SP Plus Corp (SP) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2009 Standard Parking Earnings Conference Call. My name is Dan and I will be your coordinator for today. At this time all participants are in listen-only mode. We will conduct a question and answer session towards the end of this call.

(Operator Instructions)

I would now like to turn the call over to your host for today's call, Mr. Marc Baumann, Executive Vice President and CFO. Please proceed.

Thank you, Dan, and good morning, everybody. As Dan just said, I'm Marc Baumann, Chief Financial Officer of Standard Parking and I'm you're primary Investor Relations contact. Welcome to our conference call for the first quarter of 2009. I hope everyone's had the chance to review our earnings announcement, which was released after the market closed yesterday. We expect to file our 10-Q later on this week.

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 open the call up for any questions that you may have.

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 operations and business environment. I refer you to the complete forward-looking statement disclosure in our earnings release, which is incorporated by reference for purposes of this call. I'd also like to refer you to disclosures made in the Company's quarterly and annual filings with the Securities and Exchange Commission.

We do not intend to address or entertain any questions today regarding the potential sale by Steamboat Industries LLC, our parent company, of a majority or potentially all of its stake in our Company. We refer you to the Form 8-K, which the Company filed on February 6th, 2009.

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. Our replay will be available on either website for 30 days after the call. With that, I'll turn the call over to Jim.

Thank you, Marc, and good morning, everyone. Thank you for joining us on our call this morning. Before I talk in some detail about the first quarter, I wanted to apologize just a little bit for all the caveats that we had in our press release last evening. I know it was a little more noise in our releases than usual. But I think I spoke, starting with the third quarter and fourth quarter, as we got into this recession, that we would try to add as much transparency to the numbers in terms of year-over-year comparisons of the base business, in trying to give you a flavor for what's going on there.

Excluding some of this noise and the one-time events that occurred during the first quarter -- and I'll speak to those specifically in a minute. But certainly, in all of the time that I've been parking cars here of 25 years now, this is certainly the worst economic climate for our business, even with our business model being the way it is. Again, besides the one-time items that we tried to sort out for you in the release last night -- and Marc and I will add more detail to that today -- just a convergence of issues.

The Canadian exchange rate, given the large amount of business we do in Canada has been negative. Bad debts that we're having to take and ultimately take write-offs for, which we did in the first quarter around clients that are going bankrupt or out-of-business or closing down parking facilities during these times. For instance, we operated several malls -- continue to operate several malls for General Growth Properties. But, certainly, that count is down as a result of their action in their lack of cash flows.

We've had severance costs during the quarter that normally we wouldn't have. But, as we've said, we're trying to make as many moves to control our spending to insure satisfactory earnings per share to our shareholders while gross profit is being damaged by the economy. And then, maybe last of all in that, sort of, detailed regard, we had extraordinary snow removal expenses across our airport lease portfolio in the first quarter. And that also, precluded us from, sort of, achieving our normal growth pattern and why we consider the business to be somewhat protected against recession. Certainly, this is the worst one that I've seen in my 10 years here at Standard Parking.

Pressure remains on the portfolio where we have contracts -- the reverse management contracts or leases that are dependent on the volume of parkers. And particularly, the softness on the airport sector and related on a travel side, the hotel business, those two sort of stand out as areas of exposure for us and will remain areas of exposure until we see some end to this climate. And based on all the information that I reap from all the wise guys, nobody seems to be able to accurately predict where that end might be. And we're not being overly optimistic in our reforecast for the rest of the year, which we just completed that there'll be a whole lot of good news on the volume side of the business.

We also, as I mentioned earlier when I talked about General Growth, we've seen softness on the retail sector and the urban malls that we operate. And now that we're into the spring event season, we've seen some softness in special events. Not necessarily on the baseball stadiums that we manage. I think it's purely in the season. We're still, kind of, too close to the buzz around opening days to make judgment as to where those volumes will be for the remainder of the summer. And I suppose those people at Major League Baseball know a lot more about it than I do. But we'll be able to judge that better, whether those locations will be softer this summer than in previous seasons.

But where we have seen a downturn for us in special events is the outright cancellation of events. Concert venues, we operate several. If, you've heard me discuss before, large concert venues around the country, where we've seen cancellations of entire tours by artists that might have been, in the past, sold out for three of four nights -- where not even one night for that performer can be sold out. So the events are subsequently canceled. So we've begun to see some of that.

