# VERRA MOBILITY Corp (VRRM) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from VERRA MOBILITY Corp's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1682745/000095017025029180/vrrm-20241231.htm
Accession: 0000950170-25-029180
Filing date: 2025-02-27
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/VRRM/
All MD&A years: /company/VRRM/mda/
Previous year: /company/VRRM/mda/fy2023/ (FY 2023)
Next year: /company/VRRM/mda/fy2025/ (FY 2025)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with the consolidated financial statements and the related notes that are included in Item 8 of Part II of this Annual Report. This Item generally discusses fiscal years 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between fiscal years 2023 and 2022 are not included, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which specific discussions and comparisons are incorporated herein by reference.

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 RACs, Direct Fleets and 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 Segments

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 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, commercial parking operators and health care facilities 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.

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 strategy. During the periods presented, we:

•
Increased total revenue by $61.9 million, or 7.6%, from $817.3 million in fiscal year 2023 to $879.2 million in fiscal year 2024. The increase was mainly due to service revenue resulting from increased travel volume and FMCs penetration in the Commercial Services segment and the growth from speed, maintenance and bus lane programs in the Government Solutions segment.

•
Generated cash flows from operating activities of $223.6 million and $206.1 million for fiscal years 2024 and 2023, respectively. Our cash on hand was $77.6 million as of December 31, 2024.

•
Used existing cash on hand of $200.0 million during fiscal year 2024 to repurchase approximately 7.9 million shares authorized under a 2023 share repurchase program.

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•
Continued to focus on debt management and lowering our exposure to higher interest rates, and as a result, we refinanced our debt during fiscal year 2024 which reduced our interest rate by an aggregate 111.4 basis points. In addition, we made early repayments of approximately $9.0 million and $172.5 million on our 2021 Term Loan (defined below) during fiscal year 2024 and 2023, respectively.

Recent Events

Share Repurchases and Retirement

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 in open market, ASR or privately negotiated transactions. In June 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. During the fourth quarter of 2024, we repurchased approximately 1.5 million shares through open market transactions and paid $35.8 million. In December 2024, our Board of Directors increased the authorization to repurchase up to an additional $100 million of our shares under the existing October 2023 program, providing us with approximately $112.7 million available for repurchases.

On December 11, 2024, we entered into an 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 is expected to occur in the first quarter of 2025, at which time, we expect to receive additional shares calculated using a volume-weighted average price over the term of the ASR agreement.

We paid a total of $200.0 million for share repurchases during the year ended December 31, 2024. All repurchased shares were subsequently retired. Refer to Note 12, Stockholders' Equity, in Item 8, Financial Statements and Supplementary Data, for additional information on our share repurchases.

Cancellation of the Interest Rate Swap

We exercised our option to cancel the interest rate swap agreement, effective the end of the third quarter of 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 Item 8, Financial Statements and Supplementary Data, for additional information.

NYCDOT Contract

NYCDOT represented approximately 15.8% and 16.9% of our total revenue for fiscal years 2024 and 2023, respectively, and 17.2% and 18.3% of total accounts receivable, net as of December 31, 2024 and 2023, respectively. Our contract with NYCDOT expired on December 31, 2024, and we are presently participating in a competitive procurement for a new NYCDOT automated enforcement program contract. We have executed a one-year contract extension with NYCDOT that expires December 31, 2025. The extension allows NYCDOT to continue to utilize our automated enforcement program under the same terms until the competitive procurement process is completed. However, there is no assurance that we will be successful in winning the competitive procurement for the new automated enforcement contract, or that if we are successful, the terms of the contract will be similar to our current contract. If we are unable to 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.

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Goodwill Impairment

We recorded a $97.1 million impairment to goodwill in our Parking Solutions segment during fiscal year 2024, which is presented in a separate line item on the consolidated statements of operations. This was in connection with our 2024 assessment of goodwill impairment where the Parking Solutions reporting unit's carrying value exceeded the estimated fair value. Refer to Note 2, Significant Accounting Policies, in Item 8, Financial Statements and Supplementary Data, for additional information.

Key Factors Affecting Our Results of Operations

We believe that our performance and future success depend on a number of factors that present opportunities for us but also pose risks and challenges, including those discussed below and in the section of this Annual Report on Form 10-K titled “Risk Factors.”

