Verra Mobility Corporation (VRRM) Q1 2019 Earnings Call Transcript

Verra Mobility Corporation (VRRM -0.12%)
Q1 2019 Earnings Call
May 6, 2019, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings. And welcome to the Verra Mobility first quarter 2019 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press * 0 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Marc Griffin, Investor Relations. Please go ahead.

Marc Griffin -- Investor Relations

Thank you. Good afternoon and welcome to Verra Mobility's first quarter 2019 earnings call. Today, we will be discussing the results announced in our press release, issued after the market closed. With me on the call this afternoon 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'll 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 of 2019, our plans to execute on our growth strategy, our ability to maintain existing and acquire new customers, and other statements regarding our prospects and plans. 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 any 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 filed on 10K with the SEC and all of our other available filings in the investor relation 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 after the close of market today which is located, again, on our website at ir.verramobility.com and the SEC's website at sec.com. With that, let me turn the call over to David.

David Roberts -- Chief Executive Officer

Thank you, Marc. And thank you to everyone joining us on the call today. 2019 is off to a strong start across all of Verra Mobility's lines of business. With our vision of being a global leader in smart transportation, we continue to make strides in both our core business as well as some of our longer-term initiatives which include the expansion of speed enforcement in New York City and expanding into Europe. As Tricia will discuss in detail later during this call, on a proforma adjusted basis, our first quarter revenue grew 12% year-over-year to $98.5 million. And our proforma adjusted EBITDA came in at $51.3 million, up 12% year-over-year. 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 64% of revenue for the company. We are the largest provider of toll management to rental car companies and fleet management companies in North America.

During the first quarter, the commercial services segment, on a proforma adjusted basis grew revenues 22% year-over-year to $62.6 million and reported proforma adjusted EBITDA of $38 million, up 28% year-over-year. During the quarter we collaborated with our customers on increasing penetration and adoption of tolling programs through various pricing and operational initiatives. In addition, we continue to see expanded opportunities in our title and registration offering as more customers are looking to outsource providers around this complex yet critical activity. Finally, a tremendous effort was spent setting up our European operations, negotiating with European toll authorities, and working with potential customers on piloting toll management solutions. We don't have any specific updates at this time but would expect to have more detail as the year progresses.

We are very excited about the opportunities for our commercial segment with an increase in both the number of toll roads in North America and the ongoing conversion to cashless lanes. We expect 2019 to be a strong year. The remaining 36% of our business comes from our government solution segment. We are a leader in further enforcement in North America including red light, speed, and school bus cameras. We have become a trusted vendor for local municipalities and school districts who are serious about increasing road safety in their communities. During the first quarter, on a proforma adjusted basis, the government solutions segment declined 3% year-over-year to $35.9 million and reported proforma adjusted EBITA of $13.2 million, down 17% year-over-year. The decline in service revenue was primarily driven by the elimination of the red light camera program in Miami which occurred in Q1 of 2018.

And because the segment has a higher fixed cost component, meaning that a small decline in revenues has a more pronounced effect on the EBITDA line. As the first quarter came to a close, New York state passed legislation that will increase the number of school zone speed cameras in New York City. We are very excited for the opportunity to expand an important safety program which we have been an integral part of for over 10 years. The program currently permits speed photo enforcement at 140-plus school zones and will soon expand to cover 700-plus school zones in the New York City area. We are working with our counterparts at the New York City Department of Transportation on an initial rollout schedule. And we'll update the investment community as information becomes available. We maintained our consistently high renewal rates again in Q1. During the quarter, we renewed key customer programs in Tampa and Seattle. And additionally, we run a key new contract in Philadelphia.

We are also currently conducting multiple school zone speed pilots in Georgia as a follow-on to the enabling legislation that passed last year. Overall, we continue to execute on our strategic initiatives for 2019 and are very pleased with our traction during the first quarter. As you know, late in 2018, we launched Peasy. Peasy is a nationwide, pay as you go, consumer mobility platform that currently can be used for tolling and can expand to include other applications, such as parking and registration renewal. We are driving adoption of our platform mostly through marketing partnerships and integration with other mobility applications. One of our first platform extensions is through a partnership with Arrive, the leading provider of branded and white label last-mile mobility solutions. This partnership will extend the Peasy platform to include parking capabilities from Arrive. As this is a new product, adoption has been slower than we had anticipated.

