SP Plus Corp (SP) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter and fiscal 2005 Standard Parking earnings conference call. My name is Angela, and I will be your coordinator for today.

[OPERATOR INSTRUCTIONS]

And now, I would like to turn the presentation over to your host for today's conference, Mr. Marc Baumann, President and Chief Financial Officer. Please proceed, sir.

Thanks, Angela and good morning, everybody. I'm Marc Baumann, Chief Financial Officer of Standard Parking. And I'm not president. We'll let Mr. Wilhelm talk to you in a few minutes. But I'm your primary investor relations contact.

Welcome to the conference call for the fourth quarter and fiscal '05. I hope you've all had a chance to review our earnings announcement, which we sent out last night after the markets closed. And right now we expect to file our 10K tomorrow, March 10.

We'll begin our call today with a brief overview by Jim Wilhelm, our President and Chief Executive Officer, and then I'll discuss some of the financials in a little more detail. After that, we'll give you some guidance for 2006 and we'll open up the call for a Q&A session.

During the call, we'll make some statements that will be considered forward-looking regarding the company's strategy, operations and financial performance. Those statements are subject to many uncertainties in the company's operation and business environment. I'd like to refer you to the complete forward-looking statement disclosure in our fourth quarter release, which is incorporated by reference for purposes of this call. I'd also like to refer you to the disclosures made in the company's quarterly and annual filings with the SEC.

Finally, before we get started, I want to mention that this call is being broadcast live over the internet and can be accessed on our website, standardparking.com, and also at earnings.com. There will be a replay available on either website for 30 days after the call. With that, I'd like to turn the call over to Jim.

Thank you, Marc. And also good morning, everyone and thanks for dialing in to our call this morning. I want to give you a brief overview of the business' performance in 2005. The press release that we issued yesterday is very descriptive, and certainly the K that we'll be issuing tomorrow will contain even more detail. So I'm going to try to stick to the highlights and speak about the company's performance on an annual basis. Marc will follow me with a more detailed review of the quarter and the year-end financial results and the numbers associated with those.

Obviously, we are very pleased with the performance of the company and the fact that we exceeded the earnings guidance that we had given to you earlier. Earnings per share, as we reported, were $1.39, versus a range of $1.27 and $1.32 that we had shared with you last time. We're obviously happy about those results in the face of a lot of moving issues and noise around the business during the fourth quarter and through the years, things such as the hurricanes and Sarbanes-Oxley activity this year, cost of acquisitions that we either completed or looked at, the performance of the Cap Cities Garage in St. Paul, which we reported on throughout the year, and legal settlements putting behind us some cases that had dragged on for some period of time. So we are very delighted with the results of the company's performance.

In the area of cashflow, we also had very good results. The IPO and the company restructure of our balance sheet allowed us to generate significant free cashflow of $26.5 million, or about $2.51 per share in 2005. And consistent with the priorities established by my board of directors, our board, and which we've consistently communicated to you in the financial community, we've used the free cashflow in several ways. To continue to reinvest in the business by funding growth initiatives and acquisition activity; to return value to our shareholders in the form of stock repurchases; and to reduce debt. And all of those tasks were accomplished in some form in 2005.

Just some metrics and sort of key indicators that I look at and that we've kind of led you towards in terms of how we look at the business 2005 over '04, we had gross profit growth on an all-location basis, 12%, 7% in leases; 13% in management contracts. Our same store or same location sales, excluding the hurricane, as were the first statistics were a total growth of 13%, again, 8% in leases; 14% management contracts; and we improved our margin on same stores, excluding the hurricane, up to 30.2% from 29.2% in 2004.

I'd like to talk a little bit about New Orleans in that I mentioned it and what's going on down in New Orleans. I have spent some time down there now since the hurricane and have a fairly good handle on the current state of things down there. Included in our guidance that I'll talk about later is the fact that we expect to do about $600,000 better in 2006 in New Orleans than we did in 2005 in New Orleans.

We have met with local officials, our clients, some of the government people in and around New Orleans, and we stated our commitment to the community in whole in New Orleans, and that we from the very first day and the first warning in New Orleans have been a part of that community and been a part of the repair; and we will continue to be involved intimately in New Orleans. We've taken out full-page ads in the local papers restating our commitment. We have met with all of our clients down there. And the good news is I think all but one of our locations is now reopened to parking.

