SP Plus Corp (SP) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2011 Standard Parking earnings conference call. My name is Amy 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, Mister Marc Baumann, Executive Vice President and Chief Financial Officer of Standard Parking. Please proceed, sir.

Thank you, Amy, and good morning, everybody. As Amy just said, I am Marc Baumann, Chief Financial Officer of Standard Parking and I am your primary Investor Relations contact.

Welcome to our conference call for the first quarter of 2011. I hope all of you have had a chance to review our earnings announcement which we released last evening.

We will 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 will open up the call for the Q&A session.

During the call, we will 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 would also like to refer you to the 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 the Investor Relations page of our website at StandardParking.com. A replay will be available 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 I said in the release we issued last night, we are obviously very pleased with the results of the first quarter. Statistically we saw 5% growth in same store location profit as we have seen parking volumes recover at many of our leased locations as evidenced by an 11% year-over-year increase in paid exits at same store leases.

We saw particularly robust same location profit at our retail mixed use, hotel and freestanding commercial operations. You have heard me talk almost for a year and a half now that those have been the slowest locations to recover. The trends are still somewhat mixed on the commercial real estate side, but we did see some improvement in the first quarter.

Airports, depending on the market, were better in the first quarter, but it's been a little more market-driven on the airport side. We have had --seen some airports go backwards in the first quarter depending on airline service agreements and decisions being made in the deregulated environment and increases in some airports.

So if we look at the trends and the most recent forecast, I think the aviation industry is somewhat mixed. There have been substantial downgrades of forecasts for international travel as a result of situations in Japan that we have all read about, and some other international issues. But domestic airline travel is forecasted at just a slight uptrend. There haven't been any significant changes in forecast and we haven't seen a whole lot of significant increases or decreases across the North American airport sector other than those that I've talked about.

So we are still somewhat guardedly optimistic about the economic recovery.

Our location operating profit retention remains strong at 91% and our operating profit retention remains at 96% for the 12 months ending March 31 which is good news. And as you might surmise it means that those locations that were losing continue to be less profitable than those that we focus on retaining.

G&A, our G&A expense came in 3% lower than last year as we continue to realize the fruits of the technology investments that we've talked about over the last few years. And those investments continue, by the way.

We are happy to report that we have commenced parking management enforcement and customer service operations at Emory University in Georgia. And the University has already reported significant improvement as revenues as well as improved customer feedback since we have taken over these operations.

Our SP Plus Gameday success at Super Bowl XLV and other sporting events, we did the NCAA Bowl games, the NHL All-Star games and others, have been again well received and were several solid operations for us and those are events that will recur on an annual basis.

We have people on the ground in London these days working towards securing agreements to provide services to the London Organizing Committee for the Summer Olympics games to be held in London. And by being on the ground in London, we have also engaged in conversations with other European venues for potential game day and Click and Park activity down the line.

So we are real pleased with the efforts that our people have put forth to that effort. And we are, on the longer term, looking towards relationships in Rio and in Russia as well in terms of helping out with those Olympic Games to be held in the future.

Our SP Plus Transportation Group announced an expanding -- is expanding our shuttle services in Hawaii on a medical center complex that we run, which we think will lead to some other transportation operations in Oahu, and we now have entered into the Salt Lake City market place by opening 6 locations in Salt Lake City in the past quarter.

And that Salt Lake City is a city that we would like to be in and it leaves just a couple of target markets where we would like to establish a footprint where we don't have one today.

Looking forward to the remainder of 2011, I spoke earlier about our uncertainty about the economic recovery situation. So why our numbers for the first quarter are good and we are guardedly optimistic about the year. We are not going over the wall yet in terms of adjusting guidance significantly as a result of seeing the activity.

Certainly the increase in prices and commodities for consumers affects their ability to travel and their ability to make trips. So we are concerned with that and certainly the commodity that affects us the most in that area are increasing gas prices, although we have seen a drop in oil prices the last few days as a result of some of the activity in the Middle East and maybe that will keep the increases that are forecasted this summer to a somewhat tempered level.

