SP Plus Corp (SP) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2010 Standard Parking earnings conference call. My name is Shannon, and I will be your operator for today. (Operator Instructions). I would now like to turn the conference over to your host for today's call, Mr. Marc Baumann, Executive Vice President and Chief Financial Officer of Standard Parking. Please proceed, sir.

Thank you, Shannon, and good morning, everybody. As Shannon just said, I am Marc Baumann, the Chief Financial Officer of Standard Parking, and I'm your primary Investor Relations contact. Welcome to our conference call for the first quarter of 2010. I hope all of you have had a chance to review our earnings announcement which was released last evening.

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

During the call we will make some statements that will be considered forward-looking regarding the Company's strategies, 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 would also like to refer you to disclosures made in the Company's quarterly and annual filings with the Securities and Exchange Commission.

Finally, we don't intend to address or entertain any questions today regarding a lawsuit filed by John Holten. Additional details about the lawsuit and the Company's response will be included in the Company's Form 10-Q, which we expect to file by Friday of this week.

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. A replay will be available on the website for 30 days after the call.

With that, I will turn the call over to Jim.

Thanks, Marc, and good morning, everyone. Thanks for joining us this morning. As we stated in our release last night, 2010 is off to sort of the challenging start that we expected. There remains a group of leases and reverse management contracts noticeably affected by the economic downturn either because of where they are geographically located or because of the vertical markets they are in, which is impacting the year-on-year results.

To add a little more color to that, I would tell you that all of our volumes in very specific sectors, the hotel business, the airport business, the special event areas, stadiums and special events, and retail centers continue to be year over year down. In other words, the volume of paid exits that we are seeing in those sorts of venues, 2010 over the first quarter of 2009, remain down on a year-over-year basis. Some of those areas in double-digit year-over-year negative comparisons. So if we were to look at years like 2006 or early 2007, before the recession we would see paid exit declines in those areas I'm referring to now of over 20% on average drops and paid exits.

So while we -- and I've talked about this the last two quarters why we continue to understand upticks in the financial sectors and upticks in manufacturing and even in housing in some sectors like that, what we see at the consumer level is a much different picture. And whether that is the result of continued increases in net unemployment or the spikes in gasoline prices causing the consumer to rethink disposable income or increases in adjustable mortgages or the daily pressures that are bought on those to sort of the people that we serve, certainly their dispensable or disposable incomes might be affecting whether they spend that weekend at a hotel or they take that quick trip vacation somewhere or whether they go to a mall or attend a baseball or hockey or basketball games with their kids. So we still think there there has not been any sort of trending in an area that gives us any sort of reason to see it in the near term or certainly over the last quarter in the uptick in consumer volumes at our locations.

Also, there are some specific markets where we continue to see depression. Certainly the South Florida market, Miami in particular and New Orleans, as you might suspect, we have seen continued downward trends at our locations in those cities. So they are certainly having an effect not totally unexpected because, as I told you when we gave guidance to begin the year, we did not anticipate any sort of real positive trends. There was nothing in the crystal ball that gave us reason to think that we would see an uptick in volumes in the first quarter or even in the second quarter or nor did our guidance anticipate a whole lot of positive news on that front through 2010.

Conversely we did not think about or we did not anticipate continued downward trending in 2010 either. So I wanted to add just a little bit of color to those facilities where we have exposure to volumes whether they are leases or reverse management contracts. Our traditional management contracts as a whole are performing well and in line certainly with our expectations.

Somewhat compounding the effects of the economy were the severe winter storms that we had which, in many areas of the country which somewhat reduced expected parking volumes but certainly increased our snow removal costs. Finally, we took a $400,000 hit to fully resolve a lingering legal case that we spoke of during the fourth-quarter call last.

Our general and administrative expenses are down 9% from last year's first quarter. In fact, the first quarter marked a significant milestone for our technology initiatives as we substantially completed the rollout of our automated IPayable system to include all of our US vendors, which contributed to our decrease in G&A. I'm also glad to report that our location retention rate returned to 90%, and our location operating profit retention remains steady at 96%. And, as I have explained before, what that means is that only 4% of our last 12 months' profit came from locations that we no longer operate.