Geographically, we've always planned around making the company as geographically diverse as possible. And that strategy tends to pay off in sort of an environment for us. We see continued softness in the South Florida market.

The Seattle market has been particularly hard-hit, I think, somewhat by the economy and, certainly, by just an awful winter. Lots of traditional events and conventions and issues in Seattle that have been canceled as a result of bad weather. We do a lot of valet parking in Seattle around the hotel business. And we saw, certainly an erosion in Seattle as much or greater than the erosion we've seen at hotels overall around the country.

The New York City market continues to remain soft and softer than our original expectations. Move-outs on the office side, less travel to New York, so therefore, less hotel stays and less business being conducted in New York City. So New York City is worth mentioning as a softer market.

I'll certainly be able to answer your questions later, if you'd like additional flavor added to this. But I think I'll get into the gist of the report. Our quarter one earnings per share, as we reported, as $0.15, which was in line with our internal expectations for the quarter, after taking into account a $0.03 per share impact from unplanned costs related to the possible sale of our majority shareholder's stake in the company.

We don't give guidance as a rule, by quarter. We do, obviously, try to give you guidance for the entire year. But I've mentioned a number of times -- and particularly when you get into this sort of an economy -- that we would think that the first quarter would be the softest of the year. It's traditionally the softest period, as it relates to airports and hotels and the special events sector that I mentioned earlier until we get into the heart of the baseball season and the summer concert season.

I'd like to comment on a couple of additional items that impacted the year-over-year comparison. And we called these out for you last night in the release, as well. We did not have the restricted stock units grants to senior management in quarter one of last year. The non-cash stock compensation costs related to these RSUs lowered Q1 2009 earnings per share by $0.02.

In quarter one of 2008 we had a favorable change in prior year insurance loss reserve estimates that contributed $0.02 to that quarter's earnings per share. Whereas, we had a negative change this year that reduced quarter one 2009 earnings per share by $0.02, a $0.04-swing over prior year earnings per share.

The net effect of the three items I just discussed was a decrease, year-over-year, earnings per share by $0.09, which means that, if not for these three items, Q1 earnings per share would have been up by a $0.01 over last year. I, sort of, directed you earlier in the call, to the noise that is around in trying to get some sort of transparency in our numbers so you could get some flavor about what's going on in the business.

The good news remains that our location retention and profit retention statistics remain strong at 89% of locations and 95% of our profit retention, year-over-year. And as I have been talking about, our active pipeline on the new business side has yielded some really nice winds again in the last quarter. We recently won back the Fresno Yosemite International Airport with almost 2,200 spaces. This is an airport that we operated for many years in the 1990s and early 2000s. And we were able to go back to Fresno on a deal that we think will be good for the company.

We won a contract to manage the parking at the University of Maryland Medical Center, which adds additional facilities to our current presence on the campus of the university of Baltimore. Right here at home in Chicago, we now operate the parking at the NBC Tower, the Palmer Health Hilton and the new office tower in Chicago at 300 North Wassail, all Class A, premium wins for us in Chicago in a market where we consider ourselves, certainly, to be mature. But yet we continue to add new inventory to the Company's portfolio.

We are also doing some consultant work for two more Major League Baseball teams and a national football league team, which we hope will develop into additional opportunities for us to work with both of organizations on the operating side of their parking facilities this summer and then into next fall for football.

In terms of contract losses -- and as I mentioned earlier, we were canceled at two General Growth Properties malls in Providence, Rhode Island and Burlington, Vermont and I spoke earlier about the problems. And certainly the problems at General Growth that they're trying to work through are in the newspapers almost daily.

As we've said before, now more than ever, we're taking a long look at our expense structure to maximize efficiency and operating leverage. The investments in technology that we've made over the last several years will soon start to pay dividends in the form of operating efficiencies that we expect to realize during the second half of this year.

We're also looking for ways, as I mentioned earlier, to prudently cut down on spending without jeopardizing future growth or the excellence of our product. But, certainly, we recognize that, given the challenges to gross profit in the business, that we have to look very prudently at spending and find those areas where we can temporarily suspend spending in those areas this year, or until we see the economy begin to recover.

As I mentioned last quarter, we've proactively decided to freeze salaries across the organization, beginning with me. And given the uncertainties surrounding the current economic climate, as I've been saying, we're also prepared to cut G&A costs as they relate to human resources and some of the softer costs in the business to maximize the Company's cash flow, as well, and preserve the Company's powder in that regard, should opportunistic deals come our way that we'd like to take advantage of in this sort of an economy.