We are in the last stages now of reengineering our sales force. As we have talked about on some calls in the past, we have worked for about 18 months now on organizing our sales force around the continued transition towards the SP Plus brand. Following on the success we've had with the coverage that we have in the North American sector on the airport side, we are dispatching a much more -- a more highly trained sales organization to focus on the institutional and municipal marketplaces.

Those opportunities for us on campuses, whether they are academic or medical or municipal in nature, whether they are on street parking meter or off street parking garages, or ticket writing traffic direction, paratransit services, any of those services that we can now provide based on our wider products to the expanded markets that we have seen will now be assigned to specialists who are focused on the longer lead times.

The commercial sectors of hotels, office buildings, and the like still remain in our sweet spot, but we have enough geographic coverage where our operating people on the ground can procure and -- responses to RFPs and nurture business and participate in Chambers of Commerce and those sorts of activities to continue to secure our role in that sector.

But we have -- we are investing more resources on the institutional and municipal side for the procurement of long-term relationships with clients that we know are continuing to look for outsourced services, whether they are parking, transportation, maintenance, security, small asset property management and the like.

So that effort is being rolled out. We have made some staff changes already and we have engaged the organization around the new process. That brings us very near completion of our transition to the SP Plus brand and is probably the most difficult challenge.

We have talked in the past about our expertise being expanded across the various new product lines and the wins that you are seeing in transportation and our expanded maintenance coverage across the country speaks to the traction that we are gaining with those products across our existing client base.

It is now a matter of rolling out a more effective sales team to penetrate the institutional and municipal markets and we think that this effort will lead towards that.

One other note regarding the performance, the financial performance of the first quarter, we had several hundred thousand of unfavorable variances in the first quarter, relative to snow removal. The storms that I'm sure all of you saw, and have probably forgotten about now that it is May that we had in January and February, were fairly significant across the airport sector.

The Airport Division was probably the hardest hit by additional snow removal costs although we did have significant urban snow removal costs in New York, Boston and Chicago. That miss or that variance is somewhat mitigated by the fact that we are doing some of our own snow removal now in central business districts.

So in some instances, snow removal's a profit center for us and that someone mitigates the exposures that we have on the airport side and in the larger urban setting.

When we release our Qs, we obviously released the results and the status of our balance sheet. We had a Board meeting here in Chicago last weekend, an Annual Shareholders meeting last week where our Board of Directors was reelected and the confidence level was obviously high on the retention of our Board people.

And, reflective of that leadership, I think is the fact that through this economic down cycle, the Company has continued to invest in resources capable of expanding our product line that we've talked about. Our market area that I've just referred to as well as the technology investments that we've made to secure savings on the cost side and be more efficient on the back office processing across this wider product line and across this wider marketplace.

At the same time, the Company's significantly used its free cash flow in almost of -- in almost all of our free cash flow to get our debt level and our leverage level down to a very, very comfortable level and in a very strong position for us to take advantage of the marketplace.

Our Expert Parking acquisition in Philadelphia and our opening up facilities in Salt Lake have gone very, very well in terms of performance against their models and we -- because we think we have significant buying power in the community, continue to look to acquisitions to -- as a platform to continue to expand our product line and our market line based on either geography or expanded market share in those geographies where we have a presence.

So we know we have the capital that we can deploy to continue to make investments and acquisitions and continue to expand where we need to expand into the transportation and newer sectors on the strength of our balance sheet. So it is rewarding to have reached this point through the downturn of the economy to be able to talk about the Company being positioned, we think, in a singular basis in our industry towards growth for the future.

As we said in our release last night, based on what we've seen to date, we still expect earnings per share to come in between $1.10 and $1.20 for the year, and we still expect to generate between $15 million to $20 million in free cash flow. Marc will talk about free cash flow in a minute because that performance in the first quarter was above our expectations as well.

