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Verra Mobility Corporation (NASDAQ:VRRM)
Q2 2019 Earnings Call
Aug. 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 Second Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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.

It is now my pleasure to introduce your host, Marc Griffin, Investor Relations, Please go ahead.

Marc Griffin -- Investor Relations

Thank you. Good afternoon, and welcome to Verra Mobility's Second Quarter 2019 Earnings Call. Today, we'll 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 plans and prospects. Forward-looking statements may 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 at 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 on form 10KA, as filed with the SEC, all of which are available in 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 after the close of market today, which is located, again, 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.

David Roberts -- Chief Executive Officer

Thank you, Marc, and thank you to everyone for joining us on the call today. Verra Mobility reported another strong quarter, with Q2 exceeding expectations across all key operating metrics. The macro drivers of our business, such as the increase in tolls roads and the transition to cashless tolling continue to provide a powerful tailwind that supports the momentum of our business. Ongoing increases in rental car billable days, alongside increases in tolling usage, are driving our commercial services segment, while the expansion of speed enforcement in New York City is driving our government solutions segment. The strength of our core business, as well as some our longer-term smart city innovation initiatives, give us confidence in our ability to maintain momentum for the remainder of fiscal 2019 and support our vision as a global leader in smart transportation.

As Tricia will discuss in detail later during this call, our second quarter revenue grew 12% year-over-year to $109.6 million, and our adjusted EBITDA came in at $59.7 million, up 9% year-over-year. Our commercial services segment comprises our toll management to rental car companies and fleet management companies in North America, which generated 62% of revenue in the quarter. During the second quarter, the commercial services segment grew revenues 14% year-over-year to $68.1 million and reported adjusted EBITDA of $44.1 million, up 11% year-over-year. The momentum in the quarter was driven by our continued collaboration with our customers to enhance penetration and adoption of tolling programs through both product and operational innovations. Additionally, there has been a positive increase in overall toll activity and usage, which is providing a nice tailwind to our commercial business.

Over the past few quarters, we have made tremendous headway in creating the operationalization of our European product. After creating a subsidiary in the Netherlands, we continue to expand our operations with a new country manager for France. We have signed a contract with a major French tolling authority, APRR, which will allow us to process tolls for our rental car customers with additional processing eventually in Spain and Portugal. Furthermore, we are actively engaged with several rental car companies and large fleets on creating programs. As a part of the development process, we redesigned our shield box to better fit with the design of European vehicles. While we have not started any full-fledged pilot programs yet, we expect those to begin during Q4. We are very pleased with the progress we have made to this point and expect to have more traction in the back half of the year.

We remain very excited about the opportunities for our commercial segment, the strong macros drivers of increases in both the number of toll roads in North America, and the ongoing conversion to cashless lanes. We remain confident in our ability to maintain the momentum for the balance of the year.

Our government solutions segment constitutes photo enforcement in North America, including red light, speed, and school bus cameras, and comprised 38% of revenue for the quarter. During the quarter, the government solutions segment grew revenues 8% year-over-year to $41.5 million and reported adjusted EBITDA of $15.6 million, up 6% year-over-year. Growth in the government solutions segment this quarter was primarily driven by hardware sales, offsetting a small decline in service revenue due to the elimination of the red light camera programs in the state of Texas.

As stated during our last earnings call, New York State passed legislation that will increase the number of school zone speed enforcement areas to 750 from 150 in New York City, which Governor Cuomo signed into law on May 12th. 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.

Additionally, Mayor Bill DiBlasio has asked for a rollout of about 40 cameras per month through the end of the year, and we are aggressively executing on that plan. We have an order in hand for 300 cameras and continue to work with our counterparts at the New York City Department of Transportation on the rollout schedule.

