest rate swap | 913 | 60 | 0.4% | 0.0% | 853 | 1421.7% |
| Loss on extinguishment of debt | 33 | 1,975 | 0.0% | 1.0% | (1,942) | (98.3)% |
| Other income, net | (4,272) | (4,498) | (1.9)% | (2.1)% | 226 | (5.0)% |
| Total other expenses | 15,397 | 17,368 | 6.8% | 8.3% | (1,971) | (11.3)% |
| Income before income taxes | 48,493 | 41,805 | 21.5% | 19.9% | 6,688 | 16.0% |
| Income tax provision | 13,761 | 11,497 | 6.1% | 5.5% | 2,264 | 19.7% |
| **Net income** | $34,732 | $30,308 | 15.4% | 14.4% | $4,424 | 14.6% |

*Service Revenue.* Service revenue increased by $16.2 million, or 8.1%, to $217.3 million for the three months ended September 30, 2024 from $201.0 million for the three months ended September 30, 2023, representing 96.3% and 95.8% of total revenue, respectively. The following table depicts service revenue by segment:

*($ in thousands)*

| Service revenue | Three Months Ended September 30, 2024 | 2023 | Percentage of Revenue 2024 | 2023 | Increase (Decrease) 2024 vs 2023 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $109,139 | $98,149 | 48.4% | 46.8% | $10,990 | 11.2% |
| Government Solutions | 91,003 | 85,092 | 40.3% | 40.5% | 5,911 | 6.9% |
| Parking Solutions | 17,125 | 17,788 | 7.6% | 8.5% | (663) | (3.7)% |
| Total service revenue | $217,267 | $201,029 | 96.3% | 95.8% | $16,238 | 8.1% |

Commercial Services service revenue increased by $11.0 million, or 11.2%, from approximately $98.1 million for the three months ended September 30, 2023 to $109.1 million for the three months ended September 30, 2024. The increase in higher travel volume, product adoption and tolling activity compared to the prior year, contributed to a $4.9 million growth in RAC tolling revenue. In addition, the remaining $6.1 million in revenue growth was contributed from processing violations, titles and registrations, FMC and other revenue during the three months ended September 30, 2024 compared to the same period in 2023.

Government Solutions service revenue increased by $5.9 million, or 6.9%, from approximately $85.1 million for the three months ended September 30, 2023, to $91.0 million for the three months ended September 30, 2024. The increase was primarily driven by the expansion of speed and maintenance programs, contributing approximately $3.8 million to the increase in service revenue for the 2024 quarter. The remaining increase was attributable to expansions across school bus stop arm and bus lane programs. Service revenue growth was driven by 12% of growth outside of New York City.

Parking Solutions service revenue modestly declined by $0.7 million, or 3.7%, from approximately $17.8 million for the three months ended September 30, 2023 to $17.1 million for the three months ended September 30, 2024. The increased revenue from SaaS product offerings was offset by a reduction in professional services related to parking management solutions.

*Product Sales.* Product sales were $8.3 million and $8.9 million for the three months ended September 30, 2024 and 2023, respectively. Product sales decreased by $0.6 million, which was due to a $0.3 million decline in product sales to Government Solutions international customers, along with a $0.3 million decrease in product sales to Parking Solutions customers driven by a structural transition from hardware to software and mobile payment solutions. 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 from $5.2 million for the three months ended September 30, 2023 to $5.4 million for the same period in 2024, mainly due to increased recurring service costs.

*Cost of Product Sales.* Cost of product sales decreased by approximately $1.3 million from $6.9 million in the three months ended September 30, 2023 to $5.6 million in the three months ended September 30, 2024, which was in line with the decrease in product sales discussed above.

*Operating Expenses.* Operating expenses increased by approximately $7.2 million, or 10.4%, from $68.9 million for the three months ended September 30, 2023 to $76.0 million for the three months ended September 30, 2024. The increase in 2024 compared to the prior year period was primarily due to increases of $5.1 million in wages expense, $1.3 million of information technology costs and $1.2 million of subcontractor costs, partially offset by lower costs related to operational equipment and maintenance. Operating expenses as a percentage of total revenue increased from 32.8% to 33.7% for the three months ended September 30, 2023 and 2024, respectively.