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

Thanks, Jim. Hello again, everybody. Our first-quarter results were laid out in detail in the earnings release that we issued last night and since there is relatively little noise in the results this quarter, I think the performance that's laid out in the release pretty much speaks for itself.

As Jim mentioned, we had some solid growth in gross profit. Gross profit increased 5% your year and that was supported very much by same location gross profit growth of 5%. We also saw same location gross profit growth across most vertical markets. This parking activity has shown signs of improvement and as we -- during the downturn and on an ongoing basis take measures to renegotiate rents and address operating expenses wherever possible to improve the profitability from our deals.

G&A expense decreased 3% as compared with the first quarter of last year due primarily to process improvement initiatives. We expect underlying G&A to run a bit higher than that for the rest of this year. It should average below 11.5% per quarter and that will bring us in below at the level of G&A for 2010.

Net income attributable for the Company for the first quarter of 2011 increased by 33% over the first quarter of 2010 and EPS grew by 28%.

As Jim mentioned, I want to make a couple of comments on free cash flow. We obviously generated $6 million in free cash flow during the first quarter compared to $1.4 million during the first quarter of last year.

And when we spoke at the end of Q4, we talked about our disappointment in coming in a little bit below our free cash flow estimates for 2010 and I think we are seeing that some of the improvement in free cash flow that goes with an improving economy is showing itself here in the first quarter.

That being said, it's still one quarter's results and we think it is premature to revisit our estimate for the year and that is why we are keeping it at $15 million to $20 million.

That's our formal comments for this quarter. Let me turn the call back over to Amy to begin the Q&A session.

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

Good morning, gentlemen. Good quarter. I'm wanting to talk a little bit -- Jim, you talked about the operating environment showing some early signs of improvement.

Was just wondering if you could elaborate a little bit on that in terms of the consistency of the paid exits and what you are hearing a little bit more from your customers? And then also if you could help us with some of the other weather impacted costs, whether -- if you looked at the net expense of snow versus the benefit what that might've been in the quarter? And also what you might have seen in terms of lost business because of all the weather issues and again just kind of trying to gauge here at the strength of the improvement.

Let me take the second part first. I think the net effect of the snow in the first quarter was as I said there were several hundred thousand dollars that went the other way on us as opposed to our budget. Again, a lot of that on the airport side.

In terms of paid exits, it is my experience that you don't lose a whole lot of business. Travel that might have been canceled is just pent up in most cases. There aren't -- some people lose their vacations if they miss their flights and things, but there's not a whole lot of impact. I think to paid exits as the results of bad weather. If someone has to delay a business trip, they will make it another time.

So it's my experience that there isn't a whole lot of effect other than the cost itself of clearing the snow and hauling it and making the facilities available for the traveler.

I think in terms of the trends, it's as I said earlier, it is somewhat mixed. Certainly that -- the commercial office building sector when we look at existing absorption rates in the cities we operate in and the projected absorption rates based on leasing activity, we are not seeing a whole lot of change yet. There are -- as you go around America, but with a few exceptions you are not seeing a whole lot of construction cranes or completed office buildings in the last couple of years.

So it still points, I think, for the vacancy rate in those buildings. I think that is the sector over the last 24 months that our industry has been faced with repricing. You have heard me talk in past quarters about as contracts expire and clients are looking at office vacancy rates, they begin to look at our fee structure and the cost structure as a percentage of the revenue. So they've been looking at our industry to retrade.

Now that situation hasn't gotten any worse in the statistics I see, nor has there been a rapid improvement in commercial office buildings. If you look at the parking revenues that are generated from those buildings, that are either based on the employees who are in that building or maybe in nearby building who pay by the month and those people who visit the building to visit the offices and conduct their business that pay us by the day.

That sector has remained relatively flat as we got into the second and third and fourth quarter of last year, but were significantly down in the years before.

