SP Plus Corp (SP) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Second 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 and instructions will follow at that time. (Operator Instructions). As a reminder, this conference is being recorded.

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

Thank you, Chuck, and good morning everybody. As Chuck just said, I'm Mark Baumann, Chief Financial Officer of Standard Parking and I'm also your primary investor relations contact. Welcome to our conference call for the second quarter of 2012.

I hope you've had a chance to review our earnings announcement which was released last evening and we'll be filing our 10-Q for the second quarter later today.

We begin our call today as usual 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, we'll open up the call for Q&A.

During the call we'll make some remarks that will be considered forward-looking statements, including statements as to our 2012 financial guidance, 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 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 filings with the SEC and its definitive proxy statement filed with the SEC on August 3rd, 2012, in connection with the special meeting of the Company's stockholders relating to the proposed merger with Central Parking.

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.

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

Thanks, Mark. Good morning everyone and thanks for joining us this quarter. I know that we got our release out last night and most of you have seen that. So, based on that I'm very pleased to announce that we had another real solid quarter.

Mark will go into some detail on certain items that affected the year-over-year comparison, but overall gross profit growth was up for several reasons, even at same-location, gross profit growth was flat for the quarter and up just 1% for the first half.

As we discussed at the end of last year, we re-traded several of our largest contracts and therefore we expected to see moderated gross profit growth at a same-store basis. And I'll talk a little bit more about that in a minute.

In terms of the other statistics that we regularly monitor, we did not see meaningful growth in paid exit at same-locations due primarily to lower parking activity at those same-locations and particularly in our event and airport locations.

We think this is consistent with the country's general economic condition. We really see the economy remaining sluggish and, if anything, the second quarter was worse than the first in terms of the economic cycle, particularly airports, office buildings, retail, some of those areas.

Obviously, the institutional and municipal areas that we manage stayed consistent, if not on a pretty predictable growth trend. But certainly the commercial activity is not anywhere near restored to pretty much historical trends dating back to the downturn in the economy.

As for our retention statistics, both operating profit and location retention remain strong at 96% and 90% respectively. I did mention earlier about re-trades on significant contracts. I'm pleased to report now that over the last 12 months the top 8 contracts within the Company's business were scheduled for re-trade as a result of contract expirations.

I'm pleased to report that with my signature on 2 of those contracts last week we went 8 for 8 in terms of retaining those top 8 contracts. So, obviously I'm pleased and proud of our teams and proud of our performance which enables us to keep those very significant contracts for us.

You read in our release last night about some of the new wins we've had in terms of institutional and transportation. We're winding down our activities in London now as a result of the London Olympic Games and we'll gear that same team back up to the upcoming Republican National Convention, which continues to add business for us in terms of our ability to provide charter and transportation for people attending those events.

Our activity on the municipal side of the ledger continues to be very, very busy. There are significant contracts in our pipeline that we are actively responding to. And just last night the City Council in Oxford, Mississippi voted for us to win the competition to privatize the parking activity in that important town. And more important, in that important college town as we look towards building our university share of the marketplace.

I, obviously, as I mentioned, continue to be proud of our team which has been able to deliver these results while at the same time working hard to bring the proposed merger with Central Parking to a successful completion. If you're not familiar with the proposed merger, please take a look at our February 29th announcement and the definitive proxy statement we filed on August 3rd of this year for more information.

To give you a brief update on the process, our internal integration planning teams, with support from Ernst & Young's transaction advisory team, are continuing to map out specific steps to capture the operating efficiencies expected from the merger. The plans are being designed to effectively and efficiently bring together these two great companies.

Until we close, we will not be able to execute on those integration plans, of course. However, our planning process continues and now continues with some levels of granularity and day-one planning process.

Several things have happened since we last talked to you as well. The definitive proxy statement was filed with the SEC last week and we began mailing the proxy to our shareholders of record earlier this week.

We've also set a date for the special shareholder meeting to approve the issuance of our common stock in connection with the Central Parking merger, which will take place on September 11th, 2012.

I want to, again, reiterate that the proposed merger is conditional upon approval of the proposal by our stockholders and also remains subject to anti-trust review, consummation of financing, and other customary closing conditions. However, we continue to expect the transaction to close by the end of the third fiscal quarter.

Needless to say, we are excited by the prospect of closing on this merger and continue to work diligently to move the process forward. While the proposed merger has clearly been the headline-grabbing event for our company so far this year, I want to recognize the ongoing hard work of our dedicated team which is the reason we continue to lead our industry, perform as we have even though we obviously had distractions from the day-to-day block and tackling of the business brought on by the merger and integration activities.

