SP Plus Corp (SP) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 Standard Parking earnings conference call. My name is Shannon, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session.

(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'm Marc Baumann, I'm the Chief Financial Officer of Standard Parking, and I'm your primary Investor Relations contact.

Welcome to the conference call for the fourth quarter of 2010. I hope all of you have had a chance to review our Earnings Announcement which was released last evening.

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. During the call Jim will provide guidance for 2011. And after that, 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 operations and business environment. I refer you to the complete forward-looking statements 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.

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 at www.standardparking.com. A replay will be available on the website for 30 days after the call.

With that, I'll turn the call over to Jim.

Thanks, Marc. Good morning, everyone. Thanks for joining us this morning.

We are very, very pleased with the results we've been able to deliver in 2010 that we reported last night, with double digit growth on gross profit, operating income and net income. In terms of some of our key metrics, location operating profit retention remains strong at 96%. And location retention rebounded nicely to 91% at the end of last year.

We saw solid year-over-year gross profit growth at same locations across most of our vertical markets. Gross profit from same locations in the fourth quarter of 2010 increased 10% over the prior year. As expected, the full year increase in gross profit from same locations was much lower, as more of 2010 was impacted by the economic downturn of 2009.

Paid exits exhibited similar trends, as paid exits at same leased locations fill up only modestly on the full year showed a 9% fourth quarter year-over-year increase. Hopefully, reflecting a continuing favorable trend forward.

We announced late last year that we had completed the acquisition of a regional parking operator based in Philadelphia. That operator was formerly branded and operated under the name Expert Parking. We saw Philadelphia as a geography that we hadn't penetrated and a potential growth core market for us. Given the fact that we've had significant opportunity and growth in the New York City, New Jersey market, we felt that Philadelphia was an opportunity market for us as well. We had a press release that we put out in the third or fourth quarter of last year announcing Charles Huntzinger joining the organization with a specific focus on growing our share in Philadelphia and New Jersey corridor.

The acquisition of Expert Parking, and the retention of Expert's former owner in terms of an ongoing relationship via an earnout opportunity over the next several years, all bodes well for us in a market that we think we can continue to bring our broadening tool kit of products across, particularly in the municipal and institutional market that you've heard me talk about the last year or so.

Another relatively recent acquisition, Gameday Management group, has also had some nice successes. We've won multi-year contract renewals to provide event transportation and travel demand management services for the upcoming Super Bowls, and Super Bowls in future years, the NCAA, Capital One and Champs Sport Bowl, and NASCAR's Daytona 500 and Coke Zero races.

Also, the outstanding service provided by our SP Plus Gameday division during the Dalai Lama's visit to Emory University contributed to the University awarding us the contract to manage visitor parking and customer services as well as enforcement services for the University's 13,000 parking spaces.

Looking forward to 2011, we realize that many of our clients and customers continue to face economic challenges. While certain signs are promising, as I spoke to a little while ago, much certainty remains in our market. And I think you'll find, as we talk about guidance that we've given, that I don't feel our organization was overly aggressive. In some cases I thought we were somewhat conservative in looking at next year on a move-forward basis.

While the fourth quarter enabled some upswings in some of the travel related businesses that we've seen, particularly at some of our airports and our airport reverse management contracts and leases, those things contributed nicely. However, in tempering that optimism, and trying to keep a crystal ball in front of us with this uncertainty that I'm talking about, we haven't seen a significant improvement yet in the commercial side of our businesses. Office building vacancies remain at relatively high rates. Retail shopping centers are not seeing a rebound in visits to those centers, based on our paid exit and demographic data. So, we're somewhat cautious in putting together a view towards 2011, based on wanting to see the first quarter or two of activity aligned against the first two quarters of 2009.

Also, as I talked about several times last year, our gross profit and our management fees at our contracts are generally and conceptually based upon revenue thresholds that our client facilities are generating, and our band of percentage in terms of management fees based on that revenue.

