VERRA MOBILITY Corp

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

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.

Service Revenue. Service revenue increased by $9.2 million, or 4.5%, to $211.9 million for the three months ended March 31, 2025 from $202.7 million for the three months ended March 31, 2024, representing 94.9% and 96.7% of total revenue, respectively. The following table depicts service revenue by segment:

Commercial Services service revenue increased by $5.5 million, or 5.7%, from $95.9 million for the three months ended March 31, 2024 to $101.4 million for the three months ended March 31, 2025. 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 $4.3 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 $2.1 million growth in FMC revenue during the three months ended March 31, 2025, compared to the same period in 2024. These increases were partially offset by lower revenue from processing violations compared to the same period in 2024.

Government Solutions service revenue increased by $3.7 million, or 4.1%, from $90.3 million for the three months ended March 31, 2024, to $94.0 million for the three months ended March 31, 2025. The increase was primarily driven by $3.2 million from the expansion of bus lane enforcement programs and back-office SaaS programs and the remaining increase from school bus stop arm enforcement programs.

Parking Solutions service revenue decreased slightly to $16.5 million for the three months ended March 31, 2025, from $16.6 million for the three months ended March 31, 2024. The increased revenue from SaaS product offerings was offset by a decrease in professional services related to parking management solutions.

Product Sales. Product sales were approximately $11.3 million and $7.0 million for the three months ended March 31, 2025 and 2024, respectively. Product sales increased by $4.3 million, which was due to a $3.9 million increase in product sales to international customers in the Government Solutions segment and the remaining increase in product sales from the Parking Solutions segment. 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 $4.3 million for the three months ended March 31, 2024 to $4.8 million for the three months ended March 31, 2025, mainly due to increased recurring service and third-party costs for our segments.

Cost of Product Sales. Cost of product sales increased by $2.7 million from $5.3 million in the three months ended March 31, 2024 to $8.0 million in the three months ended March 31, 2025, which was in line with the increase in product sales discussed above.

Operating Expenses. Operating expenses increased by $3.1 million, or 4.4%, from $70.6 million for the three months ended March 31, 2024 to $73.7 million for the three months ended March 31, 2025. The increase in 2025 compared to the prior period was primarily in the Government Solutions business for approximately $3.4 million due to increases in subcontractor costs, wages and operational equipment costs, partially offset by a decrease in operating expenses in the Parking Solutions business. Operating expenses as a percentage of total revenue decreased from 33.7% to 33.0% for the three months ended March 31, 2024 and 2025, respectively. The following table presents operating expenses by segment:

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $51.5 million for the three months ended March 31, 2025 compared to $48.2 million for the same period in 2024. This is primarily due to a $2.9 million increase in credit loss expense, $2.3 million in increased consulting fees, partially offset by a decrease in transaction expenses compared to the same period in the prior year. Selling, general and administrative expenses as a percentage of total revenue increased slightly from 23.0% to 23.1% for the three months ended March 31, 2024 and 2025, respectively. The following table presents selling, general and administrative expenses by segment:

Depreciation, Amortization and (Gain) Loss on Disposal of Assets, Net. Depreciation, amortization and (gain) loss on disposal of assets, net, increased by $0.8 million to $27.8 million for the three months ended March 31, 2025 from $27.0 million for the same period in 2024. This was primarily due to an increase in depreciation expense for the Parking Solutions business in the 2025 period.

Interest Expense, Net. Interest expense, net decreased by $3.0 million from $19.6 million for the three months ended March 31, 2024 to $16.6 million for the same period in 2025. This was primarily attributable to voluntary principal prepayments made during 2024 and 2025 reducing the balance of the 2021 Term Loan and a 50 basis-point reduction in the interest rate from refinancing our debt in October 2024 coupled with decreasing SOFR rates. See “Liquidity and Capital Resources” below.

Gain 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 exercised our option to cancel the interest rate swap agreement effective the end of the third quarter of 2024.

Loss on Extinguishment of Debt. We recorded less than $0.1 million of loss on extinguishment of debt during the three months ended March 31, 2025 related to the write-off of pre-existing deferred financing costs and discounts in connection with the early repayment on the 2021 Term Loan. 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.

Other Income, Net. Other income, net was $4.1 million for the three months ended March 31, 2025 compared to approximately $4.5 million for the three months ended March 31, 2024. The decrease was from non-operating costs including foreign currency transaction losses mainly in the Commercial Services business.

Income Tax Provision. Income tax provision was $12.5 million representing an effective tax rate of 27.9% for the three months ended March 31, 2025 compared to a tax provision of $9.8 million, with an effective tax rate of 25.2% for the same period in 2024.

Net Income. We had net income of $32.3 million for the three months ended March 31, 2025, as compared to a net income of $29.1 million for the three months ended March 31, 2024. The $3.2 million increase in net income was primarily due to the 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 March 31, 2025, we had $74.4 million available for borrowing, net of letters of credit, under our Revolver. Our cash on hand was $108.5 million as of March 31, 2025.

