Verra Mobility Corp
NASDAQ:VRRM
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Verra Mobility Corp
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Good day, and welcome to the Verra Mobility Fourth Quarter 2018 Financial Results Conference Call. Today's conference is being recorded.
At this time, I would like to turn the conference over to Mr. Marc Griffin.
Thank you. Good morning, and welcome to Verra Mobility's Fourth Quarter and Full Year 2018 Earnings Call. Today, we will be discussing the results announced yesterday after the close. With me on the call this morning is David Roberts, Verra Mobility's Chief Executive Officer; and Tricia Chiodo, Chief Financial Officer of Verra Mobility. They will begin with prepared remarks and then we will open up the call for Q&A.
During the call, we will make statements related to our business that may be considered forward-looking, including statements concerning our financial guidance for the full year 2019, our plans to execute on our growth strategy, our ability to maintain existing and acquire new customers and other statements regarding our plans and prospects. Forward-looking statements may often be identified with words, such as we expect, we anticipate or upcoming. These statements reflect our views only as of today and should not be considered our views as of any other subsequent date. We undertake no obligation to update or revise these forward-looking statements. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations.
For a discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our annual report on Form 10-K as filed with the SEC filings, all of which are available on the Investor Relations section of our website at ir.verramobility.com, and on the SEC's website at sec.gov.
Finally, during the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release issued yesterday after the close, which is located on our website at ir.verramobility.com and on the SEC's website at sec.gov.
With that, let me turn the call over to David.
Thank you, Marc, and thank you to everyone joining us on the call today. We are pleased with our execution during the fourth quarter and fiscal year 2018, highlighted by our ability to exceed expectations.
2018 was an outstanding and transformative year for the company. First, we closed 2 highly strategic acquisitions in HTA and EPC, which transformed ATS into Verra Mobility. The next phase of our transformation was becoming a publicly traded company through the SPAC transactions with Gores Holdings II. I could not be prouder of the team and the hard work that was accomplished to make this transformation seamless. Again, I would like to thank our customers and our employees who have made this success possible. Looking forward, we are excited about a great year ahead in 2019, which is supported by our strong outlook.
As Tricia will discuss in detail later during this call, on a pro forma adjusted basis, our fourth quarter revenue grew 1% year-over-year to $95.1 million and our pro forma adjusted EBITDA came in at $47.3 million.
For 2018, on a pro forma adjusted basis, revenue grew 11.5% year-over-year to $389 million in line with our Q4 guidance of $385 million to $390 million and exceeded our original forecast for revenues of $373 million. Our pro forma adjusted EBITDA grew 19.5% to $219.5 million or 40 -- 54.6% of revenues and was just below our revised Q4 guidance of $220 million to $225 million, but ahead of our original forecast of $218 million.
As a reminder, in the Commercial Services segment, we focus on products that make tolling, violation processing and title and registration smarter and easier for our customers which comprises of 62% (sic) [ 61% ] of revenue for the company. We are the largest provider of toll management to rental car companies and fleet management companies in North America and serve great customers like Avis, Enterprise and Hertz in the rental car market; and Element, ARI and LeasePlan in the fleet management market. During 2018, the Commercial Services segment on a pro forma adjusted basis grew revenues 16% year-over-year to $241 million and reported pro forma adjusted EBITDA of $153.2 million, which is up 19% year-over-year. We are very excited about the opportunities for our commercial segment, the transition to cashless tolling and the increase in the number of express tolling will continue to drive our business going forward.
The remaining 38% (sic) [ 39% ] of our business comes from our Government Solutions segment. In this segment, we are a leader in photo enforcement in North America, including red light, speed and school bus cameras. We have become the go-to vendor for local municipalities and school districts because of our proprietary systems, which process the violation footage and connects the vehicle and DMV information. During 2018, the Government Solutions segment on a pro forma adjusted basis grew revenues 5% year-over-year to $147.5 million and reported pro forma adjusted EBITDA of $56.1 million, which is flat year-over-year.