The following table presents operating expenses by segment:

*($ in thousands)*

| Operating expenses | Three Months Ended September 30, 2024 | 2023 | Percentage of Revenue 2024 | 2023 | Increase (Decrease) 2024 vs 2023 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $24,683 | $21,174 | 10.9% | 10.1% | $3,509 | 16.6% |
| Government Solutions | 46,168 | 42,395 | 20.5% | 20.2% | 3,773 | 8.9% |
| Parking Solutions | 4,128 | 4,676 | 1.8% | 2.2% | (548) | (11.7)% |
| Total operating expenses before stock-based compensation | 74,979 | 68,245 | 33.2% | 32.5% | 6,734 | 9.9% |
| Stock-based compensation | 1,047 | 628 | 0.5% | 0.3% | 419 | 66.7% |
| Total operating expenses | $76,026 | $68,873 | 33.7% | 32.8% | $7,153 | 10.4% |

30

*Selling, General and Administrative Expenses.* Selling, general and administrative expenses increased to $47.9 million for the three months ended September 30, 2024 compared to $42.3 million for the same period in 2023. This increase was mainly due to $2.4 million in higher wages and benefits expense, $1.6 million in stock-based compensation, and higher professional services and marketing costs compared to the prior year period. Selling, general and administrative expenses as a percentage of total revenue increased from 20.1% to 21.2% for the three months ended September 30, 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 September 30, 2024 | 2023 | Percentage of Revenue 2024 | 2023 | Increase (Decrease) 2024 vs 2023 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $14,825 | $15,544 | 6.6% | 7.4% | $(719) | (4.6)% |
| Government Solutions | 18,519 | 15,181 | 8.2% | 7.2% | 3,338 | 22.0% |
| Parking Solutions | 5,717 | 6,002 | 2.5% | 2.9% | (285) | (4.7)% |
| Corporate and other | 3,466 | 1,734 | 1.5% | 0.8% | 1,732 | 99.9% |
| Total selling, general and administrative expenses before stock-based compensation | 42,527 | 38,461 | 18.8% | 18.3% | 4,066 | 10.6% |
| Stock-based compensation | 5,391 | 3,815 | 2.4% | 1.8% | 1,576 | 41.3% |
| Total selling, general and administrative expenses | $47,918 | $42,276 | 21.2% | 20.1% | $5,642 | 13.3% |

*Depreciation, Amortization and (Gain) Loss on Disposal of Assets, Net.* Depreciation, amortization and (gain) loss on disposal of assets, net, decreased by $0.9 million to $26.7 million for the three months ended September 30, 2024 from $27.6 million for the same period in 2023. This was mainly due to a developed technology intangible asset being fully amortized in the three months ended September 30, 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 approximately $1.7 million from $20.4 million for the three months ended September 30, 2023 to $18.7 million for the same period in 2024. This was primarily related to the February 2024 repricing of the 2021 Term Loan and the voluntary principal prepayments made during 2023 and 2024 which lowered the outstanding debt balance. The average variable interest rate on the 2021 Term Loan was 46 basis points lower for the three months ended September 30, 2024 compared to the prior year period. See “*Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”* in Part I, Item 2.”

*Change in Fair Value of Private Placement Warrants*. We recorded a gain of approximately $0.6 million for the three months ended September 30, 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 or a final re-measurement upon their exercise.

*Loss on Interest Rate Swap.* We recorded a loss of $0.9 million during the three months ended September 30, 2024, of which $1.2 million was associated with the derivative instrument re-measured to fair value at the end of the reporting period, offset by $0.3 million related to the monthly cash proceeds on the interest rate swap. We recorded a $0.1 million loss during the three months ended September 30, 2023, of which approximately $0.2 million was 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 proceeds. We exercised our option to cancel the interest rate swap agreement as of September 30, 2024.

*Loss on Extinguishment of Debt*. We recorded a less than $0.1 million loss on extinguishment of debt during the three months ended September 30, 2024 related to the write-off of pre-existing deferred financing costs and discounts on the 2021 Term Loan. 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 $100.0 million on the 2021 Term Loan.

*Other Income, Net.* Other income, net decreased to $4.3 million for the three months ended September 30, 2024 compared to $4.5 million for the three months ended September 30, 2023 primarily due to foreign currency transaction losses.

*Income Tax Provision.* Income tax provision was $13.8 million representing an effective tax rate of 28.4% for the three months ended September 30, 2024 compared to a tax provision of $11.5 million, with an effective tax rate of 27.5% for the same period in 2023. The primary driver for the effective tax rate variance is 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 $34.7 million for the three months ended September 30, 2024, as compared to a net income of $30.3 million for the three months ended September 30, 2023. The $4.4 million increase in net income was primarily due to the decrease in loss on extinguishment of debt and the interest expense, and the other statement of operations activity discussed above.

### Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 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)*

|  | Nine Months Ended September 30, 2024 | 2023 | Percentage of Revenue 2024 | 2023 | Increase (Decrease) 2024 vs 2023 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Service revenue | $632,005 | $581,777 | 96.1% | 96.0% | $50,228 | 8.6% |
| Product sales | 25,702 | 24,520 | 3.9% | 4.0% | 1,182 | 4.8% |
| **Total revenue** | 657,707 | 606,297 | 100.0% | 100.0% | 51,410 | 8.5% |
| Cost of service revenue, excluding depreciation and amortization | 14,324 | 13,718 | 2.2% | 2.2% | 606 | 4.4% |
| Cost of product sales | 18,755 | 18,209 | 2.9% | 3.0% | 546 | 3.0% |
| Operating expenses | 221,569 | 196,373 | 33.7% | 32.4% | 25,196 | 12.8% |
| Selling, general and administrative expenses | 142,432 | 125,494 | 21.7% | 20.7% | 16,938 | 13.5% |
| Depreciation, amortization and (gain) loss on disposal of assets, net | 81,215 | 87,018 | 12.2% | 14.4% | (5,803) | (6.7)% |
| Total costs and expenses | 478,295 | 440,812 | 72.7% | 72.7% | 37,483 | 8.5% |
| **Income from operations** | 179,412 | 165,485 | 27.3% | 27.3% | 13,927 | 8.4% |
| Interest expense, net | 57,203 | 65,842 | 8.7% | 10.9% | (8,639) | (13.1)% |
| Change in fair value of private placement warrants | — | 24,966 | — | 4.1% | (24,966) | (100.0)% |
| Loss (gain) on interest rate swap | 494 | (1,947) | 0.1% | (0.3)% | 2,441 | (125.4)% |
| Loss on extinguishment of debt | 628 | 3,533 | 0.1% | 0.5% | (2,905) | (82.2)% |
| Other income, net | (13,970) | (12,766) | (2.1)% | (2.1)% | (1,204) | 9.4% |
| Total other expenses | 44,355 | 79,628 | 6.8% | 13.1% | (35,273) | (44.3)% |
| Income before income taxes | 135,057 | 85,857 | 20.5% | 14.2% | 49,200 | 57.3% |
| Income tax provision | 36,953 | 31,864 | 5.6% | 5.3% | 5,089 | 16.0% |
| **Net income** | $98,104 | $53,993 | 14.9% | 8.9% | $44,111 | 81.7% |

*Service Revenue.* Service revenue increased by $50.2 million, or 8.6%, to $632.0 million for the nine months ended September 30, 2024 from $581.8 million for the nine months ended September 30, 2023, representing 96.1% and 96.0% of total revenue, respectively. The following table depicts service revenue by segment:

*($ in thousands)*

| Service revenue | Nine Months Ended September 30, 2024 | 2023 | Percentage of Revenue 2024 | 2023 | Increase (Decrease) 2024 vs 2023 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $309,013 | $278,243 | 47.0% | 45.9% | $30,770 | 11.1% |
| Government Solutions | 272,747 | 253,319 | 41.5% | 41.8% | 19,428 | 7.7% |
| Parking Solutions | 50,245 | 50,215 | 7.6% | 8.3% | 30 | 0.1% |
| Total service revenue | $632,005 | $581,777 | 96.1% | 96.0% | $50,228 | 8.6% |

32

Commercial Services service revenue increased by $30.8 million, or 11.1%, from $278.2 million for the nine months ended September 30, 2023 to $309.0 million for the nine months ended September 30, 2024. The increase was primarily due to increased travel volume, product adoption and increased tolling activity compared to the prior year. These factors contributed to a $16.3 million growth in RAC tolling revenue and an increase in enrolled vehicles as well as higher tolling activity for our FMC customers contributed to a $7.6 million growth in FMC revenue during the nine months ended September 30, 2024, compared to the same period in 2023. In addition, there was more revenue generated from processing titles and registrations and from processing violations compared to the prior year period.

Government Solutions service revenue increased by $19.4 million, or 7.7%, from $253.3 million for the nine months ended September 30, 2023, to $272.7 million for the nine months ended September 30, 2024. The increase was primarily driven by the expansion of speed, red light and maintenance programs, contributing $13.1 million to the service revenue increase 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 was relatively consistent at $50.2 million for both the nine months ended September 30, 2024 and 2023. The increased revenue from SaaS product offerings was partially offset by a decrease in professional services related to parking management solutions.

