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Significant Accounting Policies (Policies) | 12 Months Ended
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Dec. 31, 2021
Accounting Policies [Abstract] |
Principles of Consolidation | Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation.
Use of Estimates | Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Significant estimates and assumptions include those related to the fair values assigned to net assets acquired (including identifiable intangibles) in business combinations, revenue recognition, inventory valuation, allowance for credit losses, fair value of the private placement warrant liabilities, valuation allowance on deferred tax assets, impairment assessments of goodwill, intangible assets and other long-lived assets, asset retirement obligations, contingent consideration and the recognition and measurement of loss contingencies. Management believes that its estimates and assumptions are reasonable in the circumstances; however, actual results could differ materially from those estimates.
Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers all highly liquid investments purchased with a remaining maturity of three months or less when acquired to be cash equivalents.
Restricted Cash | Restricted Cash The Company collects cash on behalf of customers under certain contracts which it deposits daily into Company bank accounts and transfers regularly to customer bank accounts. Restricted cash represents customer cash collected but not yet remitted to the customer. Restricted cash is classified as a current asset and the corresponding liability is classified in current liabilities.
Concentration of Credit Risk | Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents, accounts receivable and unbilled receivables. The Company limits cash and cash equivalents to highly rated financial institutions. Significant customers are those which represent more than 10% of the Company’s total revenue or accounts receivable, net. Revenue from the single Government Solutions customer exceeding 10% of total revenue is presented below:
|  | For the Year Ended December 31, |
|  | 2021 |  |  | 2020 |  |  | 2019 |
City of New York Department of Transportation |  |  | 26.6 | % |  |  | 31.3 | % |  |  | 14.6 | %
The City of New York Department of Transportation (“NYCDOT”) represented 39% and 59% of total accounts receivable, net as of December 31, 2021 and 2020, respectively. The total outstanding receivables balance decreased $35.7 million at December 31, 2021 compared to the outstanding balance at December 31, 2020 as the Company collected approximately $182 million during 2021 from the customer. There is no material reserve related to NYCDOT open receivables as amounts are deemed collectible based on current conditions and expectations. No other Government Solutions customer exceeded 10% of total accounts receivable, net as of any period presented. Significant customer revenue concentrations generated through the Company’s Commercial Services partners as a percent of total revenue are presented below:
|  | For the Year Ended December 31, |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Hertz Corporation |  |  | 12.6 | % |  |  | 12.0 | % |  |  | 18.7 | %
Avis Budget Group, Inc. |  |  | 12.3 | % |  |  | 9.5 | % |  |  | 14.5 | %
Enterprise Holdings, Inc. |  |  | 11.4 | % |  |  | 11.3 | % |  |  | 13.5 | %
No Commercial Services customer exceeded 10% of total accounts receivable, net as of any period presented. There were no significant customer concentrations that exceeded 10% of total revenue or accounts receivables, net for the Parking Solutions segment.
Allowance for Credit Losses | Allowance for Credit Losses Accounts receivable and unbilled receivables are uncollateralized customer obligations arising from the sale of products or services. Accounts receivable and unbilled receivables have normal trade terms of less than one year and are initially stated at the amounts billed to the customers and subsequently measured at amortized cost net of allowance for credit losses. Unbilled receivables are recorded when revenues have been earned but have not been included on a customer invoice through the end of the current period. The Company reviews historical credit losses and customer payment trends on receivables and develops loss rate estimates as of the balance sheet date, which includes adjustments for current and future expectations using probability-weighted assumptions about potential outcomes. Receivables are written off against the allowance for credit losses when it is probable that amounts will not be collected based on the terms of the customer contracts, and subsequent recoveries reverse the previous write-off and apply to the receivable in the period recovered. No interest or late fees are charged on delinquent accounts. The Company identified portfolio segments based on the type of business, industry in which the customer operates and historical credit loss patterns. The following presents the activity in the allowance for credit losses for the years ended Dece mber 31, 2021 and 2020, respectively:
($ in thousands) | Commercial Services (Driver-billed)(1) |  | Commercial Services (All other) |  | Government Solutions |  | Total(3) |
Balance at January 1, 2020 (2) | $ | 5,272 |  | $ | 1,406 |  | $ | 1,778 |  | $ | 8,456 |
Credit loss expense |  | 6,554 |  |  | 4,945 |  |  | 2,892 |  |  | 14,391 |
Write-offs, net of recoveries |  | (8,616 | ) |  | (2,074 | ) |  | (686 | ) |  | (11,376 | )
Balance at December 31, 2020 | $ | 3,210 |  | $ | 4,277 |  | $ | 3,984 |  | $ | 11,471 |
