You said I'll stand? Or I'll wait till Louis can introduce first.
Great. Good afternoon. I am Louis De Palma. I cover smart city technologies on William Blair's equity research team. This is day two of the 45th annual William Blair Growth Stock Conference. We are pleased to be hosting a hybrid presentation fireside chat with the management team of Verra Mobility. Joining me today are CEO David Roberts, CFO Craig Conti, and Head of Investor Relations Mark Zindler. This is Verra Mobility's fifth year attending our Growth Stock Conference. I am required to inform the audience that a complete list of disclosures and potential conflicts of interest are available on our website at williamblair.com. Following the presentation, there will be a breakout session in the Adler room. Thanks, guys, for joining us. David.
Sure. I'll take it away. Hello. I know all of you are super excited to learn everything you can about photo enforcement and tolling. There is no better way to spend your afternoon. I'm excited to tell you about Verra Mobility. I'm David Roberts. I'm the CEO. I've been with the company a little over 11 years. I was with the company when it was previously privately held. Privately held, then we went to private equity. And then private equity, believe it or not, we went public via SPAC. We're one of the few good guys that actually made it out of that. I heard SPACs are making a comeback, in fact. I'm going to treat this as if you don't know much about the business.
I know some of you know a lot about our business, and we appreciate the attention that you've given us. I want to try to do it at the highest level. I think Craig's going to come up in a little bit to talk through some of the financials. Louis will do some Q&A for us as well. What's the shape of the company? We are a global leader in smart mobility. Over on the left-hand side of the slide, what you see is just a view of the kind of rough financials. What you're seeing there is TTM revenue. Call it roughly a $900 million business that is revenues generated by three separate business units. I'm going to go through each of those in just a minute, as well as what they do and how they make money.
I'll give you the information around that. You can see that 95% of that is service revenue or recurring or reoccurring revenue. Very consistent revenue, high level of visibility into our financial performance, which is a great aspect of our business. Perhaps the one that is most exciting is our adjusted EBITDA margins of 45%. Highly cash flow generative, 43% free cash flow conversion. Last 12 months, $174 million of free cash flow. We do generate a lot of cash. We use that to reinvest in the business. We also buy back a lot of our shares. If you look at our history since going public, we've bought back a pretty good chunk of our shares as well. We're very shareholder friendly when the use of that cash. We operate in 17 countries around the world, mostly in Europe.
We also operate our automated enforcement business via acquisition in Australia, New Zealand, and Canada. We have around 1,900 employees that do that work on behalf of our 2,300 customers. Great business, bright future, excited to be talking about it today. Let me walk through. You'll actually be more familiar. If you don't know the business, you're probably, when I get through this, you might be a customer of ours and not even know it. I look forward to seeing if that's true or not. Number one in commercial services. In commercial services, we are the number one provider of toll management solutions for commercial fleets in North America. That is principally with rental car.
If while you were here and perhaps even on your way from O'Hare, you rented a car from Hertz, Avis, or Enterprise, and you ran a toll, then we were a part of your journey. Because everything related to toll management or paying a toll authority for those three rental car customers is through Verra Mobility. How does that work? We have integrations with the 54 toll authorities across the country that allows us to put vehicles on our account. When they incur a toll, we pay that toll to the toll authority immediately. When you turn your rental car back in at the end of your rental agreement, we gather all those tolls and those costs plus the administration fee, and we bill your credit card via the rental agreement that you have.
Yeah, if you look at rental car, again, we have the big three here. We also work with them in Europe as well. The rest of that business, we work with fleet management companies. If you're familiar with companies like Element or Donlen Wheels, where they procure vehicles on behalf of corporations, we put tolling and violation management solutions as well as title and registration as well. That's the commercial service business. Predominantly operates here in the United States, although several years ago we did some acquisitions inside of Europe to take our tolling for rental car into Europe. We operate out of London and Amsterdam, where we're working with several pilots across different parts of Europe. That's been a slower moving aspect of our growth story. That business overall, you can see great margins, great growth. It's a really, really good business.
Question in your mind is, what about all the travel that we've heard here in the U.S.? What's the impact to us? We are clearly impacted by travel, but we have a lot of our growth that is not necessarily correlated with travel. While it certainly impacts us, it doesn't impact us quite as much as you may think. If there's a question on that, we're glad to entertain that in the follow-up session. Craig can handle that. Anyone ever rent a car and run a toll? Anyone? Okay, good. So you're customers. Thank you. Appreciate your business. Has anyone ever gotten a red light ticket, a speeding ticket, or a school bus stop arm ticket from a camera? Anyone here? Thank you for your business. Please slow down and drive carefully. We are the number one provider of those solutions in North America.