Our Gameday acquisition has smoothed out some of our typical first-quarter seasonality. Nevertheless, we expect that the first quarter of each year will continue to generate lower earnings than subsequent calendar quarters. And if you look back for a period of time, you would see that. We don't guide you quarter by quarter, but we don't also guide you to say that it is as easy as taking our guidance for the year and dividing that by 4. That is not our traditional history for a variety of reasons. New business kicking in and summer seasonality at some of our event venues and other things.

So I wanted to be a little bit more clear on that. Based on our just completed forecast for this year, we do expect to make up for the first-quarter shortfall. We are reaffirming our full-year EPS guidance of $1.10 to $1.20. Because our original guidance range did not include any cost for any litigation with Mr. Holten in terms of what Marc said before, our affirmation of our original guidance range also excludes any impact of any costs we may incur in connection with that lawsuit that he filed.

As we mentioned in our earnings release, the Gameday management group that we acquired last year successfully concluded several high profile events during the first quarter, including the Super Bowl and the Vancouver Olympics. As expected, our Gameday team members delivered a superior level of service and remained the provider of traffic management, parking and ground transportation for large complex events. I would also mention that we have not yet completed our reconciliation of inflows and outflows from the Vancouver Olympics and have not closed out that contract yet as there is still a lot of invoicing and reconciliation to do before we are able to post final profitability. So not all of the profitability that we might have anticipated in the first quarter was posted.

I also want to highlight some recent new business activity in New York City this past quarter. We continue to expand our relationship with the Vornado Realty Trust with the addition of another location. We also began to operate the parking for the newly redeveloped Queens Family Courthouse project and the Nassau Veterans Memorial Colosseum, which is the home rink for the National Hockey League's New York Islanders, which I should mention are one of the teams that we are crushing on our Chicago Blackhawks road to our first Stanley Cup win since 1961.

I'm also pleased to report that in early April we begin our ground transportation operations at Reagan National and Dulles International Airports. Though our management commenced about two months later than originally scheduled, we are now operating at both of those airports.

We are seeing less pricing pressure than we saw last year, and our location retention rate, as I said before, has reverted to the higher levels of the past few years. Our new business pipeline is strong, and we are starting to gain traction from our SP Plus brands, particularly in the municipal and institutional fields, where the clients are beginning to understand the breadth of our expertise beyond traditional parking. And while we are not seeing overall same-store sales growth due to the factors that I previously mentioned, we are nonetheless adding locations and also focusing on new verticals and maintenance, security and transportation services to fill the breaches caused by the recession.

You may recall that we begin the quarter by ringing the closing bell at the NASDAQ Stock Exchange in early January in concert with our celebrating our 80th anniversary as a Company and in doing so threw an additional spotlight on our new SP Plus brand and the significant investment we have made in experienced subject matter experts throughout our vertical markets.

With that, I will turn the call over to Marc so that he can lead you through a more detailed discussion of our financial performance, and then we will open up the call for Q&A.

Thanks, Jim. Hello again, everybody. Let's now take a look at our financial results for the quarter. Excluding reimbursed management expenses, total revenue for the first quarter of 2010 was essentially flat as compared to the same period of 2009 as the 5% increase in management contract revenue offset a similar decrease in lease revenue. However, on a same location basis, management contract revenue declined 6% year over year, primarily due to our reverse management contracts which were affected both by the economy and by the severe weather that at times effectively closed down large parts of the Northeast. Gross profit for the first quarter of 2010 decreased by 3% year over year. $700,000 of the decline was from certain leases and reverse management locations that have been particularly impacted by the weakened economy, as Jim described earlier, and many of these locations, of course, are at airports, hotels and retail venues that are susceptible to discretionary spending.

