Thanks everyone for coming. Hi, I'm Ashish Sabadra. I cover business and info services companies, and we are excited here to have David and Mike here with us. David is the CEO of Verra Mobility, and Mike recently joined as the head of M&A. Maybe, David, do you want to start off just giving a brief introduction of Verra Mobility, and then we'll jump into the questions, talk about the New York City opportunity, Europe, and everything?
Yeah. Absolutely. Yeah, happy to do so. Thanks for being here today. My name is David Roberts. I'm the CEO of the company. We are a leader in smart transportation. We principally serve two customer segments. About 60% of our business comes from what we call commercial services, where we serve commercial fleets, and that is principally serving rental car companies like Hertz, Avis, and Enterprise related to their tolling and toll management programs. We are the number one provider of outsourced toll management programs for rental car companies in the United States. In addition to that, we work with fleet management companies to help them with toll management, violations, and title and registration services. On the other side of the business, what we call Government Solutions, we're the number one provider of photo enforcement in North America.
That includes red light cameras, speed cameras, and school bus stop arm cameras.
No, that's a great introduction, and maybe we'll jump into the questions.
Yeah.
I want to talk about the New York City opportunity. You recently won a big mandate. Maybe you can talk about the opportunity, how big it is?
the implementation timeline, any details, color on that front.
Sure. Several months ago now, New York City legislators voted to expand significantly the school zone speed program in New York City. We've been the partner for New York City for well over a decade now for photo enforcement. They had been operating in about 150 school zones, and they're expanding that to 750 school zones. They have what's called a Vision Zero mandate, which is they want zero fatalities related to traffic deaths inside of New York City. Thus, they think of photo enforcement as a key plank in that opportunity. Over the course of the next several years, we'll be installing cameras in all of the school zones that are on in Manhattan, basically, which will be a total camera count Again, we have about 300 today, a total camera count of about 1,500.
That's great. How should we think about the revenue model here? Is it the installation? Can you talk about the monthly recurring fees going forward?
The way that the model works for New York City is, and in about half of our portfolio, we get a fixed fee per camera per month. In addition to that, we sell the actual hardware to New York City. For both of those, think relative to what we charge in terms of it per month, it's approximately $3,800 per month. We also charge for the installation and the camera and all the work that goes into set up a camera. Call it between the $60,000 and $80,000 per camera, approximately.
That's good. As you mentioned, you already had 300 cameras. You installed around 59 cameras in the second quarter.
Yeah.
How should we think about the pace of installation going forward?
Yeah. We've been operating at a very high clip. The way that the City has asked us to do it is to think about 40 cameras per month through the end of the year, including December. That rate would change to 60 per month starting next year, which effectively turns out to be about a two-and-a-half year timeline to get the rest of the cameras installed. It obviously includes, there's work that City has to do to make that happen. There's work that we have to do. There's weather. There's all these kind of things that can impact the timing of that. That's a good rough estimate of what it would be.
That's great. Obviously these cameras are getting installed in New York City. The law, the legislation was passed by New York State. Is there opportunity for you to do it for other cities within the New York State?
Yeah. We already work today with Yonkers, White Plains, where we operate other programs today. The state has enabling legislation to allow red light cameras as well as they just passed legislation for school bus stop arms. That's a brand-new opportunity where we put cameras on the side of school buses so that when the arm is extended and the lights are on, if someone tries to drive the other way, if you've ever seen those videos on the local news, they're quite scary, and we see them all the time. We will give a fine or ticket to someone that does that. That's new to the New York State as well.
Okay. That program would be applicable across the state?
It is. That's gonna be anywhere in the state.
Okay.
Yeah.
That's good. Maybe just sticking on to the photo enforcement part of the business, the Government Solutions, you also highlighted a big TAM, addressable market in Georgia. Can you help us understand what happened in Georgia and why the addressable market is?
Yeah. One of the challenges as well as the opportunities in photo enforcement is that you do have to have state legislation that enables it to occur. Cities on their own can't decide that they're gonna start issuing fines. They have to have a law that backs it. We are a participant in working with state legislatures related to passing laws that promote photo enforcement. We were involved in the state of Georgia for the last couple of years, helping them think through the best way to roll out what they wanted, which was school zone speed, which is solving one of the biggest problems, which is speeding in school zones. That law passed in, I believe it was April or May of last year.