We maintained our consistently high renewal rates again in Q2. During the quarter, we renewed key customer programs in Arlington, Virginia; Decatur, Georgia; Lake Forest, Washington; and Green Coast Springs, and New Port Richey, Florida, to name a few. Additionally, we were awarded new contracts in Issaquah, Washington; Renton, Washington; Clayton County, Georgia; and the Philadelphia Parking Authority. We are also currently negotiating contracts for multiple school zone speed programs in Georgia as a follow-on to the enabling legislation that was signed into law last year.

Overall, we continue to execute on our strategic initiatives for 2019 and are very pleased with our traction during the second quarter. Peasy, our nationwide pay as you go consumer mobility platform, continues to gain subscribers as we work through pricing optimization strategies and expand our relationships. Given the slower than anticipated adoption, we have pursued complementary go to market strategies, which we believe our platform could play a strategic role behind the scenes by extracting value from all of our unique tolling data.

As an example, we signed an agreement with a leading rideshare company during the quarter for a toll data service relationship. We continue to remain diligent in our M&A process and have included a slide in our investor presentation. This slide highlights our acquisition parameters. We believe we have a solid pipeline of quality companies that can accelerate our leadership in the smart mobility solution space, and we are focused on adjacent areas which allow us to better serve our customers while expanding and solidifying our global scale.

Finally, I wanted to touch briefly on congestion pricing. As many of you know, the Metropolitan Transit Authority has issued a request for proposal and expects to launch a congestion pricing program in New York City in January 2021. After a thorough review of the RFP requirements, we have decided not to bid, allowing us to focus our attention and resources exclusively on implementing the expansion of the city school speed safety camera program. While we were certainly excited about the opportunity that the congestion pricing RFP offered, especially since it was aligned with our unique product portfolio and understanding of the customer -- that said, we ultimately decided that the challenges associated with the timing of the opportunity outweighed the benefits of submitting a proposal. Our main priority in New York City must remain executing the school speed expansion and continuing to manage the city's red light and bus lane camera programs. We continue to be optimistic about the role we could play in future congestion pricing bids in other regions of the country, and will monitor New York City's congestion pricing program and consider opportunities to partner with the program's vendor once selected.

In summary, we are very pleased with our second quarter results 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 our financials in more detail.

Tricia Chiodo -- Chief Financial Officer

Thanks, David, and good afternoon, everyone. I'll provide a more detailed overview of the second quarter 2019 financial performance, and then we'll open up the call for your questions. We've provided a short earnings deck on our website that has reconciliation from GAAP to the non-GAAP results we'll be discussing today. If you're following along on that earnings deck, I'm on slide three, which outline revenue and adjusted EBITDA performance by business segment.

Let's start with our commercial services segment, which delivers tolling violation processing title and registration services to rental car companies and suite management companies in the U.S. and processes violations in Europe. Their total revenue grew 14% to $61.8 million in the second quarter of 2019, up from $59.8 million in the same quarter of the prior year. In the current quarter, we saw increasing numbers of billable days across our three largest rental car companies, and higher levels of tolling activity across our entire product portfolio.

We expect demand for tolling products to continue to be strong in the back half of the year. As you look forward for this business segment, keep in mind that Q3 of last year is a difficult comp, and the year-over-year growth rate for that quarter may be lower.

Adjusted EBITDA of $44.1 million in the second quarter of 2019 grew $4.4 million, or 11% year-over-year, from $39.7 million in Q2 of 2018. Our strong EBITDA performance is driven by continued revenue growth, combined with the impact of well-executed integration synergies. Adjusted EBITDA margin for commercial services continues to be strong at 65%, topping the 61% in the first quarter of this year. Our strong margin performance is net of the investments we're making to accelerate our expansion into rack tolling in Europe and to serve the consumer market in the U.S.