So are, again, in the business of collecting management fees and fees from those facilities, and all of that is the good news. The bad news is there aren't a whole lot of cars to park down there. At last look, there was about a quarter of the population had returned to New Orleans. It's my understanding that there will not be a significant shift in that population back to that community until after the school year ends. Obviously, a lot of local people when they left found schools for their children in other places and set up temporary locations for their businesses in other cities, that can be in Baton Rouge, or Houston, or anywhere kind of in the Gulf area.

So I am hopeful, based on our talk with local officials, that after the school year opens and schools reopen in New Orleans, and hospitals reopen in New Orleans and things like that, that the shifting demographic back will help in terms of the volume.

We have a couple of leases down there that are dependent upon the amount of cars we park. Those leases are associated with medical facilities, and as those ramp up their services, we would expect to see our business there recover.

In terms of the insurance claim that we will be processing for New Orleans, as I reported in the past, we are certainly no where near completing the filing of that claim. It will take us months, if not the entirety of this year, to understand what our real property damages were and to get those properties repaired. A lot of that work is either underway or will be started shortly. A lot of the biological cleaning has been done on our facilities, which enable the facilities to reopen, but we still have elevators to repair and signage to repair, parking revenue control equipment, parking meters that need to be repaired.

If you remember, we collect all of the revenue from parking meters in New Orleans, and those meters were damaged. So it will take us this year to kind of understand what the totality of our property damage exposure is in addition to our business interruption insurance and fees, and lease income, and allocations, and payroll and things like that that we will be claiming as part of our overall claim. We'll probably take again the totality of the year to put together.

So the guidance that we published last night and that we'll talk a little bit about today does not assume the recovery any of the dollars that would be due if under the claim that we will ultimately file in New Orleans.

Moving on on the statistical side, we managed to retain 91% of our locations in 2005. That's up three points over 2004. Obviously, retention is a key metric that I look at on almost a daily basis with the company as we strive to retain the foundation of our business. We added 20 new locations in 2005; that's the second year in a row that we added new locations. We would certainly expect that that trend would continue. Our salespeople are out there busy every day and getting proposals out on new opportunities.

During 2005, we saw an increase in new business activity in the university hospital and airport businesses, and I mentioned early in '05 that that would continue to be a focus area for us. Assuming the responsibility for the management of the Cincinnati airport, Valley International Airport in Harlingen, Texas, and under our Park Air Express subsidiary brand, we opened operations in Dallas-Fort Worth and at the Burbank Airports.

We also offered in business on the university side at Boston University, George Mason University, Case Western University of Colorado Health Services Center. So the university and hospital campus areas will continue and has been very important to us.

We certainly in '05 saw the continuing benefits of maintaining strong relationships with regional and national real estate companies. And I've talked about the importance of reinforcing those relationships because ours is a business of relationships. And we've continued to leverage those relationships along because of our real solid product by either adding in additional contracts or adding ancillary services to the existing contracts.

We won a national competition for the general growth shopping centers on a national basis, and those are now opened under our management, of which there are eight in the current folio. We added vehicle booting at Midway Airport to enforce parking scofflaws here in Chicago. We added skycap services at the Rapid City Airport. We added shuttle services to the Bank of America contract, the large contract we have on the west coast of the country.

We opened new properties with existing clients Crescent at Fountain Place in Dallas, Hines at One South Dearborn in Chicago, and with Prime Realty at One IBM Plaza in Chicago. We've also continued to expand our expertise and resources in the areas of municipal on-street programs, and we anticipate that there will be continued privatization throughout 2006 and the future in on-street privatization and toll way privatization as an opportunity for our industry and to the future.

As of December 31, 2005, we ran a total of 1,906 properties, as opposed to 886 at the same time of 2004. I wanted to talk a little bit about Bradley Airport. We generally give you an update on that every time we talk. And the Bradley Airport contract, as we've been talking about the last few quarters, is turning around in a positive direction. We received net reimbursement of $1.5 million in 2005, as compared to having made net payments to the trustees totaling $2 million in 2004, which is a favorable swing in cashflow of $3.5 million, leading towards the free cashflow numbers that I gave you earlier.