Credit loss expense (income) |  | 11,040 |  |  | (1,138 | ) |  | (314 | ) |  | 9,588 |
Write-offs, net of recoveries |  | (8,853 | ) |  | (47 | ) |  | (21 | ) |  | (8,921 | )
Balance at December 31, 2021 | $ | 5,397 |  | $ | 3,092 |  | $ | 3,649 |  | $ | 12,138 |
(1) Driver-billed consists of receivables from drivers of rental cars and fleet management companies for which the Company bills on behalf of its customers. Receivables not collected from drivers within a defined number of days are transferred to customers subject to applicable bad debt sharing agreements. (2) This includes a $0.8 million increase to allowance for credit losses as a result of adopting the credit loss standard. (3) The activity related to the Parking Solutions segment was not material since the date of acquisition. The Company evaluates the adequacy of its allowance for expected credit losses by comparing its actual write-offs to its previously recorded estimates and adjusts appropriately. The Company adjusted down its estimate for credit loss as of December 31, 2021 for the Commercial Services (All other) segment to reflect improved economic conditions based on customer payment trends in the last 12 months. The credit loss estimate as of December 31, 2020 was based on higher probabilities of loss given the uncertainty caused by COVID-19 on the travel industry. The Commercial Services (Driver-billed) portfolio segment’s credit loss estimate as of December 31, 2021 increased compared to the prior year due to increased revenue that impacted the volume of transactions as a result of recovery from COVID-19.
Inventory, net | Inventory, net Inventories consist of parts and electronic components used in the production of parking management related hardware sold to certain Parking Solutions customers and photo enforcement equipment sold to certain Government Solutions customers. Inventories are stated at cost on a first-in, first-out basis or net realizable value. The Company assesses the value of its inventories and writes down the cost to net realizable value upon evaluation of historical experience and assumptions regarding future usage, and any such write down establishes a new cost basis for the items.
Installation and Service Parts | Installation and Service Parts Installation and service parts consist of components used in the construction and maintenance of our photo enforcement systems. Installation and service parts are stated at cost and are reclassified to property and equipment upon initiation of construction. Installation and service parts used in repairs and maintenance are recorded as operating expenses.
Property and Equipment | Property and Equipment Property and equipment is stated at cost less accumulated depreciation. All repairs and maintenance costs are expensed as incurred. Depreciation is recorded on a straight-line basis over the estimated useful lives of the related assets as follo ws:
Building |  | 39 years
Equipment installed at customer sites |  | 3-7 years
Computer equipment |  | 3-5 years
Furniture |  | 3-10 years
Automobiles |  | 3-7 years
Software |  | 3-7 years
Leasehold improvements |  | Shorter of lease term or estimated useful life
Equipment installed at customer sites includes certain installation costs that qualify for capitalization. Software costs include certain internal and external costs associated with the development of software that are incurred during the application development stage. In addition, a modification or upgrade to existing software is capitalized only to the extent it results in additional functionality to existing software. Software maintenance and training costs are expensed as incurred. The Company capitalized internally developed software costs of $3.0 million, $5.1 million and $2.1 million during fiscal years 2021, 2020, and 2019 respectively.
Goodwill | Goodwill Goodwill represents the excess of the purchase price over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. Goodwill is assessed for impairment at least annually at the reporting unit level or more frequently if events or changes in circumstances indicate the carrying value may not be recoverable. If, based on a qualitative analysis, it is determined more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, a one-step quantitative impairment test is performed. Reporting units are identified by assessing whether the components of the Company’s operating segments constitute businesses for which discrete financial information is available and if segment management regularly reviews the operating results of those components. Application of the goodwill impairment test requires judgment, including the identification of reporting units, the assignment of assets (including goodwill) to those reporting units and the determination of the fair value of each reporting unit. The date of the Company’s annual impairment analysis is October 1. The annual qualitative analysis did not indicate any impairment as of the fiscal years ended December 31, 2021, 2020 and 2019. In June 2021, the Company acquired Redflex and determined that the Redflex international operations represent a new reporting unit for the purposes of assessing potential impairment of goodwill, and therefore the Government Solutions operating segment was divided into two reporting units. In December 2021, the Company created a new operating and reportable segment, Parking Solutions, as a result of the acquisition of T2 systems, which was determined to be a separate reporting unit. As of December 31, 2021, the Company has four reporting units for the purposes of assessing potential impairment of goodwill.