And we have reduced the expectation of subscribers in 2019 accordingly. In terms of financial impact, we are not expecting any material contribution this year. Peasy aside, we are still anticipating a very strong year and, as Tricia will mention shortly, are bullish about the company's 2019 financial performance. Our European initiatives are progressing well, as we are finalizing the agreement with our first tolling authority located in France which will allow us to process tolls for our rental car customers throughout France and positions us for a smooth launch for toll processing in Spain and Portugal as well. Additionally, we are working with certain existing US rental car customers that have European operations to finalize terms of the toll processing pilot program to launch this summer. Finally, we hired Mike McMillin as VP of Corporate Development and Strategy to help build out the acquisition parameters through which we can accelerate our leadership and the smart mobility solutions phase.

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 motes while adding smart technologies which prepares for the future of connected vehicles and autonomous driving. With Mike on board, we will be better equipped to evaluate strategic acquisition propositions for Verra Mobility. Welcome aboard, Mike. In summary, we reported a solid first quarter and continue to execute on our initiatives which will drive a strong 2019. With that, let me hand it over to Tricia to walk through the financials in more detail.

Patricia Chiodo -- Chief Financial Officer

Thanks, David. And good afternoon, everyone. I'll provide a more detailed overview of our first quarter 2019 financial performance. And then we'll open the call up for questions. As a reminder, most of our commentary today will reflect the company's results for Q1 2018 on a proforma adjusted basis, meaning that we've adjusted the financial results to include the impact of two acquisitions in 2018 as well as carving out transaction costs and other one-time costs from our operating results. Q1 2018 is the final quarter in which we will be presenting proforma results as the true strategic acquisitions were fully included in our reported results starting in the second quarter of that year. We've provided a short investor deck on our website that has a reconciliation from GAAP results to the proforma adjusted information we'll be discussing today. And if you're looking at our investor deck, on slide two, we have our consolidated results for the quarter.

Total revenue was $98.5 million for the first quarter and grew $10.5 million, or 12% from $88 million for the same period in the prior year. We're very pleased with this solid result as it reflects the strong demand we 're seeing for our tolling products. Adjusted EBITDA of $51.3 million increased by $5.6 million or 12% from the proforma adjusted EBITDA of $45.6 million in the prior year. First quarter adjusted EBITDA margins remain strong at 52%. The company reported net income of $2.8 million in the quarter, compared to a net loss of $22.5 million in the same period of the prior year. The net loss in the first quarter of 2018 was largely attributable to transaction expenses and loss on extinguishment of debt that did not recur in 2019. Net income adjusted to exclude acquisition amortization and non-cash stock compensation for the quarter was $28.1 million compared to the net loss of $9.1 million in the year-ago period.

The company generated $37.4 million in cash flow from operating activities during the first quarter of 2019 compared to using $3.2 million in cash flow from operating activities in the first quarter of 2018. The improvement is directly correlated to the improved net income. We spent $9.2 million on topics in Q1 of 2019 compared to $5.9 million in the prior year. Free cash flow which is cash flowed from operations less capex was $28 million for the quarter. As of March 31st, we had total debt of $901.2 million and cash on hand of $91.5 million for net debt of $809.7 million which was 3.8 times trailing 12 month adjusted proforma EBITDA of $215.1 million. On the next slide, we have revenue and adjusted EBITDA by segment. Our commercial services segment delivers tollings, violation processing, and title and registration services to rental car companies and fleet management companies in the US and processes violations in Europe.