Garage activity and business around the Hartford Airport is good. Southwest Airlines and their business remain strong. We still have not moved American Airlines into the terminal, so we still are operating a rather expensive shuttle bus service for, in essence, what's one airline in Bradley as we've talked, and we still don't have a date on when American might be moving.

In 2005, we completed the acquisition of the parking operations of Sound Parking in Seattle. I could talk a little bit about why we did that deal. We had the opportunity to get under our employ two real solid parking professionals up in the Northwest quarter. Brad Parish and Bill Beatty have come aboard now as employees of Standard Parking, and they give us the opportunity to grow and develop what has been a market that we did not have a lot of presence in or focus, but a market because of its emerging demographic that we wanted to be in.

In terms of the term of the deal, the key terms of the deal, we put up no up-front cash for, in essence, the acquisition of these properties for our management. We have signed long-term employment contracts with Bill and Brad, and we obviously will enjoy having them with us for a long time. They are incentivized as part of their agreement to retain our current business in Seattle, not only theirs but ours, which they have now assumed control of, and acquire new business up in that corridor, as I described, in a defined region for us of Washington, Oregon, Idaho and Alaska. And we are in the middle of the transition.

On the downside of acquisition, I talked about the planned acquisition of System Parking here in Chicago in the past. As we reported, that deal did not work out based on some of the things we saw, and we spent around $450,000, which I referred to kind of in totality at the beginning of my presentation in terms of costs that we absorbed in 2005.

Taking a look at System, the upside of that is we are convinced that we did not reach, or overreach, or make a bad decision or force ourselves to buy a company and we certainly were able to put a more solid pro forma and list of acquisition activities based on the experience we had going through the system tests.

Maybe the issue that I am most proud of that occurred in 2005 is that we had a successful conclusion of our Sarbanes-Oxley and documentation. I could not be prouder of my team within the company who from really the cashier and facility manager level on up to Marc's level had to spend their year somewhat distracted from our normal course of business by making sure that the control systems that we have over our revenues are in place and intact.

At the end of the day, we are in the business of handling other people's money, and to the degree that we are now the only parking operator that I know of that has successfully concluded Sarbanes in its first attempt, it just reinforces for me the commitment that we make towards offering an excellent product out there in the parking community.

We have concluded that our controls over financial reporting are effective and without material weaknesses, and we expect in the 10K, which I said we will deliver tomorrow, we expect that Ernst & Young, our independent auditors, will concur with our conclusion. So obviously, we are very, very pleased about that. It was a lot of work that went in from all levels on Sarbanes-Oxley compliance.

Before I turn the call back to Marc and I'll summarize my comments later on, I did want to make just a quick mention of an item that we put in the release yesterday. Six of our named executives will be exercising some stock options they have, and that's the first time that some of our named execs are choosing to do so. These options were issued before the IPO as motivation to get us to the point where the company could complete the IPO and move on successfully.

We chose to disclose this yesterday because it was the first time that that's occurred, but we will not necessarily be making similar announcements on similar actions in the future.

With that, I can turn you back to Marc and he will lead you through a more detail discussion of our financial performance; and then I'll come back and wrap up and talk about '06.

Okay. Thanks, Jim. Total revenue for the fourth quarter of '05, excluding reimbursement of management contract expenses, increased by 2% over the fourth quarter of 2004. And obviously, that's been impacted by Katrina and the other factors that Jim has highlighted.

Increases in same location revenue of managed locations of 15% were offset by 5% decrease in leased revenue, again, primarily due to business impacts in New Orleans. Excluding New Orleans, same location revenue increased 7% for lease contracts and 16% for managed contracts.

Gross profits for the fourth quarter increased by 12% from a year ago due to the continuing improved performance at same locations. Excluding impact of Hurricane Katrina of $900,000 and also a $1.6 million favorable insurance loss adjustment related to earlier quarters in this current year that we recorded in the fourth quarter, gross profit increased by 8% year round year.

General and administrative expenses increased $2.2 million, or 26% over the same quarter last year. G&A expenses in the fourth quarter included $500,000 for expenses related to Sound and the terminated acquisition of System, which Jim talked about. We also spent $200,000 for outside consultants and auditors related to Sarbanes-Oxley compliance in the fourth quarter.

Depreciation and amortization expense decreased $600,000 in the quarter compared with the same quarter of last year, and that decrease was due to the fact that last year we recorded a $500,000 charge in Q4 related to the write-off of a balance on a non-compete agreement from one of the company's former owners.