Macroeconomic Conditions

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.

Travel Demand

Our Commercial Services segment is largely impacted by its customer demand which in turn is impacted by a variety of factors including seasonality, demand for business and leisure travel, reductions in the level of air travel, higher airfare costs, increases in energy prices, general international, national and local economic conditions and cycles, as well as other factors affecting travel levels, such as military conflicts, terrorist incidents, natural disasters and epidemic diseases.

We monitor the Transportation and Security Administration passenger volume (“TSA Passenger Volume”) as one of several measures for Commercial Services revenue growth. TSA Passenger Volume measures the number of passengers screened by the TSA at United States airports, which correlates to the number of vehicles rented by travelers and toll road usage. In fiscal year 2024, TSA Passenger Volume increased approximately five percent over fiscal year 2023, one of several factors contributing to Commercial Services revenue growth.

Electronic Tolling Penetration

Our Commercial Services segment is impacted by the number of toll roads in the United States and the geographic concentration of such roads.

We monitor the expansion and penetration of toll roadways across the United States and the percentage of toll roads that rely on cashless or all-electronic infrastructure. In fiscal year 2024, approximately 70% of all toll roadways in the United States relied on cashless or electronic payment methods.

Enabling Legislation

Our Government Solutions segment is impacted, in significant part, by enabling legislation that permits photo enforcement programs at the state and local level in the United States. Accordingly, we depend on national, state and local governments authorizing the use of automated photo enforcement and not otherwise materially restricting its use.

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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.

Goodwill Impairment. This relates to impairment loss recognized on goodwill from past acquisitions.

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 consisted 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.

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

Loss on Interest Rate Swap. Loss on interest rate swap related to the changes associated with the derivative instrument re-measured to fair value at the end of each reporting period and the related periodic cash receipts or payments.

Loss on Extinguishment of Debt. Loss on extinguishment of debt consisted 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

Fiscal Year 2024 Compared to Fiscal Year 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.

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","","","","","","","Percentage of Revenue","","","Increase (Decrease) 2024 vs 2023"],["($ in thousands)","","2024","","","2023","","","2024","","","2023","","","$","","","%"],["Service revenue","","$","841,676","","","$","783,595","","","","95.7","%","","","95.9","%","","$","58,081","","","","7.4","%"],["Product sales","","","37,531","","","","33,715","","","","4.3","%","","","4.1","%","","","3,816","","","","11.3","%"],["Total revenue","","","879,207","","","","817,310","","","","100.0","%","","","100.0","%","","","61,897","","","","7.6","%"],["Cost of service revenue, excluding depreciation and amortization","","","18,988","","","","18,232","","","","2.2","%","","","2.2","%","","","756","","","","4.1","%"],["Cost of product sales","","","27,058","","","","25,231","","","","3.1","%","","","3.1","%","","","1,827","","","","7.2","%"],["Operating expenses","","","295,937","","","","273,288","","","","33.7","%","","","33.4","%","","","22,649","","","","8.3","%"],["Selling, general and administrative expenses","","","195,054","","","","198,550","","","","22.2","%","","","24.3","%","","","(3,496",")","","","(1.8",")%"],["Depreciation, amortization and (gain) loss on disposal of assets, net","","","109,072","","","","113,195","","","","12.3","%","","","13.9","%","","","(4,123",")","","","(3.6",")%"],["Goodwill impairment","","","97,076","","","","\u2014","","","","11.0","%","","","\u2014","","","","97,076","","","n/a"],["Total costs and expenses","","","743,185","","","","628,496","","","","84.5","%","","","76.9","%","","","114,689","","","","18.2","%"],["Income from operations","","","136,022","","","","188,814","","","","15.5","%","","","23.1","%","","","(52,792",")","","","(28.0",")%"],["Interest expense, net","","","73,902","","","","86,701","","","","8.4","%","","","10.6","%","","","(12,799",")","","","(14.8",")%"],["Change in fair value of private placement warrants","","","\u2014","","","","24,966","","","","0.0","%","","","3.1","%","","","(24,966",")","","","(100.0",")%"],["Tax receivable agreement liability adjustment","","","(257",")","","","(3,077",")","","","(0.0",")%","","","(0.4",")%","","","2,820","","","","(91.6",")%"],["Loss on interest rate swap","","","494","","","","817","","","","0.1","%","","","0.1","%","","","(323",")","","","(39.5",")%"],["Loss on extinguishment of debt","","","1,745","","","","3,533","","","","0.2","%","","","0.4","%","","","(1,788",")","","","(50.6",")%"],["Other income, net","","","(18,970",")","","","(11,123",")","","","(2.2",")%","","","(1.3",")%","","","(7,847",")","","","70.5","%"],["Total other expenses","","","56,914","","","","101,817","","","","6.5","%","","","12.5","%","","","(44,903",")","","","(44.1",")%"],["Income before income taxes","","","79,108","","","","86,997","","","","9.0","%","","","10.6","%","","","(7,889",")","","","(9.1",")%"],["Income tax provision","","","47,660","","","","29,982","","","","5.4","%","","","3.6","%","","","17,678","","","","59.0","%"],["Net income","","$","31,448","","","$","57,015","","","","3.6","%","","","7.0","%","","$","(25,567",")","","","(44.8",")%"]]
[[/GREPCENT_TABLE]]