Total revenue for this segment grew 22% to $62.6 million in the first quarter of 2019, up from $51.2 million in the same quarter in the prior year. In the current quarter, we saw an increasing number of billable days across our combined rental portfolio and higher level of tolling activities across our entire product portfolio. We expect that demand for our tolling of products to continue to be strong into the next quarter but would expect the year-over-year growth rate to be lower as we cross over some more difficult comparable periods. Proforma adjusted EBITDA for the segment of $38 million in the first quarter of 2019 grew $8.2 million or 28% year-over-year from $29.8 million in Q1 of 2018. Adjusted EBITDA margins for commercial services was 61%. Our strong EBITDA performance is driven by our continued revenue growth with the impact of well-executed integration synergies.

Government solutions segment operates red light, speed, school bus stop arm, and bus length photo enforcement programs from municipalities and school districts, offering an end to end solution from providing and installing equipment to printing and mailing citations. Total revenue for the segment was $35.9 million in the first quarter and declined approximately $900 thousand or 3% from $36.8 million in the first quarter of 2018. Red light programs declined $1.8 million from the comparable period. The decline was primarily attributable to the loss of Miami program and, to a lesser extent, lower volumes on some of our variable rate contracts. These declines were offset by growth in speed and bus line revenue. Revenue from crossing guard or school bus stop arm program was flat year-over-year despite the installation of nearly 400 new systems because of a statutory issue in Georgia.

As you recall, on our year-end earnings call, there was a change in a Georgia statute which limited the volume of citations in our crossing guard program and impacted revenue for Q4 2018 and Q1 2019. In total, there were 4,604 camera systems installed in March of 2019 compared to 4,252 at March 31st of 2018. Q1's 2019 EBITDA of $13.2 million declined $2.6 million from $15.8 million in the same period of the prior year. The decline was primarily the result of reduced revenue. Adjusted EBITDA margins for this business segment were 36.9%. Tax expense for the quarter was $1.3 million, representing an effective tax rate of 31.9%. The effective tax rate increase was primarily due to higher non-deductible executive compensation and are requirements to reflect certain deductions when they occur, including the deduction for equity compensation and the reversal of uncertain tax positions which will benefit future period. We expect our normalized tax rate to be 26% for the full year.

In summary, we continue to execute well, delivering strong top and bottom line results and believe that Verra Mobility remains well-positioned to maintain this momentum and operating discipline throughout 2019. As David mentioned, New York City will be expanding their school zone speed program. And we anticipate this will positively impact product revenue in the second half of 2019. We are working with our counterparts in the New York City Department of Transportation on an initial rollout but don't feel that it's the appropriate time to update our guidance. Our guidance for 2019 remains with revenue in the range of $428 to $436 million and adjusted EBITDA in the range of $235 to $240 million. Thank you for taking the time to join us on the call today. And with that, we'd be happy to take questions now.

Questions and Answers:

Operator

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press * 1 on your telephone keypad. A confirmation code will indicate your line is in the question queue. You may press * 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * key. One moment please while we poll for questions.

Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Daniel Moore -- CJS Securities -- Analyst

Dave and Trish, good afternoon. Thanks for taking the question. So, starting with commercial services, revenue growth obviously reaccelerated nicely in the quarter. Can you give us a sense for contribution from Europe? And then more generally, you provided some nice color, but additional breakdown on volume of transactions versus pricing? Any other factors which may have impacted the year-over-year compares, be it weather or others? Just a general little bit more color on the acceleration of the business. And Trish, I think you said obviously tough to sustain that type of growth in Q2. But maybe any more detail around what you're seeing there would be great.

David Roberts -- Chief Executive Officer

We won't get into the transaction ones. But I think what you can see if you look at North American tolling is that our customers have had a good quarter as well. There's an increased volume from them in terms of the number of rental agreements that they're seeing. They report each of those in their own financial statements. In addition to that, we are seeing a nice adoption of the tolling program as a percentage of those RAs. So, we're seeing overall -- if we remain constant, but they grow, we grow as well in addition, continuing growth of toll roads as well as the conversion of cashless continues to be a bit of a tailwind in the overall volume story for the commercial -- or maybe more specifically, rental car tolling.