We partner with cities all across North America to create safety solutions in their communities via automated enforcement. Again, that shows up as red light cameras at intersections, speed cameras in places like school zones and work zones, and school bus stop arm cameras. In many states where a school bus is in operation and the arm is extended and the lights are on, you would be surprised at the number of vehicles that continue to travel by on the opposite side when children are trying to get on the bus. We issue violations to those offenders as well. That business has been absolutely knocking the cover off the ball the last several quarters. Most recently, as we announced publicly, we renewed our relationship with New York City.
New York City is the largest automated enforcement program in the world, over 3,000 intersections and cameras that they use today. We can't really talk much about it because we're still under what's called private procurement, but they have announced it. So we can announce it that we've been awarded the tender. We're in the final stages of wrapping up our contract, and we'll be able to announce the terms of that in the next few months, I would imagine. Very excited. The other unique aspect of this business, this business is effectively it is kind of pre-wired via legislation, meaning to have automated enforcement, you have to have legislation at a state level that allows a city to choose to do it. When we what we call open up legislation, we work with state and local lobbyists to create legislation to allow for enforcement.
When we do that, we are creating TAM or SAM for the business to go selling. We have opened up more of that SAM, or excuse me, TAM in the last three years than we did in the previous eight or four. When we went public, we had 21 states that had automated enforcement. We now almost have 40. It gives you an idea of where local police, local community politicians are leaning toward these for community safety. Finally, our parking business, which was an acquisition we did a couple of years ago. Two primary customers there, we work with universities. We provide a software platform for them to manage their permitting and the ticketing for the students and the people that are getting the different types of parking at universities. I have three kids in college.
I didn't know this was a thing until my kids started giving me their parking tickets, and I realized why this is a problem. It's a problem that we solved that I'm happy to be a part of. We also work with municipalities on the enforcement of parking, the permitting, and the enforcement of parking as well. It gives you a sense of that business. Overall, a great portfolio of very mobility-focused businesses that have continued to be really successful. How do we win? What's the differentiation? We have a saying that we want to serve our customers at the highest point of their needs. You would see of the 1,900 employees that you saw on the earlier slide, many of those are very focused on our customers, how we serve them, the quality of our service, what else can we do for you.
Many of our acquisitions and things that we've done have been the result of directly our customers. We take a look and decide that that's a good idea or not in some cases. We look at our renewal rates, 95% plus across the business. Very, very strong customer relationships, long-dated contracts, very consistent sources of revenue. We look at, based upon those relationships, we create differentiated solutions, as I mentioned, whether that's getting into parking, whether that's getting into the title and registration business that we're in. Those are all driven by customer inquiry and customer opportunities. We've used M&A in the past. We've done five or six acquisitions since we've gone public, including Redflex and T2. T2 is the parking business. Redflex was a competitor in the automated enforcement space that was based in Australia. That allowed us to go global with our capabilities.
Previous to that, we were U.S. only. We connect all these businesses together. While all of the businesses are under the umbrella of mobility, we really operate them as independent portfolio companies. Think in the likes of companies like a Danaher or a Ford, where they put a lot of autonomy at the hands of the business so they can react quickly to what the customers do. We connect them by a common business system, which we call the Verra Mobility Operating System, which is how we make sure that we are driving KPIs, that we are driving operational efficiency and continuous improvement. All businesses run that exactly the same while their customers and their products and services are somewhat different.
Overall, in terms of the great part about our businesses, without doing acquisitions, we are staged for growth in the businesses that we have today. Our core businesses are doing very well. As I mentioned, our government solutions business in particular right now is really enjoying a tailwind of growth and opportunity given its market position as well as the dynamics in the market. You can see across the bottom that the expectation of what those growth algorithms look like is a high single-digit growth in commercial services, our expectation, mid-single-digit plus for government solutions, especially nowadays, and then ultimately getting to high single-digit for parking on our software and our hardware businesses there. All of that has the capacity.
We can use M&A when we need to, but we're not looking to do deals that we don't need to do because we'll redeploy that via share repurchases or just continue to invest in the great businesses that we already have. The management team, awesome team, world-class engagement scores in the upper 70s if you look at Glint surveys and things like that. We have maintained a 77 or greater. We have a strong culture, committed to customers, committed to high values, and it's driven by this leadership team here. With that, one of them is going to come up and talk a little bit more about the financial profile, which is Craig, our CFO.
Thanks, David.
There you go.