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Service Revenue. Service revenue increased by $58.1 million, or 7.4%, to $841.7 million for fiscal year 2024 from $783.6 million in fiscal year 2023, representing 95.7% and 95.9% of total revenue, respectively. The following table depicts service revenue by segment:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","","","","","","","Percentage of Revenue","","","Increase (Decrease) 2024 vs 2023"],["($ in thousands)","","2024","","","2023","","","2024","","","2023","","","$","","","%"],["Service revenue"],["Commercial Services","","$","407,680","","","$","372,786","","","","46.4","%","","","45.6","%","","$","34,894","","","","9.4","%"],["Government Solutions","","","367,914","","","","344,034","","","","41.8","%","","","42.1","%","","","23,880","","","","6.9","%"],["Parking Solutions","","","66,082","","","","66,775","","","","7.5","%","","","8.2","%","","","(693",")","","","(1.0",")%"],["Total service revenue","","$","841,676","","","$","783,595","","","","95.7","%","","","95.9","%","","$","58,081","","","","7.4","%"]]
[[/GREPCENT_TABLE]]

Commercial Services service revenue includes mainly toll and violation management revenues from RACs and FMCs. Commercial Services service revenue increased by $34.9 million, or 9.4%, from $372.8 million in fiscal year 2023 to $407.7 million in fiscal year 2024. This increase was primarily due to increased travel volume, product adoption and increased tolling activity compared to the prior year. These factors contributed to a $18.1 million growth in RAC tolling revenue. An increase in enrolled vehicles as well as higher tolling activity from our FMC customers contributed to a $8.4 million growth in revenue during the year ended December 31, 2024, compared to the same period in 2023. The remaining revenue growth was mainly generated from processing titles and registrations as well as processing violations compared to the prior year.

Government Solutions service revenue includes revenue from speed, red-light, school bus stop arm and bus lane photo enforcement systems. Service revenue increased by $23.9 million to $367.9 million in fiscal year 2024 compared to $344.0 million in fiscal year 2023. The increase was primarily driven by the expansion of speed, maintenance and bus lane programs contributing approximately $17.1 million to the increase in service revenue this year. The remaining increase was mainly attributable to expansions across school bus stop arm programs.

Parking Solutions service revenue decreased by $0.7 million to $66.1 million in fiscal year 2024 compared to $66.8 million in fiscal year 2023. The increased revenue from SaaS product offerings was offset by a decrease in professional services related to parking management solutions.

Product Sales. Product sales increased $3.8 million year-over-year and were $37.5 million and $33.7 million for fiscal years 2024 and 2023, respectively. The increase was primarily due to a $8.6 million increase in product sales to Government Solutions customers, offset by a $4.8 million decrease 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 $18.2 million for fiscal year 2023 to $19.0 million for fiscal year 2024, mainly due to increased recurring service costs for the Parking Solutions segment.

Cost of Product Sales. Cost of product sales increased by approximately $1.8 million from $25.2 million in fiscal year 2023 to $27.1 million in fiscal year 2024, which was in line with the increase in product sales discussed above.