Patricia Chiodo -- Chief Financial Officer

And in relation to your question on Europe, the European expansion that we're undertaking has not started to produce revenue yet. And we don't expect it to produce revenue until the back half of the year. So, that's not a portion of this growth. So, this growth is -- it's on that new expansion that we have in Europe. To your question earlier about whether this is really price or volume, the majority of this is really around volume. It's the number of billable days. And it's also the number of tolling activities that we have. The indication of the more difficult comparable quarter as we cross over to Q2 of 2018 is really to do with a change in margin shares of one single contract that we had. So, that would be the only component of this that would be price.

Daniel Moore -- CJS Securities -- Analyst

Perfect. Helpful. And then switching gears, maybe this is looking out a little bit, but certainly New York City looks like congestion pricing is likely to move forward over the next couple years. You mentioned some other new opportunities. Just maybe talk about the level of dialogue you're seeing with different cities and maybe frame that relative to 12 months ago.

David Roberts -- Chief Executive Officer

Yeah. I think there's obviously -- I think the reality is that if you look at New York, they are a trendsetter. So, we really won't speak directly to the level of conversation that we're having with New York. But I would just say -- and I think I've said previously that we see congestion pricing as a unique opportunity for us that we are well-situated forgiven our knowledge of all of the components that make a successful congestion pricing program work. Those are all contained within Verra Mobility. So, we think that we have an opportunity there.

I would then say if you look and follow the news related to that, Dan, which I know that you do -- over the weekend Washington, DC had an article where they're gonna consider congestion pricing. Philadelphia's gonna consider -- there's other cities that are gonna quickly be following suit related to congestion pricing which broadly is a tolling program that has some unique enforcement and customer interactions that go with it. But it's effectively a tolling program. So, we think that we're well-situated. And we'll clearly be thinking strategically on how we can best perform related to those types of opportunities, not only in the United States but around the world.

Daniel Moore -- CJS Securities -- Analyst

Perfect. Last one, and I'll jump back in queue. It sounds like you're gonna start to see some revenue, at least certainly on the product side in the second half of the year with the expansion of New York City opportunity for safety zone enforcement. And yet, obviously, feel like you should leave the guide untouched from now, at least from a top line perspective. Maybe just frame, if you could, the magnitude of the opportunity and what that might imply for the higher end of the range of your guidance from a revenue perspective.

Patricia Chiodo -- Chief Financial Officer

Yeah. And just for clarity, we did already guide in 2019 that we were gonna have more product sales. And that's because we did anticipate some expansion within school zone speed for New York City. We did not anticipate this magnitude of expansion for New York City. So, if you wanna think about comparabilities, last year, we had about $5 million worth of revenue in product sales. Our guidance includes double that this year, so about $10 million. And we were thinking that was right around this 75 to 100 cameras that might be installed in that year. And right now, the city is looking to expand to close to 300 in their first expansion tranche that they would do. The reason that we have reluctance in order to update guidance is that we don't have a timing of when that's going to impact. And obviously, the longer that the timing delays before we actually get the go-ahead to start installing can really impact the total revenue for the year. But when we get that information, we'll certainly let you guys know.

Daniel Moore -- CJS Securities -- Analyst

Understood. Congrats to a great start to the year. Look forward to seeing you next week.

Operator

Our next question comes from the line of Ashish Sabadra with Deutsche Bank. Please proceed with your question.

Ashish Sabadra -- Deutsche Bank -- Analyst

Congrats on the solid quarter. My question on the New York City, the school safety enforcement as well. As we think about the possibility not just for this here but just as we think about expansion in 600 schools, can you help us frame how many cameras and -- is there any way you can think about how big that opportunity is? And then as we think about the rest of the US, have you started gaining more traction? A follow-up there would be the addressable market. Thanks.

David Roberts -- Chief Executive Officer

Sure. I guess the best way to think about New York City would almost be a team. If you were to say as they think about school zones, they wanna get to around 700 total. And most of those if not all of those would require two cameras per school zone is the best way to think about the total size of the opportunity. Again, the sequencing and the timing and the rollout is where the real TBD is. And we're just really trying to be a good partner to the city as to how they think about it because they have to do a lot of work on these programs as well. So, they have to build out an organization to support, in effect, a fourfold-fivefold increase in the total size of the program. So, that's why we don't have as much data to share at the current time. What I would say is that as I mentioned in my opening comments, Ashish, that we are now starting to see some traction in the state of Georgia which was opened up for a school zone speed legislation earlier last year in the March timeframe.