Our management fees tend to trend a year or so after the impact of a recession. So in 2009, as we were re-trading those accounts that came up for bid, we saw our fees trailing against the revenues that those facilities had experienced over the past year. And we expect some runover of that into this year. As the economic situation continues to improve, certainly our performance at our leases, our reverse management contracts and those management contracts that we will be re-trading this year, and those into the future, will be reflective of an upswing in the economy. So, I want to make sure we spent a little time on that in terms of the actual impact of the economy on how we're doing.

All of that activity, that re-trading that I've talked about, has been mitigated last year and will continue to be mitigated this year by our ability to add new business in new contracts. We've spoken about some and we've talked about the increase in our retention rate. We've also gotten significant traction and I can talk more about it. But we've got continued traction in our products and transportation, our products in maintenance, our click-and-park product, away from the Gameday discussion that I had earlier, that certainly offsets some of those losses we'll see as a result, or some of those setbacks we've seen as a result of re-trading deals during a change in the economy. For long term, we feel very, very good about the business model that we've put together.

Certainly, the continuing trend towards municipal outsourcing and privatization has provided a larger pipeline of new business opportunities for us. Specifically, the investments that we've made in resourcing our operating areas and our technology investments in the institutional, particularly university marketplace, as well as the historical medical center marketplace, has begun to pay dividends.

On the municipal side, we've seen opportunity after opportunity come to us for on-street meter collection, on-street meter ticket enforcement, off-street garages to be managed directly for municipalities as well as traffic direction, maintenance, and other types of services that we can sell in after the fact. We've taken a year and expended resources towards totally transforming our sales force to make a much more specific target area of the institutional and municipal areas.

We've always targeted commercial real estate and will continue to do so with our people on the ground in those geographies that we operate in. We have also transformed the sales force to have regional coordinators who do nothing but work with universities on outsourcing opportunities, and medical centers, et cetera, and creating relationships with the municipal marketplace across North America in order for us to be seen as the preferred outsourcer in those areas. And those efforts have been and will be paying off.

2011 presents some other opportunities as well in the area of acquisitions. Besides the Expert Parking acquisition in Philadelphia, it would be prudent to assume that we are always engaged in dialogue for acquisitions of any size, and almost in any product line. Whether it may be a very large acquisition in our industry, or a more regional acquisition, or a smaller acquisition that is specifically targeting one of the marketplaces we'd like to be in, we're always actively involved in those discussions. Certainly, with parking being the centerpiece of those discussions but also discussions around transportation, maintenance, and security.

Now for the aforementioned 2011 guidance -- we expect our 2011 earnings per share to be in range of $1.10 to $1.20. This represents an increase of up to 13% on reported 2010 earnings per share. We expect this level of growth, despite the loss of a multi-location Canadian contract and the fact that two of the significant 2010 Gameday events won't occur in 2011. We happen to be in a non-Olympic cycle right now, so the Vancouver Olympics won't recur this year, nor will the World Equestrian Games that we managed successfully down in Kentucky over the summer. So, there is some seasonality to our numbers year-over-year when looking at the opportunities that we get on these large venues which contribute to our gross profit.

The next band of Olympics is 2012 in London, and we've been already significantly engaged in looking at access opportunities and helping the organizing committee on parking and transportation related issues, as well as the click-and-ride and click-and-park products where we can sell access over the net.

Those three items that I just mentioned by the way, the Canadian contract and the two Gameday events, contributed $0.09 to 2010 earnings per share. Our guidance reflects our continuing confidence in our business model that based on market and geographic diversity and a high concentration of fixed-fee management contracts. Certainly, we expect that our late 2010 acquisition in Philadelphia will help us continue to grow as well in a previously untapped market.

This guidance does not include the impact of any additional acquisitions that may be completed in 2011.

In terms of free cash flow, we continue to expect to generate between $15 million and $20 million of free cash flow during 2011. This is despite an increase in our cash taxes resulting from our growing income base and our expectation that we'll invest some of our working capital to win some of our new business and retain existing contracts in 2011. Generally, when we're expanding ourselves into the university sector or some of the larger airports we've had wins in recently, we will make an investment in buses to -- in order to facilitate us winning. And, as I've talked about, those are certainly lucrative sectors for us with pretty high returns on the investments that we do make.