Moving to our government solutions segment, which operates photo enforcement programs for municipalities and school districts with an end-to-end solution, their total revenue was $41.5 million in the second quarter, and grew 8% year-over-year, from $38.4 million in the second quarter of 2018. Now, total revenue is comprised of service revenue -- that's the monthly fee we generate from the operation of photo enforcement programs -- and product revenue, which results from selling and installing camera systems. Service revenue for the quarter was $35 million, declining $2.3 million from $37.3 million for the same period of the prior year. Now, $1.1 million of the decline resulted from a decision we made to exit our streetlight maintenance business in April of this year. This business was noncore and not profitable. Our red light programs declined $2.2 million from the same quarter in 2018. This was driven by the loss of cameras in Texas, lower prices upon renewals, and reduced transaction volume on variable contracts. If you recall, Texas banned their red light photo enforcement earlier in the quarter, resulted in the expected reduction of revenue of $11 million annually. The ban went into effect on June 1st of this year and will impact year-over-year growth rates for the next four quarters.

These declines were offset by growth and speed in bus lane revenue, which have long runways of growth opportunities with the expansion of the New York City program and new TAM in Georgia. Product revenue of $6.5 million for the quarter was up from $1.2 million from the same period last year. This increase was primarily driven by installing 59 school zone speed cameras for New York City. As David mentioned, we currently have an order to install 300 camera systems, so you can expect to continue growth and product revenue in future quarters.

In Q2 2019, adjusted EBITDA of $15.6 million increased approximately $9,000, or 6%, from $14.7 million in the same period in the prior year. Adjusted EBITDA margins for this business segment were 38%. The large increase in product revenue sales is benefiting both the top and the bottom line of this business segment.

Turning to the next slide, we have our consolidated results for the quarter. The combined results of the business segments we just discussed generated total revenue of $109.6 million for the second quarter and grew $11.4, or 12%, from $98.2 million for the same period of 2018. Adjusted EBITDA of $59.7 million increased by $5.1 million, or 9%, from the $54.6 million in the prior year. Second quarter adjusted EBITDA margins remained strong, at $54.5, improved from 52% margins reported in the first quarter of this year.

The company reported net income of $3.6 million in the quarter, compared to a net loss of $4.8 million in the same period in the prior year. The net loss in the second quarter of 2018 was largely attributable to transaction expenses that did not recur in 2019. In the current quarter, the company took a $5.9 million impairment charge associated with the loss of Texas red light program. The impairment relates to assets that were operating in Texas and cannot be repurposed to other clients.

EPS for the current quarter was $0.02 per share, compared to a net loss of $0.07 per share in the same quarter of 2018. Tax expense for the quarter was $1.7 million, representing an effective tax rate of 32.6%. The effective tax rate increase was primarily due to higher nondeductible executive compensation and our requirement to reflect certain deductions when they incur, including deductions for equity compensation and the reversal of uncertain tax positions, which will benefit future periods. We expect our normalized tax rate to be 26% to 28% for the full year.

The company generated $45.8 million in cash flow from operation during the six months ended June 2019, compared to generating $12.5 million for the same period in the prior year. The improvement is directly correlated to improved net income. We spent $14.2 million in capex in 2019 year-to-date period, compared to $11.1 million in the prior year. Free cash flow, which we define as cash flow from operations less capex, was $31.6 million for the first half of 2019. Cash flow for the second quarter was impacted by higher estimated tax payments and increased accounts receivable balances, which we anticipate will improve in the back half of the year.

As of June 30th, we had total debt of $899 million and cash on hand of $92 million, for a net debt position $807 million, bringing our leverage ratio to 3.7 times trailing 12 months adjusted EBITDA of $220 million. In summary, we continue to execute well, delivering strong top and bottom line results, and believe that Verra Mobility remains well positioned to maintain the momentum and operating discipline throughout 2019.

Based on our performance through the first half of the year and our outlook for the remainder of 2019, we're raising our revenue guidance to the range of $433 million to $441 million. This is a $5 million improvement over our original guidance. Our guidance for adjusted EBITDA is unchanged, in the range of $235 to $240 million. We anticipate stronger product revenue as we continue school zone speed expansion, but more muted service revenue with the loss of Texas red light programs and minimal contributions from Peasy and European rack tolling program.

