SP Plus Corp (SP) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2011 Standard Parking earnings conference call. My name is Mary, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will have a question-and-answer session. (Operator instructions)

I would now like to turn the conference over to your host for today, Mr. Marc Baumann, Executive Vice President and Chief Financial Officer of Standard Parking. Please proceed, sir.

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

Welcome to the conference call for the fourth quarter of 2011. I hope all of you have had a chance to review our earnings announcement,which was released last evening. We expect to file the 10-K for 2011 by March 15. We will begin our call today 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 remarks that will be considered forward-looking statements, including statements regarding expected cost synergies and other anticipated benefits of the proposed merger of the Central Parking and the Company, the expected future operating results of the combined company, and the expected timing of completion of the merger, and other statements regarding the Company's strategies, plans, intentions, future operations and expected financial performance. Actual results, performance and achievements could differ materially from those expressed in or implied by these forward-looking statements, due to a variety of risks, uncertainties and other factors, including those described in our earnings released issued yesterday, which is incorporated by reference for purposes of this call. I would also like to refer you to disclosures made in the Company's current reports and 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 beginning as soon as possible and continuing for 30 days after the call.

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

Thanks, Marc. Good morning, everybody.

As we announced last week, we have entered into an agreement to merge with Central Parking. A replay of the webcast we held the last week to discuss the merger details can be listened to by visiting our website, www.standardparking.com, or the deal-specific website, which is www.standardparkingevolution.com. We believe that this will be a transformative transaction that will increase opportunities to cross sell services and create operating efficiencies, as the transaction will add more than 2,200 locations and approximately 1 million parking spaces to our location footprint. I encourage those who haven't already done so to listen to the webcast replay and review the press release and investor slides that are available on both web sites. The teams at both companies are excited to start writing the next growth chapter as a combined company, once this deal closes.

As you might imagine, preparing for the signing of the deal that we announced took a lot of time, energy and money. We invested $2.7 million in 2011, $2.3 million of which was incurred in the fourth quarter, doing everything necessary leading up to last week's announcement. Earlier in 2011, we also spent $400,000 on investigating another acquisition opportunity that ultimately didn't proceed. Overall, our 2011 results include $3.1 million of cost incurred for merger and acquisition activity, or about $0.11 on earnings per share. We've carved this noise out from our underlying business, so that you can see that our core business remains solid.

Gross profit was up 2% for the year as compared to 2010. This is slightly lower than what we would typically produce, but as we anticipated and previously discussed during 2011, 2011 was challenged by the fact that certain 2010 special events did not recur last year. In addition, some of our larger contracts were re-traded late in the year, which also tempered some location gross profit growth to 4%. I'm sorry, it tempered our same location gross profit growth to 4%. The effect of these re-trades will also moderate our 2012 gross profit growth.

Our key statistics, however, continue to remain strong. Location retention remains solid, at 91%, which to us indicates that we are doing a good job proving our value to our clients and maintaining good client relationships. Operating profit retention also remained steady, at 96%. This means that 96% of our 2011 operating profit came from locations that we operated as of December 31, 2011. Paid exits activity showed some mixed signs, as activity at same leased locations was up 6% year-on-year, but only up 1% quarter over quarter, as activity at certain western regional airports was down for the quarter. We continue to add new contracts, and several significant contract wins at the end of 2011 bode well for 2012. We've detailed some of those in our press release, as well.

In terms of free cash flow, we generated $28.9 million for the year, of which $20 million was in the fourth quarter. While the fourth quarter number reflects unusually favorable movements in working capital that are expected to partially reverse in 2012, we are nonetheless pleased to see the business generate significant amounts of sustainable free cash flow. The bottom line for the year is that earnings per share increased 6% year over year on a reported basis; but if we exclude the $0.11 of merger and acquisition-related costs incurred in 2011, adjusted earnings per share increased 16% over 2010. Overall, 2011 was a good year for our Company and we've completed a lot of ground work that sets the stage for 2012 to be a truly transformative year.

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 for the quarter and the year ending. Then, I'll give guidance for 2012 and we will open up the call, as we always do, for Q&A.

Thanks, Jim, and hello again, everybody.