With that for now, I'll turn the call back over to Marc so that he can lead you through a more detailed discussion of our financial performance for the fourth quarter and full-year 2010. Then we'll open it up for Q&A for a period of time.

Thanks, Jim, and hello again, everybody.

Our fourth quarter results were laid out in the Earnings Release we issued last night. So, I'm not going to focus too much on simply repeating those numbers. But I do want to take you through a couple things that will hopefully put the fourth quarter results on a basis that will help you better understand the year-over-year performance.

Gross profit increased 28% year-over-year in the fourth quarter. 15 percentage points of this year-over-year increase was due to the absence of a $2.3 million of expense incurred in the fourth quarter of 2009, attributable to the settlement of two California labor code cases. The remaining 13 percentage points of this year-over-year increase was largely due to improved results at same locations, as well as new airport and transportation contracts and the timing of large events.

G&A expense increased 21% as compared to the fourth quarter of 2009, but 16 percentage points of this increase was due to the restoration of performance-based bonuses and annual wage and salary increases in 2010. And I'm sure you'll recall that in 2009 we had a salary wage freeze and we didn't pay performance-based compensation. We've restored those basically to the normal levels that we had before 2009.

While we expected fourth quarter 2010 G&A to be about $12 million, actual results were slightly higher because of about $600,000 of severance costs we incurred during the quarter. This severance relates to a head count reduction enabled by process efficiencies that will save approximately $1.3 million in G&A costs in 2011 and beyond each year. This is on top of the $2 million that we previously reduced G&A from IT and technology initiatives. So, cumulatively, we've taken out about $3.3 million of G&A costs from process efficiencies and technology investments.

As a result, we expect our G&A run rate for 2011 to be less than the $12 million per quarter which we averaged during 2010. In other words, what we're saying to you is that we're going be running G&A at a lower level in 2011 than we did in 2010, and that's after adjusting for the $600,000 in severance.

Net income attributable to the Company for 2010 increased by 42% over the fourth quarter of 2009 and earnings per share grew by 38% over that same period. On a per share basis, the combination of the 2009 settlement for the California labor code cases and the 2010 restoration of the performance-based bonuses and annual salary increases together represented 25% of the -- 25 percentage points of the year-over-year increase in earnings per share. Or, looked at another way, if we exclude and adjust for the California case and also costs relating to our secondary offering and change of control in 2009, and we also adjust for the bonuses and pay increases in 2010, underlying earnings per share grew 14% for 2010 versus 2009.

In terms of free cash flow, the Company generated $2.5 million during the fourth quarter, as compared with $6.3 million generated during the fourth quarter of 2009. This was somewhat less than expected, due primarily to lower than expected improvement in working capital movements combined with and increase in cash paid for income taxes. I think you know we're burning through some of our NOLs, and we're using those up and in certain circumstances, as our net income grows, we're going to see an increase in cash income taxes, and that's going to continue in 2011. As a result, we generated less than the $20 million of free cash flow we expected for year.

Now I'll touch briefly on the full-year results. Gross profit for the full-year 2010 increased by 10% over the same period of '09. A reduction in those legal expenses I talked about represented half of the year-over-year increase. So, again, underlying gross profit grew 5% for the full-year 2010 versus 2009.

G&A expense for the full-year 2010 increased by 7% over the same period of 2009, mainly due to the restoration of the bonuses and pay increases. On a comparative basis, 2009 and 2010 G&A increased 2%. And, as I said, we expect G&A to decrease in 2011.

Net income attributable to the Company for 2010 increased by over 20% versus 2009, and EPS by 18%. And, as I mentioned a couple of minutes ago, on a comparative basis EPS for the full-year increased by about 14% compared to 2009.

That's our formal comments. I'll turn the call back over to Shannon and we'll be glad to take questions.

(Operator Instructions) Bob Labick with CJS Securities.

It's actually Fred Buonocore calling in for Bob.

Hello, Fred.