You can derive from our guidance that our margins will be slightly lower than expected, moving from 55% to 54.3%, at the midpoint of our guidance range. And there's a couple of reasons why. We made the decision not to cut costs for government solutions segment with the immediate loss of Texas revenue, understanding that the school zone speed revenue will be ramping up over the back half of the year. This decision will put short-term pressure on margins, but ensures quality of product delivery and service to our clients. We'll also continue to invest in Peasy and Europe rack tolling, although we don't anticipate meaningful revenue from either product in 2019.

Thank you for taking the time to join us on the call today. And with that, we would be happy to take your questions now.

Questions and Answers:

Operator

We will now be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. The confirmation tone 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 * keys. One moment, please, while we poll for questions.

The first question is from Jim Schneider of Goldman Sachs. Please go ahead.

Jim Schneider -- Goldman Sachs -- Analyst

Good afternoon, and thanks for taking my question. Congratulations on the strong results. I was wondering if you could maybe give us a little bit of a sense, after you get the 300 cameras installed in New York City, what you kind of expect the run rate or annualized recurring revenue to be from that program?

Tricia Chiodo -- Chief Financial Officer

Sure. So, if you think about just that 300 camera base, our average across our speed portfolio of service revenue is right about $3,800.00 per month. So if you take that times 12 and then multiply it by the 300 cameras, your go forward run rate revenue from that first installation should be about $13.7 million.

Jim Schneider -- Goldman Sachs -- Analyst

Revenue run rate on the annualized basis, right? Okay, that's helpful. And then maybe one for David. On the M&A front, I was wondering if you could maybe give us a little bit of color as we go forward, your updated thoughts on where you might see kind of attractive opportunities for M&A and kind of at what point you might see the earliest opportunity to actually take advantage of that, and again, of how you feel about the capital structure and where you'd like to get down to before you initiate something like that?

David Roberts -- Chief Executive Officer

So, the final question being, I think, a leverage question, so I'll land on leverage. So, I think per our call last time, we hired a new head of M&A, Mike McMillin. He's been doing a great job. We put into the investor decks just some framing perspectives of how we're gonna think about M&A so that our investors and analysts can get a view as to how we're thinking about deploying capital. What I would say is that relative to timing, we are looking for things that help us accelerate our growth strategy. That would include what can we do in Europe to make it go faster in Europe, because we're very committed to Europe, and know that over the long haul, that's a really great opportunity for us. So businesses that have unique capabilities in Europe, like EPC, would be things that are interesting to us.

In addition, we would look at things that are diversifying. So, if you look inside of the United States and our government solutions business, we have 200 customers that we principally sell one product to, because we have only provided previously photo enforcement. That being said, we have great relationships with a lot of these major cities, and as they look to smart city initiatives, we are a de facto partner that could be working with them. So, things that might diversify our products to those customers would be another category.

What I would say in a sense of timing is that the pipeline is very full. But at the same time, valuations are also quite full. So, we continue to look broadly. But I would think that once -- I think that within the next six months, you'll definitely hear some things from us related to M&A. And then finally, as we think about capital, we generate a fair amount of cash, as you can see, even in the quarter. I would say that we are very comfortable. We're gonna be at a -- our leverage is estimated at the end of the year to be, what?

Tricia Chiodo -- Chief Financial Officer

Well, we anticipate that we do -- we de-lever very quickly. You can see the step function and how we're de-levering as we progress about each quarter. Our cash flow generation and conversion could take us to leverage ratios that are right about 3.2 times by the end of the year.

David Roberts -- Chief Executive Officer

Yeah. And so, I think that we're comfortable up in the four range. So, we're pretty comfortable with that for the time being. At least for now, the opportunity to grow through M&A is more attractive than sort of restructuring the capital structure of the business.

Jim Schneider -- Goldman Sachs -- Analyst

That's helpful. Thanks so much.