Let me emphasize that we're still planning to invest as we had planned in our introspects infrastructure technology and other initiatives, so that we're well positioned as a parking business and a parking and transportation business amongst others for future opportunities when the economy does return to some semblance of normalcy.

To wrap up, as we expect, 2009 will be a challenging year. Nevertheless, we are pleased with our underlying quarter one performance, which, I said, was in line with our internal expectations. And given a business model that insulates us, to a degree, from the economic downturn, our ability to bring new business, which has been a strong point for us, the operating leverage that we expect to see from our technology initiatives and the aforementioned steps we're taking to reduce G&A.

Given those points, we're able to reaffirm and affirm our full year's guidance expectations of $1.05 to $1.11 per share. I want to reiterate that because our original guidance excluded any costs we might incur in connection with our majority shareholder's potential sale of its stake in the business, our guidance affirmation today continues to exclude such costs which amount to $0.03 per share in the first quarter.

The guidance also assumes that we won't incur any additional such costs moving forward, and also that there won't be any additional adverse changes in the insurance loss reserve estimates for prior years. And finally, our guidance also assumes no further erosion of parking volumes for the remainder of 2009, due to the state of the economy, nor, however, are we making any assumptions about any further improvement of parking volumes for the remainder of this year.

So, based on the reforecasting of the organization and a look at March versus January and some of the statistics that you would count on us to look at, we are not giving guidance and reaffirming guidance based on things getting worse, nor are we giving guidance on any immediate change in the positive direction of volumes. I'll be a little more comfortable, I hope, as we get into the second, third and fourth quarter reports about being able to see a trend either in one way or another. And we'll continue to update you on these calls and in our releases. With that, I'll turn the call back over to Marc, so that he can lead you through a more detailed discussion of the quarter's financial performance.

Thanks, Jim. And hello, everybody. Let's take a look now at our detailed financial results. Total revenue for the first quarter, excluding reimbursement of management contract expenses was virtually unchanged from last year at about $73 million, primarily due to reduced parking activity at certain locations which are more susceptible to discretionary spending, as Jim mentioned, in the areas of hotels, airports, special event venues and retail facilities.

Gross profit for the first quarter decreased 9% to $19.7 million. There are several factors affecting the year-over-year decline. And I'll elaborate a little bit on and repeat some of the things that Jim mentioned. A significant factor, as he did mention, is the change in insurance loss reserve estimates relating to prior years, which was $600,000 favorable in 2008's first quarter, but $500,000 unfavorable in the 2009 first quarter. That's a net-swing of almost $1.1 million, which contributed 5% of the 9% year-over-year decline in gross profit.

G&A expenses for the quarter increased 12% to $12.8 million. As Jim mentioned earlier, we did not have the restricted stock units in place in the first quarter of '08. While in the first quarter of '09, G&A included about $0.5 million of non-cash stock compensation expense related to these grants.

Also, we incurred $700,000 during the quarter for costs related to the potential sale of shares by the Company's majority shareholder. If you exclude those two items, underlying G&A grew only 2% from the first quarter of last year, which really, I think, reinforces what Jim was talking about. We're looking very hard at trying to control our G&A costs and bring it down where we can to offset some of the impacts we're seeing on the gross profit line.

Increases in depreciation and amortization expense were offset by decreases in interest expense resulting in pretax income of $4 million for the first quarter of 2009. The effective income tax rate was relatively unchanged, decreased slightly to 39% in the first quarter of '09 compared to 40% in the first quarter of '08. However, cash taxes as a percentage of pretax income increased from 7% to 15% during this quarter. So, I think that's consistent with what we said on our last call about our expectations for 2009 cash taxes.

Resulting net income attributable to the Company for the first quarter decreased $2.4 million from $4.3 million a year ago. However, as you know, we did significant amounts of repurchasing our stock during 2008. And that continued into the early part of this first quarter, in which we discontinued our share buy-back program. Fully diluted shares outstanding have decline year-on-year, resulting in a decrease of earnings per share $0.15 versus $0.23 a year ago.

As Jim mentioned, without the impacts of the changes in insurance loss reserve estimates, the amortization of restricted stock and costs associated with our majority shareholder's potential sale of shares, earnings per share for the first quarter would have increased by $0.01, as compared to the first quarter of last year.