Now for our business, that's about a $50 million TAM if you look at all of the school zones in the state of Georgia. Right now, we'll be more focused, obviously, in the Atlanta area, which is where the mass of the opportunity would probably be.
That's great. On the last earnings call, you also talked about a couple of wins in the Washington state. Can you just talk about what's going on in that state?
Yeah. In Washington, there's a few states that have all three photo enforcements, where school bus, red light, and speed. Washington State is one of them. We've been working in Seattle and King County for many, many years, and there's been some expansion of their school zone program there as well.
Right. How many states currently have this program, and which are the states which are on your radar as being the next big opportunity similar to Georgia or New York State?
Yeah. Right now there's 20 states that have allowance for photo enforcement of some kind. Trying to think, 2021. I think in addition to that, we would say that right now other states like California, which has it, would be a state that we'd like to fix in some way. Excuse me just one second. Ask Mike a question.
Sure. Mike.
Yeah.
We'll jump here a bit and talk about, maybe you want to give a quick background. You joined the company recently. You want to provide a quick background?
Sure. I joined in April 1st. I was running M&A for a company called HERE Technologies, which is a global location technology provider. I joined Verra Mobility on April 1st, to really launch the corporate development strategy function at Verra Mobility and build a comprehensive global M&A function at Verra Mobility.
Okay. Maybe you can talk about the M&A opportunities. What are the priorities from a capital allocation?
Sure
perspective?
Yeah, one of the first things I wanted to do when I joined was create a comprehensive M&A program, which to me started with the first principles. When we think about it, we think about it as strategic fit, financial discipline, and integration focus. With strategic fit, I'll get into because that relates to the deal thesis of why Verra Mobility may be a unique buyer for any of the companies that would be interesting to us. Financial discipline is just being about relentless, about our cost of capital. Making sure that from the cash flow of the business returns the capital associated with the risk of the deal that it takes to get the deal done.
With integration focus being making sure that as a corporate buyer, we have long-term plans in place to realize whatever is the deal thesis for doing the deal in the first place for Verra Mobility. When I think about strategic fit at Verra Mobility, I think about three things, three areas that are interesting to us. The first one is accelerating our current bet. As we look at things that we're already investing in organically, things like European expansion, if there are ways for us to accelerate some of that, and get there faster, cheaper, whatever that might be, those are obviously very interesting to us. The second piece would be any companies that are in similar spaces that we are, where cost synergies would be meaningful to us, to take a look at those.
The third piece would be looking at the areas where Verra Mobility brings unique assets to the space, and those are really about our customer relationships, where our customer relationships on the government side, municipality side, are super strong. Our customer relationships on the commercial side with our RACs are very strong. Looking at opportunities where we can push new products and expand our existing products through our existing customer channels would be areas that are very interesting to us from a revenue synergy side. When I look at strategic fit, those are the three things I think about to fill that pillar for us.
No, that's great. Maybe just a quick follow-up question from those three opportunities, but maybe if you take a step back, can you just talk about the commercial services? That part of the business has been growing consistently in the teens. What's driving the growth, and how do you think about the growth drivers going forward?
Let me take that.
All right.
See if I can finish this one or not. The good news on the commercial services business is that we have an automatic tailwind with the advent of new toll roads, the advent of cashless toll roads, and ongoing effort of our customers that are trying to increase adoption through pricing. All those come together, which have generated really outstanding growth. If you look at the first quarter and second quarter of this year, they were seeing sort of the teen 12% sort of level for the first part of the year. We were super excited about that.
That's great. As you think about the penetration, you work with all the three Rental Car Companies. What is the penetration and how do you think about penetration going forward? Some of these secular trends, how do they influence penetration going forward?
The penetration is unique because it's very location specific, meaning, we live in Arizona, there are no toll roads. The adoption level for tolling in Arizona is zero. If you are in Miami and you drive out of the airport, you hit a toll. The adoption level in Miami is 85%. It's very specific. When you look on average, you're going to be looking at approximately around the 20% mark, and that has slowly gone up really due to the three things that I listed earlier, which are more toll roads, more cashless toll roads, and changing in pricing philosophy and pricing products that allow them to incent people to use the program that may have been avoiding it elsewhere.
Sure. On the call, you also mentioned the product and operational innovation, and that's driving increased adoption. Maybe if you can elaborate on that?