Resulting operating income was $6.5 million for the fourth quarter of 2005, which was up 6%, compared to the same quarter last year, subject to all of the year-over-year comparison items that I just mentioned.

Net income for the fourth quarter was $4.1 million or $0.39 per diluted share versus a net income of $4.3 million or $0.40 a share a year ago relatively the same results. However, given that the fourth quarter of '05 saw us recognize a $500,000 deferred tax expense, which we will expect to continue on a quarterly basis at that level through 2006 and beyond, we believe a more meaningful measure of year over year growth is pre-tax income. Pre-tax income for the fourth quarter of 2005 was $4.8 million or $0.46 per share as compared with $3.8 million or $0.36 per share in the fourth quarter of 2004. This is an increase of 25% on pre-tax income and 28% on pre-tax income per share as affected by the benefit of the $6 million stock repurchase program we did during '05.

Negatively affecting pre-tax income in the fourth quarter was Hurricane Katrina, to the tune of $1 million or $0.10 per share and acquisition related expenses that I mentioned before of $0.05 a share. Off-setting these negative factors was $800,000 positive or $0.07 a share attributable to premium and interest income from the partial repayment of long-term receivables at Bradley Airport.

Also in the fourth quarter of '05, we recognized $1.6 million or $0.15 a share benefit due to the insurance adjustment that I mentioned a few minutes ago. In other words, it's all in the current year, but it did benefit the fourth quarter relative to the other quarters.

Before discussing the full year results, I just wanted to comment additionally on some of the details on the Minnesota contract that Jim mentioned, where during the year we recognized $1.2 million in losses. In the first quarter of '05, we recorded a $900,000 valuation allowance related to long-term receivables at that facility. We've also been funding current operating expenses in excess of revenues on a go-forward basis during this year, and we recognized-- really absorbed an additional $300,000 impact to gross profits, $200,000 of which was in the fourth quarter. And obviously, we've reserved those receivables since we're not confident that they're going to be recovered in any reasonable time period.

We expect to have to continue to fund any operating shortfalls of this nature at this location until this contract expires at the end of May '06, so a couple of months to go.

Turning to the full year results, total revenue excluding reimbursement of management contract expenses increased by almost 7% over 2004, driven by the same sort of growth and same locations profit, obviously, offset by what happened in New Orleans. As Jim mentioned, we added 20 new locations in '05, which was slightly lower than what we have seen in the last couple of quarters, but it's understandable due to the termination of a few locations in New Orleans as a result of Katrina.

Gross profit for 2005 increased 9% to $69.8 million, from $63.9 million a year ago, and that includes the impact of Katrina on the last several months of the year. G&A expenses were up 16% for the full 12 months of the year versus last year, due to the additional cost of being a public company, in particular the cost associated with Sarbanes-Oxley. We spent $800,000 out-of-pocket to outside consultants and auditors, and of course, the costs that we incurred to support the acquisition activity during the year of $600,000.

Operating income for fiscal 2005 was up by almost 20% to $23.6 million from $19.7 million last year. It's not a true apples to apples comparison, because we had our IPO mid-year last year and a number of costs went away, and we had special costs and credits last year due to the IPO. So I think you know all of that information. It's certainly available in our previous earning releases.

Free cashflow for the year totaled $26.5 million. We used $6 million of it to make stock repurchases, and we made debt repayments totaling $20.5 million during the year. We used the free cashflow to reduce debt, along with the impact of our IPO, and of course, we refinanced our senior credit facility. We recently announced that we amended that facility to reduce the cost by a further 25 basis points; so that will benefit '06. All of that resulted in a $4 million reduction in interest expense for 2005, compared to '04.

On the balance sheet, cash and cash equivalents were $10.8 million, really unchanged from last year. Our capital expenditure totaled $4.8 million, which was in line with the guidance we gave you of four to five million, obviously higher than what we spent in 2004. We spent $1.4 million last year, the majority of the expenses in '05 related to upgrading revenue control equipment and converting to automated pay stations.

And with that, I'll turn the call back over to Jim, who will provide our guidance for '06.