And the fact that it's now been a year is very not atypical to a brand new program for local government. So, we're anticipating to start to see the fruits of our labor there in the back half of the year. And I would say that -- and we've calculated the total tam there meaning every school zone in the major metropolitan area of Georgia was around $50 million. Clearly, that's the most aggressive view of that. But still, it's a great opportunity for us to get into a state that's really embraced photo enforcement as a part of their overall road safety programs. And then I think what you'll see is other states and other cities start to ask questions about how they can think about it. You saw that Philadelphia has an expansion in their program. So, there'll be more. Right now, the primary ones clearly are New York City and Georgia are the most clear and present to us.

Ashish Sabadra -- Deutsche Bank -- Analyst

That's great. And then just for our clarification purposes, can you just talk about how you make the revenue stream on these cameras? Are there upfront installation fees or installation revenue as well as ongoing processing revenues? Any color that you can provide on those fronts?

Patricia Chiodo -- Chief Financial Officer

Yeah. And that's exactly the way that it works, Hashish. So, there would be -- New York City is unique in that they buy their product. So, they would buy the camera and the related installation. So, that's where you would see that product revenue jumping up from where it was last year going forward. And then you can think about those cameras that once they're installed is we have a service contract in order to maintain the cameras, process the citations, and do the image cost and the transaction processing associated with it. So, if you wanted to think about -- I don't wanna talk about a customer's specific revenue. But I can tell you that that feed portfolio across all of our customers generates per camera at about $3,800.00 per month is what they're generating right now. So, you would say that once the cameras are up and installed, it wouldn't be that specific revenue. But that's what the product portfolio is producing right now per camera, per month.

Ashish Sabadra -- Deutsche Bank -- Analyst

That's great. And then just on the commercial, obviously, pretty good acceleration there. But as you think about the increased toll and those shift to cashless tolling as well as increased penetration of your customer, how should we think about the possibility of the near-term, not just 2019 but over the next three years.

David Roberts -- Chief Executive Officer

We've always said eventually there'll be an effective tapering of the growth over time. And we think that tolling in North America would be somewhere in the 6% to 8% longer-term view. Clearly, right now, the rack that -- we will exceed that for this year as the rack businesses are doing quite well, and our business is doing well within them. If you follow the tolling side, there's more tolling being considered right now than I remember. There's three new toll roads are being considered by the Florida legislature. There's some up in Connecticut. There's gonna continue to be an increase of that given the infrastructure deficit that we do have. So, we feel very positive about that number which is also why we did the deal in Europe was to expand that capability into Europe that has effectively -- it's a bit more greenfield and should grow at a higher level once it gets going.

Ashish Sabadra -- Deutsche Bank -- Analyst

Agreed again. And congrats on the solid results.

Operator

As a reminder, if you would like to ask a question, please press * 1 on your telephone keypad. As a reminder, if you would like to ask a question, please press * 1 on your telephone keypad. One moment please as we poll for more questions.

Our next question comes from the line of Louie DiPalma with William Blair. Please proceed with your question.

Louie DiPalma -- William Blair -- Analyst

Good afternoon, David and Tricia. I was wondering have you fully already achieved the synergies associated with HTA cost and revenue side?

Patricia Chiodo -- Chief Financial Officer

No. We haven't. So, we started integrating HTA. We acquired them in March of 2018 and got a lot of our synergies under way in the back half of 2018. So, we do believe that overall, we'll have about $10 million benefited from synergies in 2019. But what you'll see is as we cross over the back half of the year, we'll get into more difficult comps as far as -- those will smooth out. And the synergies are really related. We did a complete work structure in June of last year. We did a more refined work structure in December, or I should say fourth quarter of last year. So, we'll see those synergies play out across that time period because of the year-over-year benefit of the run rate.