Yeah. We did the large acquisition of HTA a couple of years ago. The result of that is a tremendous amount of synergy that we're seeing flow through because the business scales very well because effectively you're talking about three major customers. We have different platforms, but the core of that now can be shared, we were able to get a fair amount of synergies as a result, the operating leverage of the business is quite high for every incremental transaction that comes in. It's very profitable.
That's helpful. Then going back to the point that you made, like for example, if there's a cashless tolling, the penetration is definitely much higher. Can you give an anecdotal example, let's say Boston Airport or Boston toll road?
Boston converted to cashless. Well, gosh, it's probably been two years now, right outside of Logan Airport. Prior to that, the adoption of the program was in the low teen, maybe 10%, 12%. Immediately post that going up, it spiked up to 35%. It reduces the optionality, and if you're going to use it's cashless. You opt in. Whether you pull the box down or not, we get the license plate, and we charge it regardless. It just creates the incentive to use the program.
That's good. Just quickly on the New York City congestion pricing. New York City is implementing the congestion pricing.
Yeah.
Maybe a two-part question there. We'll first talk about just on how, once that program is enabled, how will that help you on the commercial side? Is there opportunity there?
Yeah. congestion pricing is effectively a tolling program. It's a tolling program that charges people to be in a certain area of a certain city at a certain time. The rates kind of change. The way that will impact our business is through when rental cars go into the congestion zone, they'll be charged that fee, presumably. They haven't actually figured out the value, presumably. Our program would account for that. It would be just like they have a tolling program. There would be a fee associated with that we would charge. That's going to not start for some time. The program doesn't kick off until 2021. There'll be some rollout after that.
Okay. That's helpful. Maybe the second part there was, if New York City is successful with its congestion pricing, do you see other cities adopting it? Is there an opportunity for you not just to benefit on the commercial side?
Yeah
On the other hand, like you manage the photo enforcement infrastructure, is there opportunity on the Government side as well?
We think so. We were very active in looking at the bid of doing the congestion pricing scheme for New York. We just arrived at the conclusion that it was so big and very complex that we really wanted to focus our energies on the really sort of in-hand opportunities that are fantastic that we have already with the City of New York. We really wanted to wait and see. This is the first congestion scheme in the United States, so it's a little bit different. We see over time that there'll be other cities that are going to do it. Seattle, Philadelphia, D.C., have all proclaimed that they're going to be looking at it. We don't think we're out of the game in any stretch, but we didn't want to risk it all on this one big bet in the beginning.
Yeah, that's helpful. A question on Peasy as well. You have a mobile app, Peasy. You also have signed up a couple of partners, including GasBuddy. Can you just talk about your strategy with Peasy?
Yeah
The partnership opportunity there?
Yeah. Peasy is a mobile app that you can download. You can go to the App Store right now and download it. It's called Peasy, P-E-A-S-Y. It allows you to register your vehicle with us, and you no longer need a transponder. You can go through any toll road in the country and not have to pay a fine that we would charge you for that. We would pay it on your behalf. It sort of gives you the potential for an interoperable solution today. The way that we've been distributing that is through channel partners. We've aligned ourselves with companies like GasBuddy, where you can get a discount on the Peasy fee by going through GasBuddy, as well as with Arrive. We have a partnership with Arrive that allows you to do parking. That has not launched yet.
That'll launch this quarter or maybe next quarter, where you can actually use the Arrive inventory and register parking on the Peasy app. It's all relatively new and small, but we plan on using more channel partners like that and to continue to grow that base.
Oh, that's good. On the last call, you also mentioned that there was a toll data service with a leading rideshare company.
Yeah.
I was wondering if you can elaborate on that.
Yeah. One of the things you always want to do is you have all these assets in your business, and how do you leverage them for the betterment of the company? We may have more tolling data than any company in the U.S. as it relates to what the charge of tolls is at what time of day. A challenge that if you're a rideshare company and you're using independent drivers is they're charging you back for the tolls, but are you sure that that was the actual price of the toll, or are they charging you a price that may not be the price of the toll?
We're able to give them data that tells them the charge of every toll of every gantry in the United States so that they can reconcile that discrepancy to make sure that they're only reimbursing for the tolls that they should.
Okay. No, that's good. Are there more opportunities like this where you have this?
Yeah, absolutely.
data assets, how do you help manage that data?