When we deal with the property managers to retrade our deals, they are looking in the rearview mirror. If my people do a good job on the renegotiation of that retrade, we will be considerate of their look in the rearview mirror in terms of the revenue being based in the building. But we will, in exchange for that retrade, we will ask for a more solid term base extending our term for a longer period of time or the ability to ride back -- the economy back up as revenues improve on a forward-looking basis.

And I know our operating people on the ground are focused on trying to get that accomplished. So why it's had the effect it has had on us over the last 24, 36 months, I think that we see a little brighter future as the industry retrades have slowed down some. Not to say that there -- we don't have a few more deals that we're having to retrade, but I think we have seen the acceleration of our industry trading down in price begin to flatten out if not improve a little bit. And that is good news.

The airport sector I talked about, and it's low single-digit growth in North America so far. But is almost market by market. You can point to carrier activity like JetBlue and Southwest shifting hubs and moving traffic around that have a significant impact on midsize and smaller sized airports.

So again we tend to look at the larger trend and spread it across. When we do our own budgeting, we look on a more specific location/location basis and we have had airports based on our first reforecast that are down double-digits this year solely because Southwest pulled two flights out. And we've had others that have improved by 15% because JetBlue initiated service.

So in terms of the longer trend, we don't see the recovery of North American airport paid exits as rapid as we initially saw on the international side. But certainly positive movements which bodes well for those reverse management contracts and the leases we have.

We have also been more successful on the airport side, expanding our service offerings as I've talked about before, so we are managing a lot of the curb fronts right now providing additional buses and we have now moved into the area of bus maintenance ourselves.

So we are not dependent in some instances now on third-party subcontractors. We hired aboard our organization a director of shuttle maintenance and we think, by doing the maintenance on the buses ourselves, that we can improve our margins. And it had been a component of our long-term strategic plan to get that done over a period of time.

We saw an opportunity based on a couple of our airports to accelerate our activity in that area and we took it. So we are now capable of providing our own maintenance services that will help SP Plus Transportation as we look into future years.

Retail, office -- sorry, retail and hotels were better. Trends were better in the first quarter. Same stores at hotels were up double digits in Chicago which was good for us and we hope to have a nice summer in that regard as tourism picks up and those weekenders who were not coming down to enjoy central business districts in the summertime or downtown areas in the summertime are beginning to do that.

But in regards to retail and hotels and airports, it all gets to the issue of consumerism that I spoke to before. We have seen some tickups in business travel, but in terms of luxury or pleasure type trips whether they require the use of an airplane or you're coming in downtown to go to a show over the weekend, that is definitely affected by consumer pricing.

And when I see increases in commodities, not only gasoline, it tells me that in an environment where we don't have a whole lot of other inflation in terms of CPI and wage increases, that the consumer is still strapped with the hangover of credit card debt, mortgage debt, as well as higher gas prices and higher food prices.

So again we are somewhat guarded about discretionary spending on the consumer side, which affects those markets I am talking about.

Great. Very helpful. Then just kind of along those lines, just a second kind of follow-up to that, obviously you are doing a great job rolling out the new services and, clearly, there's a lot of variable secular trends with the municipalities.

But now that those have been a little bit more of a focus over the last year, year and a half or so, just wondering if you could talk a little bit about the adoption rate in terms of whether you see those businesses or services gaining a little bit more attraction as opposed to just nice add-on activity, or is it still just way too early to really comment on that?

I don't know that when we are having this call next quarter, I would be disappointed if I can't announce a couple of real nice wins in that area. You know we have, again, the traction being generated by our SP Plus municipal service staff that are based in Florida getting around and across the United States prompting those municipal leaders towards outsourcing.

We are full of activity in terms of pipeline to respond to our win rate. As we are projecting it has been pretty good. There's -- it would be too soon to talk about expected win rates I think until we get another year on our belts and more of these RFPs come out and then we can talk more about trendlines, but we have had some real nice wins lately.

And I think that that traction is just starting although, as I've spoken to in the past, our gross profit per location from those types of wins on the municipal side are much higher than the Company average.