I appreciate that. Thank you to all of you for being here. One of the things I like to kick off, and I want you to hear me say this, and I know I speak for David too, we compete for investors. We compete for investors. That is what we are doing here. I am going to walk you through why I think our story is pretty good. Remember, that is what we are here to do. If we look at the total revenue of the business, David just gave you an overview of what we do. Total revenue CAGR since 2021 coming in at about 16%, service revenue CAGR at 18%. As David mentioned, we are rounding up on a TTM basis to just under $900 million. 95% of that revenue is service revenue, and that is primarily recurring or reoccurring revenue. We are really proud of that revenue base.
We move over to the profitability and free cash flow. Sorry, I'm going to arch to see my own numbers here. Our adjusted EBITDA CAGR still double-digit at 13%. For the last four years, we've been right around that 45%-46% adjusted EBITDA. High margin, high differentiation in our products. Very proud of that. On a free cash flow conversion, David gave you the absolute numbers. The way I like to quote this is a conversion of adjusted EBITDA. This is going to come into play when I talk about leverage and capital allocation in a minute. We typically convert between 35%-45% of free cash flow this year. I expect to be on the higher end of that. 40%-45% free cash flow conversion. That is even while we're investing in the growth of the government solutions business that David mentioned earlier.
Again, very cash accretive that allows us to do a lot of things. That is why I want to talk about how we differentiate ourselves with capital allocation. Quickly on the balance sheet, I took a snapshot here of the first quarter. We closed with about $100 million of cash on the balance sheet. We have about $1 billion of debt. That $1 billion of debt, $700 million of that is float at SOFR + 225. That is a Covenant Light Term Loan B for my structured finance friends in the room. Pretty good fighting weight for a company of our size. We have $350 million fixed at just about 6%, a little less than 6%. That is our debt stack. On a net debt basis, that brings us down to $950 million. Take a look at our leverage in the upper right-hand corner.
We've hovered around 22-24. Now, if you've listened to the company talk before, I talk about our target leverage. When we did our investor day back in 2022, the target leverage for the company was three and a half times. And I said we compete for investors. As we went out in 2023 and 2024 and everyone saw what happened with interest rates, we took the target leverage of the company down to 3x . I'm running below 3x . Simply what that means is we are not going to lever up to our target leverage just to do so. We're going to make sure we're allocating the dollars where they're best served. Finally, on our debt maturity side, all of our debt is long-dated. Our first maturity does not come out till 2028. That's the balance sheet. We publish this slide every quarter.
When we post our earnings deck, if you want to learn more about the company, obviously our earnings calls are a great thing, but we do the investor presentation. This slide is in there. We update it every 90 days. It's my favorite slide that we do. This is what I think is our differentiator. How do we spend that free cash flow that I just showed you on the last page? The first dollars out the door, always, are going to be in light blue. We're going to invest in our core business. That's CapEx. The CapEx for Verra Mobility, excuse me, two-thirds of these dollars is what I call revenue-generating CapEx. With the government solutions business, the photo enforcement technology that the municipalities use is actually funded by Verra Mobility and remains on our balance sheet. This is not CapEx hoping for a return.
This is CapEx as a result of a commercial agreement. The balance is software, capitalized software. If you look over the balance of the last five years, we spent $1 billion on our strategic M&A. David walked you through a few of those deals, but we have not done a deal since the end of 2021. December 2021 was our last deal. We have continued on our journey of capital allocation and what makes the most sense in return for our investors. The way I think about it is this. I cannot tell you what is going to happen in six months, but I will tell you exactly how Verra Mobility is going to allocate their capital. We are going to common-size our cash flows, and we are going to put it towards what is the best return at that moment in time.
Given the free cash flow of the company, we get to make that decision every 60 days. Here's what we've done as of recent. We've paid down about $250 million worth of debt. My term loan B, as I said, was Covenant Light. We could do that dollar for dollar at our option without penalty. We've bought back over $500 million of shares. If you saw recently, we put out an 8-K. We have a new $100 million authorization from our board, and we'll see if and when that makes sense. With capital allocation, I want you to think about that as a differentiator for the company. As we get into Q&A, if you have any questions, I'll be happy to answer them. Finally, the outlook for the year.
This is the exact same outlook we put up in February, and we maintained it through the first quarter. We expect about 6% growth on the top line. That's on the lower end of our long-term rubric. Back at our investor day, we talked about this is a business that's going to grow 6%-8% organically year- on- year over term. The reason that it's 6% and not somewhere near the higher end of that range is 17% of our business is New York City. New York City, as we said, we renewed, but we're still in contract renewal. I have that factored in as flat. With 17% of my business flat, we're still hitting 6% growth, and I still think that's the right number. Adjusted EBITDA up about 3%. We have some investment coming in this year. I put in a new ERP.