Equity Investment | Equity Investment The Company holds an investment in privately held equity securities which is recorded at cost and adjusted for observable transactions for same or similar investments or for impairment. Investment gains and losses are recorded in other income, net. Valuations of privately held securities require judgment due to the lack of readily available observable market data. The carrying value is not adjusted if there are no identified events that would indicate a need for upward or downward adjustments or changes in circumstances that may indicate impairment. In determining the estimated fair value of its investment, the Company utilizes the most recent data available. The Company assesses it investment for impairment quarterly using both qualitative and quantitative factors. If an investment is considered impaired, an impairment loss is recognized and a new carrying value is established for the investment. Our analysis did not indicate impairment as of December 31, 2021. See Note 16, Related Party Transactions for more information.
Intangible Assets | Intangible Assets Intangible assets represent existing customer relationships, trademarks, developed technology (hardware and software) and non-compete agreements. Intangible assets are amortized over their respective estimated useful lives on a straight-line basis, which approximates the utilization of their expected future benefits. Amortization of intangible assets is included in depreciation, amortization and (gain) loss on disposal of assets, net in the consolidated statements of operations. The Company annually evaluates the estimated remaining useful lives of its intangible assets to determine whether events or changes in circumstances warrant a revision to the remaining period of amortization.
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets The Company reviews its long-lived assets (including intangible assets with finite useful lives and installation and service parts) for impairment whenever events or circumstances indicate that the carrying amount of an asset or an asset group may not be fully recoverable. The Company assesses 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. The state of Texas passed legislation as of June 1, 2019, to ban red-light photo enforcement programs across the state, with certain carve-outs for some existing programs. The Company considered this a triggering event for potential impairment and evaluated the recoverability of property and equipment used in the operations of red-light photo enforcement programs in Texas. As a result, the Company recognized an impairment charge in the Government Solutions segment of $5.9 million for fiscal year 2019, which was included in impairment of property and equipment in the consolidated statements of operations. We did no t have any indicators of impairment related to long-lived assets for the years ended December 31, 2021 or 2020.
Self-Insurance | Self-Insurance The Company is self-insured for medical costs and has stop-loss insurance policies to limit its exposure to individual and aggregate claims made. Liabilities for these programs are estimated based on outstanding claims and claims estimated to be incurred but not yet reported using historical loss experience. These estimates are subject to variability due to changes in trends of losses for outstanding claims and incurred but not reported claims, including external factors such as the number, and cost of, claims, benefit level changes and claim settlement patterns.
Warrants | Warrants As of December 31, 2021, there were warrants outstanding to acquire 19,999,967 shares of the Company’s Class A Common Stock including: (i) 6,666,666 Private Placement Warrants and (ii) 13,333,301 warrants issued in connection with the IPO (the “Public Warrants” and, together with the Private Placement Warrants, the “Warrants”). The Warrants entitle the registered holder to purchase one share of our Class A Common Stock at a price of $11.50 per share, subject to certain adjustments. The Warrants became exercisable on November 16, 2018, 30 days following the completion of the Business Combination, and expire five years after that date, or earlier upon redemption or liquidation. The Company may redeem the outstanding Warrants at a price of $0.01 per warrant, if the last sale price of its Class A Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30 trading-day period ending on the third business day before it sends the notice of redemption to the Warrant holders. The Private Placement Warrants, however, are nonredeemable so long as they are held by Gores Sponsor II, LLC or its permitted transferees. The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance under FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common shares, among other conditions for equity classification. For warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The Company’s Public Warrants meet the criteria for equity classification and accordingly, are reported as a component of shareholders’ equity while the Company’s Private Placement Warrants do not meet the criteria for equity classification because the holder of the instrument is not an input into the pricing of a fixed-for-fixed option on equity shares and are instead classified as a liability. The fair value of the Private Placement Warrants is estimated at period-end using a Black-Scholes option pricing model. Shares issuable under the Warrants were considered for inclusion in the diluted share count in accordance with GAAP. As the shares issuable under the Warrants are issuable shares when exercised by the holders, they are included when computing diluted income (loss) per share, if such exercise is dilutive to income (loss) per share.