In terms of free cash flow, as Jim said, as expected, the Company did not generate free cash flow in the first quarter of '09. It was actually a negative $1.5 million compared to a positive $2.9 million in the first quarter of last year. As Jim mentioned, the first quarter of the year generally tends to be our lowest year in terms of performance. And obviously, that translates into the lowest quarter of the year for free cash flow due to seasonally affected parking volumes, expenses related to snow removal and we also make payments under our annual bonus program for the prior year during the first quarter. So those things affect free cash flow in the quarter.

Even though our first quarter free cash flow was in line with our internal expectation, we, nevertheless, are reducing our full year free cash flow expectation to a range of $15 million to $20 million, due to an anticipated reduction in cash flow from operations and an amendment to the installment payments that were associated with the Company's acquisition of GO parking. So that required some additional cash now that will be offset by less cash going out later on. With that, I'll turn the call back over to Dan to begin the Q&A session.

(Operator Instructions). And your first question comes from the line of Robert Labick from CJS Securities. Please proceed, sir.

Good morning.

Good morning.

Hi, Bob.

Hi. First question I wanted to ask relates -- you mentioned there's a healthy bidding environment out there for new contracts up for bid. Could you discuss what companies are -- are other companies low-ball bidding? Are there opportunities for you to win this? Are there rational bids? Do you expect to win more contracts than you lose this year? Just, overall, elaborate on the bidding environment.

The answers are yes, yes, yes, yes and yes. All of that aside, it depends on the deal, Bob. I think our sales force and our renewal force are very, very aggressive right now. Certainly, during this sort of a period, there is some downward pressure on pricing, and in some instances, a more competitive environment than normal on the bid side of the business. However, many of the contracts that we've won lately, certainly the major airports, are generally the result of competitive bidding. And we've won certainly our share of those over the last 12 months.

In terms of -- is there a rational bidding going on. Yes, there is certainly some desperation out there on the market. There have been occasions where we've not succeeded in winning a new contract or retaining a contract that we just scratch our heads at when we see the results. And particular, at a location, Bob, where we have run or operated that location in the past. We know within pennies, really, of what it costs to operate that facility and we see bids hundreds of thousands of dollars lower.

And I wouldn't think in this environment, given the challenges for the industry, that we see a whole lot of strategic bidding and taking loss leaders. Those companies that we compete with on a national basis -- the larger companies -- certainly, must be struggling as well with the same sorts of challenges we are. So to be taking loss leaders in this sort of an environment doesn't make sense.

That being said, the business, for the most part, sees the more traditional competition -- a hard-fought. To your question, there's been no escalation, I think, in the number of contracts that are out there. There aren't portfolios or contracts that are being brought out to bid early, at least at facilities that we operate.

I think there is some reluctance in some cases to change operators in this environment. Sometimes it's the bird in the hand philosophy that takes hold and we thought we'd be moving forward with a new win, only to see a last minute decision of status quo in this environment or maybe a renegotiation of a bid.

So it certainly remains competitive out there. But, again, I think, if -- the fact that we commit so many resources, whether they're human resources or capital resources to the product we offer, if we get past the salesmanship and you get past a lot of the sales stuff, the fact that we're maintaining our product at the highest level, I think, is the reason we've had the kind of success we've had with these sort of contracts that I've been announcing to you all.

Okay. Great. And sticking with the bidding environment as it relates to the institutional and municipal market, as those markets seem to be outsourcing more as opposed to, competitively fitting, putting out bids for the first time. Is there still a trend towards outsourcing in those markets? Are there opportunities there? Has it changed in the last six to nine months there, as well?

That's a great question, Bob. I would not say necessarily that's changed in the last nine months or so. But certainly, over the last 24 months, as we've been having these calls, the last bastion of municipal outsourcing, which is on-street parking meters and ticket writing situations, we've certainly seen an increase in activity.

As I've talked about before, we made some significant human and educational resource additions over the last couple years, where we have a group of folks within our business now that focus on nothing but municipal outsourcing and the opportunities that on-street parking provide and raising our level of expertise on the technology available for solving those municipal solutions than any of our competitors, we believe.

Again, like our airport divisions, singularly focused on the expertise that's required to win those. And they've been very active, now, either getting bids out on the street by virtue of connecting with municipalities and showing them the benefits of outsourcing or reacting to RFPs as they're coming out.