David Roberts -- Chief Executive Officer

Yeah. Thank you.

Operator

The next question is from Ashish Sabadra of Deutsche Bank. Please go ahead.

Alexis -- Deutsche Bank -- Analyst

Hi, this is Alexis on for Ashish. Congrats on the quarter, and thanks for taking my question. So, I just wanted to talk about the update on the progress for the European opportunity. And can you just clarify the timing of the program and when you expect the plan to roll out to Spain and Portugal? And also, if you've announced any partnerships with European racks, or if there has been any discussion with the ones in the States? Thank you.

David Roberts -- Chief Executive Officer

Yeah. So, the timing is -- per the note that we just shared, is that we're anticipating a pilot to launch sometime in Q4. I think from our last call, we've been pretty open. We're slightly behind our plan, but recognizing the building something from scratch that we do so well in the U.S. is gonna take some time. And operating in Europe is clearly more complex. That being said, we did sign an agreement with APRR, which gives us the ability to do tolling in France. We have gotten our shield box approved, which sounds like a small deal, but it's actually a really big deal, which is where the transponder goes inside of a rental car vehicle.

And we are in active discussions with multiple rack customers, that would include the customers that we serve here, but also additional rental car companies and large fleets, remembering that there's fleet management companies in Europe just as well that are interested in our program. So, we anticipate a more robust update in Q3 or certainly Q4 related to who those are. And clearly, when we are actually moving forward, I suspect we would announce that separately.

Alexis -- Deutsche Bank -- Analyst

Great, thanks. And then one more. Can you just comment on the -- so the demand for the school zone safety cameras, and any color on opportunities in other cities that may follow? Basically just what the addressable market looks like, and if you could just comment on your mote around the business that you have in the government space.

David Roberts -- Chief Executive Officer

Yeah. So, I mean, right now, the mote, I would think, is a couple things. One is market share. I mean, we have greater than 50% market share in North America for photo enforcement. Number two is if you look at large cities -- so the larger cities in the country, we are sort of the gold standard if you look at the New Yorks, and Chicagos, and Seattles, and San Franciscos of the world; that we have a great reputation with our customers, and I think that's one of our motes, alongside the efficacy of both the programs that we implement and the technology that we deploy. In terms of TAM, as we mentioned earlier in the call, that we did open up the state of Georgia a year-and-a-half ago now for school zone speed, and that was approximately a $50 million TAM.

We are turning our sights now to other states, which have yet to be identified, in terms of that opportunity. I would say that school zone speed is a very -- you can't see the air quotes, but I'm putting air quotes, "popular" program, because while certainly people have disagreements about the use of photo enforcement, it's hard to argue that people should be speeding in school zones. And photo enforcement is a very, very proven method by which to change that behavior. So we anticipate continued growth in speed for several years to come.

Tricia Chiodo -- Chief Financial Officer

And I would add to that, David, I mean, we talk about our New York expansion opportunity and the 300-camera order that we have in hand. But that program in and of itself has a long runway just on its own. The legislation allowed them to move into an additional 600 school zones, of which we put two cameras in every zone. So, there's a long runway just in New York itself.

Alexis -- Deutsche Bank -- Analyst

Great. Thank you so much.

David Roberts -- Chief Executive Officer

Yeah. Thank you.

Operator

The next question is from Daniel Moore of CJS Securities. Please go ahead.

Daniel Moore -- CJS Securities -- Analyst

David and Tricia, good afternoon. Thanks for taking my questions.

David Roberts -- Chief Executive Officer

Yeah, hi Dan.

Tricia Chiodo -- Chief Financial Officer

Hi, Dan.

Daniel Moore -- CJS Securities -- Analyst

Sorry to review, but I just want to make sure I got the numbers right. 59 cameras in Q2, 40 a month for the rest of the year is what we're thinking about for New York?