Fair Value of Financial Instruments | Fair Value of Financial Instruments ASC Topic 820, Fair Value Measurement, includes a single definition of fair value to be used for financial reporting purposes, provides a framework for applying this definition and for measuring fair value under GAAP, and establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are summarized as follows: Level 1 – Fair value is based on observable inputs such as quoted prices for identical assets or liabilities in active markets. Level 2 – Fair value is determined using quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active or inputs other than quoted prices that are directly or indirectly observable. Level 3 – Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow, or similar technique. The carrying amounts reported in the Company’s consolidated balance sheets for cash, accounts receivable, accounts payable, accrued expenses and the PPP Loan approximate fair value due to the immediate to short-term maturity of these financial instruments. The estimated fair value of the Company’s long term debt was calculated based upon available market information. The carrying value and the estimated fair value are as follows:
|  | Level in |  | December 31, 2021 |  |  | December 31, 2020 |
|  | Fair Value |  | Carrying |  |  | Estimated |  |  | Carrying |  |  | Estimated |
($ in thousands) |  | Hierarchy |  | Amount |  |  | Fair Value |  |  | Amount |  |  | Fair Value |
2021 Term Loan |  | 2 |  | $ | 871,467 |  |  | $ | 895,125 |  |  | $ | — |  |  | $ | — |
Senior Notes |  | 2 |  |  | 344,918 |  |  |  | 355,250 |  |  |  | — |  |  |  | — |
2018 Term Loan |  | 2 |  |  | — |  |  |  | — |  |  |  | 842,045 |  |  |  | 861,314 |
Revolver |  | 2 |  |  | 24,435 |  |  |  | 25,000 |  |  |  | — |  |  |  | — |
The fair value of the private placement warrant liabilities is measured on a recurring basis and is estimated using the Black-Scholes option pricing model using significant unobservable inputs, primarily related to estimated volatility, and is therefore classified within level 3 of the fair value hierarchy. The key assumptions used were as follows:
|  | December 31, 2021 |  |  | December 31, 2020 |
Stock price |  | $ | 15.43 |  |  | $ | 13.42 |
Strike price |  | $ | 11.50 |  |  | $ | 11.50 |
Volatility |  |  | 48.0 | % |  |  | 44.0 | %
Remaining life (in years) |  |  | 1.8 |  |  |  | 2.8 |
Risk-free interest rate |  |  | 0.66 | % |  |  | 0.16 | %
Expected dividend yield |  |  | 0.0 | % |  |  | 0.0 | %
Estimated fair value |  | $ | 5.77 |  |  | $ | 4.63 |
The Company is exposed to valuation risk on its Level 3 financial instruments. The risk of exposure is estimated using a sensitivity analysis of potential changes in the significant unobservable inputs, primarily the volatility input that is the most susceptible to valuation risk. A 5% increase to the volatility input at December 31, 2021 would increase the estimated fair value b y $0.30 per unit. A 5% decrease to the volatility input at December 31, 2021 would decrease the estimate fair value by $0.30 per uni t. The following summarizes the changes in the private placement warrant liabilities included in net income (loss) for the respectiv e periods:
($ in thousands) |  | December 31, 2021 |  |  | December 31, 2020 |
Beginning balance |  | $ | 30,866 |  |  | $ | 29,733 |
Change in fair value of private placement warrants |  |  | 7,600 |  |  |  | 1,133 |
Ending balance |  | $ | 38,466 |  |  | $ | 30,866 |
The Company's equity investment is measured at cost of $3.7 million and only adjusted to fair value if there are identified events that would indicate a need for upward or downward adjustment or changes in circumstances that may indicate impairment. The estimation of fair value requires the use of significant unobservable inputs, such as voting rights and obligations in the securities held, and is therefore classified within level 3 of the fair value hierarchy. The fair value of contingent consideration payable in connection with the NuPark acquisition is classified within level 3 of the fair value hierarchy. The valuation of the contingent consideration was measured using a discounted cash flow model. The significant unobservable inputs used in the measurement of consideration relate to forecasts of annualized revenue developed by the Company.
Asset Retirement Obligation | Asset Retirement Obligation The Company records obligations to perform certain retirement activities on camera and speed enforcement systems in the period that the related assets are placed in service. Asset retirement obligations are contractual obligations to restore property to its initial state. These obligations, which are initially estimated based on discounted cash flow estimates, are accreted to full value over time through charges to operating expenses in the consolidated statements of operations. The associated asset retirement obligation is capitalized as part of the related asset’s carrying value and is depreciated over the asset’s estimated remaining useful life. When events and circumstances indicate that the original estimates used for asset retirement obligations may need revision, the Company reassesses the assumptions used and adjusts the liability appropriately.