In fiscal year 2024, we refinanced the 2021 Term Loan (as defined below) which reduced the interest rate by an aggregate 1.00% and eliminated the applicable credit spread adjustment. We made an early repayment of approximately $2.3 million on our 2021 Term Loan during the three months ended March 31, 2025, and as a result, the total principal outstanding on the 2021 Term Loan was $693.3 million as of March 31, 2025.

At March 31, 2025, the Tax Receivable Agreement liability was approximately $48.1 million. We expect to make payments of approximately $5.2 million per year for the next 10 years.

In October 2023, our Board of Directors authorized a share repurchase program for up to an aggregate amount of $100.0 million of our outstanding shares of Class A Common Stock over an 18-month period. After we repurchased an aggregate 3.5 million shares for approximately $87.3 million in fiscal year 2024, our Board of Directors authorized the repurchase of up to an additional $100 million of our outstanding shares in December 2024 under the existing October 2023 program, providing us with approximately $112.7 million available for repurchases.

On December 11, 2024, we entered into an accelerated share repurchase agreement (the “ASR Agreement”) with a third-party financial institution and paid $112.7 million to receive an initial delivery of 3,821,958 shares of our Class A Common Stock. The final settlement occurred on March 3, 2025, at which time, we received an additional 685,934 shares of Class A Common Stock calculated using a volume-weighted average price over the term of the ASR Agreement. All repurchased shares were subsequently retired. As of March 31, 2025, less than $0.1 million remained available under the share repurchase authorization.

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

Cash Flows from Operating Activities

Cash provided by operating activities increased by approximately $28.7 million from $34.3 million for the three months ended March 31, 2024 to $63.0 million for the three months ended March 31, 2025. Net income year over year increased by $3.2 million, from $29.1 million in 2024 to $32.3 million in 2025. The aggregate adjustments to reconcile net income to net cash provided by operating activities increased $2.2 million mainly due to increased credit loss expense, stock-based compensation and depreciation expense, which were partially offset by a change in deferred income taxes. The aggregate changes in operating assets and liabilities increased by $23.2 million in 2025 compared to the prior year primarily due to a reduction in the net use of working capital, of which, the majority is attributable to a large payment that reduced accounts payable and other current liabilities in the first quarter of 2024.

Cash Flows from Investing Activities

Cash used in investing activities was $21.2 million and $13.9 million for the three months ended March 31, 2025 and 2024, respectively. The increase in cash used was primarily driven by a $7.0 million increase for purchases of installation and service parts and property and equipment mainly for the Government Solutions business compared to the same period in the prior year.

Cash Flows from Financing Activities

Cash used in financing activities was $8.7 million and $6.3 million for the three months ended March 31, 2025 and 2024, respectively. The increased use in cash from financing activities was mainly due to $2.0 million of higher payments for employee tax withholding related to RSUs and PSUs vesting in 2025 compared to the prior year.

Long-term Debt, Net

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. 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 a third amendment to the 2021 Term Loan (the “Third Amendment”) and in October 2024, a fourth amendment to the 2021 Term Loan (the “Fourth Amendment”) to refinance the 2021 Term Loan (the “Refinancing Transactions”). Pursuant to the Third and Fourth Amendments, the interest rate was reduced by an aggregate 1.00% to Term Secured Overnight Financing Rate (“SOFR”) plus 2.25% from SOFR plus 3.25% with the SOFR floor unchanged at 0.00%. The credit spread adjustment, ranging from 0.11448% to 0.71513%, was eliminated. In addition, the 2021 Term Loan was amended to remove a provision for principal repayments which were previously required to be paid in quarterly installments.

During each of the three months ended March 31, 2025 and 2024, we made early repayments of $2.3 million on the 2021 Term Loan, and as a result the total principal outstanding was $693.3 million as of March 31, 2025.

We recorded less than $0.1 million of loss on extinguishment of debt during the three months ended March 31, 2025 related to the write-off of pre-existing deferred financing costs and discounts in connection with the early repayment. We recognized a loss on extinguishment of debt of $0.6 million for 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.

The 2021 Term Loan bears interest based at our option, on either (i) SOFR plus an applicable margin of 2.25% per annum, or (ii) an alternate base rate plus an applicable margin of 1.25% per annum. As of March 31, 2025, the interest rate on the 2021 Term Loan was 6.6%.

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:

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:

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) SOFR plus an applicable margin, or (2) an alternate base rate, plus an applicable margin. The margin percentage applied to (1) 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 SOFR and the applicable margin percentages. There were no outstanding borrowings on the Revolver as of March 31, 2025 or December 31, 2024. The availability to borrow was $74.4 million, net of $0.6 million of outstanding letters of credit at March 31, 2025.

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 $0.6 million of outstanding letters of credit as of March 31, 2025.

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, 2025, we were compliant with all debt covenants in our debt agreements.

Interest Expense, Net

We recorded interest expense, including amortization of deferred financing costs and discounts, of $16.6 million and $19.6 million for the three months ended March 31, 2025 and 2024, respectively.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet financing arrangements as of March 31, 2025.

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.