Tricia Chiodo -- Chief Financial Officer

Yeah. Except don't think about installation in December. Yeah, New York City won't let us to be on the street in December. So, if you sort of do that quick math, you're talking about an additional 200 cameras in the back half of the year.

Daniel Moore -- CJS Securities -- Analyst

Very helpful. And maybe talk about, is that expansion driving or leading to accelerated conversations in other metros on that side of the business?

David Roberts -- Chief Executive Officer

Yeah. I mean, I think there's always a trickle effect. So, when New York was the first to -- and Dan, make sure I'm answering your question, but New York adopted Vision Zero five or six years ago I think now, they were the first, and then other cities like Seattle and San Francisco took that on. So I think that as you think about companies or rather cities transitioning to smart cities and looking for ways to improve safety, as well as finding self-funding mechanisms that photo enforcement and especially purpose build inside of schools is gonna be something that you will start to see. And I think we saw the first sort of echo of that when the state of Georgia opened up legislation enabling the state there.

Daniel Moore -- CJS Securities -- Analyst

Helpful. And Trish, any directional, at least, ability to sort of break out EBITDA margins within government solutions between product sales and services?

Tricia Chiodo -- Chief Financial Officer

You can actually derive it from our financial statements, because we do provide a product sales line and a cost of product sales line. And you figure that the majority of our opex and SG&A is related to the service side of the business. So, that's the easiest way to get to it. I can just tell you they're healthy.

Daniel Moore -- CJS Securities -- Analyst

Hm. On both sides, absolutely. This is a speculation question, but based on what you know about the New York City RFP for congestion pricing, what's your sense of the likelihood that it gets modified? I know you're not gonna participate as it's written today, but any thoughts there?

David Roberts -- Chief Executive Officer

Yeah. Not really, only because it's pure -- I would just say that, look, congestion pricing is not common. There's only so many cities that actually have it around the globe, and New York is a big, big, complex city. I suspect after they -- I think they're gonna be selecting a partner here in the next two to three weeks, if I'm not mistaken. I'm assuming that they'll have to come to some terms as a part of the RFP process to modify it and make some things a little bit easier. But New York City has some very clear demands that they're looking to extract, and I'm assuming these partners are willing to sign up for it. So, it'll be a little bit of a "we'll see what happens."

Daniel Moore -- CJS Securities -- Analyst

Understood. Lastly for me, tagged onto the M&A question, just as you think about both internal and growth via M&A, areas of opportunity, any specific examples as you relate it to the long-term smart city initiative? What are some of the other types of services that you can envision providing, and are there companies out there that you're actually looking to buy in the next six to 12 months? Thanks.

David Roberts -- Chief Executive Officer

Let the record show that I'm not committing to any of the following, but I'll give you some examples, Dan, to help you out. So there's two categories, or maybe three categories that are probably pretty interesting to us. Actually, maybe four. One is, we do have a title and registration business that we really like, and we think that in the future could be in a unique position. As we've always said, whether it's autonomous, connected, or normal, or electric, or what have you, it still needs a title and a tag, and that's something that we do, and we do quite well, and there's probably a future there.

As we think about smart cities, though, there's a couple areas that we are kind of interested in. We like the parking space. We like congestion pricing, despite the decision to no bid. That was just a focus and a delivering for our customer decision as much as anything. And congestion pricing entails a lot of other things, like sensor technology, as well as traffic management. So all of those kind of come together as what I would call very broad categories that we're looking at, and looking at them both in the U.S. and abroad.

Daniel Moore -- CJS Securities -- Analyst

Helpful. Thanks. Congrats on the progress in the quarter. Appreciate it.

David Roberts -- Chief Executive Officer

Yeah. Yeah. Thanks, Dan.

Tricia Chiodo -- Chief Financial Officer

Thank you.

Operator

The next question is from Dave Koning of Robert W. Baird & Company. Please go ahead.

Dave Koning -- Robert W. Baird & Company -- Analyst

Hey, guys. Thank you. And I guess, yeah, first of all, you made a comment about how Q3 of last year presents a little bit of a tough comp. And I'm just wondering -- that's in the commercial services business.