Hello. The first item I wanted to get a little bit more clarity on relates to Gameday. Looking back to around midway through 2010, you dialed back the expectations for Gameday. And now it appears, at least from our analysis, that your dialing that back a little bit again. Excluding the large one-time items, can you clarify for us or help us understand how that business is performing relative to your expectations, and if there's anything else going on other than just the not having the large events that you had, or I should say the Olympics, that you had this past year?

Sure, I'd be glad to do that, Fred. The underlying Gameday business is performing just fine. And what Gameday brings to the equation, though, is that on a periodic basis we manage very large events like the Vancouver Olympics, the World Equestrian Games, and in 2012, we're working, as Jim said, with the London Olympic Committee. And these very large events are extremely difficult to forecast in terms of their impact on our profitability.

So when we commented last summer about the impact on our expectations for 2010, we were getting a revised view of what we thought those two big events were going to contribute to 2010. And we wanted to let you know that that had an impact on our overall expectations for 2010. Now that the year is over, those events performed in line with our lower revised expectation, but that lower revised expectation, nonetheless, contributed $0.07 to last year's results.

What I'm trying to say is that going into 2010, we thought the contribution would be even greater than $0.07. As the year unfolded, it became clear it would be just $0.07, which is still a great contribution. But as we compare, then, 2010 to 2011, obviously those two large events are not going to recur. We are doing some modest pre-work right now for the London 2012 Games, but that hasn't yet ramped up to the level of the Vancouver Olympics.

In general terms, Fred, if you remove the two large items from 2010 from the underlying Gameday performance against their more usual types of events, 2011 will be a better year than 2010, if you take those two out. So that might answer some of your question in terms of the underlying business.

Also, we put a lot of buckets together, in terms of measured performance, but for instance, Gameday was instrumental in us winning the Washington Redskins stadium last year for the football season. And we don't report that stadium's results in the Gameday bucket because we're operating it out of our Atlantic region. As I said earlier in the release, we won Emery, which is a terrific, terrific win for us down in Georgia, but for the performance in pre-planning that the Gameday people had done in combination with click-and-park for the Dalai Lama's visit, I can imagine some of the snickering, but I can tell you that all of the work that we did for that event on the Gameday side led towards our Atlanta region winning Emery University. And that's not being reported in the Gameday bucket, either. We're very, very pleased with the performance of those project managers from a -- certainly customer service and operating perspective, but also what they're bringing to our bottom line.

No, that's very helpful. We appreciate that. And then just turning to same-store location year-over-year performance, if you will, stripping out the very positive benefit that Gameday has had. If you drill down on some of those same locations, how have those been performing? And what are some of the major metrics that you look at there? Thank you.

Well, I don't know that the question -- I don't know that the Gameday performance really has an impact on same-stores, because same-stores are same-stores. What we saw in the fourth quarter, certainly on the airport side, we saw a build-up in paid exits, which led towards profitability, and that drilled that sector's same-store up. We also saw some improvement in the hotel sector in New York and Chicago; that helped drive those same-store sales up. I think just the cycle of re-trading deals had an impact that began to slow down into the fourth quarter. That helped gross profit from same-stores increase.

We're also able -- on a little more broad basis, we're still in the relative infancy of the roll out of the SP Plus brand, but I think we've gotten some real traction with products like click-and-park and transportation and maintenance contributing to same-store gross profitability. Even though our fees are being tempered by the blowback from the economy from 2008, 2009, beginning to take hold, for us anyway, in 2010. So we were actually -- and you can probably tell from our release and what I've been talking about this morning, quite happy to see that that recovery on same-stores was so significant in the fourth quarter.

That's great. That's very helpful. And then, finally, on your recently acquired Expert Parking operation, what you did touch on in the prepared remarks, can you elaborate a little bit more on what the opportunities look like, what the most interesting opportunities look like for that business? And give us a better sense for how long it could typically take for a market like this to become what you would view as a core market. Thank you.

Yes, and thanks for the question. The Expert Parking group themselves are really terrific. The principal had done a terrific job of -- really first-class operations in Philadelphia, very similar to our culture here, in terms of first-class service as opposed to being the commodity that $500-a-month management contracts that we saw sprout up and gain some attention during the downturn in the economy. These are first-class operations in Philadelphia, run by first-class people, and we're glad to have them aboard.