Happy to say that the thrust of that spending is behind us. We just closed our first month on the new system. It's Oracle Fusion. It's working fine. And about 8% growth at the midpoint for adjusted EPS. I do want to touch on just one thing that David said. I think he said it well in his presentation talking about, well, a question we get a lot. What about travel demand? What about travel demand? If I look at the hotel companies, if I look at the airlines, a lot of folks pulled their second-half guidance. You saw that in Q1. We decided not to do that. Here's why. We are exposed to travel. Of course, we are. But it's nowhere near even 50% of the business. If I think about what the impact of that travel could be, as I sit here today, travel's about flat.
Year to date, it's about flat where it was last year. If I look at the second half of the year, if travel stays flat, even if it goes down a couple of points, I can still be in that range. If travel goes down more than that, obviously, we're going to have to have a different discussion. That's how I think about the rubric and the guide. Finally, I just wanted to wrap with a couple of high-level comments that I think Louis might have a few questions that hopefully will address some things that are on your mind. We're the global leader in each of our three markets. David walked you through that. We're well-positioned in each of these businesses. These businesses have large, long-term, durable, secular tailwinds. We're very proud to participate in them. I talked about our cash flow.
What's not on the page, but I really want you to think about, it's not about the cash flow we generate. It's what we do with that cash flow. Take a look at that wheel and look at how we allocate that capital. Finally, I'm proud to be a member of this team, and I think we got the right team to execute on the markets that we're in. Again, thank you for coming. Thank you for having us. Let's hear what's on your mind.
Yeah. So following up on what you just said regarding if travel were to decline by 1%-2%, that you're still comfortable with the guidance range. Is that how we should interpret it?
That is the way you should interpret it. I think that that's a second-half number. Because the question, David and I and Mark, we tried to think of, well, what would I ask if I were buying the stock of this company? The airlines have said we could see some turbulence, excuse the term, in the back half of the year. The best I could do is kind of draw a box and say, if that turbulence gets to this level, we're still good. Clearly, if the market gets worse than that, we're going to have to relook at it. That's where we're at.
Yeah. To benchmark it with investors, what is the algorithm in terms of how your commercial division is able to outpace travel volume such that should we assume that there's a general 6% outperformance or 5% outperformance? How do you think about that and all the moving parts?
Yeah. I'll take it numerically, then David may cap on that strategically, for sure. The shape of that question in the past has been this. If travel's a GDP grower, and let's take a developed world GDP of 2.5%, just for example, and it's going to be that every year for the medium term, how can you have this business that grows high single digits? As David said, this is a high single-digit organic grower. The way I think about that growth is a third, a third, a third. A third of it is GDP travel growth. Now, that may happen. That may not. The other third are secular tailwinds, which are durable secular tailwinds. The way I think about that is toll roads in the United States. On average, we add 10-20 toll roads in the United States per year.
Last year it was 20. 95% of the rental cars in the U.S. are under contract of Verra Mobility. Clearly, as we add toll roads, that's a boon to the company. I did not have to do anything incremental to receive that boon. Finally, on this third is the penetration of cashless. 70% of the roads in the United States of America are cashless. That's 30% left to go. When a road goes cashless, our renter has automatically opted into our program and is going to use the program. As that penetration continues, that's a tailwind. That's a second third of the growth. The remaining third, or what I would say would be more standard growth initiatives. This is our penetration of the fleet business, which does not have anything to do with travel.
It has the title and registration business and our growth in Europe. That is how I think about it. A third, a third, a third to get from zero to high single digit. If one of those thirds goes to zero, then you are left with the remaining 2/3.
Great. Should we think of it as 5%-6% in terms of outperformance?
Yeah. It's tough to give that. It's tough to give that number. Now, let me tell you why. I can't give you that specific of a number. The TSA throughput is a great indicator of our business. One thing I've been saying to the folks in the room today is if you regress that with commercial services revenue, you get an R-squared 0.8. So it's very closely correlated. The TSA, 2/3 to 3 /4 of our revenue is in five states. We're sitting in one of those states today, Florida, California. You could guess what they are, Texas, New York. If TSA is 2%, but it's 4% growth somewhere that doesn't have toll roads, it doesn't necessarily impact Verra Mobility. Still, there's some variability there. Over the medium term, I think that's the right rubric, Louis.