As Jim mentioned also, we took a $400,000 reserve to fully settle a claim that we talked about in the Q4 call and incurred costs in last year as well. And that should be the end of that one. Without this $400,000 reserve, our gross profit would have been flat with the first quarter of 2009 as the $700,000 first-quarter softness we have mentioned in certain leases and reverse management contracts was more than offset by the performance throughout the rest of our portfolio, which was helped by Gameday, as Jim just described.

G&A expense for the first quarter of 2010 decreased by 9% compared to the first quarter of last year, and as you will recall, the first quarter of last year included $700,000 related to the transfer and subsequent sale of shares by our former majority shareholder. Excluding that item from the year over year comparison, G&A would have still been down by about 4% fueled in part by cost efficiencies attributable to the rollout of the Company's assorted IT initiatives. The G&A decrease was tempered by increased accruals taken in anticipation of the restoration in 2010 of performance-based compensation. And, as we told you last quarter, we really did not have any performance-based compensation in 2009. So, as we come into 2010, assuming that our performances in line with our expectations, there will be two performance-based compensation this year.

At our last call, we also gave you guidance and expectations for quarterly G&A for the year of $12 million to $12.5 million per quarter. We are able to lower that expectation now to about $12 million per quarter for the rest of the year, although the second quarter should be somewhat higher due to our annual stock grant to our Board of Directors of $200,000.

Resulting first-quarter 2010 operating income increased 14% as compared to the same period of 2009. Our net income for the first quarter increased by 19% over Q1 of 2009, and earnings-per-share as reported increased 20% over 2009. However, as I just mentioned, the first-quarter 2009 costs incurred with the sale of our Company's former majority shareholder of its stake in the Company represented about $0.03 of 2009's EPS. So effectively we were flat on an EPS basis this quarter compared to the same quarter last year.

In terms of free cash flow, the Company generated $1.4 million during the first quarter of 2010 as compared with the negative $1.5 million in the first quarter of last year. Most of the swing is due to the fact that in March of 2010 we did not pay any performance-based compensation attributable to 2009, and we also spent less on capital expenditures in the first quarter of this year as the spending on some of our IT initiatives has gone down.

Our first-quarter 2010 free cash flow was in line with our expectations, and we continue to expect to generate between $20 million and $25 million of free cash flow for the full-year 2010.

In terms of our use of free cash flow, during the 12 months ending in March 2010, the Company generated $20 million of free cash flow, which we used over the last year to reduce our total indebtedness by a similar amount.

That concludes our formal comments. Now I will turn the call back over to Shannon to begin the Q&A session.

(Operator Instructions). Nate Brochmann, William Blair & Co.

I wanted to talk a little bit in terms of whether you guys do see a light at the end of the tunnel in terms of some of the "at risk business" or in some of those end markets that are a little bit under pressure. Are you starting to see any stabilization there, or is it just a matter of getting past some of the comps? If you could just give us a little bit more color there.

It depends on where you are asking about light at the end of the tunnel. As I said earlier in the call, there is nothing in any of the trends that we are seeing on the consumer side that would give me -- that would make me real positive about a return to historical items and the increases that we would normally see over the 30 years that I have been doing this in the second or third quarter.

What is encouraging is our folks in the field are saying that the pricing pressure that has resulted on a renewal basis for our contracts from clients who are seeing really experiencing the bottom line of those downturns in volumes has kind of stopped. We are not seeing renewals coming in with as much pressure as we saw in 2009 and 2009 to price downward. So that is encouraging.

In addition, because of that, we are retaining our historical levels. That trend is moving up, and certainly the facilities that are most important to us we are retaining at historic levels.

So all of those things are good. I think that we are doing exactly what we said we were going to do last year and towards the tail end of 2008, and that is to continue to make investments that look at the long-term strategy of the business and understanding changing market conditions towards keeping the Company at its historic growth level. So we have not stopped to make that investment whether it was the investment that we have been making on the technology side that we are now reaping benefits for in terms of process behind the entrepreneurs in the organization or the talent that we are able to recruit in order to continue to expand the Company's footprint in terms of the products that we serve.