Our reputation for quality and innovation has been built upon consistently striving to improve our service and value-add proposition. And I'm pleased to say that so far in 2012 we've continued in that tradition.

I'd also like to mention and recognize some of the people on, a lot of the people on the Central Parking side of the team. I've been down to Nashville now several times meeting with the employees of Central Parking and involved in the integration and transition planning process, a series of Town Hall Meetings and one-on-one meetings and staff meetings. And I could not be more excited about the quality of that team and the significant upgrade in addition to the quality of our team based on getting this merger done.

There are some very, very extremely talented people that will be filling some holes within our organization that we couldn't have filled as quickly as we will as a result of doing the merger with Central Parking. And you can imagine the obvious consternation when you put companies of this size together. But it's my view that the people of Central, and our team here in Chicago, has just put their noses to the grindstone and continued to provide a quality product as we operate separately.

And I couldn't be more proud of our team and the team of Central for that performance. So, we look forward to bringing a lot of those people aboard later this fall.

With that, I'll turn the call back over to Mark so that he can lead you through a more detailed discussion of our financial performance for the second quarter and then we'll open the call up to the normal Q&A session.

Thanks, Jim, and hello again everybody.

Our second-quarter results were laid out in quite a bit of detail in the earnings release that we issued last night, so I'm just going to touch on a few key points.

Overall, gross profit increased by 12% compared to the second quarter of 2011. While same-location gross profit was flat year-over-year, which reflects the impact of the re-trades Jim mentioned earlier, new business, as well as favorable year-over-year swing in insurance reserve adjustments contributed to the overall increase.

During the second quarter of 2012, we also received a health dividend. And while the receipt of such a dividend is a regular occurrence for us, the magnitude of the dividend benefiting gross profit was $1.2 million larger this year than it was last year.

G&A expenses increased from $11.6 million in the second quarter of 2011 to $14.9 million in the second quarter of '12. During the second quarter of this year, we incurred $4.4 million for merger-related costs which is an increase of $4 million year-over-year compared to what we incurred in the second quarter of 2011.

Partially offsetting the impact of the year-over-year increase in acquisition and merger-related costs was a portion of the health insurance dividend, which reduced G&A expenses for the second quarter of 2012 by $1.2 million.

When you exclude merger-related costs and the health dividend, underlying G&A for the second quarter of 2012 would have been roughly in line with the quarterly average run rate expectation of $11.5 million that we gave you last quarter.

Net income attributable to the Company for the second quarter of 2012 was $4.2 million which reflects $2.6 million of merger-related costs on an after-tax basis that were incurred during the quarter. In other words, excluding merger-related costs, adjusted net income for the second quarter of 2012 was $6.8 million or $0.42 per share as compared to $4.8 million or $0.30 per share a year ago on this same basis. That's an increase of 40% on adjusted net income and adjusted EPS when compared to last year.

Adjusted free cash flow was $20.8 million for the second quarter of 2012 before the $3.5 million in cash flow impact from merger-related costs, as compared to adjusted free cash flow of $10.3 million for the second quarter last year, which was before $200,000 impact of acquisition-related costs a year ago.

As expected, the temporary spike in accounts receivable at some large airports at the end of 2012's first-quarter was collected. So, those balances have reverted to more normal levels. But that was offset by temporary increases in AR at some of our event operations including the London Olympics and some of our newer airport locations. Our past due balances have not deteriorated, so we expect that this is just a timing issue and will come back in line as we see the year play out.

For the first half of 2012, adjusted free cash flow before merger-related impacts was $13.3 million as compared to $16.3 million before acquisition-related impact in the first half of 2011. And so although we're a little behind last year in terms of free cash flow generation for the first half, we continue to expect to attain full year adjusted free cash flow in the guidance range of $20 million to $25 million for the year, excluding merger-related revenue and expenses and, of course, assuming that those temporary increases in AR from our event operations and newer airports come back in line before year end which we expect them to do.

Touching briefly on the year-to-date results -- gross profit increased 10% over the first half of 2011 aided by the same larger than usual health insurance dividend that I spoke about and overall same-location growth of 1%.

G&A was up 31% year-over-year, primarily due to $7.6 million of 2012 merger-related costs, while a portion of the health dividend that reduced 2012 G&A offset the impact of the higher merger costs.

Eliminating the incremental impact of both of these items, the health dividend and the merger costs, underlying G&A would have been up 5% year-over-year for the six months.

Bottom line, adjusted EPS was $0.69 before merger-related costs, up $0.29 per share for the first six months of 2012, as compared to adjusted EPS of $0.53 before acquisition-related costs for the first half of '11, which is an increase of 30%.