Deferred Financing Costs | Deferred Financing Costs Deferred financing costs consist of the costs incurred to obtain long-term financing, including the Company’s credit facilities (See Note 9). These costs, which are a reduction to long-term debt on the consolidated balance sheets, are amortized over the term of the related debt, using the effective interest method for term debt and the straight-line method for revolving credit facilities. Amortization of deferred financing costs for fiscal years 2021, 2020 and 2019 was $5.2 mill ion, $5.4 million, and $6.6 million respectively.
Income Taxes | Income Taxes The Company accounts for income taxes under the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax 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 tax returns 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. The Company provides a valuation allowance for deferred tax assets if it is more likely than not that some portion or all of the tax assets will not be realized. The Company calculates 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 losses and tax credit carryforwards by jurisdiction, the reversal of existing taxable temporary differences and tax planning alternatives and strategies that may be available. The Company’s effective tax rate is based on income, statutory tax rates, differences in the deductibility of certain expenses and inclusion of certain income items between financial statement and tax return purposes, and tax planning opportunities available to it in the various jurisdictions in which it operates. Under GAAP, if the Company determines that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, the Company recognizes the benefit. Tax code and regulations require certain items to be included in the tax return at different times than when those items are required to be recorded in the consolidated financial statements. As a result, the effective tax rate reflected in its consolidated financial statements is different from that reported in its tax returns. Some of these differences are permanent, such as meals and entertainment expenses that are not fully deductible on the Company’s tax returns, and some are temporary differences, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax provision or benefit.
Stock-based Compensation | Stock-based Compensation In October 2018, the Company established the Verra Mobility 2018 Equity Incentive Plan (the “2018 Plan”) which provides for a variety of stock-based awards for issuance to employees and directors. The Company grants restricted stock units (“RSUs”), stock options and performance share units (“PSUs”). The Company recognizes the fair value of RSUs based on the Company’s common stock price at market close on the date of the grant. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options, and uses the Monte Carlo simulation model to determine the fair value of PSUs containing market conditions. The Black-Scholes model requires an assumption regarding the expected life of the stock option, which the Company estimated to be 6.25 years by applying the short-cut method permitted under SEC Staff Accounting Bulletin No. 110. The expected term of PSUs granted was three years, which matches the awards’ performance period. RSUs and stock options vest based on the continued service of the recipient. PSUs are issued upon continued service along with the relative satisfaction of a market condition that measures the Company’s total stockholder return relative to a comparably calculated return for a peer group during the performance period. In addition, the Black-Scholes and the Monte Carlo models require assumptions to be made regarding the expected volatility of the Company’s stock pri ce. Stock price volatility is determined by averaging an implied volatility with a measure of historical volatility. Stock options granted in 2021 had a weighted average expected volatility of 47.7% and a weighted average risk-free rate of 0.94%. The weighted average expected volatility of PSUs granted in 2021 was 50.4% and the weighted average risk-free rate used was 0.33%. Stock options granted in 2020 had a weighted average expected volatility of 34.5% and a weighted average risk-free rate of 0.73%. The expected volatility of PSUs granted in 2020 was 34.0% and the risk-free rate used was 0.61%. The Company did no t have stock options or PSU grants in 2019. Stock-based compensation expense for share-based awards is determined based on the grant date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, which is generally the vesting term of the share-based award. The compensation expense for the PSUs is recognized over the requisite service period regardless of whether the market condition is satisfied. Forfeitures are accounted for as they occur. See Note 14, Equity Incentive Plan, for more information on the Company’s share-based awards.