So what we are seeing is why we are taking some hits in terms of those facilities that affect us from a pure parking volume standpoint that I isolated earlier. SP Plus transportation is contributing more. SP Plus maintenance is contributing more. SP Plus security is contributing. The ability to have the expertise of Gameday is assisting our ability to win more in the area of stadiums and special events, and we are very, very active in that realm right now. Our investment in SP Plus municipal services, where we can offer a wider -- a much wider range of services to either the municipalities who want to outsource their services to us or to those infrastructure buyers who are purchasing municipal assets and then subsequently need expertise and management to operate them now I think see us as the leading provider and as having the five years of investment in preparing for that sort of municipal outsourcing niche. So those are things that are very bearing fruit, so there is certainly light at the end of that tunnel in terms of pipeline opportunity.

If you are looking for me to say that I see any sort of recovery to airline passenger enplanements or hotel bed night stays or retail shoppers generated through the front door or more people going to baseball games this summer than last at those venues we operate, that I clearly don't see at the moment.

Okay. Great. Thanks. That is great color. Thanks, Jim. I would also, though, I guess take what you said in terms of what you're seeing in the pipeline from SP Plus and all the different focused end markets, as well as the new contract wins in the pipeline, combined with what Marc commented on in terms of the SG&A being lower than you anticipated because of the technology investment, I would assume that it is the combination of all those factors that gives you confidence the remainder of the year in terms of making up at least relative to our expectations -- maybe not internal expectations -- but relative to our expectations, making up for the shortfall for the first quarter in terms of maintaining the guidance?

It is. And, you know, I think that with all of the things that I mentioned earlier, if we had just seen a flattening of the volume trends in those sectors that continue to give me cause, we would have been much further ahead in terms of where the annual guidance is. You know we are making it up with some other areas, but at some point these parkers are going to go back on vacation and they are going to go back to the stadiums as we see some recovery in the economy. And while I cannot think of anything that I enjoy more than having these discussions with you every quarter, I'm really not positioning the Company for this quarter or the next quarter. I think the investments that we are trying to make around the business are for the longer-term emergence of this business in a sort of changing outsourcing privatization environment, if you will, for the long-term. And those volumes will take care of themselves and the fees and recoveries that we get as a result will take themselves.

But I'm much more concerned in terms of staying ahead of the competition, in terms of being able to maintain our balance sheet and the Company's ability to emerge from this as a much stronger competitor or in a much more prominent position as now being probably the leading provider or the largest provider of these services anywhere once this recession updates itself some.

Okay. And then just one last question. I just wanted to talk about the acquisition pipeline a little bit. We are hearing from other industries that some of these smaller companies might be a little bit more eager to sell in this environment with the tax laws potentially changing next year. I'm just wondering what you are seeing in terms of your pipeline?

I don't -- it is active. We have been involved in some way anticipating -- we anticipate getting into the summer. I think that certainly the volumes that we are experiencing at our venues are the same if not more so than some of the competitors or opportunities that we would like to look at. I don't know that I would describe them as eager. There's always the walls in terms of pricing.

I am concerned -- or concerned is not the issue. I am motivated by maximizing the return on our invested capital. So I'm not going to reach from our balance sheet in terms of leverage. The credit markets being what I think they are going to be, I'm not anxious to reach to do an acquisition where I think that we can position the Company's balance sheet better by making either an investment in terms of understanding leverage levels, as Marc laid out for you earlier, or continuing to make investments that I can get a higher return from whether it is investing in a transportation contract or investing in technology to further bring down and make our processes more efficient.

So I would be very surprised, on the other side of that, if we did not do some acquisitions this year, but I am not going to reach on price to get there. So I will let that market conditions take care of itself.

Sounds great. I will turn it over to someone else. Thank you.

Bob Labick, CJS Securities.

It is actually Fred Buonocore calling in for Bob. A question as it relates to trends with municipalities, particularly some cities like LA, Vegas, Indianapolis, Pittsburgh, Hartford and so on. Looking towards privatization of their parking operations, I just kind of want to get your sense of what you see there and how this privatization might impact you for better or for worse?