Operating Expenses. Operating expenses increased by $22.6 million, or 8.3%, from $273.3 million for fiscal year 2023 to $295.9 million in fiscal year 2024. The increase in 2024 was primarily attributable to an increase of $19.7 million in wages expense, of which, $15.7 million was in the Government Solutions segment and $3.7 million in the Commercial Services segment. Operating expenses as a percentage of total revenue increased from 33.4% to 33.7% in fiscal years 2023 and 2024, respectively. The following table presents operating expenses by segment:

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[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","","","","","","","Percentage of Revenue","","","Increase (Decrease) 2024 vs 2023"],["($ in thousands)","","2024","","","2023","","","2024","","","2023","","","$","","","%"],["Operating expenses"],["Commercial Services","","$","92,038","","","$","83,828","","","","10.5","%","","","10.3","%","","$","8,210","","","","9.8","%"],["Government Solutions","","","182,493","","","","168,736","","","","20.8","%","","","20.6","%","","","13,757","","","","8.2","%"],["Parking Solutions","","","17,353","","","","18,236","","","","1.9","%","","","2.2","%","","","(883",")","","","(4.8",")%"],["Operating expenses by segment","","","291,884","","","","270,800","","","","33.2","%","","","33.1","%","","","21,084","","","","7.8","%"],["Other expenses","","","4,053","","","","2,488","","","","0.5","%","","","0.3","%","","","1,565","","","","62.9","%"],["Total operating expenses","","$","295,937","","","$","273,288","","","","33.7","%","","","33.4","%","","$","22,649","","","","8.3","%"]]
[[/GREPCENT_TABLE]]

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $3.5 million to approximately $195.1 million for fiscal year 2024 compared to $198.6 million for fiscal year 2023. The decrease is primarily due to a $23.3 million decrease in legal expenses compared to the prior year, partially offset by $9.0 million in higher wages and benefits expense, of which, $3.2 million was in the Government Solutions segment and $2.7 million is the Commercial Services segment. In addition, there was a $3.9 million increase in stock-based compensation expense, $3.9 million increase in bad debt expense (mainly in the Commercial Services segment) and increases in other general expenses compared to prior year. Selling, general and administrative expenses as a percentage of total revenue decreased from 24.3% to 22.2% in fiscal years 2023 and 2024, respectively. The following table presents selling, general and administrative expenses by segment:

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","","","","","","","Percentage of Revenue","","","Increase (Decrease) 2024 vs 2023"],["($ in thousands)","","2024","","","2023","","","2024","","","2023","","","$","","","%"],["Selling, general and administrative expenses"],["Commercial Services","","$","62,942","","","$","61,607","","","","7.2","%","","","7.5","%","","$","1,335","","","","2.2","%"],["Government Solutions","","","69,972","","","","62,597","","","","8.0","%","","","7.7","%","","","7,375","","","","11.8","%"],["Parking Solutions","","","25,173","","","","23,988","","","","2.8","%","","","2.9","%","","","1,185","","","","4.9","%"],["Selling, general and administrative expenses by segment","","","158,087","","","","148,192","","","","18.0","%","","","18.1","%","","","9,895","","","","6.7","%"],["Other expenses","","","36,967","","","","50,358","","","","4.2","%","","","6.2","%","","","(13,391",")","","","(26.6",")%"],["Total selling, general and administrative expenses","","$","195,054","","","$","198,550","","","","22.2","%","","","24.3","%","","$","(3,496",")","","","(1.8",")%"]]
[[/GREPCENT_TABLE]]

Depreciation, Amortization and (Gain) Loss on Disposal of Assets, Net. Depreciation, amortization and (gain) loss on disposal of assets, net, decreased by $4.1 million to $109.1 million for 2024 from $113.2 million for 2023. This was mainly due certain non-compete, trademark and developed technology intangible assets being fully amortized in fiscal year 2024 as compared to the prior year. This decrease was partially offset by an increase in depreciation expense in fiscal year 2024.

Goodwill Impairment. We recorded an impairment loss of $97.1 million in fiscal year 2024 as a result of our 2024 assessment of goodwill impairment in our Parking Solutions segment. See Note 2, Significant Accounting Policies, for additional information.