The capability though of a firm that has somewhere between 20 and 30 locations is fairly local in terms of the product mix and the target basis. So airports and large universities, Philadelphia is a significant university market. And medical center market, for that matter, as well as a very, very active municipal market between the city of Philadelphia itself and its suburban communities and commuter communities.

Challenges of that size are difficult for small operators. Whether it's a balance sheet that requires capitalization for investment, or talent. You've heard me talk time and time again about the human resources we brought into the business that are focused on transportation skill sets, maintenance skill sets, technologies to support financial reporting for large, large institutional-type clients are very, very difficult for, A, a small regional operator to do correctly, or even for those who pretend to be national operators, who make a leap into a sector they are really not qualified for, and you can read last year's papers across the country to understand where some of that might be. Obviously, a market like Philadelphia excites us from that perspective.

Okay. Great. Very good. Thanks very much.

Thank you. Nate Brochmann with William Blair and Company.

Good morning, gentlemen. Wanted to talk a little bit more -- if you can shed a little bit of light in terms of what percentage -- and I know you might not be willing to disclose this, but what percentage Gameday makes up in terms of lease the base business, excluding some of those big events, in order for us to gauge and take that away from the base business that's always been so predictable and reliable?

It wouldn't be accurate to do that, Nate, and I'll tell you why. And it's for a reason I highlighted for the CJS guys just a minute ago. We don't report, even internally, all of the Gameday activity from the Gameday line. Again, Gameday contribute to some of the urban regional opportunities where we choose to run those stadiums with that management team. Also, the click-and-park contributions are spread across the urban regions where the click-and-park activity is now taking root pretty significantly. So even internally, any number that we would give you wouldn't be accurate.

I think what you'll see Marc and I do, though, is cull out, as we've done for you in 2010, and we might do this year, depending on what events are yet to come. And in 2012, the financial impact of the one-time things away from the normal basis that we made the investment in ultimate acquisition of Gameday for. When I looked at the Gameday contribution, and its ultimate contribution to Standard Parking for purposes of valuation and purchase price, we specifically excluded in contracts some of those larger events by virtue of a different formula. So that we could look at what it would consistently generate by doing -- we know we're going to do the Super Bowl, we know we're going to do All-Star games, we know we're going to do Bowl games, we're going to do some races, we're going to do PGA, we're going to do the events that are recurring every year. And as I said, that basis is improving 2011 over '10. And when we get into an Olympic year or the World Equestrian Games, which aren't every year, or some other events that I don't want to disclose that we're working on now, we'll cull those out away from the normal Gameday basis.

That's really helpful. Thanks for color on that. When you're thinking about your guidance, and we see some -- we talked on a previous question about some of the improvement in some of the things that you're seeing out there in terms of business trends, how much of that is actually included in your guidance? I assume not very much based on your comments of being a little bit conservative. But could you talk about what you're thinking in terms of your ramp-up that's embedded in your guidance?

Yes, I think the guidance that we put together is reflective of being somewhat conservative, as I said earlier, because we have not yet seen a rebound in the commercial marketplace, for the most part. Airports are doing okay right now, but we'll see. And we'll see where the travel sector takes us as we get into the normal travel season. I talked about all the good things that we saw in December, and some of the traction that we're getting with some of the other products, but quite frankly, I'm not sold yet on the rebound having definitive traction for all of '11 and '12. There are enough indicators for us, and I mentioned a couple in terms of commercial office buildings and commercial retail centers, where we haven't seen much of a significant rebound, that are just causing us to think about re-trading when those contracts come up for re-trade, and what the revenues at those facilities might be.

All of you have been watching gasoline prices increase rather significantly and rather dramatically. Some of the talking heads talking about $4.50 and $5 per gallon gasoline by sometime this summer. The first rumblings of that were occurring as we were putting this guidance, and putting our budget together for 2011. And you know us to be relatively prudent because, for the most part, we tend to hit our numbers, and we would like to continue to have that credibility. So we would temper some of what we saw in the fourth quarter, and some of what the business is doing organically in terms of product expansion, geographical expansion, and the investments that we're making in our future, around the very local issues that are effecting the economy today.