Tricia Chiodo -- Chief Financial Officer

Yeah.

Dave Koning -- Robert W. Baird & Company -- Analyst

And I'm wondering, yeah, what's the normal cadence sequentially of the year? Last year, obviously, Q3 was so much stronger. Is there a summer driving season that we should still normally see a pretty nice sequential pickup in Q3?

Tricia Chiodo -- Chief Financial Officer

Yeah. You should see a nice sequential pickup in Q3. But I think last year, as we moved from Q2 to Q3, that pickup was $12 million. And there were some reasons for that. There were some delays in tolls from the Florida, from SDOT, the Florida Tolling Administration, that moved revenue from Q2 to Q3. We can't recognize the revenue unless we receive the toll file, and they just stopped sending toll files. So, you're gonna see that there should still be a sequential bump as we go into Q3, but it's not gonna be $12 million, which it was last time. So, you're gonna see the same levels, but sort of that muted bell curve is gonna run over the top.

Dave Koning -- Robert W. Baird & Company -- Analyst

Okay. Okay, great. And secondly, margins in government sequentially were up, which to me seems pretty encouraging, given you added all the product revenue that you didn't really have in Q1. You added it sequentially. That should come on at, I would think, a lower margin. So, for the rest of the year, can margins stay reasonably high, even with all the product revenue?

Tricia Chiodo -- Chief Financial Officer

Yeah, they can. So, our product revenue is actually -- for this quarter, came in at really nice margins, and obviously higher than the business segment as a whole. But we also installed the fastest and easiest cameras that we could in that quarter. Using existing polls where we could -- what you might see is that I think those product margins are gonna remain above the average for the business segment throughout the rest of the year. So I think that's probably a good assumption, Dave.

Dave Koning -- Robert W. Baird & Company -- Analyst

Okay, thanks. And just, if I can sneak one quick one in, EPC, we don't get to see the revenue. It's not in your press release, just given when I first read it. But I think a year ago, it was $2.4 million. Is that growing still, 40%, 50% year-over-year in Q2?

Tricia Chiodo -- Chief Financial Officer

For EPC? No, EPC hasn't been growing at that pace.

David Roberts -- Chief Executive Officer

It was never growing at that pace, yeah.

Tricia Chiodo -- Chief Financial Officer

Oh, I think what you're talking about --

Dave Koning -- Robert W. Baird & Company -- Analyst

I messed up.

Tricia Chiodo -- Chief Financial Officer

No, I think, if you're looking at what our Q1 financial results were, I think we had a huge bump in growth in Q1 for title and registration, and it normalized for Q2, which is what we also said there. So title and registration in Q1 was 48% up quarter over quarter. That was really timing. We expect that to be sort of a run rate basis of closer to 10%. So I think that might be what you're thinking about from our Q.

Dave Koning -- Robert W. Baird & Company -- Analyst

Yeah, I think that's right, yeah. No, I appreciate it. Thank you.

Tricia Chiodo -- Chief Financial Officer

Yeah, no problem.

David Roberts -- Chief Executive Officer

Yeah, thank you.

Operator

The next question is from Louie DiPalma of William Blair. Please go ahead.

Rohan Piska -- William Blair -- Analyst

Hey, guys. This is Rohan Piska on behalf of Louie. Congrats on the solid quarter.

David Roberts -- Chief Executive Officer

Thank you.

Tricia Chiodo -- Chief Financial Officer

Thank you.

Rohan Piska -- William Blair -- Analyst

In regards to the HDA acquisition closed last March, we were under the impression that you were recently still operating separate tolling networks for American Traffic Solutions and HDA. At the end of the second quarter, have all of the revenue and cost synergies been fully achieved? Thanks.