There's been a -- you know we're right here in Chicago, so we tend to read about it more. There was an outsourcing effort where the city of Chicago sold its parking meter systems. And I think JPMorgan was the winner of the bid. We saw some significant problems with that and we're not the operator for that winning team. And you can go through the headlines in the papers, but it's been an awful, awful situation. And we've offered to help in that situation any way we can.

But, I think the message is that municipalities now are just beginning to understand the best way of going out and doing that outsourcing and still trying to maintain the control that you would want to have as a government body for the experience of the taxpayer and the voter. So, lots going on in that area.

On the institutional side, certainly we continue -- as I announced a new win in that area today, a lot of activity on the university market. They continue to look at outsourcing, as I've said in the past, the same way that medical centers looked at outsourcing 15 years ago. And our sales team has been working very hard to, not only offer the parking services for those universities, but to expand our transportation product to them, as well.

So, if there's one shining market, I talked about a lot of the negative markets in my preliminary comments, but, certainly, the institutional municipal marketplace is an opportunity field for us, right now.

Okay. Terrific. I'll ask one more and I'll get back in. You mentioned that you ceased your share repurchase, at least during the quarter. Could you talk about your expectations with free cash flow going forward? Would it be for debt repayment or acquisitions? And are there attractive acquisitions out there?

You know, I don't think we've decided, Bob. You know, given the free cash flow projection that Marc spoke of earlier and the pressures around the business as it regards cash, certainly, I believe it was prudent for us to begin to conserve cash and not put the Company in any sort of position where we couldn't compete favorably against those people that we see in the marketplace every year.

We think that a strength of the business right now is its ability to do any type of deal we want. We have no restrictions on the business as they relate to collateralization of performance bonds or the banking relationship that we have with our lenders is terrific. And we think that that's a strength for us right now, given the environment that's out there. So I think we'd like to make sure that we're adequately through this downturn before we rash to any overall judgments about the distribution of the free cash flow from the business.

Certainly, we won't shy away from any acquisition opportunities that come our way that are priced correctly. We have the lending opportunity. We have the balance sheet. We have the opportunity to do almost any deal we'd like, again, as long as it's a deal we like and we think we can take advantage of in this sort of an economy.

Until then, I think, as I said last quarter, it's been the direction of the Board and my participation at the board that we conserve cash in this environment and maintain the Company's competitive advantage because of our ability to go in lots of directions because of our balance sheet.

Great. Thank you very much.

Your next question comes from the line of David Gold from Sidoti. Please proceed.

Hi, good morning.

Hi, David.

Good morning.

Just a couple of questions for you. One, really I guess I want to follow up on the business climate question. Just looking at the management contract business. The average revenue per facility is up there a tick. But, at the same time, the profit is modestly down. And so, I guess, given the stability of your business, would we a, attribute that to the climate? Maybe you see some of that irrational pricing. And maybe you won't do anything irrational, but it's gotten a little more competitive. Or is it just, say, nix of new business coming online?

It's absolutely the result of the environment, David. And your question is a good one. As the portfolio churns some -- and whether it's a renegotiation of an existing deal or the winning of a new deal, certainly, as a result of the changes in revenues, that our clients are seeing during this sort of an economy flavors their appetite for the fees that they're willing to pay or the deals that they're willing to make in order to re-up the deal. And we've certainly been a victim of that.

Also, we have hundreds of parking facilities that we operate on the banking side of the business -- small branch banking opportunities for some of the largest American banks. And we certainly are seeing the result of their bad experience. You know, they're procurement people, are singularly focused on controlling costs. So, if it's not outright lack of year-over-year fee increases for us, which we enjoyed with those lenders in the past, it's the outright closure of some of those facilities or a narrower amount of business hours at those facilities. And certainly, the gross profit per facility has been nixed some like that.

We tend to, again, take a strategy of "What's in the best interest of getting the Company through this time now?" And rather than being real radical about making a poor judgment about renegotiating a deal with a client, we would assume share of their pain with them during this period. And then as things, inevitably, we think, improve, we haven't threatened our retention rate and I think they will have respected us for honoring their wishes of helping them through their periods. And specifically, the financial industry is one where we've seen those sorts of pressures.

One thing I would add to what Jim said, David, is that if you look at the gross profit per location for management, the result this quarter is lower, obviously, than any of the quarters in last year. Some of that is the impact of the change in insurance reserve adjustments because those do flow through to the per-location gross profit metrics.