Thanks, Marc. In terms of earnings per share outlook for 2006, we expect those earnings to be in the range of $1.50 to $1.60 per share. This represents an increase of between 8 and 15 percent over 2005 earnings per share. This guidance reflects improving conditions in New Orleans, as I spoke, of $0.06. But offsetting the New Orleans recovery, we expect to incur stock option compensation expense, recognized in accordance with FAS-123R of $0.04, and deferred tax expense of $0.19, resulting from the reduction of good will for taxes, but not for book purposes.

As Marc explained, we will no longer be giving guidance in pro forma form, but we will talk about pre-tax income. Therefore, we expect pre-tax income to be in the range of $1.74 to $1.84 per share, an increase of 25% or more over 2005. Additionally, due to our large net operating loss carry-forward, which totaled $62.6 million as of 12/31, we expect that our book income tax provision will be less than 15% in 2006.

However, the timing of the recognition of tax benefits, including significant reductions in the valuation allowance for deferred tax assets may result in large fluctuations in reported GAAP results. In terms of cash taxes, we expect our cash tax rates to remain below 5% in 2006.

We expect to again spend between four and five million dollars in capital expenditures during 2006, as we continue to see many excellent opportunities to stimulate additional growth by investing back into the business or our clients' businesses.

Free cashflow is expected to be $20 million or higher in 2006. While we generated the $26.5 million that Marc spoke of earlier, free cashflow generated by long term receivables and reserves in 2005 is not expected to continue at those levels in 2006. As was communicated in the past, we expect to use free cashflow to fund growth initiatives, which include both organic and acquired growth, continue to pay down our debt, as well as return value to our shareholders.

In line with these priorities, our board of directors has approved a stock repurchase program, not to exceed $7.5 million in 2006. Our ability to complete any stock repurchase program is dependent on securing consent from our senior lenders, as well as our ability to meet certain covenants and tests.

Finally, we've begun the process of exploring alternatives for refinancing all or a portion of our debt in 2006, and we've talked about those even in the past and our willingness to do so in this time frame. As part of this process, the company will evaluate its financial leverage, share repurchase and dividend policies.

In summary, before we open up for Q&A, I would just kind of like to reinforce what we've talked about in total today. I believe the company is performing exactly as we set forth at the time of the IPO. We're meeting our key metrics in gross profit and retention rates. We're selling new business at a rate exceeding loss of business. And we're layering in new contracts, which are more profitable than those that we’re passing away.

Certainly, our focus in 2006 increased. Our goal of increased earnings per share, and cashflow which I have guided towards. But certainly, all the resources, many of the resources that we are investing in in the business are focused on growth in the areas that we talked about in the past. And I expect, because I'm surrounded by a wonderful team -- we really do have a solid team of professionals here -- that we will be able to continue to meet some of the growth metrics that we set for ourselves and outlined for you in the financial community in the past.

With that, I'll turn it back over to Marc, initially, and then to the operator for Q&A.

I don't have any other remarks right now. I did want to clarify one thing that Jim mentioned. On the location count, I think you said 886 locations in '04, should be 1886, so just to clarify that for folks.

But we can now go back to Angela for the Q&A.

Thank you, gentleman.

[OPERATOR INSTRUCTIONS]

Gentlemen, your first question will come from the line of Bob Labick with CJS Securities. Please proceed.

Good morning. Congratulations on a strong quarter and year. The first question I wanted to ask, you mentioned the very strong same location growth, the 7% lease and 16% monitoring contract, can you first remind us of the mix roughly of management and reverse management contracts; and then just really walk us through the drivers of how you got 16% growth on which is what is a very steady management contract business, and give us a way to think about what we should see in '06?

Well, our mix in the business remains about 86% management contracts, 14% leases. Of those, the last statistic I remember seeing, Bob, was about between 65 and 70 percent of those were traditional management contracts, and the remainder either some form of concession agreement or reverse management contract.

I would expect that based on what we've seen in '04 and '05, and we don't talk too much about the pipeline as it extends to '06 and beyond, but that the shift certainly within the industry is in management contracts. I think that as we spoke about it in the past, as our clients types mature, and we're work for a much larger REIT's and real estate concerns than we might have been doing 10 or 15 or 20 years ago, that they see the value in management contracts in terms of their ability to control pricing, amenity programs and the product that's being extended to their tenants or their customers or patients, depending on the mix.