Well, we think it is very positive for us. As I said for the last three or four or five years, we have made a significant investment in our business in a very specific market focused working group that we brand now as SP Plus Municipal Services. We have isolated talent that we have either grown in house or that we have acquired from either municipalities or the private sector that enable us insight into those sorts of markets, whether they are on street parking opportunities or off street parking opportunities as cities face this budget crunch.

Certainly we recognize a trend and I am not going to pontificate about what I think about the decisions that are being made to privatize these things and the long-term ramifications on municipal budgets, but what I can tell you is that given the fact that that tool is now available to those legislators and policy makers, we have been working very, very hard to develop talent, as I have said, or partnership relationships with equipment providers. And given our size, we can offer a city a much cheaper alternative in terms of pricing for hardware purchases. We have also aligned ourselves with firmware and application managers that now enable us the full breadth of services to be conducted in-house by us for any RFP that a municipality issues for either the outsourced services that they want to look at in terms of cost savings or the alignment of SP Plus Municipal Services with any of the infrastructure funds that might be interested in writing these municipalities a check for those revenue flows.

So just this past quarter, Marc and I have been out on the road solidifying and making new relationships with those logical buyers for those cities that you mentioned. And I think we are positioned very, very well for whatever decisions municipalities might make to either outsource the operation of those or in essence to sell those or long-term lease those to those large, large infrastructure funds that are looking to own those assets. So it is a very, very exciting time for us. And we are staying very, very busy, you know, responding to those RFPs that are coming out with a lot more frequency.

That sounds exciting. Then on the Gameday side realizing that you're still trying to sort out what the profitability was from the two large events that occurred in Q1, can you give us any sense or quantify what you think Gameday's contribution was during the period overall to your results?

No. I can tell you that we have pretty much wrapped up the Super Bowl. That is not out there, but the VANOC operating agreement was so, so complicated. Thousands and thousands of buses and personnel and you know we are still doing the reconciliation there. As I have talked about before for competitive purposes, we don't -- we are not going to talk about the segregation of profitability that we do from stadiums as opposed to some of the others. So while again the Super Bowl is pretty much wrapped up, we are still doing some reconciliation on VANOC.

Great. And then just finally, can you elaborate you mentioned that the pricing pressure was easing from different locations. Is that just a matter of there has been the down tick these customers have experienced, you know the down tick in their business. They have given you the pushback over the last couple of years and that has just abated, or is there something else going on as it relates to the competitive environment or some other dynamic?

Well, both. I think both. We have gotten through our renewals, and we are renewing at a over 90% rate again. And I think that pricing has adjusted to the market as it stands today. Fortunately we don't lock ourselves into long-term agreements in those areas. So as the revenues in those parking garages begin to return to more normalized or medium levels, you know as we get into the renewals for the rest of this year and into the next, we will follow that revenue growth. So that is a good thing. Again, on the renewals side of the business, our field people are not reporting as much pressure on pricing as we were seeing.

And I think it gets to the second point of your question, and that is if you were to look around in terms of our competitors and the space they are in, I really don't think that they can be as active as they might have been in some of the strategies that have been deployed about just trying to get through the recession by grabbing share that does not have profit. Again, we have seen -- you have heard me talk about that for maybe the last four or five quarters that there is a lot more sensibility in our industry in terms of trying to buy market share. You know whether it is spending your own money or some sort of investor's money, once you have to perform with those assets that are performing in a negative environment and still support them with a back office, that sort of investment cannot be tolerated in this sort of climate. So we have seen some -- a little more sensibility in terms of pricing in the marketplace.

That is great. Thank you so much.

(Operator Instructions). Clinton Fendley, Davenport.

Thank you. My questions have been answered.

David Gold, Sidoti.

Just a couple to follow up. When you think about the rest of the year, given it sounds like trends certainly were a little different today than they were three months ago or a couple of months ago when I guess it was March when you gave guidance of things sort of maybe hanging a little more negative than positive. To get to the guidance basically for the rest of the year, do you think that it continues to tick down, or are we more optimistic that we will hit a point maybe mid-year and the outlook will get a little better?