Interest Expense, Net. Interest expense, net decreased by $12.8 million from $86.7 million in fiscal year 2023 to $73.9 million in fiscal year 2024. This decrease is primarily attributable to voluntary principal prepayments made during 2023 and 2024 which lowered the outstanding debt balance in 2024 coupled with a 100 basis-point reduction in the interest rate from refinancing our debt in February and in October of fiscal year 2024. The average variable interest rate on the 2021 Term Loan was 44 basis points lower for the twelve months ended December 31, 2024 compared to the prior period. See “Liquidity and Capital Resources” below.

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Change in Fair Value of Private Placement Warrants. We recorded a loss of $25.0 million for the fiscal year 2023 related to the changes in fair value of our Private Placement Warrants which were accounted for as liabilities on our consolidated balance sheets. The change in fair value was the result of re-measurement of the liability at the end of the reporting period, and the final re-measurement upon their exercise.

Tax Receivable Agreement Liability Adjustment. We recorded a gain of approximately $0.3 million in fiscal year 2024 as a result of lower estimated state tax rates due to changes in apportionment. We recorded a gain of approximately $3.1 million in fiscal year 2023 as a result of tax settlement adjustments related to a previous acquisition.

Loss on Interest Rate Swap. We recorded a $0.5 million loss in fiscal year 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 $0.8 million loss in fiscal year 2023 of which approximately $1.1 million related to the monthly cash payments on the interest rate swap net of $(0.3) million associated with the derivative instrument re-measured to fair value at the end of the reporting period. 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 a $1.7 million loss on extinguishment of debt for fiscal year 2024 related to the write-off of pre-existing deferred financing costs and discounts in connection with the February and October 2024 refinancing of the 2021 Term Loan. Loss on extinguishment of debt was $3.5 million for fiscal year 2023 related to the write-off of pre-existing deferred financing costs and discounts in connection with the early repayment of $172.5 million on the 2021 Term Loan.

Other Income, Net. Other income, net was $19.0 million in fiscal year 2024 compared to $11.1 million in fiscal year 2023. The increase of approximately $7.9 million is primarily attributable to a $5.6 million tax settlement payment recorded in 2023 related to a prior year acquisition without a comparable amount in 2024, as well as increase in volume rebates earned from total spend on credit card transactions due to increased tolling and travel activity.

Income Tax Provision. Income tax provision was $47.7 million representing an effective tax rate of 60.2% for fiscal year 2024 compared to $30.0 million, representing an effective tax rate of 34.5% for fiscal year 2023. Our effective tax rate for 2024 was higher compared to 2023 primarily due to the impact of permanent differences related to the mark-to-market adjustment on the Private Placement Warrants and the impairment adjustments in the Parking Solutions segment.

Net Income. We had net income of $31.4 million for fiscal year 2024 compared to a net income of $57.0 million for 2023. The $25.6 million decrease in net income was primarily due to the goodwill impairment recorded in fiscal year 2024, partially offset by the change in fair value of the Private Placement Warrants liability in the prior fiscal year without a comparable amount in the current year, 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.

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We have the ability to borrow under our Revolver to meet obligations as they come due. As of December 31, 2024, we had $74.4 million available for borrowing, net of letters of credit, under our Revolver. Our cash on hand was $77.6 million as of December 31, 2024.

In February 2024 and in October 2024, we refinanced the 2021 Term Loan (as discussed below) which reduced the interest rate by an aggregate 1.00% and eliminated the applicable credit spread adjustment. During fiscal years 2024 and 2023, we made early repayments of $9.0 million and $172.5 million, respectively, on the 2021 Term Loan and as a result, the total principal outstanding was $695.6 million as of December 31, 2024.

At December 31, 2024, 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.

Share Repurchases

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 in open market, ASR or privately negotiated transactions.

In June 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. During the fourth quarter of 2024, we repurchased approximately 1.5 million shares through open market transactions and paid $35.8 million. On December 4, 2024, our Board of Directors authorized the repurchase of up to an additional $100 million of our outstanding shares of Class A Common Stock under the existing October 2023 program, providing us with approximately $112.7 million available for repurchases.

On December 11, 2024, we entered into an 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 is expected to occur in the first quarter of 2025, at which time, we may receive additional shares calculated using a volume-weighted average price over the term of the ASR agreement.

We paid a total of $200.0 million for share repurchases during the year ended December 31, 2024. All repurchased shares were subsequently retired. In addition, we recorded approximately $1.7 million within accrued liabilities related to the excise taxes payable on net share repurchases on the consolidated balance sheets as of December 31, 2024.