Yeah. We look at OEMs, we look at other sort of non-traditional fleets like rideshare, car share, as opportunities that could use our data, and whether or not they're using Peasy or whether or not they're just using the back-end systems, understanding the price and the payment of tolls, where the toll roads are, how much they're charging. That's all data that is useful to these fleets because that's a very expensive cost for them. We can help them manage that more effectively.
That's great. You talked about the Arrive partnership that you plan to launch in a quarter or two. Are there opportunities to work with other parking providers? How do you think about, like, cities? Parking in cities can be a challenge.
You want to talk about that?
Yeah. In general, yeah, if we think about our current customers and problems they're trying to solve and what we currently solve for local governments, municipalities is a photo enforcement problem. Parking is a problem they're trying to solve, where we have parking incorporated in Peasy, or we will. Thinking about how we can provide similar services, whether it's on the enforcement side, which is what we do today in photo enforcement, or looking at larger opportunities in parking. It's certainly a market that's interesting to us as we think about expanding our product portfolio for cities because it's a problem that they're trying to solve today. It's on our radar, and it's an area we're looking at if we find the right entry point for Verra Mobility. It's a problem all our customers are thinking about and trying to solve today.
That's correct. Let's shift to Europe.
Yeah.
Europe, congrats on the partnership with or signing the contract with the French tolling authority, APRR. I was just wondering if you can provide some color on how big the opportunity is in Europe, and what does this contract mean for the pilot?
I think it's important to note that one of the major sort of planks of the business that we have here in the United States is the integration with toll authorities, that we have the ability to make a payment on behalf of a vehicle that's registered to our accounts. That is part of our secret sauce. I guess it's not a secret because I just told you. If you guys will just keep it in this room, that'd be great. That is the way that you create interoperability and the ability from a vehicle that moves from one state to another or one country to another. It exists within the context of those integrations. We needed that to exist inside of Europe, and we picked France as our first location. There's more toll roads in France than in all of the United States.
It's a target-rich environment, if you will, as it relates for rental car companies, because that's where their challenge is. There is no rental car program today that they use across Europe to manage tolling. That was the opportunity. We look at Europe as a total, as a $300 million total opportunity, when you look at fleets, rental cars, tolling violations, and everything else.
Okay. What would be the next steps in terms of, you've talked about a potential pilot launch in the fourth quarter. What are the steps involved? Where are you in terms of managing the relationship with the rental car companies to launch the product?
Yeah. David mentioned, there's two pieces to it. You need the relationship with the tolling authorities, and then you need the relationship with the customers. The good news is our current customers in the U.S. are the same customers that operate in Europe. There are a few others, but they are asking us to solve the problem in Europe. Now that we have the relationship with APRR in France, we'll be working on getting pilots rolled out in France. In parallel, we'll be working on creating the relationships with the other countries in Europe, focusing on U.K., Ireland, focusing on other companies in Southern Europe, to expand where we can provide the services to the rental car companies. The next step would be pilots with our current customers, and then looking at expanding that through relationships with tolling authorities in other countries in Europe.
That's great. As we think about the market itself, I think it's like a $300 million opportunity.
How should we think about the ramp? Is this a multi-year revenue opportunity?
We've always said that Europe is a 10-year opportunity for us, that we got to prove it. We want to work with our partners to do so, but I think what you'll see is a lot of proof of concept and a lot of adoption going into next year as we not only pull out our rollout in France, but also Southern Europe.
Yes.
From there, you'll start to get a trajectory up. You could see the end of next year sort of being this trajectory up of we've got line of sight, we've proven it, and now it's just going to be how fast do we roll it out in the rest of Europe.
Okay. No, that's good. When you think about working with the rental car companies, how are you able to leverage your existing relationship? You'd also made a tuck-in acquisition, EPC. Can you also help us explain how that acquisition has helped you managing that relationship with the toll authorities?
I guess maybe you answer the second part, I'll answer the first part, which is we definitely leverage the relationships here. Part of the reason we're doing this is our customers asked us to. They wanted us to come to Europe because there was no solution, and they realized that it was an opportunity not only for them to generate income, but also to solve a problem for their customers, given the proliferation of toll roads. That was a big genesis of why we're going there to begin with. Maybe talk a little about EPC.