Revenue Recognition and Deferred Revenue | Revenue Recognition and Deferred Revenue Nature of Goods and Services The following is a description of principal activities – separated by reportable segments – from which the Company generates revenue: Commercial Services. The Commercial Services segment offers toll and violation management solutions for the commercial fleet and rental car industries. The Company determined its performance obligation is a distinct stand-ready obligation, as there is an unspecified quantity of services provided that does not diminish, and the customer is being charged only when it uses the Company’s services, such as toll payment, title and registration, etc. Payment terms for contracts with commercial fleet and rental car companies vary, but are usually billed as services are performed. Government Solutions. The Government Solutions segment principally generates revenue by providing complete, end-to-end speed, red-light, school bus stop arm, and bus lane enforcement solutions. Products, when sold, are typically sold together with the services in a bundle for a majority of customers. The average initial term of a contract is 3 to 5 years. Payment terms for contracts with government agencies vary depending on whether the consideration is fixed or variable. Payment terms for contracts with fixed consideration are usually based on equal installments over the duration of the contract. Payment terms for contracts with variable consideration are usually billed and collected as citations are issued or paid. In instances when the consideration expected from the customer is subject to variation, any variable consideration affecting revenue recognition is allocated to the distinct period (the monthly period) that it relates to. For bundled packages, the Company accounts for individual products and services separately if they are distinct – i.e., if a product or service is separately identifiable from other items in the bundle and if a customer can benefit from it as a stand-alone item. The consideration is allocated between separate products and services in a bundle based on their stand-alone selling prices (“SSP”). The Company estimates the SSP for its services based upon observable evidence, market conditions and other relevant inputs. If products are sold without the related services, no allocation is required. • Product sales (sale of camera systems and installation) – the Company recognizes revenue when the installation process is completed and the camera system is ready to perform the services as expected by the customer. Generally, this occurs at site acceptance or first citation. The Company recognizes revenue for the sale of the camera system and installation services at a point in time. • Service revenue – the Company has determined its performance obligation is to provide a complete end-to-end safety and enforcement solution. Promises include providing a system to capture images, processing images taken by the camera, forwarding eligible images to the police department and processing payments on behalf of the municipality. The Company has determined that certain of the promises to its customers are capable of being distinct as they are capable of providing some measure of benefit to the customer either on their own or together with other resources that are readily available to the customer. However, the Company has determined the promises to its customers do not meet the criterion of being distinct within the context of its contracts. The Company would not be able to fulfill its promises individually as its customers could not obtain the intended benefit from the contract without the Company fulfilling all promises. Accordingly, the Company concluded that each contract represents one service offering and is a single performance obligation to the customer. Further, the Company accounts for all the services as a single continuous service. The Company applied the series guidance for those services as it stands ready to deliver those services over the contract period. The Company recognizes revenue from services over time, as they are performed. As of December 31, 2020 and 2021, the Company had approximately $0.3 million and $8.9 million of deferred revenue in the Government Solutions segment. Deferred revenue represents amounts that have been invoiced in advance which are expected to be recognized as revenue in future periods. The majority of the remaining performance obligations as of December 31, 2021 are expected to be completed and recognized in 2022 and $3.2 million is expected to be recognized ratably between 2023 through 2027. Parking Solutions. The newly acquired T2 Systems business offers an integrated suite of parking software and hardware solutions to its customers. Revenue since the date of acquisition was derived primarily from the sale of software as a service (“SaaS”) and specialized hardware. For bundled packages, the Company accounts for individual products and services separately if they are distinct and allocate the transaction price based on the relative SSP. • Revenue derived from the Company’s SaaS products is recognized ratably over the contractual service period beginning on the date the service is made available to the customer. • Revenue from hardware product sales is recognized at a point in time when ownership is transferred to the customer. As of December 31, 2021, the Company had approximately $20.9 million of deferred revenue which represents amounts that have been invoiced in advance to the Parking Solutions customers and are expected to be recognized as revenue in 2022. Significant Judgments Significant judgment is required in order to identify contracts with customers and estimate transaction prices. Additional judgments are required for identifying the performance obligations and determining whether the services provided are able to be distinct, determining the transaction price as it relates to the different variable consideration structures identified in our contracts, the estimation of the SSP and the allocation of the transaction price by relative SSPs. Assumptions regarding timing of when control transfers to the customer also requires significant judgment in order to recognize revenue.
Credit Card Rebates | Credit Card Rebates The Company earns volume rebates from total spend on purchasing cards and recognizes the income in other income, net in the consolidated statements of operations. For the fiscal years ended December 31, 2021, 2020 and 2019, the Company recorded $11.3 million, $8.5 million, and $11.8 million respectively, related to rebates.
Advertising Costs | Advertising Costs The Company expenses advertising costs as incurred. Advertising costs for the fiscal years ended December 31, 2021, 2020 and 2019, were $0.7 million, $0.8 million and $2.3 million, respectively and were included in selling, general, and administrative expenses in the consolidated statements of operations.