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

[[GREPCENT_TABLE]]
[["","","For the Year Ended December 31,"],["($ in thousands)","","2024","","","2023"],["Net cash provided by operating activities","","$","223,642","","","$","206,101"],["Net cash used in investing activities","","","(69,720",")","","","(58,290",")"],["Net cash used in financing activities","","","(211,427",")","","","(117,793",")"]]
[[/GREPCENT_TABLE]]

Cash Flows from Operating Activities

Cash provided by operating activities increased by $17.5 million, from $206.1 million in fiscal year 2023 to $223.6 million in fiscal year 2024. Net income decreased $25.6 million from $57.0 million in fiscal year 2023 compared to $31.4 million in fiscal year 2024. The aggregate adjustments to reconcile net income to net cash provided by operating activities increased by $93.0 million mainly due to the goodwill impairment recorded in the current year and change in deferred income taxes, partially offset by a decrease in the change in the fair value of private placement warrants. The aggregate changes in operating assets and liabilities decreased by $49.9 million in 2024 primarily due to a legal settlement accrued in the prior year that was paid in 2024, partially offset by a lower increase in accounts receivable balances year over year as compared to prior year, mainly in our Commercial Services business.

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Cash Flows from Investing Activities

Cash used in investing activities in fiscal years 2024 and 2023 was primarily related to purchases of installation and service parts and property and equipment mainly in our Government Solutions business of $70.9 million and $57.0 million, respectively.

Cash Flows from Financing Activities

Cash used in financing activities was $211.4 million in fiscal year 2024 mainly due to $200 million of share repurchases using existing cash on hand, as well as early repayments on the 2021 Term Loan of a net $9.0 million.

Cash used in financing activities was $117.8 million in fiscal year 2023 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, 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 (the “Third Amendment”) and in October 2024, a fourth amendment (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 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 no longer contains a provision for principal repayments which were previously required to be paid in quarterly installments.

We evaluated the Refinancing Transactions on a lender-by-lender basis and accounted accordingly for debt extinguishment and debt modification costs (for the portion of the transactions that did not meet the accounting criteria for debt extinguishment).

During fiscal years 2024 and 2023, we made early repayments of $9.0 million and $172.5 million, respectively, on the 2021 Term Loan and as a result, the total principal outstanding was $695.6 million as of December 31, 2024.

We recorded $1.7 million of loss on extinguishment of debt during the fiscal year ended December 31, 2024, primarily related to the write-off of pre-existing deferred financing costs and discounts in connection with the Refinancing Transactions. We recognized a loss on extinguishment of debt of $3.5 million for the fiscal year ended December 31, 2023, 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 2.25% per annum, or (ii) an alternate base rate plus an applicable margin of 1.25% per annum. As of December 31, 2024, 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:

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[[GREPCENT_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%"]]
[[/GREPCENT_TABLE]]

We did not have mandatory prepayments of excess cash flows for the fiscal years ended December 31, 2024 or 2023.

Senior Notes

In March 2021, VM Consolidated issued an aggregate principal amount of $350.0 million in 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:

[[GREPCENT_TABLE]]
[["Year","","Percentage"],["2025","","101.375%"],["2026 and thereafter","","100.000%"]]
[[/GREPCENT_TABLE]]

PPP Loan

During fiscal year 2020, one of our wholly owned subsidiaries received a $2.9 million loan from the U.S. Small Business Administration (“SBA”) as part of the Paycheck Protection Program (“PPP Loan”) to offset certain employment and other allowable costs incurred as a result of the COVID-19 pandemic. In 2022, we were notified by the SBA that the loan, together with accrued interest, had been fully forgiven under the provisions of the PPP Loan program. Accordingly, we recognized a $3.0 million gain on extinguishment of debt in the consolidated statements of operations for the year ended December 31, 2022.

The Revolver

We have a Revolving Credit Agreement (the “Revolver”) with a commitment of up to $75.0 million available for loans and letters of credit. The Revolver matures on December 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 December 31, 2024 or 2023. The availability to borrow was $74.4 million, net of $0.6 million of outstanding letters of credit at December 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 $0.6 million of outstanding letters of credit as of December 31, 2024.

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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 December 31, 2024, 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 $73.9 million, $86.7 million and $69.4 million for the fiscal years ended December 31, 2024, 2023 and 2022 respectively.