Across the country, traffic safety continues to be a major driver as vehicles are traveling more miles, along with more instances of distracted driving and speeding. Furthermore, most U.S. cities are adopting the Vision Zero approach to safety and making the necessary capital investment to make meaningful strides in traffic safety. Vision Zero is a road traffic safety program that aims to achieve a highway system with no fatalities or serious injuries, involving road traffic and pedestrians. We are working with a large number of municipalities and school districts on their RFPs for traffic safety and look forward to implementing more programs in the coming years.
We are extremely excited about our strategic initiatives for 2019, which include obtaining our targeted synergies, additional products and geographical expansion. At the end of Q3 last year, we launched Peasy, our nationwide pay-as-you-go consumer tolling application, which aims to make toll management and payments effortless and headache free with a single account. The Peasy service and mobile app are complementary to existing transponders and will enable drivers to travel on 95% of cashless toll roads and bridges across the U.S. without additional hardware transponders or multiple tolling accounts.
We are seeing positive traction in the market with initial adoption rates in line with our expectations, and our go-to-market strategy with Peasy will be through marketing partnerships and agreements. And we are very pleased to announce our first relationship with GasBuddy. GasBuddy connects consumers with their perfect pit stop by allowing users to locate gas stations based on fuel prices, location and ratings and reviews, and GasBuddy has built an impressive community of loyal drivers through trusted and value recommendations, and we are excited that Peasy will become a part of that network.
During 2018, we expanded into Europe with the acquisition of Euro Parking Collection, or EPC, which focused on traffic violations incurred by foreign registered drivers. EPC is the launching pad from which we will bring our tolling platform and expertise to Europe. There currently are no pan-European solutions for tolling and violations for RACs and FMCs and our U.S. customers have been asking for such a solution. We have been working with our customers and have significant operations in Europe as well with the tolling authorities to bring a solution to fruition.
Our European initiatives are progressing well, and we have reorganized the European business with a new office in Amsterdam as well as a new leader to carry out our objectives. We have also recently agreed to commercial terms with one of the major tolling authorities in France. This French tolling authority will allow us to access tolls in France, Spain and Portugal. On the customers side, we are looking to finalize agreements with an existing pilot.
Finally, we continue to maintain a solid pipeline of market -- of M&A opportunity that can accelerate our leadership in the smart mobility solution space. We are focused on adjacent areas, which allow us to better serve our customers, while expanding and solidifying our global scale. Companies that fit best will support our competitive moats, while adding smart technologies which prepares future of connected vehicles and autonomous driving.
So in summary, our strong fourth quarter capped off an exciting year for Verra Mobility. Looking to 2019, we believe that Verra Mobility is well positioned to further leverage our platforms.
With that, let me hand it over to Tricia to walk through some of the financials in more detail.
Thanks, David, and good morning to everybody. I'll provide a more detailed overview of the fourth quarter and the full year 2018 financial performance. And then provide our outlook for 2019. Following my remarks, we'll open it up for Q&A.
But before I begin, I want to remind you of how we are presenting our results. Verra Mobility completed 2 strategic acquisitions in 2018. Most of my commentary today will reflect the company's results on a pro forma adjusted basis. Meaning that we have adjusted the financial results in prior periods to include the impact of these 2 acquisitions for the full year. We've also made adjustments to carve-out transactions and other onetime costs from operating results. We've provided a short investor deck on our website that has a reconciliation from Generally Accepted Accounting Principles, or GAAP, results, which are provided in our earnings release and in our Form 10-K to the pro forma adjusted information that we'll be discussing today.
If you're following along in the investor deck, we're on Slide 2. Total pro forma adjusted revenue of $388.9 million for the full year 2018, grew $40.1 million or 11.5% from $348.8 million for the full year 2017. And Commercial Services business continues to generate the largest part of our revenues and will be the fastest-growing segment in the future.
In addition to our strong revenue growth, our pro forma adjusted EBITDA grew from $183.7 million for the full year 2017 to $219.5 million for the full year 2018, reflecting a 19.5% year-over-year growth. The pro forma adjusted EBITDA results include $10 million of run rate synergies associated with our 2 transactions. This amount reflects actions taken in 2018 to either improve revenue or reduce costs, for which the full impact won't be realized until 2019. Pro forma adjusted EBITDA margins improved from 52.7% for the full year 2017 to 56.4% for the full year 2018.