Our earnings release laid out the financial results in quite a lot of detail, so I'm just going to focus on a few of the highlights. Overall, gross profit for the fourth quarter decreased 2%. Contributing factors include the effect of certain anticipated location terminations, as well as the re-trades that Jim mentioned earlier. These re-trades were also primarily responsible for flat same location gross profit. Without the impact of these re-trades, same location gross profit would have increased 5% over the fourth quarter of 2010. G&A expense increased 9% compared with the fourth quarter of 2010, due to $2.3 million of professional fees incurred in connection with the Central Parking merger agreement and the diligence process relating to that. Without these fees, G&A actually would have decreased 9% from the fourth quarter of 2010, and would have been in line with the run rate expectation that we gave you earlier of about $11.4 million per quarter. Net income attributable to the Company for the fourth quarter of 2011 was $3.6 million, or $0.23 per share, as compared with $4.7 million, or $0.29 per share, for the same period of 2010. Remember that the 2011 fourth quarter includes $0.09 per share impact of significant merger-related costs. Excluding these costs, the fourth quarter of 2011 adjusted EPS would have increased to $0.32, representing a 10% increase over the fourth quarter 2010.

In terms of free cash flow, as Jim mentioned, the Company generated significant free cash flow during the fourth quarter of '11, $20 million in total, as compared with $2.5 million generated during the fourth quarter of 2010. While we expect that as much as $3 million to $4 million of that free cash flow is due to temporary fluctuations in working capital that have already reversed out in the first month or so of 2012, a significant amount of free cash nevertheless was generated during the quarter and for the year. So what I'm saying is that the $29 million for the year was a bit high, due to working capital fluctuations. And we've seen this happening from quarter to quarter, as we saw both in '11 and in 2010, where at one quarter it moves one way, another quarter it moves another way. And so, on an overall basis, I think $25 million is probably a better view of the free cash flow that we generated for last year.

Now I will touch briefly on the full year of 2011. Gross profit for 2011 increased by 2% over 2010. And as Jim mentioned, this is slightly lower than we've typically experienced. But some of this was anticipated, as that we knew that certain large 2010 SP Plus Gameday events wouldn't recur in 2011. I think we've talked about those on prior calls. Also, the level of re-trade activity was atypically high, and we certainly don't anticipate this level of re-trade activity in 2012. G&A expense for the full year of 2011 increased 1% over the same period of 2010, but excluding the $3.1 million of significant costs related to merger and acquisition activity in 2011, adjusted G&A for the full year actually would have decreased by 6% compared to 2010. Net income attributable to the Company and earnings per share both increased 6% in 2011 as compared with the full year of 2010. Excluding these same merger and acquisition-related costs that we've been talking about, adjusted EPS would have increased 16% year-on-year for the full year.

So anyway, let me turn it back to Jim for some comments on our outlook.

Thank you.

Looking forward to 2012, our guidance is being provided without regard to the anticipated merger, on both the revenue and expense sides. We will continue to incur planning and integration costs relative to the Central merger, which also are not reflected in our guidance. As we have in the past, we will continue to quantify these costs in our quarterly communications with you, in order to keep it separate from our underlying business activity and paint some level of transparency. In terms of our EPS guidance for 2012, we expect earnings per share, excluding any merger-related revenues and costs, to be in the range of $1.25 to $1.35. This represents an increase of up to 10% on 2011 adjusted EPS of $1.23, which excludes merger and acquisition-related costs. This guidance assumes approximately 15.8 million diluted shares outstanding. In terms of free cash flow, we continue to expect to generate between $20 million and $25 million of free cash flow during 2012, before any acquisition-related revenues or expenses.

In sum, it's been a strong year for our Company, and we are excited about the compelling opportunities to create greater value for our stockholders through our merger. As the planned merger progresses during the year, we will continue to focus on operational excellence and being a leading competitor in the marketplace. We will continue our plan of expansion and diversification, just as we always have. We will continue selling the SP Plus brand and continue to seek to capitalize on the trend towards municipal and institutional outsourcing and privatization.

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

Certainly. (Operator Instructions) And our first question comes from Kevin Steinke from Barrington Research. Your line is open.

Good morning, Marc and Jim.

Good morning.

Hello, Kevin.

Hello. Thanks for providing that detail on the contract re-trades. And I know you had discussed that was coming up on your last quarterly conference call. It sounds like that's mostly behind you, or you expect it to be lower in 2012; but are there any other big ones out there that we should be aware of?

No. I'm glad you asked the question. I can give you some clarity. We had five of our larger contracts that were up for bid over the 2011 calendar year. I can tell you that four of those five are already buttoned up and completed, and a fifth is in negotiation now. I spoke about the economy over the last couple of years having -- causing us to take a look at when re-trades came on legacy contracts, that it would have the impact that we've talked about on this call today and sort of prepped you for during 2011. The best news is that we are well on the way towards having re-signed all five of those. That's just a wonderful credit to my team out on the ground in the field and their ability to deliver a real quality product to our clients and stay real close to our clients, and the faith that those five clients in particular had in us.