I think our message is clear. We're continuing to invest. We haven't ratcheted back investment during this period at all. In terms of technology programs that either make us more efficient on the back-office side, or in technology that will ultimately improve our ability to communicate with our customers over the web whether they pay us by the month, or they pay us by the day, or they want a reservation in advance, and then deploying that technology across the business over the next two or three years. And certainly, our customers are becoming much more technical savvy during this period, as well.

Marc spoke earlier in his comments about the success we've had on the back end. Why G&A increased in December, it was because we finally got to the point where we could make another round of personnel actions towards the efficiency that we've created. Remember, we've now rolled out payroll and time keeping. We've now rolled out payables and procurement. We're in the middle of rolling out MPM Plus, which is our monthly parker management module that enables us to much more efficiently process monthly parkers, and continue to centralize process here in Chicago. As Marc said, the impact of that now is $3.3 million a year of G&A, based on the investment that we've been making, and we still have several more modules that were yet to roll out over the next couple of years. And we'll continue to make that investment.

The investment is not always technology. It's also in human beings that we're able to bring aboard that have expertise either in regional opportunities for the sales transformation purpose that I discussed earlier in my prepared comments, or those people that have particular focused talents in those product lines that we would like to continue to offer to our clients. Again, our overall mission over the next several years is to become the preferred outsourcer to the commercial, institutional and municipal marketplaces. And that investment has not slowed down during this economic slowdown.

Sorry for the speech making, but I think, Nate, it ties somewhat to your question.

I think that's fabulous. And obviously, you have to keep that investment to keep the growth going. One last question and then I'll turn it over. As we think about the first quarter, can you remind us, with all the adverse weather that we've seen, how that impacts your business? Obviously, I know that impacts the airport business and lease business a little bit, but how we should think about that in context of the first quarter?

I used to hate snow a lot. You used to hear me complain about -- not complain, but the realities of snow removals over and above an average snowfall year. Certainly the storms that we had here in Chicago and those in the east coast in December and into the first quarter were horrible. You're not going to hear me whining as much about snow removal in the future. SP Plus maintenance is now in the snow removal business, and we're able to mitigate the exposure that we have at some of our leases, and some of our other management contract opportunities, by doing the snow plowing ourselves.

So while we had some horrific exposure at some of our airports to snow removal charges, several years ago we took the proactive step of trying to make snow removal a skill set, or an opportunity sector for us, on the SP maintenance side of the business. It certainly doesn't have the negative impact that it did before. The totality of it, Nate, if it all broke even at the end, that was a good thing for us, as opposed to the past.

Fabulous. Thank you guys very much.

Thank you. Giri Krishnan with Credit Suisse.

Jim, I had a question. I think in the last quarter you had spoken to actually seeing irrational pricing, and your expectation was that in the second half we should expect to see pricing stabilize. And in your prepared remarks, you made some comments about re-trading of contracts and so forth. Could you tell us if your current guidance still reflects an expectation for that?

I think our guidance reflects a continuation of some irrational pricing, certainly. We've begun to see a light at the end of the tunnel. When operators are able to go in and sell clients on $500-a-month management fees, and they have the competency to deliver the qualitative product that the client wants, we've already gotten some of those contracts back.

We've stayed fairly disciplined within the organization about not compromising the overall pricing of the organization to match what might be a very local and a very temporary pricing situation. Because we don't see the end of the economic cycle yet, particularly on the commercial side of the business, we still see significant irrational pricing by competitors who have a measure of desperation to them on a move-forward basis. Again, our policy has been to be patient, allow that to take its normal course, and we're already seeing some of those operators collapsing under the weight of low fees, and having to perform at a higher level. And we're waiting for the industry to go through that.