Yeah. EPC does cross-border violations in Europe. EPC is really the foundation with which we can use to expand our presence in Europe rather than building it from scratch. They have relationships with many of the key countries in Europe. Not necessarily with the tolling authorities, but it gives us credibility with which to launch a business in Europe that it would be hard to build organically. It serves as a foundation from which to launch our RAC tolling operations in Europe.
That's good.
Just maybe you talked about on the M&A side, Europe was definitely one of the opportunities. Maybe you can elaborate further how you might be able to use M&A to speed up your deployment in Europe.
Yeah. Just in general, we would be interested in areas that gave us the contractual relationships that are needed because they take time to create and build. We'd be looking at, as we just think about the things that we need, which is customer relationships with the RACs. We have those through our business in the U.S. Establishing the relationships with tolling authorities across Europe is the next step. Anything that can accelerate those would be interesting to us. M&A is an option, right? It is just that, it's an option as we think about the faster and cheapest way to do things. We are pushing forward organically on those efforts, and if we find the right targets that help us accelerate those at the right price with the right strategic fit, right cultural fit, we'll look to move quickly on those.
Otherwise, we'll continue building it organically because we think we have the ability to do that as well.
That's good. Sure. In the long run?
Yeah. I think, if I remember correctly, that really comes down to I forget the total number, but it's billions of vehicles that go by our cameras daily across the U.S. There's data and information that come from those as a result. As you think about the intersection and what's happening there in the future, the way that autonomy and connected vehicles go, they need to know what's happening at the intersection, and they need to know what the cars are and which way they're going and how fast they're going. We sort of sit at where the opportunity is for where autonomy and connected vehicles are going to exist is at those intersections.
For us, that data that we're capturing is just part of the equation that we can expand into as we think about other areas associated with intersections that will be relevant to the future of where autonomy is going. All they are is, they're just getting data and signals from all the intersections that tell them what's happening so they know how to respond. We have multiple thousands of intersections that we're already monitoring, and we can use that data to help that. We just have to really craft our path of the what are the moves that we want to make so that we can turn that into something special.
Could you just share a little bit more about the financial model? It looks like your consensus revenue number is like $440 million for 2019. What's the mix between hardware, recurring services, et cetera, and what would the margin profile look like long term?
I don't have the numbers in front of me, so I'd have to. We do generate some product revenue. It's very specific to one customer, which is New York City. That's sort of a idiosyncratic view of the way to think about our revenue. We always think about the service revenue. Sorry, I just didn't have it in front of me here. Where's the. Oh, product sales was $26 million. Then you would anticipate that's going to be going up given the expansion in New York City going forward. The margin profile on that is very consistent with the margin profile that exists within the Government Solutions business. Call it 38%-40%. If that answers your second part of your question.
Yeah.
I think that we don't get too detailed into the way we break out margin, but the business operates effectively at a total Verra Mobility margin of, call it 55% for the business. We're trying to get that better.
Any other questions from the audience? Maybe I'll ask a few more questions about the photo enforcement. We talked about red light, schools speed, as well as school bus arm. Can you help us understand how's their revenue right now? What are really the growth drivers? Where's the big growth engine?
Yeah. Red light is a flat. It's the most mature photo enforcement. It's going to be flat. You won't see many states that are going to Well, any. I don't think you'll see any states that are going to promote legislation related to new red light. What you're going to see is this sort of purpose-built photo enforcement, like school zone or work zone, and that's where the growth is. Okay.
Just in terms of Texas, can you just help us understand what happened in Texas, and is that pretty unique in that sense, or there are other states that we need to monitor?
Yeah. Photo enforcement is a political aspect of it. Texas was an example where state legislators thought it would be better to not have safety inside of intersections, they took it away. It does happen from time to time. It's pretty rare. Really, the shift has been the other way with promoting a new legislation versus takeaway legislation. New York, Georgia are examples where there's been expansion. Texas is really the only state legislation where there's been a takeaway in the last several years from where that was actually banned.
Okay. Just maybe going back to the margin question that was asked earlier, how should we think about the incremental contribution margins in the business? Like, what's the incremental contribution margins on incremental revenues, and how do you decide, or how does the management focus on margin expansion versus reinvesting back in the business?