Great. Marc, I don't know if you tried to maybe quantify the impact of the re-trades on the fourth quarter gross profit growth or -- well, I guess you did talk about 5%, ex the re-trades, so I guess that's probably the best number.

Yes.

Yes. I mean, should we think about a similar impact going into 2012?

There are so many moving pieces, as we look at future periods. I don't think it would even make sense for us to give you a detailed view. I think the perspective that we are trying to give in the release is that obviously these re-trades have affected us. You saw the impact on Q4. The fact is, we didn't mention them in previous quarters because they are happening now. So you can imagine, there is a full-year effect going on with those. But certainly, we know internally what that full-year effect looks like and we've built that in to the guidance that we are giving you today.

Okay. And G&A in 2012, should we continue to think about that as maybe growing less modestly than gross profit, is that how you are thinking about it in 2012?

I think if you exclude any costs we might incur relating to the continuing preparation for the hopeful conclusion of the Central Parking merger, excluding those costs, yes. G&A should grow at a slower rate than gross profit. That's our business model, has been for a long time. That's certainly our expectation. Clearly, in 2011 we really benefited by some investments that we have been making. And those enabled us to reduce G&A in absolute terms, excluding the merger-related costs. We don't have that expectation for 2012.

Okay. Great. Lastly, you referred to paid exits up 1% in the fourth quarter, a little slower. I don't know if there is much to read into that, in terms of any meaningful changes in the outlook or in the environment. Is your outlook going in to 2012 about the economy pretty much unchanged, still somewhat cautious, slower growth, that sort of thing?

Yes. You've answered the question, Kevin. We didn't -- we take -- we look forward based upon the best data that we have, and this is where it gets to you guys and the rest of the industry that you work in. We don't see a monumental recovery in place. I spoke specifically about airports in some geographies. You could lay hotels and airports on top of that. And I think we are cautiously optimistic that the trends are green, or positive, but not along the lines of what we mentioned in the release, and we haven't assumed any better performance in those industries that are -- that we serve, than the conservative numbers that are out there for the economy in general.

Okay. Great. Thanks a lot. Nice quarter.

Thank you.

Thank you.

Thank you. (Operator Instructions) And our next question comes from David Gold from Sidoti. Your line is open.

Hello. Good morning.

Good morning.

Couple of things. One, the re-trades. Can you give a sense for of those-- essentially, were all of those brought on by contract expirations or were some of them more economically driven?

Yes, they were all brought on by contract date expirations.

Okay.

All of those, we've had in excess of 20 or 25 years.

Can you say what the -- if it's specific to the big ones, for the four out of the five, can you say what the terms -- I don't mean economically, but how long the new contracts are in for?

Not specifically. But I can tell you that they are longer than our average, David, is the best -- it's the best answer I can give you.

Okay. And one other. Clearly, there were two big airports in your home town that were up. Are those included in those five?

Can't speak to specific contracts, David.

Okay. But can you say if decisions have come out on those two. I know we were waiting on them a month or two ago.

I can tell you that requests for proposals for both O'Hare and Midway went on the street in 2011, and there is a competitive process underway for the renewal of those contracts.

Okay. Perfect. And then, Marc, two other questions. On the share count. Can you give an actual share count at year end? Both that, and a fourth quarter share count. I didn't see it in the release, unless I missed it.

Let me just take a look again. It's something that I have here.

Because it's one of those things, I guess presumably, you can't perfectly back in to.

Yes. If you look on -- well, maybe this isn't in the release. This will be --

I didn't see the fourth quarter numbers specifically, right? You gave the whole year. So, the share count you can't back in to.

The basic shares outstanding, is that what you're looking for?

Okay.

At December 31 is 15,485,793.

And would you have a diluted number for the fourth quarter?

15,845,173.

15,845,173. Perfect. And then, the easy one. When you are thinking about -- embedded in your 2012 guidance, can you give a sense for tax rate?

I would assume that it's not going to look a lot different from 2011. If you notice the pattern, we often have a little bit of a lower rate in the fourth quarter as we true up tax credits and other things that are estimates throughout the year, so we end up with maybe a slight dip in the fourth quarter. I think to use fourth quarter as a proxy for a full year wouldn't be the right way to look at it. You should look at the full year. And if you take full year '11, full year '10, it hasn't really moved too much. I think that's the right expectation for '12.

Perfect. Thank you both.

Okay. Thanks, David.

Thanks for calling in, David.

Sure.

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

Thanks, Mary, and thank you, everyone, for dialing in today. We look forward to talking to you after we get through this year's first quarter. Have a great day, everybody.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect at this time.