I don't want to continue to talk about being the old man in the business. But having done this through several cycles -- some of these cycles are inevitable. It's very easy to go in and sell a client who's desperate with desperate pricing. What happens then at the end of that cycle is that the decision that was made erroneously to cut management fees by $1,500 a month, but jeopardize 10% of $1 million a year flow in revenue was foolish. And we see the ultimate change-out of those individuals over time, and we're able to win back when a more qualitative assessment is made. Again, a long-winded answer, but the message is, we have not yet seen the end of irrational pricing, and that's reflected in the guidance that we've put forward.

And as we think about your longer-term G&A expense to gross profit ratio targets, realizing that you've been steadily reducing G&A expense down, and realizing that the G&A gross profit growth also drives where that ratio is, is there any sense for when we might be able to see you get to that target levels?

I can talk to that one a little bit, Giri. Clearly, during the recession period, we saw exactly what you described. We were very careful to reduce our G&A, but gross profit came down at a little faster pace. And so we saw our G&A as a percentage of gross profit ticking up, and even for the full-year 2010 it was 55% of gross profit. As we look at our expectations for 2011, and the comments I made earlier about G&A and expected G&A trends, by the time 2011 is over, we're going to be very close to our goal of G&A as a percentage of gross profit of 50%.

Okay. Alright, thank you.

Thank you. (Operator Instructions) David Gold with Sidoti.

A couple of questions for you. One, can you give a little bit more color -- looking at the level, the shift in managed facilities, sequentially, just a little bit more on landscape there. Obviously, holding profitability pretty well, so is it more a function of some of those uneconomic contracts coming up, as you alluded to, or just the competitive environment and other folks being uneconomic? What is happening there?

Sure. You have seen a modest decline in the total number of facilities that we operate. As we've talked in the past, David, our focus is always on generating the maximum amount of gross profit we can for the business, and to have that gross profit growing at the maximum rate. So clearly, as we look at our portfolio of companies, when locations come up for renewal or discussions with clients, if we're not going to really make enough money to justify the operation there, we let it go.

We certainly don't bid on properties to lose money, just to have a certain number of locations or to be able to say we have more than somebody else. Quite honestly, as a business, we don't focus too much on our location count for those reasons. And as Jim talked about, our increasing focus on institutional and municipal businesses where we think the opportunities to manage large, more complex operations exist, I think you'll see us continue to focus, as I've just described, on gross profit growth and adding in extra services, and not necessarily on location growth.

Okay. And with that, I don't know if you gave a number for profit retention?

96%.

96%. Okay. And then just a little bit more, Marc, you gave good color on G&A. But as we think about it, how much more potential is there by way of either bonuses or incentive-based comp for some (inaudible)? Will that just be a fourth-quarter function, or was it this year a function of hitting certain targets in the fourth quarter, and then some catch-up accruals?

Yes, it was catch-up, really, David. If you look at the total for the year, what I tried to say earlier was that the P&L hit for the year for bonuses was very comparable to the pre-recession level. So last year, obviously, we had no bonus expense, last year meaning 2009. For 2010, we restored those. Clearly, how we restore those is based on performance as the year unfolds.

Clearly, as we looked at how the year came together at the end, we were able to get back to a little higher levels than maybe we were at at the third quarter. So that's probably a disproportionate effect on Q4, but I think as you look forward to 2011 and beyond, it's not the kind of thing that's going to provide volatility in the business. So our G&A trend, when we look at '11s performance, should be predictable, and should be relatively -- it doesn't fluctuate a lot. It should be fairly level throughout 2011.

Perfect. Thank you both.

Thank you, Dave.

Thank you. Kevin Steinke with Barrington Research.

I'm curious to hear if you've seen any change in the speed at which your business pipeline is progressing, especially in the municipal and institutional markets. Are you seeing more urgency there, no change, or is it hard to generalize?

I think the activity is ratcheting up. It's a question of a combination of taxpayer demand for efficiency, as well as getting then in through an election cycle that puts people in place. All of you read the papers every day to see how some states are reacting, some municipalities are reacting, some quicker than others. But I think we've gotten through that election cycle where the taxpayers have said -- listen, we have a greater expectation on the efficiency that our assets are being managed. We certainly have seen our pipeline of opportunity grow.