On the next slide, we have our consolidated results for the quarter. Total revenue of $95.1 million for the quarter ended December 31, 2018 grew $900,000 or 1% from $94.2 million in the same quarter in the prior year. Now during the fourth quarter, the company recorded certain out-of-period adjustments to revenue in the aggregate amount of $4.2 million. These adjustments would have impacted each quarter as a percentage of revenue as follows: Q1 negative 1.4%; Q2 negative 0.9%; Q3 negative 2.2%; and Q4 a positive 4.4%. The adjustments are not material to the company's consolidated financial statements, and therefore, were all recorded within the fourth quarter.
Pro forma adjusted EBITDA of $47.3 million decreased by $3.5 million from $50.8 million from the same period in the prior year. There are a few factors that play into the quarter-over-quarter decline. We recorded $1.8 million for a legal settlement in the fourth quarter, the $4.2 million of out-of-period adjustments we've previously discussed, we also incurred nearly $800,000 of severance costs as we continue to refine our organizational structure and incurred cost both to expand Peasy and to become a public company. Pro forma adjusted EBITDA margins were 49.7% for the quarter.
Cash flow used in operating activities during the fourth quarter was $37,000 compared to cash flow provided by operating activities of $22.4 million in the fourth quarter of 2017. The change in the company's operating cash flow is largely driven by our net loss of $38 million for the quarter, which resulted from $30.8 million in transaction expenses associated with the business combination of Gores Holdings II and $16.3 million loss on extinguishment of debt resulting from the repayment of our second lien. These were both contributing factors to the lower cash flow generation in the quarter.
As of December 31, we had total debt of $903.5 million and cash on hand of $65 million for a net debt position of $838.5 million, which was 3.8x trailing 12 months adjusted pro forma EBITDA of $219.5 million. The company continues to delever and with expanding EBITDA and strong cash flow generation.
I wanted to quickly touch on segment performance. On the next slide, we have pro forma adjusted revenue and pro forma adjusted EBITDA by segment. Our Commercial Services segment delivers tolling, violation processing, title and registration services to rental cars companies and fleet management companies in the U.S. and processes focuses violations in Europe. Service revenue grew 3.7% to $58.4 million in the fourth quarter of 2018, up from $56.3 million in the same quarter of the prior year. The $4.2 million out-of-period adjustments impacted Commercial Services revenue. We continue to see strong demand for our products and are continually working with our customers to improve the offering to the consumer. In Q4 of 2017, we saw several high-volume tolling areas move to cashless, which positively impacted revenue and provided a tougher comparison for this quarter. Year-over-year growth would have been 11.1% in the quarter, if we were to add back the out-of-period adjustments.
Pro forma adjusted EBITDA of $34.2 million in the fourth quarter of 2018 grew $800,000 from $33.4 million in Q4 of 2017. The lower revenue, the $1.8 million legal settlement, along with investments in Peasy, all impacted profitability of the quarter. That being said, we still generated 58.5% adjusted EBITDA margins for the quarter.
For the full year 2018, Commercial Services grew pro forma adjusted revenue by $32.4 million or 16% from $208 million for the full year '17 to $241 million -- $241.4 million for the full year 2018. The full year pro forma adjusted EBITDA grew $25.4 million or 19.9% from $127.8 million to $153.2 million. This strong performance in full year EBITDA growth is directly aligned with our increased revenue and the impact of integration synergies.
Our Government Solutions segment operates red light, speed, school bus stop arm and bus lane photo enforcement programs for municipalities and school districts offering an end-to-end solution from providing and installing equipment to printing and mailing citations. Total revenue came in at $36.7 million in the fourth quarter, down $1.2 million from $37.9 million in the fourth quarter of 2017. Approximately $600,000 of this decline related to service revenue, primarily driven by declines in red light business where the Miami program was taken out of service earlier in 2018. The result to a statutory change in Georgia, which impacted the number of citations issued under the CrossingGuard program. There was a change in the same statute in Q1 of 2019, that should increase the number of citations issued back to expected levels. The remaining decline is attributable to product revenue, and if you recall, there are only a few customers who purchased the photo enforcement equipment, and these sales vary based on specific needs and municipal budgets.