Yeah. I think the way we've always looked at it is both of the businesses scale very well. The incremental margin is very high for both of our businesses. That being said, we sort of identified early on that margins would eventually sort of drip down. We're a public company now. There was a lot of public company costs. As we look about growth and investment, we're not going to not invest in Europe and make things go faster there to protect our margins. We need to grow there. We believe the long term is going to be much stronger. Even as we look at M&A, we tease Mike that he needs to find deals that have better margins than we have. There's not a lot out there.
We've got to focus on growth and expansion and what are the strategic natures of it, not just protecting the margin. Although we, at our longer view, our margins stay very robust.
Okay. That's helpful.
Yeah.
Maybe going back to the commercial services, can you just help us understand how long are those rental car contracts? Then in addition to providing tag readers, what kind of relationship do you have with those rental car companies, and how deep and wide your model?
The contracts are about five years, give or take. We do a lot. Beyond getting a transponder, which is just one of the things. We have a call center that answers phones from people that when they go to ask about the toll management program, they talk to our people, the people at the counters at the airports that are installing the transponders to make sure they have the right one. We support them in marketing. We have a software system that reconciles payment to the toll authority to payment to the billing and the renter. Those are all highly integrated into very custom systems that have been built there over the course of a decade. We're a big part of their business. We're very much sticky and intertwined, not just the contract. We do a lot of work on their behalf.
Okay. That's helpful. One of the things that you also mentioned was there was a change in pricing by a few rental car companies. Can you elaborate on that and how you've benefited from that?
Yeah. Overall, the primary form of pricing was a rental day, which you were charged a fee per day that you had the car. That wasn't really perhaps the most consumer-friendly versus having a program that said, "We'll charge you every day that you run a toll." That's called usage day, and that's basically the programs that are out there now, which is everyone's moving to. It's a benefit to us because it's a better program, it's a stickier program, it's a longer-term program. It doesn't impact our business because the way that we make money isn't really changed in that pricing. We're effectively okay with that.
Okay. It essentially helps drive better adoption.
Better adoption, better exposure, less noise. Sometimes those programs can have noise with State Attorney Generals. It's great. When you say, "Hey, I'm going to charge you a fee for when you use this program. In exchange for that, I'm going to have a transponder, I'm going to have the marketing," it's a more reasonable exchange, and I think it's better for everybody.
Okay. That's helpful.
Yeah.
Can you also talk about the capital intensity in the business? There are times when you do install red light cameras-
Yeah
Many times, basically, the states which take that on. Can you help us understand the capital intensity? Is it very capital intense or very capital light?
Yeah. All of our CapEx is almost exclusively inside of Government Solutions. We run around 20 to maybe 25 to upwards of $27 million a year. The way that that works is that CapEx is immediately, once it's in the ground and producing revenue, we're getting our payback very, very quickly.
Yeah
which is 16 to 18 months. It's a good use of our capital in that regard. It works out okay for us.
When I think about it, $25 million versus EBITDA in the range of $240 million.
Yeah
it's a very small percentage. How should we think about the free cash flow conversion in the business?
It's very high. It's the best way to describe it. I think overall, if you look at approximately to the 50% mark is where our free cash flow conversion is. It sort of correlates, less taxes and everything, but it kind of correlates to our margins.
Okay. Mike talked about the M&A opportunities. How should we think about capital in general other than M&A? How are you thinking about it? Where's the leverage?
Yeah.
I think the leverage is likely about three times right now. How do you think about leverage?
Yeah
The CapEx use of cash?
Our first use of capital is to accelerate the bets that we've already made. Whether that's in our core business or things like we're doing in Europe to make that go faster. Second thing would be, I think, in M&A.
Maybe you want to talk about the rest. Sure, yeah.
In terms of just how we think about capital. Look, we'll think about it when we look at how to deploy capital. We'll put everything next to each other and see what the best use of that is, whether it's M&A, whether it's internal investment, or whether it's paying down debt. Primarily from a leverage perspective, our current hypothesis is that we would de-lever over time mainly through growth. We would use the capital we have to find the right growth opportunities because we think they exist, using things like our customer relationships and expanding our product portfolio. We think the opportunities are there to expand through growth and de-lever through growth rather than through using our cash flow to do it directly. We have to find the right opportunities to do it. That's partly strategic and partly opportunistic as things come up.
As we go, we will put all the various uses of capital next to each other and be very disciplined as we think about it.
We definitely are not a stand-and-steer type of company, despite our cash flow. We look at growth as our mandate for the next three to five years, and that's what we're going to do. You asked about debt. I think we're down to about three and a half times, three, four.