Because of the investment that we've made in either people who lead that effort for us in operating those wins we have, or selling those we would like to encourage out, in terms of -- it really takes somebody to get in front of the gray desk of a municipal administrator to convince them about the efficiencies of outsourcing. Unless there's the same sort of waste that occurs via patronage or inefficient management of municipal assets, if you don't point someone in the direction of what the efficiencies are, it's very, very comfortable for somebody to stay put in their kingdom. I think we've seen that sort of view begin to change, and I know our pipeline is much larger.

Also, because we've gotten more people on the ground, and we've gotten much more experience in doing on-street work, certainly the big win that we had last fall to do the Chicago park district along Chicago's lakefront, gives us -- every time we add large contracts like that, and do them well, which we did, it gives us more credibility. It also aligns us more closely with partners that we'd like to have that might provide us software that we don't or haven't yet developed in-house. Or pricing with hardware manufacturers, who see us as a viable alternative for partnering with, in terms of taking over the entirety of a municipality's parking and ticket writing, and at some point, transportation and paratransit opportunities in some cities. So we've seen our win rate improve, and our pipeline increase, which is why I think the answer to your question is, we've seen acceleration in that opportunity sector. I think 2011, and particularly 2012, will be significant years in that area.

Great. That's very helpful. My next question is, can you give us a little more color on what happened in the case of the client you lost in Canada?

Yes, we got grossly underbid. We had been there for a long time, and we did a great job at that location. I think we were there -- well, we've been there at least 12 years, and maybe longer. Yes, right around that timeframe, from 1999, and administrations change on occasion, and we've seen decision makers change.

I think I talked to you several years ago about the Cleveland clinic, a very similar opportunity. We'd done a great job for the clinic, everybody loved us. They brought in a new administration. Their chief procurement officer was 23 or 24 years old, and he put out an on-line dutch auction bid for pricing, without a whole lot of assessment from a qualitative basis.

We saw a very similar situation at the Canadian location we talked about. Again, the discipline required to see that and walk away from us makes us a little sad. But we know that there's no way in the world that that operator can walk in and perform with a whole lot of credibility. It was all about price. And again, that's one of the locations that we'll patiently wait for it to come back to us.

That was going to be my follow-up question. I assume -- in the past you have seen many of these clients come back to you as the competitor who underbid maybe struggles with managing the contract, and so you sometimes see those clients come back. Is that correct?

We do. And my foolish Irish temper always tells our sales development people to double the fee that it was when we lost it, but prudence always wears out, and of course, we do the right thing. We had one occasion with a hotel, I won't mention what city it was in, that just happened three or four months ago, where we were out of there for 45 days before we were brought back. So it's a question of being patient and being confident enough in the qualitative side, because at the end of the day, we handle a billion and a half of other people's money. And when that becomes at risk, even a small percentage of theft or mismanagement or underreporting can have a much more damaging effect on a client's location than $600-a-month in management fees.

Great. My last question is, you refer to the London Olympics, and I'm curious if that requires any development in international capabilities for Gameday, or are those capabilities already in place?

From a pure business licensing perspective, we are in proper straits in England to have a UK subsidiary of the business. At the end of the day, we act as an organizing group. So it's not like we have to ratchet up a significant corporate base in LA to help them secure the right transportation methodology, the right software programs for click-and-ride and click-and-park, and organizing parking facilities for access on the periphery of events. Whether you're doing it in London, or you're doing it in Atlanta, or you're doing it in Vancouver, or as we've done it in Colorado in the past, it's very, very similar work but for making sure we're authorized to do business in England.

Okay, great. Fantastic. That's all I had. Thank you very much.

Thanks, Kevin.

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.

I just want to thank all of you for joining, and I think of the last several calls we've had, that these were the most engaging questions, and I'm glad that we were able to add some color, because we understood there might have been some confusion with trying to tie out our numbers from what we put out last night. So thanks again for hanging in there with us, and we look forward to talking to you with the end of the first quarter numbers.

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.