So I would expect to see heavily weighted percentages in the future, especially for us because of our culture, in the area of management contracts.

And in terms of the drivers of the 16% growth, are you adding services, are you getting pricing, what's the key to get that performance?

Well, it's both really. If we've done our job on the sale side, we've negotiated some organic growth in the contract itself so that it escalates on a year over year basis. We've talked in the past about layering in new types of services, whether it is a transportation opportunity or a valet opportunity, or if we're doing a better job on the risk management side of limiting risks on the properties, those have all contributed.

I don't want to use this call to kind of outline our blueprint for how we're doing that and other services that we might be layering in, because I think we found as we've done these calls over time, if we begin to talk about specifics of our blueprint for same store sales, we are quickly copied by others. So I'm trying to maybe a little more careful than I've been in the past about divulging strategy. But I think it is safe to say that we are layering in parking and related services to our existing same stores.

Great. That's a helpful and a very fair answer. Next question, in terms of -- again, terrific year. If there was anything different than we may have anticipated, it was probably fewer new net adds. Is that kind of similar to what you guys were thinking as well, and how should we think about new net adds going forward?

Well, we don't forecast where we think we'll be on a net basis. I refer to our pipeline. But I think if you look at what happens as a result of the hurricane, the hurricane in New Orleans itself cost us seven locations. But for -- and I don't know if those will ever reopen. So but for that sort of activity, I think we saw our net in terms of where retention rate landed versus where we landed on the new business side, our salespeople did a fantastic job in '05, and they're beginning to mature as an organization.

I think that other than what happened as a result of the hurricane, that we saw the net adds right about in the range we anticipated.

Great. And then this is my last question and I'll get back in queue. It looks like you are increasing your activity in New York City in a place that you had not been in too much in the past particular, I'm particularly interested in your new lease in the Metlife building, can you tell us how you find the market and your decision to do the lease there and just general comments on that?

Sure. Thanks for that question. We've talked about it a little bit before. We're not afraid to do leases. If we can negotiate a lease that we think is fair for both parties, that does not require us an extraordinary amount of base rent guarantees, that is more focused on revenues that the facility can actually deliver, then we're glad to go ahead and do those.

As we get ourselves more rooted in the New York market, we have obviously a very high quality team on the ground there in not only the operating side of the business but the business development side of the business. As we are able to invest resources in New York now as our size growth, we have a more fundamental understanding of the market. So we are able to give lease proposals where they work for us on a competitive basis.

But I think also we've seen our activity in New York grow as a result of the concept of management contracts. Many of these 15, 20, 25 year leases that had locked real estate owners in for many years we've seen expire, and there are opportunities for us to do well for the owners or the property management companies or developers with the concept of management contracts, again, for all the reasons we've talked about in our presentation materials and in our calls before. So I think our sort of business model is beginning to take some traction in New York.

And the nice part is as it takes traction, then I can layer in resources and it begins to grow into a core city as we've described core cities in the past, similar to those the way we got into the Boston and Los Angeles and Houston and Cleveland and other markets in the past.

Great. Thank you very much. Congratulations on a great quarter and year.

Thanks Bob.

Gentlemen, your next question will come from line of Matt Litfin with William Blair. Please proceed.

Hi. The free cashflow guidance for 2006 of $20 million dollars plus after you did $26.6 million in 2005, which was stronger than originally expected, what do you think would be the factors that would cause free cashflow to be down in that guidance scenario?

Well, I think the number one thing, Matt, is that a lot of the free cashflow was from a very strong operation from the business. I mean, the business performed extremely well and generated an awful a lot of cash. But we did get some benefit from balance sheet movement. Post IPO, we are now funding our insurance programs in a different way, which as you noticed on the balance sheet you'll see the liability, long term liabilities growing, and as a result, that's generating free cashflow for us.

And I think we're recognizing that we probably had a bit of a one time event during '05 where a number of balance sheet movements and working capital, insurance reserve etc. went our way, and obviously, let us end up with more free cashflow than even we had expected. But I think our underlying free cashflow for 2005 was in the sort of $18 million range. And I think what we're saying is that we expect to do better in 2006. Obviously, if we get some more favorable balance sheets movements, it could be better.

Okay. Thanks, Marc. Jim, on the acquisition landscape, are you seeing any more availability at all? And given your early success with Sound, has your appetite for acquisitions increased at all?