Q4 2018 EBITDA of $13.1 million declined $4.3 million from $17.4 million for the same period in the prior year. The decline was attributable to lower revenue, the lower margin Street Light Maintenance program, which we are not renewing and an increased wage expense from new staff added to support new programs. These factors contributed to EBITDA margins dropping from 35.7% compared to 45.8% in the same period last year.
For the full year 2018, Government Solutions grew revenue by $6.8 million to $147.5 million, up from $140.7 million for the full year 2017. Adjusted EBITDA remained flat at $56.1 million for the full year 2018 compared to $55.9 million for the full year 2017. The operating leverage of this business segment was impacted by $1.3 million of increased recurring services cost associated with print, postage and payment processing fees and $1.3 million of higher legal costs and increased employee cost.
2018 was a great year, 11.5% top line revenue growth and EBITDA expansion of 19.5%. But now let's look ahead to 2019. You'll find the 2019 outlook on Slide 5 of the investor deck. For the full year 2019, we're expecting revenue in the range of $428 million to $436 million or 10% to 12% year-over-year growth. We expect pro forma adjusted EBITDA to be in the range of $235 million to $240 million or an EBITDA margin of 55%. I want to remind everybody that we view the business on an annual basis as the timing of revenue recognition can move slightly from quarter-to-quarter. Traditionally, Q3 has been our strongest quarter, and in general, the second half of the year is stronger than the first. And we believe that these trends will continue in 2019 and will be slightly more magnified as some of our newer initiatives will begin to gain traction on the second half of 2019.
I also wanted to point out if you're looking at the investor deck that's on Slide 5, our first half and second half bar graphs says 2017 and 2018, those should read 2018 and 2019, and we'll update that shortly.
Our Street Light Maintenance contract in the Government Solutions business segment will end in April of 2019, and we will not rebid on this contract to retain focus on offerings that are closer to our core. This contract generated nearly $3 million of revenue in 2018, but was dilutive to overall profitability. We also anticipate the product sales were increased in 2019. These sales will be heavily weighted to the back half of the year and generally have lower margins than service revenue.
In summary, we continue to execute well, delivering strong top line and bottom line operating results throughout 2018. We believe that Verra Mobility remains positioned to maintain this momentum and operating discipline throughout 2019 as well.
Thank you for taking the time to join us on this call today. And with that, I'd be happy to take your questions.
[Operator Instructions] We'll now take our first question from Ashish Sabadra from Deutsche Bank.
My question was on the European RAC opportunity. Can you just help us quantify how does it compare to the U.S.? And then you talked about signing the relationship with a major tolling authority in France. Can you just update us on what this time line of the schedule looks for the rollout of the RAC tolling in Europe?
Yes. So Ashish, great questions. This is David. So the way that we think about the -- we did, what I would call, a high-level [tank] analysis, if you think about Europe, and we quantified it to be around $300 million to $350 million total [tank in] if you think about RAC and FMC tolling across Europe. So it's obviously -- it's also important to note that there is no pan-European solution today, and there is no competitor offering something specifically today. So obviously, we look at that as a really big opportunity. The relationship that we've built up with the French tolling authority is sort of the major jumping off point for us to provide tolling in southern Europe. The timing of that will probably be -- we are targeting to be ready to go by summer, which is the time that you would want to be ready given the increase of tolling and vacationers that go through that part of Europe during that time France is also the largest tolled country in Europe. It's -- they have a lot of toll roads there, which is another reason because that benefits our customers, given that their opportunity is also significant there as well.
That's helpful. And then, maybe quickly on the Government Services. David, you talked about a number of RFP for the road safety. Can you just talk about your competitive positioning? Also, if you could help us understand the demand for what the speed cameras as well as school zone safety? And if you put all of this together, how should we think about a more normalized growth for Government Services going forward?
Yes. So it's a good question. I think the best way to think about -- maybe I'll go in the end and go backward, Ashish, which is, we look at the total business as 3% to 5% top line growth net of attrition. So we have a very low attrition rate with our customers, but we do factor that into our growth, where you would see flat -- either very low top line growth or slightly down, they're somewhere in between would be the red light cameras. We don't believe -- and we've been pretty consistent, I think, with the thoughts around our red light camera not being a growth area, but rather in speed and school zone speed. I think, those are the areas that we would see the largest uptick. And I think, if you look at historic -- our growth over the last year, that's certainly where the growth has been. There has been a lot of positive opportunities that have presented themselves related to school zone speed, including the State of Georgia last year opening up speed as an opportunity. And even as early as today, announcements related to New York, expanding their New York speed legislation throughout the State of New York. So those are all things that we look as really key growth drivers for us, and we'd anticipate that growth to be pretty stable over the next 3 to 5 years.