And also our -- for instance what we are doing at Emory or looking across the institutional base, the margin or the profit opportunity at those locations again on an average is much higher than our traditional gross profit on the commercial side per location.

So in one instance, it speaks towards the consistency of institutional and municipal operations as opposed to commercial that are a little more affected by the economy and the size of those opportunities you know, when we are doing thousands and thousands of metered parking spaces and we are doing thousands of on-campus parking spaces and we are providing 30 or 40 buses on a campus setting.

Those are on an average much bigger than our typical parking lot in a downtown central business district. So certainly the effort and the resources that we're investing into the success rate will pay off in the future although it's quickly gaining some traction now.

Sounds good. Thank you very much.

David Gold of Sidoti & Company.

Good morning. Just was interested to get a little bit more color. I guess the launch of the locations in Salt Lake City -- that sounds like those were greenfield rather than acquisitions, right?

Well, a little bit of both. I wouldn't characterize it as a significant acquisition. We had a relationship with a past industry leader who had opened up a small business in Salt Lake and we basically took over the management of those operations for him and left some of his local leadership in place which he wanted. We have had pipeline activity unrelated to this that we think having a platform in Salt Lake will provide us.

So it was not a traditional acquisition. It was kind of -- we took the platform of six locations and we will move forward with now looking at the larger pipeline.

Sure. Okay. And well I guess what I'm getting at is it's a little bit different in strategy than what you've done in the past as far as getting into new areas. And so I was just hopeful that on a go forward if you can give us some more color about how you are thinking about expanding via, either acquisition or getting into some of the newer geography, say, for the rest of the year?

Yes we will. I didn't mean to sound less than transparent. I mean, the deal in Salt Lake City is this guy wanted us to run his operations because he thought that we could do it a little more efficiently. I wanted a platform and a geography we weren't in and I didn't have to pay a whole lot of money to get it.

So that one was pretty easily done, and every quarter we will share with you those deals that we've completed that and sort of the terms by which I look at the strategy. But again, the strategy hasn't really changed. If it -- if we can develop cost synergies by buying somebody in a market where we are already the market leader and the economics are right, we will do it.

If there's a certain geography that the changing demographics of North America tell us we want to be in, then we will pursue that. But rest assured that a day doesn't go by that we are not working on an acquisition somewhere.

Got it. Okay. And then another question there by way of looking at the trend in retention, lot retention versus profit retention for the last couple of quarters. It looks from here, given that your profit retention has been a lot -- again, quite a bit say better -- there's been a positive variance, say, between profit retention and lot retention. Is it -- can you give us some sense -- are you actively or aggressively culling some of the less profitable contracts or is it more a function of as they come up you review your bid and at that point making them more profitable just doesn't make sense to the end consumer?

Right. Again, the spread is not that big. So I wouldn't get really carried away with the difference between a 91% location retention rate and 96% on gross profit. I mean the spread is not that big. And we have been very, very lucky -- luck has certainly has something to do with it, but we are very good at running airports. And certainly those big airports are -- return a higher gross profit per location than some of the smaller urban locations do.

And our airport group based in Cleveland has done a fantastic job of retaining what we have. And we have gone through a cycle where a lot of our airports were up for bid over the last 24 months and for the most part, we have retained them all. We have some work to do over the next 12 months, but I think it's just a base that airports understand that low bid isn't the way to go. That a qualitative assessment of who's best to provide customer services and revenue collection and revenue maximization with marketing is the skill set that should be rewarded when looking at bids. And our group has gotten a lot of traction over the years with that.

So and obviously with the more lucrative airport retentions, our gross profits retained at those levels.

The downside of this cycle, as I've spoken, is we are keeping some locations, but we are keeping them on a less profitable basis because we are having to retrade based on the pressures on commercial real estate. As I said, I think that, that hopefully, that trend is at least bottomed out and running at its low point. And we expect that as things continue to improve on the commercial sector, that we can retrade back up into the normal 4% to 6% of revenues that we're responsible for collecting.