Louie DiPalma -- William Blair -- Analyst

Thanks, Tricia. And regarding Europe, is everything proceeding according to your internal timeline in terms of the different country rollouts and the partnerships with the tolling authorities?

David Roberts -- Chief Executive Officer

Yeah. I think overall it's probably a little bit slower which wouldn't be surprising, given the fact that this is new to the world. I would say that it's definitely not due to the lack of desire or the openness of either working with the toll authorities or the customers. So, it's such a new program for them. They have to go through their own hoops to figure out how to support. It's not something that they've done before. But we clearly have line of sight to both customers and toll authorities that want to be a part of it. So, it's probably moving a little bit slower but nothing that would be something to be overly concerned about.

Louie DiPalma -- William Blair -- Analyst

Okay. And in the prepared remarks, did you mention that you're working with multiple of the big three US racks? Or you just only plan on trialing with one for calendar 2019?

David Roberts -- Chief Executive Officer

Yeah. I think we're in conversations. But we haven't disclosed either who or how many because we're also speaking to European racks as well.

Louie DiPalma -- William Blair -- Analyst

Sounds good. Thanks, guys.

Operator

Our next question comes from the line of Brian Hogan with William Blair. Please proceed with your question.

Brian Hogan -- William Blair -- Analyst

Yeah. Thanks for taking my questions. And also, on the New York City speed camera rollout, you have 140 cameras today. And it's up to 750 from what I've seen from below. But I guess my question is are they gonna RFP it? Or are you gonna have the entire 750 -- what can you share from that front from a contract perspective?

David Roberts -- Chief Executive Officer

Yeah. Whether or not the city determines to do an RFP, that's gonna be -- that's their decision. What I would say is that there is a change request. It was publicly out on the New York City site for an increase to the current year for an expansion of 225 cameras for the year, relative to our plans. So, there was a change request. It's out on their site. It was approved. And we're moving forward with it. So, I guess what I would say is we stand ready to serve our customer and continue to run, manage, and expand the program that we've solely done by ourselves for the last decade.

Brian Hogan -- William Blair -- Analyst

All right. Helpful. Thank you. Going onto Peasy, 1) Why do you think the adoption's been slower than anticipated? And 2) I think you anticipated the run rate exiting 2020 was somewhere between $13 and $15 million of revenues. Are you still expecting that? Or is that not the case, and it's gonna be offset by something else? I'm just curious on your Peasy --

David Roberts -- Chief Executive Officer

Yeah. So, the first part of the question is why is it a bit slower. Part of it is it is a new to the world product, at least in Mass. So, we've always known that 1) we wanted to go through channel partners which has been our -- that's been our strategy from day one is we're more of a behind the scenes, and we wanna leverage channel partners to redistribute products. And while we have a very active pipeline of companies we've spoken to from -- and we've landed a few, as you know, with either GasBuddy and now with Arrive. It's a new to the world product. It takes some level of time for them to understand the value and how it can benefit their users as well. So, that's been a little bit slow. Two is we needed to build out functionality that would allow us to test different pricing mechanisms. And so, that's something that we're gonna begin to do to really pile it other ways to create incentives for people to adopt the program. So, that's under way as we speak.

And then thirdly, to your question, is I don't think we would anticipate the $13 to $15 million run rate. But to the last part of your -- 3B of your question is I think that we would find other ways to cover that through other aspects of the business. And we still think that there's a unique opportunity for Peasy to be a unique platform. We're very excited about the Arrive partnership that we'll have functionality that -- it really goes to the vision of a singular mobility platform that allows people to use frequently -- these driver-related services that are frequent. So, tolling being one, integrating parking into it, and then, over time, looking for other services that make sense that we either build, borrow, or partner with or buy. We're really excited to see the results of that as we launch that functionality over the summer.

Brian Hogan -- William Blair -- Analyst

Sure. On the commercial business, I guess I'm trying to ask are you seeing increased penetration? Is that the primary driver? I know you've articulated some of the transaction days. And I guess I'm asking that because [inaudible] reported transaction days in the United States being down 1% in their first quarter. So, I just think -- are you seeing increased penetration as driving that? Or more adoption?