You're saying, "I need to get better data.
Good luck. I haven't found it yet. So good luck. You'll find it, Louis.
Now, that was insightful. Another question that's popular on investor minds relates to the rollout of red light camera and speed camera services and some of the new markets that have passed legislation. David, I think you said that from the time you started to recently went from 21 states to 40 states. Two of the big states are Florida and California. Can you provide some type of status update in terms of how those markets have progressed?
Yeah. Just to give you, California is a really unique state in as much as it had red light cameras previously, but it was deployed poorly. The legislation was quite poor. The recidivism rate was low. It just was not done well. They have done some work to fix that. They have also added a pilot for school zone speed. There are six cities that have an opportunity to add a fixed number of cameras. There is a five-year pilot that has been allowed. If the returns of that and the metrics that you would anticipate around safety are achieved, then you would look to see a large state rollout. That goes from a TAM of $10 million to $100 million very quickly. We would anticipate that California would roll out much faster than that. It would go statewide probably in the next two years.
One RFP has been issued and awarded San Francisco. It was awarded to us. There are two others, which we've also bid on, one Oakland, one San Jose, which we haven't quite heard about yet. We feel good about our, we think we're very well positioned there. The other state you mentioned is Florida, where we recently re-won Orlando, which is a very large city. We've also won a couple of school bus stop arm there. The competition certainly has been more fierce in Florida than in California. Given the backlog of ARR that we have, we feel like we're in a really good position on the growth of the business outside of New York.
Great. You indicated that you're knocking the cover off the ball. Is that a reflection of both your competitive win rate and also the fact that there is this industry momentum? For that industry momentum, what's driving all of these states to adopt?
I mean, the second part of your question, in short, Verra Mobility. Meaning we avail ourselves of the political process through state and local lobbyists to make sure that there are legislators that are aware of the benefit of automated enforcement and that they're promoting legislation that allows cities to make a choice on how to protect the citizens in their community. We do that in all the states. We also protect it when others might say, "We don't want this type of legislation." We are on both sides of that. When I say we're knocking the cover off the ball, it's, one, we've opened up so much TAM in two years because of the efforts of our team and the local legislators, which allows us to then go sell our products.
The second part is our win rate against that has been so high, especially in what we would just consider larger municipalities, which is we tend to do better in the larger municipalities. We have been winning more than our fair share, which is consistent with close to our market share.
Would you say that in general, there may be an increasing acceptance of robotics in terms of photo enforcement? Because previously, there was a perception that if somebody were to receive a ticket, they think that there is an unfairness associated with receiving a ticket from a machine. Increasingly, on the front page of the Wall Street Journal, there was a story. It said, "I think we're in Waymo's world." With Tesla, there's the potential for the rollout of full self-driving in Austin this month. Robotics is a big theme right now. You guys play into this robotics theme. Has there been an increasing acceptance that's carrying over to how robotics can help with safety?
Yeah. I would say two things. One is there's certainly, robotics notwithstanding, certainly technology as a force multiplier for police is something that's very accepted. It's very difficult to recruit and retain police officers right now. Taking the ones you have and deploying them against the highest leverage crime is exactly what cities want to do. Our technology is a multiplier effect for that. I would also say, too, that whether it's robotics or not, certainly images. People are getting a lot more used to images because that's all they see on their phones all day long. My daughter takes more pictures of herself before noon than I've probably taken in a year. There's just a lot of that going around. I think the image aspect or a picture being available, that used to be one of the big concerns.
That seems to have abated a bit.
Nice. Yeah. I'm trying to envision yourself taking selfies.
I don't. Yeah. I probably struggle to take a selfie. Yeah.
Another question for Craig. As it relates to the leverage target, you mentioned how it went from three and a half to three times. And now I think you're at 2.2 x, but you announced the $100 million buyback. How serious are you about the three-times leverage target? Are you trying to preserve the optionality in terms of if there are attractive M&A targets out there? Or what is your view there?
The view of that is absolutely yes. Three times, by the way, is the level flight path. That is not the maximum. The maximum could pop above that, then we would try—we would not try. We would delever down to the 3x . That is the way we think about it. Again, given the cash flow generation of the company, we look at all the levers of capital deployment all the time. I can tell you, we have a full-time team that works on M&A. M&A has been very successful for us in the past, but we will not do a deal just to do a deal. I think we are happy to tell you that.
Great. I think that is all the time we have for this main session. Thank you, David and Craig. We are going to resume.
Thank you all for attending.
Yes. We're going to resume this conversation in the Adler room on the second floor. Thanks, everyone.
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