*Product Sales.* Product sales were $25.7 million and $24.5 million for the nine months ended September 30, 2024 and 2023, respectively. Product sales increased by $1.2 million, which was due to a $3.9 million increase in product sales to Government Solutions customers, offset by a $2.7 million decrease in product sales in the Parking Solutions segment driven by a structural transition from hardware to software and mobile payment solutions. 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 from $13.7 million for the nine months ended September 30, 2023 to $14.3 million for the nine months ended September 30, 2024, mainly due to increased recurring service costs for the Parking Solutions segment.

*Cost of Product Sales.* Cost of product sales increased by $0.6 million from $18.2 million in the nine months ended September 30, 2023 to approximately $18.8 million in the nine months ended September 30, 2024, which was in line with the increase in product sales discussed above.

*Operating Expenses.* Operating expenses increased by $25.2 million, or 12.8%, from $196.4 million for the nine months ended September 30, 2023 to $221.6 million for the nine months ended September 30, 2024. The increase in 2024 was primarily attributable to increases of $16.2 million in wages expense, $5.6 million of information technology costs and $3.2 million of recurring service costs compared to the prior year period. Operating expenses as a percentage of total revenue increased from 32.4% to 33.7% for the nine months ended September 30, 2023 and 2024, respectively.

The following table presents operating expenses by segment:

*($ in thousands)*

| Operating expenses | Nine Months Ended September 30, 2024 | 2023 | Percentage of Revenue 2024 | 2023 | Increase (Decrease) 2024 vs 2023 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $69,351 | $61,819 | 10.5% | 10.2% | $7,532 | 12.2% |
| Government Solutions | 135,923 | 119,398 | 20.7% | 19.7% | 16,525 | 13.8% |
| Parking Solutions | 13,109 | 13,649 | 2.0% | 2.3% | (540) | (4.0)% |
| Total operating expenses before stock-based compensation | 218,383 | 194,866 | 33.2% | 32.2% | 23,517 | 12.1% |
| Stock-based compensation | 3,186 | 1,507 | 0.5% | 0.2% | 1,679 | 111.4% |
| Total operating expenses | $221,569 | $196,373 | 33.7% | 32.4% | $25,196 | 12.8% |

33

*Selling, General and Administrative Expenses.* Selling, general and administrative expenses increased to $142.4 million for the nine months ended September 30, 2024 compared to $125.5 million for the same period in 2023. This is primarily due to increases of $6.2 million in wages expense, $3.9 million of credit loss expense, $4.6 million in stock-based compensation expense, and increases in marketing and other general expenses, partially offset by a decrease in professional services costs compared to the prior year. Selling, general and administrative expenses as a percentage of total revenue increased from 20.7% to 21.7% for the nine months ended September 30, 2023 and 2024, respectively. The following table presents selling, general and administrative expenses by segment:

*($ in thousands)*

| Selling, general and administrative expenses | Nine Months Ended September 30, 2024 | 2023 | Percentage of Revenue 2024 | 2023 | Increase (Decrease) 2024 vs 2023 $% |  |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial Services | $48,079 | $47,127 | 7.3% | 7.8% | $952 | 2.0% |
| Government Solutions | 53,490 | 45,747 | 8.1% | 7.5% | 7,743 | 16.9% |
| Parking Solutions | 18,787 | 18,991 | 2.9% | 3.1% | (204) | (1.1)% |
| Corporate and other | 6,676 | 2,790 | 1.0% | 0.5% | 3,886 | 139.3% |
| Total selling, general and administrative expenses before stock-based compensation | 127,032 | 114,655 | 19.3% | 18.9% | 12,377 | 10.8% |
| Stock-based compensation | 15,400 | 10,839 | 2.4% | 1.8% | 4,561 | 42.1% |
| Total selling, general and administrative expenses | $142,432 | $125,494 | 21.7% | 20.7% | $16,938 | 13.5% |

*Depreciation, Amortization and (Gain) Loss on Disposal of Assets, Net.* Depreciation, amortization and (gain) loss on disposal of assets, net, decreased by $5.8 million to $81.2 million for the nine months ended September 30, 2024 from $87.0 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 nine months ended September 30, 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 $8.6 million from $65.8 million for the nine months ended September 30, 2023 to $57.2 million for the same period in 2024. This was primarily attributable to voluntary principal prepayments made during 2023 and 2024 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 “*Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”* in Part I, Item 2.