That's great. That's helpful. And maybe one final question on the operating margin. Tricia, the way we were looking at operating margin -- or EBITDA margins in 2018 was not including that $10 million of run rate synergies. And when we look at it from that perspective, it seems like despite the investments in 2019, we still see margin expansion from '18 to '19. And so my question was just can you talk about -- is there a further opportunity for margins? Or can you talk about the operating leverage in the model? And how do you balance the operating leverage versus the investments?
Yes. That's a great question, Ashish. So we did have expansion of our operating margins within 2018. If you think about the total integration synergies, $8 million of them were actually enacted or in our results for 2018 that we had in Europe. When you look at what we're doing from the Commercial Services business, we're using technology that we already have in place so that each additional new customer that comes on board has a really high flow-through rate. And to some extent, that does happen in Commercial Services as well. The Commercial Services -- Government Solutions, I'm sorry, Government Solutions as well and that the next new customer that comes on board does flow through very nicely to the bottom line, but when we do have situations such as the Miami program that was put on hold or stalled, it creates a very difficult operating leverage on the way down. So we do have an expansive opportunity to continue to improve margins, and we are expecting margins to be about 55% next year.
We'll now take our next question from Dan Moore from CJS Securities.
It's actually Chris Moore for Dan. Maybe just start and looking at the presentation, you project about 6% to 8% organic growth from tolling and fleet. Can you just break that down a little bit further in terms of kind of the embedded expectations, growth in miles of roads tolled, inflation for existing tolls, growth in customers, just kind of any other basic assumptions in there?
Yes. I mean, I think there's a couple of ways to think about it, and we don't -- relative to the breakdown you just gave, I don't think we plan it that precisely because some of the those things are obviously difficult to control. I think the largest driver of that is the growth within the rental car segments. So as they continue to grow, our business will continue to grow as well, and that's how we think about, what we call, adoption, which is the number of rental agreements that have a tolling program associated with them. So that's number one. We would anticipate a slight increase related to the cashless tolls over time because as we mentioned earlier, a lot of tolls have already gone cashless, so that's obviously ongoing, but it's a tailwind for us. That would be a part of it. And the other part would be the growth within our FMC business from tolling, violations, title and registration. Those 3 segments combined would be sort of the growth within the core RAC -- core Commercial Services tolling and violation business, that does include European expansion and/or the consumer with Peasy.
Got it. How about maybe just switching to Peasy for a second. What's kind of the ultimate use case or revenue model for Peasy? Are there alternative revenue streams or monetization opportunities that you envision there?
Yes, absolutely. So the way -- the best way to think about Peasy is a consumer mobility platform. Today, that platform has primarily one service model, which is related to tolling, which would make sense given the fact that, that's kind of our leadership position. So in effect, we've launched an innovative product that leverages the asset base that we built over the last 15 years as a company. Over time, through either partnerships or our own product development innovation or perhaps even through M&A, our vision is to expand the level of services that are driven through Peasy to create a singular point of contact for consumers to use for driver-related services. The one that we mentioned was the launch of GasBuddy, which is a partnership where we have connectivity to their app and then to ours to offer sort of promotions, if you will, that would entice people to use Peasy for tolling that might also be using GasBuddy. You could see other areas of expansion, including -- and these are in no particular order, but areas like parking, you could see areas like title and registration, all being brought into the Peasy app doing that over time. Really, our focus for this year is to slowly expand the related services really to prove our model related to partnerships in tolling. And then using that asset base, again, to look into other services that we can offer to our core customers, whether that be data or analytics or things like that, but Peasy, again, is a springboard for a lot of opportunities like that.
We'll now take our next question from Louie DiPalma from William Blair.
I was wondering, what RAC are you working with in France for the summer launch that you referenced in your scripted remarks?