Based on the year-to-date results, we're reaffirming our full-year guidance for adjusted earnings per share in the range of $1.25 to $1.35 and adjusted free cash flow of between $20 million to $25 million. This guidance continues to exclude all merger-related costs incurred to date as well as any future revenues and expenses relating to the planned merger with Central Parking. And those are really the adjustments. So, when we're talking about these numbers being adjusted, they really are expected numbers as adjusted for those costs.

This concludes our formal comments. So, I'm going to turn the call back over to Chuck to begin our Q&A session.

(Operator Instructions).

[Nate Brochmann, William Blair & Co.]

Hi, this is Diana Rashkow calling in for Nate. Just wanted to dig into the lease contracts business. And I was wondering if you could comment a little bit on the performance there and why it's been so strong lately.

Well, I think it depends on the market. We've had some leases, particularly in the Chicago hotel market that have performed well this summer. They performed better than we thought. We thought that the NATO Summit and the associated activity around that may be a negative for us this summer in Chicago. And in fact, the Chicago tourism has been solid.

So, a lot of the leases that you are referring to are on some of the hotels we have right here at home. We have other leases in other segments of the country that aren't performing as well.

So, it gets to the regional economy. We have a rather significant lease in South Florida where the shopping center and commercial area is performing a little better, but it's all driven by the local Miami and Fort Lauderdale economy itself.

So, it really tracks to the situation. I don't know that leases are particularly exceeding our expectations this year. I think, again, in those markets that I mentioned, we've seen exits pick up just a little bit.

Okay, great, thank you.

I might just add at the tail end. Particularly in the mid-sized to small sized airports, we've seen leases stay flat. And go slightly backwards in some.

So, again, I spoke earlier in the call about the airport market and that just seems flat, tailing to the economy at the moment.

Daniel Moore, CJS Securities.

Just a housekeeping, the guidance you reiterated, that range does include the health insurance dividend received in Q2, correct?

Yes, it does.

And you've obviously given us pretty good guidance on same-location gross profit slowing down a bit, being flat in the quarter. Given the macro-environment, do you expect similar trends for the remaining two quarters of the year?

Yes, our guidance is kind of based on what we're seeing. We're adding locations. We're adding in products. So, we're achieving some growth that way.

But given some of the dependency in leases and some of our concession contracts, we just are not real buoyant about what we're seeing in the economy which is why we've kept guidance where it is.

Obviously, Mark and I spoke in the release last night about the health insurance issue and our casualty accruals, and during this period of the economy we've been working on making sure that we're maximizing our margins.

The margins by virtue of being better at risk management and getting G&A down through this environment is a nice opportunity to take the business that much further. It's really why I'm so excited about the merger with Central Parking because if we can begin to apply those margins to their volumes, by virtue of just managing a little better, it really, outside of synergies, it inures to the bottom line.

So, we're just sort of getting better and better at managing the business as we get larger.

Maybe shifting gears with one more question. Looking forward a month or two, once the acquisition closes, are there maybe two or three areas of integration or specific biggest challenges that you might be willing to elaborate on that you'll be attacking over the subsequent six months?

Well, first and foremost, it's important, and when we made the announcement in February we did a lot of this. But it's extremely important for us to convey to our clients that the companies coming together inures to their benefit.

Setting aside the obvious excitement I alluded to just a minute ago in terms of efficiencies and marginal opportunity, perhaps the most exciting component of putting the two companies together is the product that we're going to be able to deliver on our clients, to our clients.

The quality of that product is just so exciting for the future that we think that our retention rate, we haven't lost clients since we've made the announcement where you thought we might. And I think that's because we've been able to generally reinforce that we're going to be able to continue to bring a quality product and even a better product to them in the future.

So, I want to make sure that, in terms of answering your question, that that's at the top of the priority list for the first six months. And Mark may want to talk a little bit about those challenges that we want to address in terms of the support and reporting side of the business.

Be glad to. And I think Jim said it well and that's that the top of our food chain are our clients. And the need to not only provide what they get now, but to really surpass what they are getting now in terms of the quality of the product that's delivered at the locations and also for us that work in the back office, the quality of the information that clients are used to receiving.

And so, as we plan the integration, obviously we've announced some of our plans and the fact that there will be synergies as a part of this transaction. And we are going to be very careful in our stepping forward to make sure that as we make change and we bring these two businesses together that we have kept those clients right at the top so that the clients are getting the support that they need.

It will take time. We are very complex businesses. We've said before when we announced the merger that this is a two-year exercise to successfully integrate these companies. And I think given the planning that we have done over the last few months, we're confident that the estimates of timing and synergy benefits that we gave back in February are still solid.

And we're just going to move very carefully though to make sure that we have success and we look back on this and not only do we have delighted clients, but that we can look at a financial outcome for our investors and say we delivered on what we said we would.