David Roberts -- Chief Executive Officer

Yeah. There's definitely a higher usage rate. If you look even with the shift to usage day, the usage had actually remained actually quite high, relative to our initial expectations. And you also look at Hertz. It actually had a really good quarter as well, which was growing. And Enterprise, while not public, I think that they had a strong quarter as well, by what we can tell. So, I think generally, it's a bit of both. But the volume certainly is much higher right now, to Tricia's point, which is where we're seeing the culmination of slight growth within the racks as well as a slight increase in adoption plus the increase of cashless tolls. And the new toll roads are coming together nicely in the first quarter of the year.

Brian Hogan -- William Blair -- Analyst

All right. Thanks for taking my question.

Operator

As a reminder, if you would like to ask a question, please press * 1 on your telephone keypad. As a reminder, if you would like to ask a question, please press * 1 on your telephone keypad. One moment please while we poll for questions. Our next question is a follow-up from Daniel Moore with CJS Securities. Please proceed with your question.

Daniel Moore -- CJS Securities -- Analyst

Thank you again. Just maybe a modeling question or two. SG&A, if we look at Q1, is that a reasonable run rate to build off of? Do you have incremental public company and/or other expenses that we should think about as we build the remainder of the year?

Patricia Chiodo -- Chief Financial Officer

I think it's a pretty good run rate for us. We've already started processes for soft integration, other items like that in Q1. So, I would think that that's probably a pretty solid run rate.

Daniel Moore -- CJS Securities -- Analyst

Got it. And then cash generation obviously was very strong. Just maybe talk a little bit about working capital and particular timing of payables and expectations over the next couple of quarters. And if you did say it, I apologize, but just capex expectations for the year.

Patricia Chiodo -- Chief Financial Officer

Yeah. Our capex expectations for the year should be right around $28 million. We're ranging between $25 and $28 million. There was a big chunk of capex that was spent in the first quarter associated with -- a lot of times, we have to buy equipment for customer sites prior to installation. And so, that's the reason that capex was larger in Q1 as we prep for those installations later in the year. As far as working capital goes, I don't anticipate big swings within working capital coming up. One of the things that we did have in working capital that would not be assured to repeat would be that we had a customer who put down a large deposit on title and registration services. Some of our large customers, because we do pay the title and registration on their behalf, pay those monies to us in advance. So, that was actually creating a working capital fluctuation that we don't anticipate will repeat itself in the next quarter.

Daniel Moore -- CJS Securities -- Analyst

Very helpful. And it leads to the last one for me, specifically on that title of registration. It sounds like that piece of the business has actually picked back up. Maybe just talk about where you're seeing the growth from, racks versus fleet management companies. Is it expansion of existing customers? Any color there?

Patricia Chiodo -- Chief Financial Officer

Actually, it's timing. So, title and registration was actually up by $1.2 million, roughly -- I don't know if that's exact number -- on a quarter over quarter basis between this year and prior year. And the majority of that is associated with the timing of when the registrations are due. So, think about it. If you've got registrations that are due in the end of March or the end of a month or let's say the end of December, and in some years, our billing cycle may bleed over into the other time periods. And it creates volatility in a quarter-over-quarter situation. We don't anticipate that the growth in title and registration for the quarter will remain for the rest of the year. So, you can think of title and reg as being about a 12% grower on the top line, 10% to 12%.

Daniel Moore -- CJS Securities -- Analyst

Perfect. Thank you again for the color.

Operator

Ladies and gentlemen, we have reached the end of the question and answer session. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 40 minutes

Call participants:

Marc Griffin -- Investor Relations

David Roberts -- Chief Executive Officer

Patricia Chiodo -- Chief Financial Officer

Daniel Moore -- CJS Securities -- Analyst

Ashish Sabadra -- Deutsche Bank -- Analyst

Louie DiPalma -- William Blair -- Analyst

Brian Hogan -- William Blair -- Analyst

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