I don't know that it's increased Matt. I think that the landscape remains about the same. There are good opportunities out there for us. And certainly we spend the first couple of months of the year getting all this sort of material together. We kind of spend the quarter out in our own community with our people, in Town Hall meetings, and setting expectations for the year. So I expect that usually with the start of the second quarter, I tend to get a little busier in terms of going out and visiting some friends and see if there isn't opportunity for us on that list. But I would say that we've described the types of acquisitions we would like to do. I don't think that there's been any change in the target list that we have; and if an opportunity presents itself this year, we're going to pursue it as aggressively as possible.

Good. Last question on Bradley, obviously, there was further improvement that you described in the fourth quarter. Are we basically running at full capacity there, or are there further improvements that have yet to made that would benefit you financially to a greater capacity?

There are a couple of things that can happen, Matt. That's a great question, as a matter of fact. First of all, the operation doesn't operate as efficiently as it can with both terminals being open. So we are having to move people on a very expensive shuttle busing operation from the American Airlines building back and forth from the garage, and that could improve our situation immediately.

Second, there is an opportunity for us as the garage becomes more saturated, to take employees that are paying a lesser rate to park in the garage itself adjacent to the terminal and try to get them on more suitable real estate. There are surface lots that those people could park in. Again, we would have to shuttle them to their point of work, but if you open up the more valuable spaces in the garage adjacent to the terminal, and we've continued to increase rates, the return per stall is much better than the net opportunity of having to move employees onto real estate maybe a little bit away from where they work. So there are still a couple of tricks in that bag.

Okay. Thanks. And Marc, congratulations, as well, to the quarter and year.

Thanks, Matt.

Thanks, Matt.

[OPERATOR INSTRUCTIONS]

Gentlemen, your next question will come from the line of Kevin Monroe with Thomas Weisel Partners. Please proceed.

Good morning. The management gross margins were very strong this quarter. I was wondering if that's where one of these one-time items showed up. Was there a benefit in the management gross margins this quarter, or was there something else going on?

Sure. I think that the adjustment to the insurance reserves that we talked about affecting the quarter obviously benefits both lease and management location. But because 80% of our -- or 85% of our locations are management locations, obviously, more it is going to go there. So that on a quarter basis I think caused the margins to spike up in a way that you wouldn't expect to see continue.

Okay. And on the SG&A level, kind of as we head into 2006, what should we think about SG&A? It came in up again this quarter I guess because of SARB-OX, but what do we think about run rate for SG&A's as we had towards 2006? Does it come down now that you are kind of through this Sarbanes-Oxley process or are we going to maintain at these type of levels that we saw in the fourth quarter?

Kev, I'd like to see, again, the G&A as a percentage of gross profit continue to drop. We still have some continuing Sarbanes-Oxley work to do in '06, as we will in ongoing years. But we really are going to focus now all the way down to the location level, and there are some expenses that will be around that. We are continuing to invest in opportunities for us to grow the business, providing ancillary services to the real estate community that we serve from a parking and transportation niche.

So those will pretty much in the talent area continue to drive some of the G&A change. But I would expect that things will settle down now in '06, and that we will begin to see the drop that we've been pointing towards in the form of G&A as a percentage of gross profit.

One last question on the interest expense as we head into 2006, what's kind of your average interest expense on your outstanding debt?

Well, we have right now still remaining an interest rate cap that goes until July of this year; and so that's obviously, helping us very much on '06. And I think we've got LIBOR capped at 2.5% in that contract, and that's on $30 million. So we've got a nice situation there. Our margin on LIBOR is 2.25% with the recent price reduction that we announced last week. So that's fine for that $30 million tranche. Now, obviously, once that rolls off, current LIBOR is about 5%. So, we'd be talking about something around the 7.5% range probably on our senior facility if we don't put any additional interest rate caps in place or refinance it.

Okay. Thank you.

[OPERATOR INSTRUCTIONS]

Gentlemen, at this time I show no further questions within the queue. I'd like to turn the call back over to management for the closing remarks.

Thanks, Angela. And as always, I'd like to thank all of you that have spent this time on our call this morning, and we look forward to talking to you with our first results from '06 in a month or so. So thanks again for participating.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the presentation and you may now disconnect. Have a wonderful day.