Yes. Louie, it's David. So until we have an actual contract signed, we wouldn't announce something like that publicly. But needless to say, I think, we're looking at all RACs, both those that are in the U.S. that have operations overseas as well as that only operate overseas -- in Europe.
Okay. And are all of your big 3 RACs interested in you being their exclusive provider in Europe? Or is it just some of them right now?
I don't think that's a question that I can answer on behalf of our customers. What I can say is that there is no pan-European RAC tolling solution today. The level of complexity in dealing in European tolling and, in particular, cross border is incredibly complex much more than so then you would think of sort of U.S.-based interoperability, and therefore, it creates both a challenge related to the customer experience of anyone that's renting a car as well as for our customers that have to service those customers. So what I think, you can say -- that I could say very in line with our customers is, it presents an opportunity to do something different and better than they've done in the past, and therefore, they're looking to us as the global leader to help provide those services.
Okay. And just briefly on the topic of your competitive moat in the United States, since this is a very popular topic amongst investors, the 10-K indicates that the big 3 RACs accounted for about 45% of your total revenue, and you previously indicated that the contracts for 2 of the 3 RACs, come up for renewal in 2021. Have you already commenced the renewal negotiations? And are there any signs that any of the RACs would have the capability to economically bring the tolling service in-house?
Yes. Good question. So let me answer what I think I can. One is, we would never comment on any contractual discussions that we're having with any customer, that's not something we will disclose publicly. Two, what I would say is that across all of our customers in the RAC space, we are expanding programs and launching new services related to them. I think that in general that if you were to speak to any of our partners, that they would say, this is a -- these are partner-related relationships that we're in this together, that we provide a service that allows them to provide a great service to their customers as well as ancillary revenue that they would not want to be able to do on their self. The level of complexity to do this program is nontrivial, and therefore, working with us is obviously a win-win for them. Given the scale and the expertise, we feel like we're always in a great position related to contract renewals and ongoing discussions for expansion of current relationships.
Okay. So you don't see any signs yet that anybody has the capability of bringing this in-house?
I think, that's fair to say. I mean, certainly nothing's been told to us that they're looking about -- doing that because we're in the process of expanding and launching products with all of our customers. So I don't think that's something that's on the radar.
Okay. And related to the commentary on the speed zone cameras. Are there a large number of school districts that are currently issuing RFPs? And do you view like speed growth cameras as like one of the growth areas for your government business that could offset some of the flattish growth from like the traditional red light cameras?
Yes. I think, the way we think about it maybe at a top line level is, if you look at what's the problem that we're solving. The problem that we're solving is very specific to speeding and more importantly, deaths associated with speeding which were in 2018 at an all-time high across the United States. As you think about school zone speed, our position has been -- well, regardless of your opinion of photo enforcement, the reality is it's very different to not have safety measures inside a school zone, so the kids can, one, get off and on the bus without fear related to drivers; and two, that there is no one speeding through a school zone. So with that, what we have seen is key states and customers are embracing that philosophy at the legislative level. When you looking at the school zone speed legislation that was passed earlier last year in the State of Georgia, which for us opens up a $50 million TAM, that we feel like we're very, very well positioned for. Number two is, that if you look at recent news related to the New York assembly here in New York, where they are looking to significantly expand the New York speed program, of which we are currently the vendor. So we look at that as a key growth area for us over the next 3 to 5 years.
We will now take our next question from Brian Hogan from William Blair.
Just a follow-up to the last question. You mentioned Georgia and New York, but also want to expand that regulatory talk into maybe a national discussion on what you're seeing nationally from both the tolling side and the Government Services side, any changes that be supportive or headwinds to your business?