*Change in Fair Value of Private Placement Warrants*. We recorded a loss of $25.0 million for the nine months ended September 30, 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, or a final re-measurement upon their exercise.

*Loss (Gain) on Interest Rate Swap.* We recorded a $0.5 million loss during the nine months ended September 30, 2024, of which $1.3 million is associated with the derivative instrument re-measured to fair value at the end of the reporting period offset by $(0.8) million related to the monthly cash proceeds. 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 offset by $1.4 million related to the monthly cash payments. We exercised our option to cancel the interest rate swap agreement as of September 30, 2024.

*Loss on Extinguishment of Debt*. We recorded a $0.6 million loss on extinguishment of debt during the nine months ended September 30, 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 $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 repayments of $172.5 million on the 2021 Term Loan.

*Other Income, Net.* Other income, net was $14.0 million for the nine months ended September 30, 2024 compared to $12.8 million for the nine months ended September 30, 2023. The increase of $1.2 million is primarily attributable to volume rebates earned from total spend on credit card transactions due to increased tolling and travel activity.

*Income Tax Provision.* Income tax provision was $37.0 million representing an effective tax rate of 27.4% for the nine months ended September 30, 2024 compared to a tax provision of $31.9 million, with an effective tax rate of 37.1% for the same period in 2023. The primary driver for the effective tax rate variance is 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 2024.

*Net Income.* We had net income of $98.1 million for the nine months ended September 30, 2024, as compared to a net income of $54.0 million for the nine months ended September 30, 2023. The $44.1 million increase in net income was primarily due to the change in fair value of Private Placement Warrants expense in the prior year period, decrease in 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 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, borrowings 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, 2024, we had $74.6 million available for borrowing, net of letters of credit, under our Revolver. Our cash on hand was $206.1 million as of September 30, 2024.

In February 2024, we refinanced our 2021 Term Loan and entered into a third amendment to the 2021 Term Loan agreement which reduced our interest rate by 50 basis points and eliminated the applicable credit spread adjustment. We made early repayments of approximately $4.5 million on our 2021 Term Loan during the nine months ended September 30, 2024, and as a result, the total principal outstanding on the 2021 Term Loan was $700.1 million as of September 30, 2024. Subsequent to September 30, 2024, we entered into a fourth amendment to the 2021 Term Loan agreement in October 2024 to refinance the entire outstanding amount of $700.1 million under the 2021 Term Loan and to further reduce the interest rate by 50 basis points.

At September 30, 2024, the TRA 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

In October 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. On June 6, 2024, we entered into a share repurchase agreement with a stockholder, pursuant to which we repurchased, directly from the stockholder, 2.0 million shares of our Class A Common Stock for an aggregate purchase price of $51.5 million. The repurchased shares were subsequently retired. As of September 30, 2024, $48.5 million remains available under the share repurchase program. Refer to Note 10, *Stockholders' Equity*, in Part I, Item 1, Financial Statements for additional information on our share repurchases.

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, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $183,155 | $170,371 |
| Net cash used in investing activities | (51,031) | (41,693) |
| Net cash used in financing activities | (59,574) | (118,450) |

### Cash Flows from Operating Activities

Cash provided by operating activities increased by approximately $12.8 million from $170.4 million for the nine months ended September 30, 2023 to $183.2 million for the nine months ended September 30, 2024. Net income year over year increased by approximately $44.1 million, from $54.0 million in 2023 to $98.1 million in 2024. The aggregate adjustments to reconcile net income to net cash provided by operating activities decreased $13.1 million mainly due to the change in fair value of private placement warrants and decreased amortization, which were partially offset by increases in stock-based compensation, change in deferred income taxes, change in fair value of interest rate swap and credit loss expense. The aggregate changes in operating assets and liabilities decreased by $18.2 million in 2024 compared to the prior year primarily due to a legal settlement payment and increase in prepaid and other current assets, that were partially offset by a decrease in accounts receivables.

### Cash Flows from Investing Activities

Cash used in investing activities was $51.0 million and $41.7 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in cash used was primarily driven by a $11.5 million increase for purchases of installation and service parts and property and equipment compared to the prior year period.