I think that as contracts come up, you know I don't need to have loss leaders. So you know, we do we have -- we've had some leases and some reverse management contracts and we still have some that if we can't negotiate a better position for ourselves on a retrade of the term, we are walking away.

I think Marc and I both spoke over the last four or five calls that our page of net losers to the business has diminished to -- if I -- I can give you some color. We used to have three or four pages of them, six or seven years ago and now we have one page of losers. And that's as far as I can go in terms of trying to quantify it numerically, but I think you get the gist. I don't have to stay to do a location somewhere just so I can stay in that municipality and have five locations.

That is not what we are about.

Perfect, all right. That's helpful. Thanks.

(Operator Instructions). Giri Krishnan of Credit Suisse.

Good morning. I had a couple of questions. Jim, I guess as you talked about having more of a specialist sales force, how does that help you? Does that imply that there are fewer conversations on retrading of deals and more conversations on the value proposition, especially as you look at universities and municipalities and things like that? Are there any other implications that we should be aware of?

No and that's a good question. You know typically the retrading and the extension of our contracts, whether they are leases or management contracts, are eventually negotiated by the operating people that those facilities are turned over to after we win the account.

So while the salespeople may retain some relationship with the client, it has been our focus that the operating people assigned to manage the facilities every day, those people who are with those clients every day are certainly much more -- are better positioned to do the retrade or to do the extension when the contract comes out.

So it's not a function that we are taking away from salespeople typically. Our salespeople get a job done, involve the operating people up front in terms of providing pro formas and the sales pitch to potential clients and then the operating people take responsibility for it.

I think the major change that we are looking to involve is taking a sales force that has, for the 25 years that I've been here, been focused -- a significant amount of their focus in commercial real estate in central business districts and really pulling some of our very talented salespeople out of that and saying, you know, our operating people on the ground in those cities can take up the slack in terms of being members of [BOMA] or any other industry trade groups or developing relationships with hotel managers or office building managers.

Our people are real experienced. We don't have a lot of turnover in leadership in our business and our people in Boston or Washington or Chicago or Seattle, for instance, have been in that community for -- in some cases 20 years. And they know every property. They know every property manager on the ground commercially and there's not an opportunity I think that gets past us on a sales cycle in that regards.

So we have said to ourselves, we think that some of our resources on the sales side are better resourced or better invested in the facilities that have a longer lead time to energize outsourcing in the institutional and municipal environment; needs for new relationships to be developed; much more focused relationships to be developed; and the skill set that is required to convince somebody that's running University of California at Berkeley that they can benefit by outsourcing their parking management security management and transportation management requires a much longer lead time and a much more focused effort than being, making sure that we are on the list to run a hotel in Washington, DC.

So I think it is redeployment, really, of the sell side. The retrading and the re-upping of the deals is traditionally been done by the operating people anyway and has not historically been a function of those people that sell for us.

Okay. And any changes in your outlook for Gameday for the year from three months -- from a couple of months ago? Any one-off events, items that we should keep an eye out for?

Not enough to change our view on the year. The discussions that I alluded to earlier in the conference on foreign soil are increasing awareness of opportunities in England and Scotland and the Middle East and South America. Those are still in talking points, but I am certainly encouraged as the CEO of the Company that we are engaged in those sorts of businesses.

I think the success of Vancouver, the success that -- in Salt Lake in the Olympic Games and the previous successes that we have had on Super Bowl and NASCAR and all that kind of stuff now has given us visibility in the Gameday area for those types of events.

You know, the capabilities of the Standard Parking that we bring in terms of ongoing operation of some of those events are exactly what I bought Gameday for. I talked at length last time about Gameday being the front end of traffic engineering and planning and strategic planning for events than the reason we came together as a company several years ago is because the opportunity then was for the Standard Parking folks to stay and manage the stadium forever.