Well, we just went through our re-forecast. We had all the senior team in last week and went through what we call our first re-forecast. We are looking at sort of a flat -- continued flattening in terms of the volumes. I think that while I'm not bullish on upticks in those sectors that I have talked about two or three times now in this call, I am given the amount of institutional and municipal new business that we are winning -- I sort of highlighted the stadium that we won in Nassau as a good example of that for the quarter -- the capabilities that the organization has brought on and the investment that we have made over the last five years is making for some of those volume issues. And whether it is in maintenance or transportation or security or special events or municipal, those things are while intended to drive growth into the future are supporting what we are seeing through the continued recession.

Okay, got you. Okay. And then can you speak a little bit about the trend from the lease customers or the lease locations during the quarter? I know you had mentioned harsh weather in February. Did that business bounce back in March?

No, the weather was -- we had more snow removal costs at some of our airports in the Northern tier than we budgeted for this year. So that, as Marc said, had a little bit of a negative effect. So we had the legal hit. Approved insurance claims was not a positive number for the quarter. Snow removal was certainly a ding against the budget. I think where the things that are most alerting or concerning to us were the continued downturn trending of the volumes of cars.

I don't want to paint the picture that if we miss by 2 or 3 points for the quarter that sorting out the one-time items that Marc highlighted, if there is a miss, right, or there is an issue where we are not doing better than what we've forecasted, it is the combination. We are winning more new business and retaining more than we thought we would, but we are not seeing the recovery on the consumer side of parking cars. That is the trend that is concerning.

When we sat down as we said to look at our re-forecast for this year, those were the compelling items. We did not re-forecast or budget in any additional volumes in those sectors. But we are somewhat bullied by some of the new contracts that are in the pipeline that we will be winning here in the second quarter.

Got you and just one other if I can. The costs involved in getting Washington DC up and running, the startup costs, are those behind us, or is there more of that to come?

No, those are behind us, and those really are costs associated with hiring the people, taking them through a preemployment process, training, screening, etc. So those are all costs that we would normally anticipate. We had originally thought this contract would commence on February 1, and so we gave revenue to offset those costs. Just due to the complexity of the planning with the client, it was agreed that we would take over in April 1. That has gone very well. We are successfully operating there. But we were left with a quarter where we had costs but no revenue.

Got you. And if I could sneak in just one more, to the extent that you are having discussions, negotiations as to renewals, like presumably just the climate as you see, is that playing into things? Are folks coming back to you presumably your customers are seeing the same thing that you -- on the management side that you are seeing at the lease locations. So has there been a lot more negotiation, or is it more about are things still sort of -- I guess what I'm trying to ask is, have you seen some pricing pressure as renegotiations have come up as the climate is sort of on the down slope?

Well, that is what we talked about earlier. We saw a lot of that in 2009, and we have seen that now begin to level off. As we work with you folks in the past, when we quote management fees and the other areas payable or profit opportunities for us, sometimes you begin to look at as a percent of revenues. So whether you are negotiating a flat monthly management fee or you are negotiating some sort of a percentage of revenue as the fee, that is where we get somewhat affected by a drop in units so.

So even if we get into a renewal stage, the client has put some pressure on us to react to the downturn in volumes. Now again, because our contracts are renewable on an annual basis, what we have said is, okay, we are willing to be sensitive to the marketplace and what you are going through. But if you are going to hold us to a percentage of revenue threshold on the renewal of our base management fee, we want that percentage then to go the other way as the economy begins to improve. And usually our clients will make that sort of logical consideration in the renewal. So again, that is up opportunity for us as we get through a recovery.

Perfect. Thank you both.

Thank you. And if there are no more questions at this time, I would like to turn the presentation back over to Jim Wilhelm for closing remarks.

Thank you very much for that, and thank all of you for spending this time with us. We look to spend the same time at the end of the second quarter. Bye-bye.

Thank you. Ladies and gentlemen, thank you very much for your participation in today's conference. This concludes our presentation, and you may now disconnect. Thank you and have a great day.