### Cash Flows from Financing Activities

Cash used in financing activities was $59.6 million and $118.5 million for the nine months ended September 30, 2024 and 2023, respectively. The cash used in 2024 was mainly due to $51.5 million paid for share repurchases, $5.8 million of payments for employee tax withholding related to RSUs and PSUs vesting and early repayments of $4.5 million on our 2021 Term Loan. The cash used 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.

### 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.

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).

During the nine months ended September 30, 2024 and 2023, we made early repayments of approximately $4.5 million and $172.5 million, respectively, on the 2021 Term Loan, and as a result the total principal outstanding on the 2021 Term Loan was $700.1 million as of September 30, 2024.

We recorded $0.1 million and $0.6 million loss on extinguishment of debt during the three and nine months ended September 30, 2024 primarily related to the write-off of pre-existing deferred financing costs and discounts in connection with the Refinancing Transaction. 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 in connection with the early repayments.

The 2021 Term Loan 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 September 30, 2024, the interest rate on the 2021 Term Loan was 7.6%.

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% |

Subsequent to September 30, 2024, we amended the 2021 Term Loan agreement to refinance the entire outstanding amount under the 2021 Term Loan and reduced the interest rate by 50 basis points. See Note 15, *Subsequent Event*, in Part I, Item 1, Financial Statements, for additional information.

#### 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 were no outstanding borrowings on the Revolver as of September 30, 2024 or December 31, 2023. The availability to borrow was $74.6 million, net of $0.4 million of outstanding letters of credit at September 30, 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 September 30, 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 September 30, 2024, we were compliant with all debt covenants.

#### Interest Expense, Net

We recorded interest expense, including amortization of deferred financing costs and discounts, of $18.7 million and $20.4 million for the three months ended September 30, 2024 and 2023, respectively, and $57.2 million and $65.8 million for the nine months ended September 30, 2024 and 2023, respectively.

### Goodwill

We perform our annual goodwill impairment assessment at October 1 of each year, or more frequently if events or changes in circumstances indicate the carrying value may not be recoverable. In connection with the 2023 annual assessment, we concluded there was no impairment for any of our four reporting units. We performed a quantitative impairment test for the Parking Solutions reporting unit as of October 1, 2023 which resulted in the estimated fair value exceeding the reporting unit’s carrying value by approximately 7%.

Due to recent performance that unfavorably impacted the Parking Solutions business, including changes in leadership as well as lower revenue growth and profitability margins for certain programs than previously estimated, it is reasonably possible that the changes in one or more assumptions, including a significant decline in compounded annual revenue growth rates, increase in the discount rate, or shortfalls in the financial performance relative to projections used to estimate fair value could result in a material impairment of goodwill in future periods. Refer to *Management's Discussion and Analysis of Financial Condition and Results of Operations* within the 2023 Annual Report on Form 10-K for further discussion of assumptions and methodology used.

### Off-Balance Sheet Arrangements

We do not have any material off-balance sheet financing arrangements as of September 30, 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, 1,248 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 $700.1 million at September 30, 2024. The 2021 Term Loan 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 September 30, 2024, the interest rate on the 2021 Term Loan was 7.6%.

Based on the September 30, 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. We exercised our option to cancel the interest rate swap as of September 30, 2024.

## Controls and procedures

As filed, 3,092 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 September 30, 2024 due to a material weakness in our internal control over financial reporting described below and previously disclosed in Part II, Item 9A. “Controls and Procedures” in our Annual Report.

#### Material Weakness

We identified a material weakness in the design and operation of our internal controls over financial reporting in the “Control Activities” component of the Committee of Sponsoring Organizations (COSO) framework related to a lack of information technology general controls to prevent the risk of management override. Specifically, we identified system limitations that do not facilitate proper segregation of duties within multiple systems and a lack of mitigating business process level controls to address the risk of management override over the preparation and review of manual journal entries and certain manual revenue invoices.

While this deficiency did not result in any material misstatements of our consolidated interim or annual financial statements, it does represent a material weakness in our internal control over financial reporting.

#### Remediation Efforts to Address the Material Weakness

As previously described in Part II, Item 9A. “Controls and Procedures” in our Annual Report, we began implementing a remediation plan to address the material weakness discussed above. The material 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. The Company has devoted, significant time and resources to complete its remediation of the material weakness. The Company is targeting completion of the remediation and testing of the material weakness by the end of the 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 September 30, 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 Oct 31, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-119627. Last ingested by Listed: Nov 4, 2026, 17:42 ET. No prices; not investment advice.