SP Plus Corp (SP) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2012 Standard Parking earnings conference call. My name is Chuck 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. Sir, please proceed.

Thank you, Chuck, and good morning, everybody. I'm Marc Baumann, Chief Financial Officer of Standard Parking and I'm your primary Investor Relations contact. Welcome to our conference call for the first quarter of 2012.

I hope you've had a chance to review our earnings announcement, which was released last evening. We also have filed our 10-Q for the first quarter.

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 more detail. After that, as Chuck said, we'll open up the call for a Q&A session.

During the call, we'll make some remarks that will be considered forward-looking 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 release issued yesterday, which is incorporated by reference for purposes of this call. I'd 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 for 30 days after the call.

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

Thanks, Marc. Good morning, everybody, and thanks for joining us today.

There were two aspects to our first quarter. As you are probably aware, we announced our proposed merger with Central Parking at the end of February. This transformational transaction will enable us to combine the best aspects of both companies. Take a look at our announcement on May 29 for more information. Marc mentioned our website earlier, and there's a bunch of information on our website about the transaction.

And obviously, we're also very pleased with the first-quarter results and our year is off to a solid start. We saw 5% growth in same-location gross profit, with good growth across most vertical markets. We also saw paid exits at our same-leased locations increased by 3%, as we saw some recovery at many of our regional airports. Location operating profit retention remained strong at 96%, and location retention remains steady at 91% for the 12 months ended March 31, 2012.

In terms of new business, we had some great activity in the first quarter and several nice wins, which we spoke about in our release last night. The Bob Hope Airport in Burbank, California, Olympia Centre -- if I'm looking out the window right now, I can see it, as a matter of fact -- a 63-story mixed-use property located on our Magnificent Mile, Michigan Avenue. We won a stand-alone SP Plus security services contract in Ontario, Canada, for AG Simpson, a large automotive parts manufacturer. The City of Fort Worth, Texas, selected our SP Plus maintenance division to manage and lead Phase II of their project for the Will Rogers Memorial Center. The project will include paving and drainage, electrical street lighting, irrigation, and large-scale landscaping to beautify a major thoroughfare leading to the Will Rogers campus in Texas.

Our relationship with Jamison Services, Inc., in Southern California expanded with the award of parking management contracts for the World Trade Center and Royal Beverly Glen properties in Los Angeles. Unfortunately, but as predicted, we lost the Alberta Healthcare parking management contract in Calgary, Canada. We had contemplated that in our earnings forecast for the year, as that province's health board made a decision to perform all parking services in-house in the future.

Our pipeline of new business remains strong, particularly in those markets and with those products we've been highlighting in past calls; lots of opportunity in the municipal outsourcing market, lots of opportunity for our transportation division, and our institutional marketplace for hospitals and university. Pipeline remains very strong and it's keeping us very busy. We continue to reengineer and restructure our sales force as we've discussed. That includes our selection of a new CRM system, which we're migrating across our organization, and is really the last step toward the reengineering of the sales force -- reengineering and restructuring that we've been speaking of for a year. I might have said that we announced our merger on May 29. I think what I meant was to say February 29, so you can refer to our website for the materials we distributed that day.

Based on our results and visibility into the rest of this year, we still expect earnings per share to come in somewhere between $1.25 and $1.35 for the year, excluding all merger-related expenses incurred to date, as well as any future revenues and expenses related to the planned merger with Central Parking. In terms of free cash flows, despite the first quarter's negative position, which Marc will talk about in more detail in a minute, we still expect to generate between $20 million to $25 million of free cash flow for the year, again, exclusive of all merger related revenues and expenses.

And with that, I will turn the call back over to Marc, so he can lead you through a more detailed discussion of our financial performance for the first quarter, and then we'll open up some time, as we always do, for Q&A.

Thanks, Jim, and hello again, everybody.

The first-quarter results were laid out in detail in the earnings release we issued last night, so I'm just going to touch on a couple of key points. Overall, gross profit increased by 7% year-over-year. As Jim mentioned, same-location gross profit growth of 5% contributed to the overall increase. About 2% of the 5% year-over-year same-store gross profit location growth was from lower snow removal cost, due to the mild winter in most parts of the country. And same-location growth was seen across most vertical markets, even in hotel and travel markets that historically have been challenged by difficult economic environment.

G&A expenses increased from $11.2 million in the first quarter of 2011, to $15 million in the first quarter of 2012. $3.2 million of the year-over-year increase, however, represents costs incurred relating to the proposed merger with Central Parking. Even without the merger-related costs, though, we did see an uptick in G&A expense year-over-year due to various factors, none of which are significant in their own right, and some of which are simply timing-related. Excluding any merger-related costs, we expect G&A to average about $11.5 million per quarter for the remainder of 2012. As a point of comparison, G&A without merger-related costs averaged $11.4 million per quarter in the second half of 2011. Excluding merger- and acquisition-related costs for both years, full-year G&A for 2012 is expected to increase approximately 2% year-over-year.