Tricia Chiodo -- Chief Financial Officer

So, as far as the tolling systems, we do have different computer systems serving each of our three largest customers that are on there, just because they are our three largest computers, and we want to make sure that they're stable and it doesn't change their integration. That, we never intended to change, so if you're talking about systems. But the majority of our back office integration, as well as our revenue synergies, would have been achieved. We started rolling this out probably this time last year, so we've crossed over the majority of them.

Rohan Piska -- William Blair -- Analyst

Okay. Thank you.

Operator

The next question is from Chris Denaut of Cowen. Please go ahead.

Chris Denaut -- Cowen -- Analyst

Hi there. Thanks for taking my question. I'd like to go back to the New York City pricing congestion issue, if we could. If you could just help me understand whether this decision was purely about the timing constraints that were imposed, or if there were other technological or logistical issues presented that would have still been issues regardless of the time to implement? Thanks.

David Roberts -- Chief Executive Officer

Yeah. That's a fair question. I mean, I think the reality is, it will be by all accounts the largest congestion pricing scheme in the world in one of the most unique cities in North America, to be sure. And all of that, getting that started from scratch with the addition of a short timeframe only increases the complexity. So, there's definitely complexity with installing cameras in New York City, integrating with EZPass. There's a lot of work to be done. But the timeframe certainly made it challenging. And based upon the RFP, the city's very, very serious about that timeframe and being ready to go in January of 2020.

Chris Denaut -- Cowen -- Analyst

Got it. That's helpful, thanks. If I could throw one more in there on Peasy. You had mentioned signing up with this rideshare partner. Does this imply that really getting to Peasy to scale is gonna involve potentially some more similar type of corporate partnerships and things of that nature that are gonna really get this to grow, rather than just the app itself on its own? Should we look to see more kinds of things signed up?

David Roberts -- Chief Executive Officer

Yeah, that's exactly right. And that was actually always the original thesis, was we have the capability to offer a direct to consumer model, and we wanted to build that brand. But at the same time, we knew that we often fit better behind the scenes than we do out in front. And then offering our data and our platform to others that might want to leverage their customers. So what we did with GasBuddy earlier in the year as an example, where distributing the technology through others is probably a better way to go, and leveraging the platform and data that we have, and look for ancillary revenue is exactly what we did with the rideshare company. So, whether it's the GasBuddy or whether it was with Aride, which is the parking company that we did a partnership with, all of those are looking for accelerated ways to distribution versus a direct to consumer model.

Chris Denaut -- Cowen -- Analyst

Understood.

David Roberts -- Chief Executive Officer

Yeah, thank you.

Operator

The next question is a follow-up from Daniel Moore of CJS Securities. Please go ahead.

Daniel Moore -- CJS Securities -- Analyst

Thanks again. Just a quick one on cash generation. I'm wondering if the uptick in product revenue had any impact on receivables. Is there any meaningful delta in collection terms between product sales and service revenue? Thanks.

Tricia Chiodo -- Chief Financial Officer

Yeah. There shouldn't be a meaningful difference, but it definitely had an impact. The invoice that we sent out for, I think, all 59 of the installations for New York went out on June 30th. So, I mean, that's a part of the uptick in our receivables that's there, but it shouldn't slow the collection cycle. We generally get paid within 30 to 45 days, or we should, from New York City, so I'm not expecting that to be a longer cycle.

Daniel Moore -- CJS Securities -- Analyst

Understood. Thank you.

Operator

There are no further questions at this time. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

David Roberts -- Chief Executive Officer

Okay.

Duration: 40 minutes

Call participants:

Marc Griffin -- Investor Relations

David Roberts -- Chief Executive Officer

Tricia Chiodo -- Chief Financial Officer

Jim Schneider -- Goldman Sachs -- Analyst

Alexis -- Deutsche Bank -- Analyst

Daniel Moore -- CJS Securities -- Analyst

Dave Koning -- Robert W. Baird & Company -- Analyst

Rohan Piska -- William Blair -- Analyst

Chris Denaut -- Cowen -- Analyst

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