Critical Accounting Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management believes that its estimates and assumptions are reasonable in the circumstances; however, actual results could differ materially from those estimates.

Our significant accounting policies are described in Note 2, Significant Accounting Policies, in Item 8, Financial Statements and Supplementary Data, of this Annual Report. We believe that the critical accounting estimates listed below involve our more significant judgments, assumptions, and estimates and, therefore, could have the greatest potential impact on the financial statements.

Revenue Recognition

Judgment is required for the estimation of the standalone selling price (“SSP”) and the allocation of the transaction price by relative SSPs. Within our Government Solutions and Parking Solutions operating segments, some customer arrangements include multiple performance obligations. Government Solutions’ customer arrangements containing multiple performance obligations typically include the sale and installation of photo-enforcement cameras, license of back-office software, processing payments on behalf of the customer and the performance of maintenance services on such cameras over a contractual term. Parking Solutions’ customer arrangements containing multiple performance obligations typically include the sale of parking access hardware systems, the licensing of SaaS products, installation and/or the performance of maintenance services over a contractual term. In most instances, we have determined these performance obligations qualify as distinct performance obligations, as the customer can benefit from the service on its own or together with other resources that are readily available to the customer, and our promise to transfer the service is separately identifiable from other promises in the contract. For arrangements that contain multiple performance obligations, we exercise judgment in allocating the transaction price based on the relative SSP method by comparing the SSP of each distinct performance obligation to the total value of the contract. We apply judgment in determining the SSP for each distinct performance obligation.

See Note 2, Significant Accounting Policies, in Item 8, Financial Statements and Supplementary Data for additional information on the Company’s policy for recognition of revenue.

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Allowance for Credit Losses

We review historical credit losses and customer payment trends on receivables and develop loss rate estimates as of the balance sheet date, which includes adjustments for current and future expectations. We identify pools of receivables based on the type of business, industry in which the customer operates and historical credit loss patterns (for example, receivables from drivers of rental cars). We evaluate the changes in expectations based on the newest information available on customer payment trends, travel forecasts and other risk characteristics and adjusting either upward or downward that is most representative of the expected credit losses. Administration fees charged to drivers of rented vehicles that we cannot recover from our customers represent higher risk of credit loss compared to our other pools of receivables. We periodically evaluate the adequacy of our allowance for expected credit losses and adjust appropriately.

Impairment of Goodwill and Long-Lived Assets

We assess goodwill for impairment annually on October 1, or more frequently if events or circumstances indicate that the carrying amounts may not be fully recoverable. We have four reporting units for the purposes of assessing potential impairment of goodwill which include Commercial Services, Government Solutions North America, Government Solutions International and Parking Solutions. We first consider the option to assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If we conclude that it is more likely than not that the fair value is less than the carrying amount, we then perform a quantitative impairment test by comparing the reporting unit’s fair value with its carrying value. An impairment loss is recognized for the amount by which the reporting units’ carrying value exceeds its fair value, up to the total amount of goodwill allocated to the reporting unit. No impairment is recognized if the fair value of the reporting unit exceeds its carrying value.

The process of evaluating goodwill requires significant judgment including the identification of reporting units and the determination of the fair value of each reporting unit. We estimate the fair value of our reporting units based on a combination of an income approach or more specifically, a discounted cash flow method (“DCF Method”) and a market approach employing the public company market multiple method. The DCF Method is based on projected future cash flows and terminal value estimates discounted to their present values using a market-participant weighted average cost of capital. Significant estimates and assumptions used in the DCF Method include forecasts of future revenue growth rates, EBITDA margin percentages, terminal growth rates and discount rates. We apply discount rates that are commensurate with the risks and uncertainties inherent in the respective reporting units and our internally developed projections of future cash flows. The market approach utilizes a blend of revenue and EBITDA multiples from guideline public companies which are comparable to us in size, profitability and other factors to estimate the fair value of the reporting units. Significant estimates and assumptions used in the market approach include the selection of guideline public companies, revenue and EBITDA projections, the selection of revenue and EBITDA multiples and the application of a control premium. Our estimates are based upon assumptions believed to be reasonable, but which are inherently uncertain, and actual results may differ from those assumed in our analysis. The determination of whether goodwill is impaired involves a significant level of judgment in these assumptions, and changes in our forecasts, business strategy, government regulations, or economic or market conditions could significantly impact these judgments, potentially decreasing the fair value of one or more reporting units. Any resulting impairment charges could have a material impact on our results of operations.