Net income attributable to the Company for the first quarter of 2012 was $2.2 million, which reflects $1.9 million of merger-related costs on a tax-adjusted basis that were incurred during the quarter. In other words, excluding merger-related costs, net income for the first quarter of 2012 would have been $4.1 million or $0.26 per share, as compared with $3.8 million or $0.23 per share a year ago. That's an increase of 9% on net income and 13% on earnings per share when compared to last year.

As Jim mentioned, free cash flow was negative during the quarter, a negative $7.3 million, after excluding $2.7 million cash flow impact of merger-related costs; as compared to positive free cash flow of $6 million in the first quarter of last year. The first quarter of 2012 free cash flow, excluding any merger-related impact, was approximately $5 million lower than what we expected at the time we set our full-year 2012 free cash flow guidance range. This difference, however, is due primarily to fluctuations in working capital, and in particular, accounts receivable, which we believe will normalize during the remainder of 2012. And for those of you that have followed us on a quarterly basis, you do know that we see significant fluctuations at times on a quarterly basis in working capital, particularly around accounts receivable, and generally are able to bring those in line on a 12-month period basis. Therefore, we're reaffirming our free cash flow guidance of $20 million to $25 million for the full year, excluding merger-related revenue and expenses.

That's our formal comments for today. I'll turn the call back over to Chuck to begin the Q&A session.

Thank you, sir. (Operator Instructions) One moment for our first question.

And our first question today comes from Nate Brochmann with William Blair & Company. Your line is open.

Good morning, gentlemen.

Good morning.

Hi, Nate.

I want to talk a little bit, just in terms of the degree that you can, Jim, in terms of just the progression of the acquisition and if everything, in terms of at least your expectations are shaping up in plan.

Well, as you suspect, Nate, there's not a lot I can say. Currently, other than to tell you that relative to regulatory reviews and integration planning, we remain on, if not ahead, of schedule. So all of that is so far, so good. And we'll continue to update you as we can, when we talk to you at the end of the second quarter and we still expect the transaction to close some time in the third.

Okay, great. And then maybe just turn a little bit to the current environment a little bit. It still feels that, in general, when we're looking at the paid exit numbers, et cetera, that we're still on the margins seeing overall gradual improvement in the underlying trends. Is that a fair way to still characterize it?

We are. As you look in the individual marketplaces we serve, airports, hotels in particular, so travel for the first quarter was good. Not much happening of anything noteworthy in the office building or retail markets. Any of those trade publications or any of the statistics that are put out would say that things while improving somewhat, the definition of improving somewhat is a lot people feel in retail, office, and residential that things have hit bottom. And things are starting to move up. So we're seeing some of that in terms of office space absorption and monthly parkers that we're signing up through the office building areas. So that market's improving, I guess, as you said is the best way to say it, and we ride along with that wave, to some degree. As you saw, our renewal rate remains excellent. It's really a credit to our organization, because we're, obviously, involved in integration and transition planning, on doubling the size of the business and we have a lot of our people that are involved in that. And fortunately, we've not had to take any of our operating, our field entrepreneur organization, we haven't had to take their eyes of the ball. They're still full speed ahead expanding the business from an organic basis. So I'm very, very proud of the planning we've put in, in the organization that we've put together that is enabling us to grow at historic, if not a little better than historic, rates while still beginning to plan for the major transaction we've talked about.

Okay. And then just final question and I'll turn it over but could you talk about, obviously, there had been some pricing pressure on the renewals and contract discussions. Can you talk about just an update on that, in terms of whether you're still feeling that pinch a little bit, or whether that feels like on the margin maybe it's alleviating?

I would say that we've been through three seasons now of renewals during in the downturn in the economy and I'd like to think that the industry has adjusted to that. We've gone through renewals of our most significant contracts over the last 12 month or so, all very successfully, but relative to the market pricing. So I'd like to think that the industry, in some cases, come to its senses in terms of the marketplace itself. And I don't think that there is as much of the desperation out there by some of our competitors, as we've seen through this recovery. Hopefully, we've stabilized as an industry and we're being paid fairly for the services that we offer.

Great. I really appreciate it. Thanks.

You're welcome, Nate.

Thank you. (Operator Instructions)

And our next question comes from Kevin Steinke with Barrington Research. Your line is open.

Good morning.

Good morning.

Hi.

Hi. So you highlighted a couple of SP Plus contract wins this quarter, both in security and maintenance. Just wondering if you feel like you're at the point where SP Plus is gaining a little more traction, now that you've invested in that brand and what you see in the pipeline for those services going forward.

SP Plus transportation and SP Plus maintenance are those two products in addition to the parking product that we've invested most significantly in, whether it's been capital or bringing professional management on board. And those are two that are having the most significant presentation. SP Plus security is still a baby and I think we'll nurture that along as we integrate our more available products across a combined entity. Maintenance is well on its way to getting itself established at either. The part, Kevin, that I like is that we're winning contracts in maintenance and security that aren't necessarily at pieces of real estate that we do the parking from. So they're having their own third-party success with getting people on the ground and expanding in those areas. Yes, we're real pleased about the penetration, excited about them on a future application basis.