And we have seen some of that with the wins that we have had on the stadiums that I've talked about. So that -- the fact that we are deploying Gameday as we strategically planned early on is kind of exciting and gives us a little wider footprint.

Okay and then maybe one last question for Marc. I guess G&A expense came in nicely below and I guess if my math is right that G&A to gross profit ratio is around 55% and I know we were talking about getting to a 50% range by the end of the year. It almost seems to imply gross profit growth for the rest of the year should accelerate and I'm curious to know what would drive that higher?

I'm not sure I agree with that conclusion that gross profit growth is going to accelerate. I think what we are -- the getting to the exact goal of 50% of gross profit has been a long-term goal that Jim has articulated for many, many years. I think what we were trying to say last quarter was that we expect to get close to that by year end. That would be our hope.

But, realistically, what is happening with G&A is that we are benefiting from a couple of things. One the efficiency exercises that we have undertaken over the last few years with technology that G&A reductions that we made last year that we talked about at Q4, and I think those kinds of things are coming in to bear to benefit the business. So we are pleased with how it came in in Q1.

Q2 is going to be quite a bit higher than that because -- in part because we have our annual grant of stock to our directors and some other seasonal issues. But as I said earlier, we are looking to be under 11.5% on average for the remainder of the year. But it will be a little choppy. It will be higher in Q2 and then lower again in Q3 and Q4.

Let me add just a little color to that from a little broader perspective. Our target remains to get G&A as a percentage of gross profit at 50% or under 50%. That has been our goal since the time we initiated the investment in enhancing the efficiencies of our back-office technology systems. We are into the third or fourth year of that regard now.

The targeting of that percentage assumed that gross profit would have grown at our normal sort of organic basis for the previous seven or eight years. The recession and the economic downturn and the retrading that I've been talking about for a year has slowed down the growth of gross profit on our side from traditional levels.

Now, that gross profit change would've been worse but for the fact that we've added in security services, transportation services, maintenance services and we've held our own in terms of year-over-year growth. And I think just the quarterly growth year over year from the first quarter of last year to this year speaks to our ability to adjust during the economic cycle.

That being said, but for those things being done, gross profit hasn't grown at our historic rates the last two years and we are still 54%, in the low 50s but have yet to reach our goal. We think that as we are doing acquisitions, certainly we improved the margins through the cost savings that we get when we buy a company. So we are looking to expand our margins that way as well as the continued efficiency spend on the back-office side.

So as gross profit returns to our more normal growth rate of 7%, 8% as opposed to 5% that will accelerate getting that percentage under 50%.

Okay. Thanks a lot for the clarification.

Clint Fendley of Davenport.

Good morning. Question, I wondered what percentage of your locations will have your own snow removal by next year? Should we continue to be thinking of this as a drag on earnings or maybe even potential upside in Q1 next year if we have another nasty set of storms?

Whenever it snows more than we think it is going to snow it is going to be bad for us is the easiest way to say it. It won't be as bad for us as it was. We have fairly competent snow removal capability in Chicago these days because of the critical mass we have and we have some snow removal capabilities on the East Coast.

But whenever we get a bad storm it is going to be bad for us. I can't quantify it in dollars because you never know how bad the storm is going to be.

I'm 57 years old and I've seen 100 year snowstorms six times in those years. So trying to tie it to weather forecasting -- tough. But I think the best answer to your question is whenever it snows more than we think it is going to snow, it is bad for us.

What type of investment do you need in order to have a profit center in place? And how do you think about your labor in front of an event like that?

It doesn't -- it's not going to happen. Typically when you have large airports, remember our airports are located on a standalone basis. So they don't support the urban setting. So it would not be cost-effective for us to buy snow removal equipment just to remove snow in Fargo, North Dakota. That is not going to happen.

Where we can get critical mass of surface and elevated parking structure roofs in Chicago, New York, Boston, to some degree, we can deploy a fleet of trucks. And it makes sense to do so and we are making that investment.