Three, seven.
Yeah.
3.7 at the end of second quarter, but expected to be 3.2 by the end of the year.
Yeah, exactly. Given that, obviously, we de-lever very, very quickly. I think we're comfortable with a four times leverage given the way that we de-lever, especially as we think about using all that excess capital to go to growth. It's a very cost-efficient way to do it, we'll continue to do that.
That's good. Maybe moving back to the commercial services. When we think about, we talked about the cashless road, but can you also talk about the new toll roads? Have you seen more toll roads come through, and how can that help also drive increased adoption?
Yeah. There's a lot of more toll roads that are being built, and you probably are seeing them in your local area. Toll roads are, what I would say, a very fair, very effective way to help fund infrastructure deficits. They do provide a benefit in most cases, where it's more convenient, it's faster, more reliable journey. That those dollars can be used to invest in technology, which is why congestion pricing is coming to New York, is that they have a huge deficit they need to invest in, so it works quite well. Every one of those toll roads is basically customer for us almost, if you want to think of it from that standpoint. It's good for our business.
That's good. When we talked about photo enforcement, we did talk about the school speed. Maybe you can talk about the school bus stop cameras. They have new legislation coming on. I think New York State recently passed.
Yeah
legislation. How should we think about the opportunity there?
Yeah, that just happened. I don't have an official statement for TAM yet.
Sure.
It's a great opportunity. School bus, it's one of the few products that we have that's actually popular, where I remember when we launched it in Atlanta, we actually had moms calling us and asking if they could get on the bus where their kids were, as a form of protection for them. It goes with the purpose-built school safety, we feel very good about that opportunity, and that other states will look at New York and say, "This is something we need to do." We would anticipate more school bus legislation in the years ahead in other states as well.
Okay. How does the economics for school bus arm compare to, let's say, other kind of programs that you have?
It's a little bit different. The revenue model is a little bit less, given the fines and the frequency of the fines, because the buses are moving around. It does operate at a little bit lower margin than does our school zone speed, as an example, but still very positive and attractive margin overall.
Okay. That's helpful.
The revenue model is the same. It's a fee for paid citations.
Okay. That's helpful. Then maybe just jumping onto Europe once again. You've helped quantify the opportunity, but can you just help us understand why is the opportunity so big? Can you help us understand, like people here may not really appreciate the tolled roads versus rental cars in Europe versus U.S. Help compare and contrast.
Yeah. I guess the way to think about it is it's completely greenfield. There is no pay-in-European solution today for rental car. They are handling it through violations, or they're handling it themselves locally. Given that and the fact that this is very revenue positive for them, we look at it as effectively greenfield. We're the only company in the world that actually provides this service today, so we should feel pretty good about our opportunity to execute on that inside of Europe, which is why we deployed as much capital as we have to take advantage of that opportunity.
Okay. That's helpful. If there are no more questions, stop. One second. One more question.
Yeah.
Yeah.
On the commercial services side? Yeah. Just in case people He asked what's the competitive landscape. Right now in the U.S. at least, there is no other provider that does fleet-managed commercial vehicles. There are some providers that work in the trucking space, so commercial trucks, the big trucks. That's a space that we've chosen to not be in, at least for the time being. Relative to the capabilities, that's the only one, and those operate completely different than a retail consumer-facing model, obviously. Inside of Europe, it's a little bit dependent on what country you're in. Most of the time, they just let the driver pay cash or figure it out themselves, or they get the violation, and they process the violation. There are some providers that are doing some things there as well. Very, very small.
I don't think there's more than 100 vehicles that have anything related to it. We're very fortunate that there was only really two providers before. When we brought them together, it created one, and we have the most experience, the most capability, the most knowledge of how to administer these programs. Again, another reason why we felt really excited about the opportunity in Europe.
Maybe if you want to talk about the competitive environment on the photo enforcement side as well and your market share there.
Yeah. In photo enforcement, we have about 50% market share. Our principal competitor there is a company called Conduent. Conduent, inside of their transportation segment, has a photo enforcement piece, and then there is a company out of Australia called Redflex that also has photo enforcement. If we're 50%, they're roughly 20% each, and then the rest is divided between some very, very small players. When you look at large metropolitan areas, we tend to be the de facto provider for the larger programs.