In connection with our annual impairment assessment, we determined it was more likely than not that the fair values of our reporting units were in excess of their carrying value for our Commercial Services, Government Solutions North America and Government Solutions International reporting units based on qualitative factors. We performed a quantitative impairment test for our Parking Solutions reporting unit as of October 1, 2024. This was due to recent performance that unfavorably impacted the Parking Solutions business, including lower revenue growth, higher customer churn and lower profitability margins than previously estimated. The fair value of this reporting unit was determined by equally weighting the results of the DCF and market approach methods described above. Based on the results of its quantitative review, we concluded an impairment to goodwill was necessary because the reporting unit's carrying value exceeded the estimated fair value. We recorded a $97.1 million impairment of goodwill in our Parking Solutions segment during fiscal year 2024, which is presented in the goodwill impairment line item on the consolidated statements of operations.

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We review our long-lived assets other than goodwill for impairment whenever events or circumstances indicate that the carrying amount of an asset or asset group may not be fully recoverable. We assess recoverability by comparing the estimated undiscounted future cash flows expected to be generated by the asset or asset group with its carrying value. If the carrying value of the asset or asset group exceeds the estimated undiscounted future cash flows, an impairment loss is recognized for the difference between the estimated fair value and the carrying value. Our estimates of cash flows are subjective judgments based on past experiences adjusted for trends and future expectations, and can be significantly impacted by changes in our business or economic conditions. The determination of a asset group's fair value is also subject to significant judgment and utilizes valuation techniques including discounting estimated future cash flows and market-based analyses. If our estimates or underlying assumptions change in the future, our operating results may be materially impacted. During the year ended December 31, 2024, we recorded a $0.2 million impairment related to the write-down of installation and service parts that no longer had future use within the operating expenses line item in our Government Solutions segment. During the year ended December 31, 2023, we recorded a $4.3 million impairment which included a $3.9 million write-down of installation and service parts that no longer had future use within the operating expenses line item in our Government Solutions segment, and $0.4 million impairment of an ROU asset within the selling, general and administrative expenses line item in our Parking Solutions segment. We recorded a $0.7 million of impairment related to certain photo enforcement programs that ended during the year ended December 31, 2022 within the depreciation, amortization and (gain) loss on disposal of assets, net line item on the consolidated statements of operations.

Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year, and to recognize deferred tax assets and liabilities for the expected future consequences of differences between the tax basis of assets or liabilities and their carrying amounts in the financial statements. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax return in future years, while deferred tax liabilities generally represent items that generate a future tax liability for items where deductions have been accelerated for tax purposes. We provide a valuation allowance against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. We calculate the valuation allowance in accordance with the authoritative guidance relating to income taxes, which requires an assessment of both positive and negative evidence regarding the realizability of these deferred tax assets when measuring the need for a valuation allowance. Significant judgment is required in determining any valuation allowance against deferred tax assets. The realization of deferred tax assets can be affected by, among other things, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, our experience with utilizing operating loss and other tax carryforwards by jurisdiction, the reversal of existing taxable temporary differences and tax planning alternatives and strategies that may be available. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Variation in the actual outcome of these future tax consequences could materially impact our financial statements.

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Private Placement Warrant Liabilities

We accounted for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance. For warrants that met all of the criteria for equity classification, the warrants were required to be recorded as a component of additional paid-in capital at the time of issuance. For warrants that did not meet all the criteria for equity classification, the warrants were required to be recorded at their fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants were recognized as a non-cash gain or loss on the statements of operations. Our Public Warrants met the criteria for equity classification and accordingly, were reported as a component of shareholders’ equity while our Private Placement Warrants did not meet the criteria for equity classification and were instead classified as a liability. The fair value of the Private Placement Warrants was estimated at period-end using a Black-Scholes option pricing model, which was a Level 3 fair value measurement exposed to valuation risk. As of December 31, 2023, all Warrants were either exercised by the holder or redeemed by the Company.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, refer to Note 2, Significant Accounting Policies, in Item 8, Financial Statements and Supplementary Data.