You've got to -- the people that we typically hire in those places where we don't have critical mass are usually road builders whose equipment lies dormant in the wintertime with front end loaders and dump trucks or they can get a plow blade down with a pickup truck.

Where we can -- where we've been able to have some success is putting together pickup trucks that we can use in the summertime for our power washing services, our striping services, our sweeping and scrubbing services. But those are the surface slab varieties and that's where we've picked up some margin in those cities that I mentioned earlier.

The much larger the stadium venues that have to be plowed, loaded, and the snow actually removed from the site, that's not an investment that would pay off for us.

Those types of equipment go back to work in the spring doing maintenance deals out on the roads. And that is not a business we're in.

Got it. That's helpful. And then I guess speaking of airports, it's a little surprising to hear that Southwest dropping two routes can have such a significant impact on your traffic.

I'm wondering, the Southwest AirTran transaction was completed I believe this past week. I wondered how you expect the integration of that to affect your business next year, I guess, bearing in mind that you've got the Atlanta Hartsfield contract and I know other airport business here in the Southeast? And it is not yet known how many of the AirTran routes that Southwest will ultimately maintain.

Well, let me answer the 2nd part of that first. We are AirTran's South -- AirTran and Southwest are together, our airport's where we have management contracts so that is not going to have any sort of significant impact on us because those are cost-plus arrangements.

And to answer the first part of the question, if Southwest -- if there are eight flights a day into an airport and Southwest cancels three of them or pulls service from -- I don't want to -- let that for purposes of just giving an example of size, but not actuality, if Southwest pulls three flights of six from Rapid City, South Dakota, that provides less of a transportation link for people who live in Rapid City. And they might look to another opportunity to get to an airport that will serve them.

So it's important to remember that not all of our airports are Denver, Atlanta, Chicago, Kansas City -- the big ones. We have significant investment in middle and small-sized airports where you lose one flight a day in Grand Rapids, Michigan, and it hurts. People will find another way and that translates to paid exits.

No, I understand exactly what you are saying there. I guess the example I'm thinking of, I can think even here locally at Richmond, there's the possibility that Southwest may not maintain the routes that AirTran has and I know you are managing the airport here and you know, ultimately, it could be a big hit to the traffic if they didn't maintain that route.

And I just wondered maybe how many other airports are you managing in the Southeast where we are going to have the biggest impact from the integration here?

I would say Richmond is a management contract for us. So again it is a cost-plus arrangement where traffic doesn't drive -- it doesn't drive our revenue stream. When it would come towards renewal time, four or five years from now, that might be an effect for the reasons I cited earlier, but I can tell you we've studied the impact of the Southwest AirTran deal. And there's not -- if Southwest was not to continue those deals, at least in the near future it doesn't have a whole lot of impact on us because of the nature of our agreements in that sector.

Now it could also have -- we saw JetBlue go into Hartford and you know you've heard Marc and I talk about our investment in Hartford for years and years and years. And we have seen traffic rapidly improve in Hartford as a result of that single carrier providing additional services. And it somewhat ameliorates what Southwest has done with opening service to LaGuardia.

So it's -- I speak about that sort of activity in terms of creating an awareness with all of you, not to look at overall North American domestic trends from which paid exits can be derived in trying to put a stamp of a forecast on us in the future. It has to be a little more market-specific than that.

Understood. That's very helpful and thanks, guys. Nice quarter.

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

Thanks again, Amy. I appreciate all of you taking the time to call today. Before I let you go I just want to make sure that I give proper credibility to our management team. We have been working extremely hard through these periods and the first-quarter results that we've had are credit to our group who I tend to get real hard on in terms of pressure. So it goes without saying that they all require an At'ta Boy for the first-quarter results.

And second, I also want to knowledge our Board of Directors for making sure that they work -- have worked so well with us in terms of aligning our strategy over the last three years to get us pointed in the right direction and give us the proper capital structure.

So thanks to everybody and we look forward to talking to you next quarter.

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