Maintenance, we had a relatively mild winter and we didn't talk about much in the release or in our comments today, but we had a very mild winter which caused us to have lower expenses at some of our lease locations, particularly at airports in the Northern belt. But we didn't generate as much revenue as we might have expected from SP Plus maintenance because there wasn't as much snow to remove. As I said, we mitigated our past exposure to bad winters by building a product line and SP Plus maintenance is now well positioned.

The deal that we spoke of in San Antonio at the Will Rogers Center is exciting because we were able to deploy SP Plus maintenance from a landscaping, paving, lighting perspective as well as our advanced technologies products, which now resides within SP Plus maintenance for the selection of new parking equipment and manage that process. So while our scope of services as the parking operator for that facility didn't expand at all, we've expanded our services on that campus, as it relates to maintenance and then deployment of technology hardware. So that is certainly another example. I've cited some examples in the past about how we'd like to penetrate institutional and municipal marketplaces and campuses with an expanded array of products, allowing our entrepreneurs to let our clients pick the products they want us to deploy. That's rather exciting for us in the future, given the size of the footprint that we'll have later this year.

Great. And you referenced the new business pipeline being strong as well in municipal and institutional. Are you seeing any noticeable changes in the speed or intensity with which that's moving? Or in contrast, any sort of slowing? Or is it just moving along as usual?

I think we've been through this couple-year period of either trying to pry out opportunities by energizing municipal leadership that outsourcing makes sense to them. That's led to us responding to RFPs in the first quarter and based on the success rate we're having with those, I would say we're in more of an execution phase now, where municipalities are getting those specs out on the street. And we're able to respond and have a successful rate of penetration, given the amount of wins that we either have had in the first quarter, or that we see ourselves having this year. So it's a little further along.

I think from the broad stroke, municipalities who are contemplating privatization or sales of their assets have made a decision maybe to hold off on that decision until they can understand what their true revenue basis is by bringing in professional outsource management into a municipal environment for either an on-street or off-street system. I think the smart play, we've been able to convince a lot of the municipal leadership, or they've been convinced based on some of the failures that they've seen in other deployments is, first, understand what your revenue basis is. And then if you still have a need to monetize that asset for municipal budget purposes, do it from the maximum revenue standpoint, rather than sell it too cheaply.

Sure, that makes sense. Thanks again for all the great insight. Good quarter.

Thanks, Kevin. We will see you next week.

Yes, I will. Thanks.

Thank you. Our next question comes from Giri Krishnan with Credit Suisse. Your line is open.

Hi, Jim and Marc. A quick question. Are you seeing any signs that on the commercial side, or any other cases, where clients have this tendency to want to move services in-house? I don't mean to take the Alberta Health contract as a proxy for what one should expect, but just curious to know what you're hearing from clients on that front.

Well, nothing. The health center that I spoke about in Canada isn't a commercial client. They're a government client. I think there has been -- and we've seen it at a couple of health centers that we've spoken about earlier in Ontario -- there's been a political movement in Canada, specifically to hire disabled Canadian veterans to jobs that they might be physically able to perform. There's been a concentrated effort by provincial healthcare centers in Canada, which is a fairly limited marketplace, to have a look at this employment opportunity for Canadian veterans. And because these Canadian veterans are being hired, that hiring has to be done by the provincial government and not by private industry. Now, whether that's a trend that they will find successful in terms of maximizing the revenue, we're not sure. But that's an answer to a very specific issue in terms of what we've had happen in Calgary and Ontario with provincial healthcare centers. If anything, we've seen the commercial, the business oriented, profit oriented opportunities in North America expand with outsourcing because good outsourcers can generate a significantly higher revenue stream than people who try to do it in-house.

Okay. And any thoughts about the pipeline for Gameday, in terms of what it looks like for the rest of the year?

Yes, I don't know if we talked about it in this release or the last one, but we're really excited to be doing the Republican National Convention in a couple of months. That is a significant opportunity for transportation. I know that we expanded this year already Gameday's view into hockey, soccer. We've always been doing the Super Bowl so we had another successful Super Bowl program this year down in Texas. As you know, we're helping out and doing transportation consulting work and organization work for the London Olympics in a couple of months. We see a terrific opportunity for Gameday out there for the expanded company as well, given the larger size of the footprint. So, yes, the Gameday salespeople are pretty busy these days getting proposals out on the street.

Okay. Thanks a lot.

Okay.

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

Thanks, Chuck. And just want to thank everybody, again, who phoned in. Marc and I, we have several conferences to be doing over the next couple of months so we look forward to seeing a lot of you in person during the conference season. Thank you again, everybody.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a great day.