Now, if you go back to, say, 2006, which is not very long ago, the result we had this quarter is really very consistent with what we experienced during that time period. So I don't think what you're seeing is a long-term erosion in our gross profit per contract on the management side.

I see. And on the insurance piece, Marc, can you give a little bit of color of how that comes about? I guess, presumably, it's based on more recent, actual loss experience and the actuaries looking at it.

That's exactly right. And clearly, as we go through each year and each quarter, the actuary looks at the cumulative exposure that we have for all open years. And we have a number of open years, although, in the quarter, we did buy out our obligations on two of the years. So 2003 and prior are now closed out for us. So the only open years we have are 2004 through the current year.

So they do look at that. They make assumptions based on the trend of claims. That being said, and what we're seeing in terms of claims, it doesn't concern us and our forward-looking expectation is not now a massive ramping up in estimates for insurance. However, as we've talked many times, it is possible for insurance estimates to go up in a given quarter or even for a given year. And obviously, 2008 and 2007 were particularly good years where insurance estimates were going down. But if you go to the longer-term trend, I think what you saw this quarter is not inconsistent with that.

Okay. One other, if I might. On balance -- I think when we look at your commentary, on the one hand, you suggest the first quarter, basically, came in with your internal expectations. On the other hand, I guess there are the pluses and minuses -- the tough environment perhaps offset by some adjustments or some tight cost management that you're looking at.

As we look at the rest of the year and the guidance that you'd given -- or you reiterated guidance. Has it truly, say, stayed with the same components? Or is it more a function of, maybe, some things, from a revenue perspective, are a little tougher but you're adjusting costs enough to offset that? So, in other words, is it still consistent -- getting there the same way you were looking at a quarter ago? Or is it now we're managing, say, fairly adeptly and we will get there, but we might get there a little bit different of a way?

I would say it's, certainly, the latter holds true. We are recognizing that this downturn has been much more severe and has occurred much more rapidly than anybody might have suspected. And therefore, I think we're just being prudent. Certainly, earnings per share and shareholder value is at the front of our thinking.

But, as I said earlier, we want to make sure that when we exit this period, David, and as we get ourselves through it, that the company doesn't jeopardize any of its competitive levers as it regards cash, our balance sheet, the quality of the people we're offering out and the long-term relationships that we have with our clients that we certainly want to emerge from because we've acted in a reasonable manner.

That being the case then, if we recognize that there are much lower volumes forecasted, certainly, into the future, as far out as we can see, until this thing winds its way through, then looking at G&A cuts to offset those are certainly anything that a prudent manager would do in this time. And as the situation is liquid enough, where if things improve rapidly, then maybe the cuts don't have to be as difficult.

But it is not only, certainly, paramount, as I've said, is consideration of shareholder value and earnings to shareholders. But, just as importantly is preparing the business and not jeopardizing the business during this time so that we can emerge from this with an even better competitive position than we had when we entered it.

Got you. Got you. Terrific. Thank you both.

Well, hopefully that helps you a little bit.

It does. It does. Thank you both.

Okay, thank you.

You're welcome, David.

(Operator Instructions). Your next question comes from the line of Nate Brochmann from William Blair and Company. Please proceed.

Good morning, gentlemen.

Hi, Nate.

Hi, just wanted to kind of follow up a little bit. In your introductory comments, Marc, you cited some unusual -- well, extra costs in the first quarter. Bad debt going up a little bit, severance, removal. Can you put kind of a more concrete number on any of those costs to give us a feel?

Because, I think, similar to the last question, in terms of how much more cost savings there are to offset some of the weaker top line numbers going forward -- I think that might help us, kind of, look at why first quarter might not only start out slow, but be a little extra weak with those additional costs that might not be recurring.

Marc, I mentioned that and let me take the lead and you can follow on, if you like. Nate, I was referring -- the costs that I mentioned in those areas, away from the three significant items, in general terms, don't mean a whole lot of money.

But what they are are, sort of, examples of those things that we would see in this sort of an economy -- but for maybe snow removal costs, which just happened to be seasonal. But those sorts of things that happen in the economy that you don't hear us talk about when things are more normalized. So it was more about not a whole lot of dollars necessarily involved, but things that we don't normally see, you know, nine out of ten years, or where the economic trends lie.

And I think you can include the insurance bucket in there as well. Certainly, there's a much more litigious society when we get into these sorts of economies, as peoples antennas are driven up as a result of maybe challenges that they have on their own side. So, I think, really, rather than get to dollars, it was more just adding a little color and flavor to those things that we see in this sort of environment that we don't see most of the time.