Foreign Currency | Foreign Currency Certain assets and liabilities denominated in foreign currencies that differ from their functional currencies are re-measured at the exchange rate on the balance sheet date. The foreign currency effect of the re-measurement is included in other income, net in the consolidated statements of operations. The impact of foreign currency re-measurement was (losses) gains of $(0.2) million, $0.4 million and $(0.6) million for the fiscal years ended December 31, 2021, 2020 and 2019, respectively. The assets and liabilities of our foreign subsidiaries whose functional currency is not the U.S. dollar are translated into U.S. dollars at current exchange rates while revenue and expenses are translated from functional currencies at average monthly exchange rates. The resulting translation adjustments are recorded in accumulated other comprehensive (loss) income in stockholders’ equity.
Acquisitions | Acquisitions The Company applies the acquisition method to account for business combinations. The Company allocates the fair value of the purchase price consideration to assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase consideration over the fair value of the identifiable assets and liabilities is recorded as goodwill. The Company includes the results of operations of businesses acquired from the date of the respective acquisition. Any transaction costs associated with acquisitions are expensed as incurred. Measurement period adjustments to preliminary purchase price allocations are recognized in the period in which they are determined, with the effect on earnings of any changes in depreciation, amortization or other income resulting from such changes calculated as if the accounting had been completed at the acquisition date. If applicable, we estimate the fair value of contingent consideration payments in determining the purchase price. Contingent consideration is adjusted to fair value in subsequent periods as an increase or decrease in selling, general and administrative expenses. The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed is based on various assumptions and valuation methodologies requiring considerable management judgment, and includes the use of independent valuation specialists to assist the Company in estimating fair values of acquired tangible and intangible assets. Although the Company believes that the assumptions applied in the determination are reasonable based on information available at the date of acquisition, actual results may differ from estimates.
Recent Accounting Pronouncements | Recent Accounting Pronouncements Accounting Standards Adopted In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements for fair value measurements in Topic 820, Fair Value Measurement. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Company adopted this standard during the first quarter of 2021 and provided relevant disclosures for the private placement warrant liabilities, which are a Level 3 measurement that fall within the scope of the standard. See Fair Value of Financial Instruments section above. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU removes specific exceptions to the general principles in Topic 740 in GAAP including the exception to the incremental approach for intra-period tax allocation, exceptions to accounting for basis differences when there are ownership changes in foreign investments, and the exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also simplifies current guidance in relation to franchise taxes that are partially based on income, transactions with a government that result in a step-up in tax basis of goodwill, separate financial statements of legal entities that are not subject to tax, and enacted changes in tax laws in interim periods. The Company adopted the ASU as of January 1, 2021, which did not have a material impact on the Company’s financial statements or related disclosures. In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share calculation in certain areas. The Company early adopted this standard as of January 1, 2021, which did not have an impact on the Company’s financial statements and related disclosures, as the Company had no instruments subject to the standard. If the Company were to issue instruments subject to the standard in the future, such guidance as early adopted by the Company would apply. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The amendments are effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2022. The Company early adopted the ASU during the fourth quarter of 2021 on a retrospective basis for all acquisitions completed in 2021 which did not have a material impact. As a result, it did not measure its deferred revenue at fair value for business combinations completed in fiscal year 2021. See Note 3. Acquisitions for additional information. Accounting Standards Not Yet Adopted In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. It provides optional expedients and exceptions for applying GAAP to contract modifications, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The amendments are effective as of March 12, 2020 through December 31, 2022, to help stakeholders during the global market-wide reference rate transition period. Under the terms of the 2021 Term Loan discussed below, in the event there is a benchmark transition away from LIBOR, a benchmark replacement rate has been defined in the 2021 Term Loan along with the mechanism for such a transition to take place. The Company does not anticipate this transition will have a material impact on its consolidated financial statements. In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another topic. It specifically addresses the measurement and recognition of the effect of a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option if it remains equity-classified after the modification or exchange. The amendments are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted. The impact of the implementation of this guidance is still being determined by the Company. In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, to increase transparency in financial reporting by requiring business entities to disclose information about certain types of government assistance they receive. The amendments require annual disclosures regarding the nature of any transactions with a government accounted for by applying a grant or contribution accounting model by analogy and the related accounting policy used, the effect of the assistance on the entity’s financial statements, and the significant terms and conditions of the transactions. The ASU is effective for annual periods beginning after December 15, 2021, and early application is permitted. The impact of the implementation of this guidance is still being determined by the Company.

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