I think, in general, what you would say is, there's 2 things that are going on that would be positive to -- because you brought in tolling from a legislative -- so let me sort of pull that back just a little bit. One is, there's definitely been a broader embrace of, what we call, purpose-built enforcement versus what you might generally thought broad based. So examples are the ones that I already mentioned related to speed in Georgia and expansion of speed into New York. Another one was in Pennsylvania recently, they expanded the legislation to work zone speed, meaning that you're allowed to have mobile speed units in a work zone to protect workers. All those are very logical and I think, growth-oriented. And you would see, if you look -- scan the legislature today, you would see other states proactively looking for opportunities to either bring in photo enforcement or expand their current to include school zones. Another -- for example, there is legislation in the State of Tennessee related to school zones right now. You would also see that tolling or sort of fee-paid driving, if you will, is also something that would expand. Our belief is that given the way in which toll roads operate and that they're are a very efficient way of travel and they provide service to the driver as well as they generate revenue to help make investments in infrastructure that you would continue to see expanding toll roads or what I would like to call as toll-like applications, including congestion pricing. Congestion pricing is something that's already been pretty well-established in Europe, and we would anticipate that expanding into the U.S. over the next 3 to 5, maybe even 10 years, which, again, would be something that we think we could benefit from and are well positioned to help support.
All right. And then, Peasy and the opportunity there and, obviously, you've locked up 95% of the RACs. I guess, my question is, is really on the competitive front there. As you see OEMs with -- coming in with stuff on the back rearview of mirrors or embedding technology that you know pay there. And obviously, you're trying to expand your Peasy services and be more relevant. Just kind of comment on the competition on that front.
Yes. So a good question. So one, much more fragmented space. And the reason being is that you've got a lot of different applications that are vying for consumers attention whether that's a parking app or a tolling app or what have you. So there's a little bit more of, what I might call this as sort of the land-grab phase of these types of technologies. But your comment on OEMs is an important one, where there certainly are indications that OEMs are looking for services to add to their portfolio. And what, I guess, I would be able to say to that is that we are -- first of all, we have OEMs as customers today that we serve within one of our Commercial Services business today. Two, that serves as a great platform for us to have conversations related to how they might think about embedding some of those services into the vehicle, so think of more of a connected vehicle play. And three, if you look at our network and scale within the tolling space, even in other aspects like title and registration, we have technology that's available that could support them in a unique way better than they could do themselves. So we look at that real opportunity for us to partner both with OEMs as well as with ride-share fleets because our technology services both of them well and what would you call the new driver economy.
And are you in conversations with the ride shares and the OEMs?
Well, they're customers today, so we actually have customers today that are in that platform, and we are in conversations with the OEMs as well related to not one, but many of the different services that we offer.
All right. Next question would be M&A activity focused geographically around the world. What markets are -- obviously, you're looking in maybe Europe and -- seeing as an opportunity to grow there and did some acquisitions there recently. But any other markets around the world that are interesting to you?
Yes, certainly. I think, over time, you would look at Asia Pacific as a unique opportunity for us. But I think, if you were to say, how do we win the race, I think it's going to be through, one, continuing to support or expand the most that we built in the U.S. and Europe, so anytime that we feel we can be additive and accretive in those areas, we're going to do that. So that would be category number one. Two is, what are those highly adjacent services that we think would be meaningful to growth over time. A great example of that, albeit a smaller one, is in 2016, when we brought the title and registration business. That was a business that was not exactly what we did at the time related to violations, but it was highly adjacent, and so much of it -- it was a very similar product offering, which required integrations into issuing authorities, or in that case, the DMV, and it was something that our current customers needed and are already operated and asked us to help them with. So any time we can do deals like that to expand scale around those current services, we're going to continue look for those as well. And then maybe finally, we want to look for opportunities to expand the base of opportunities that allow us to offer a broader portfolio of smart technology, I think will -- we're going to -- that would be either in Commercial Services or in Government Solutions and that would be either in the United States or outside of it. I think what you would say is we're opportunistic, but we're also very mindful of doing deals that are highly adjacent that we can be successful at, and I think, what you've seen from us, if you go back to the title and reg business, if you look at the HTA deal and then you look at EPC, all had a very strong strategic imperative with clear line of sight to impact on the bottom line of the business, and those are the types of deals -- we're not going to be looking at sort of guesswork on new flying technology because we feel like we have a great platform that we can expand upon. We don't need to take big bets like that.
It appears there are no further questions in the queue at this time. I would like to pass the call back to you for any additional or closing remarks.
Yes. Well, this is David. I want to thank all of you for joining the call today. We look forward to further conversations in the future, and obviously, you can reach out to me or Tricia for further follow-up as well, but thank you very much, and we'll talk to you in May.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.