Okay. So it's not that going forward we had $0.04 of additional cost here and there. It doesn't make that major of an impact going forward, but just something that we should be aware of that's kind of creeping into the numbers a little bit.

That would be right. Yes, I mean we can't place -- you know it would be impossible to have a good enough crystal ball to see in the future. But again, fortunately, I've been through four of these in the 25 years that I've been here. And this is, most certainly, the worst that I've seen in terms of the intense and the movement of the change in such a quick manner. So, some of those things, it's probably worth mentioning on behalf of the shareholders that are things we wouldn't normally see.

And then talking about some of the further G&A cuts that you can make. I mean, obviously, you've been pretty prudent with that already. Could you give us, maybe, a few examples of what some more levers you have to pull in those categories are?

No. I'd really rather not, and only for the sake of the organization itself. We've already identified those things. I mean if we get into, sort of, the worst cast scenario in terms of continued downturn in the gross profit of the business, for all the reasons we cited earlier, we've already identified those things that we could be doing. But, again, they are not things that we have to do.

You know some of those we're doing now and we've done already. But there are others that we don't have to do until we take a look at where the second quarter and third quarter might be. So I think it would be premature to speculate as to what those things might be.

Okay. And then, last question, on the last quarter call, we talked about some of the new ancillary services beginning to pick up and contribute a little bit to the organization. Can you maybe give us an update on how some of those are going?

Yes. You know the major initiatives around the, sort of, brand in all of the business and the wider branding of the business. And we'll be getting into a little bit more of that as we get into the summer in terms of some brand expansion.

But I'm really happy, as I said, with the work that the people in on-street municipal are doing. I'm pleased with the progress we're making on maintaining our own garages. The maintenance initiative, now, I think is underway in all of our major cities and beginning to contribute.

Certainly, the transportation component of the business is doing well. You know, we were the beneficiary in the fourth and first quarter of downturn in diesel price fuel. And that helped us offset some of the problems that we're having at airports. So, all of those initiatives are moving forward.

We're continuing to add contracts to the security business in California. And we're beginning to formulate an opinion of how we might expand the company in that regard in our core cities. So, so far, so good. And I think you'll hear us speak about that brand expansion as we get into this summer.

Great. Thank you very much, gentlemen.

You're welcome, Nate.

You're welcome.

Your next question comes from the line of Clint Fendley from Davenport. Please proceed.

Good morning, guys.

Good morning.

Hi.

Wondering if you might be able to help us out without speculating on the levers on the G&A. Can you give us an idea of how much G&A might be down during the second half of the year? Are we talking down 3%, as much as 7%? What should be we thinking about here?

No, I think that'd be a little too forward-looking, Clint. And quite frankly, we don't know. You know, again, we certainly have those levers identified. But, I think we're comfortable enough in reaffirming the guidance as it stands today, based upon the reforecasting of the organization, that we do have the opportunities in place, should gross profit continue to wane.

Again, you have to weigh those sorts of things about what is best for the organization and what's best for the product that we offer on a move-forward basis. So, a, there isn't an answer to your question and b, even if I knew, it probably would just be a little too -- getting too ahead of ourselves to identify it in terms of percentages or cents per share.

Okay. I guess switching directions here. Then on the managed side, Marc, I know that you explained in one of the prior questions that some of the insurance adjustment flows through the margins. And maybe I missed it, but what would the margins have been on the managed side, excluding the insurance adjustment?

You know, Clint, that's something that we haven't broken out and I don't have that there. But if you certainly look at our business mix, you see that 90% of our activity, you know our locations, are in the management sector. So, clearly, the insurance reserve adjustments, whether they're favorable or unfavorable in a quarter get a portion between lease and managements. Now, we don't just do it arbitrarily 90/10. But we do it based on what's actually happening and what locations are affected and all of that. But you could do a very rough estimate yourself based on those kind of ratios.

Okay. Thank you.

Okay.

At this time, there are no further questions. I would now like to turn the call back over to Mr. Jim Wilhelm, CEO, for closing remarks.

Thanks, Dan. And I just want to thank everybody, again, as I did welcome you on the call for taking the time with us today. We appreciate all the questions that you have and the interest in the business in trying to get to answers that will help our shareholders along in making judgments. So thank you again for joining us today. And we hope that we have better news and an improving situation when we talk to you in several months.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.