Kevin Steinke, Barrington Research.

Mark, just another housekeeping question to start off with. When you look at the health insurance dividend benefit to gross profit in the quarter, are you able to place that either into the lease gross profit or management contract gross profit bucket? Or is it divided between the two?

It is divided in the two as you might imagine. When we get benefits like this, we always try to go back to where was the original cost. And we incur some costs in our lease locations. We incur costs in our management locations. And of course, we incur costs in our G&A locations.

And so, when we have a health dividend like this, and as we said in the call, we get these every year, we send the cost back to, or the benefit back to where the costs were incurred.

So, obviously we have a lot more management locations than we do lease locations. And so, more of it is going to be there than in the leases.

It's probably hard to exactly quantify it, is that correct?

Yeah, I'd say it is hard to quantify it.

Okay, but more towards the management contract side, right?

Yes.

Okay. How about the London Olympics? What sort of impact or benefit did you get from that in the second quarter? And how is that going to play out over the second half of the year? Or did you get any benefit in the second quarter? I would guess you did.

I think the comments that we've made about the London Olympics when we were anticipating them is that they would be different for us than the Vancouver Olympics. The Vancouver Olympics, which did have a very large notable impact on the Company, was the result of us managing not only parking, but also ground transportation on a very large scale.

In London, which is an urban market, of course, the nature of our contract relationship is different. And while we have had people on the ground there now for probably close to two years, giving advice and consulting with the organizing committee around transportation, parking issues, the scale of our contract there is not the same as it is in Vancouver.

And so, I don't think you're really going to see the same kind of noticeable impact on the Company. It's clearly a positive, but not the kind of thing that we saw with Vancouver.

Okay.

Kevin, the impact of London is just a continuation, there's a few days left to go in the Games, so I don't want to get too far ahead of ourselves. But the organization and the transportation around the Games, every report we're getting out of London is that it's been very smooth in terms of getting people where they need to go. And it's more about reputation and experience.

So that whether it's the IOC in the future or we've talked about the fact that we're now doing all the NHL All-Star Games. We always do the Super Bowls. And our relationship with Major League Baseball through the individual teams and the NFL through the individual teams and on and on, it just continues to build credentials for us in terms of the ultimate impact of SP Plus Gameday and the introduction of the Click and Park methodology for parking sales and transportation ridership sales. So, it is a significant credentialing issue for us.

That makes sense. Do you have the actual percent change in paid exits as same-location leases during the quarter?

It's basically flat, Kevin.

Okay. And are there any other, you had good success on renewing a lot of your top clients. Are there any other large renewals coming up? Maybe second half of this year?

No. We're through the top 10 list and this year, fortunately, the second half is not a significant renewal period for us. And for reasons I was citing relative to the merger, that's a good thing right now.

But our people on the ground are fully engaged with our clients pretty much every day along the lines of doing those things I spoke about earlier in the call, in terms of if you think we're good now, just see what we'll be able to do for you in the future.

Great. And then in one of your contract wins that you highlighted in your press release, you talked about you're going to be using the Click and Park online reservation system with that parking operation. Are you seeing more traction with that product? Or any commentary about how that's going?

Yes. We're putting it in in more and more locations. But, we did a rewrite of the code on the software to make the product more attractive to our airport group. I think that the special event arena and the airport industry is where we see, low hanging fruit is a term too often used, but is an opportunity we'd like to take advantage of.

So, we've been more involved, now that we own the product, and matching it to the demands of our inventory and the technology that's available in our inventory of spaces, anticipating the use of that as the Company gets larger through the merger, we've been doing a lot of rewriting to the code for that software for where we've learned.

I know that's a lot of words coming out of my mouth, but I think that we have been using it increasingly at some of our commercial locations, but rewriting it for where we see the larger opportunities in the future.

And that rewrite, by the way Kevin, is done.

(Operator Instructions).

Giri Krishnan, Credit Suisse.

I had a couple of questions. One, Jim, could you speak to your pipeline, both in municipalities and institutional? And specifically are you seeing, given the macro-environment, any changes in the time it's taking to close deals and any (inaudible) that would be helpful.

Let me address the last part of that first. Yes, part of the reason we left guidance where we did given the performance year-to-date is that some of the municipal deals that we anticipated closing on and operating in 2012 have been delayed due to decision makers on the municipal side and on the institutional side.

So, there's been, it's not changing the decisions themselves, just the time it's taking to get them closed. I cited one on the call today that we might have anticipated getting closed several months ago, but for no reason, no negative reason, it's just a question of getting through a municipal bureaucracy with purchasing departments and administrative staff and ultimately into the hands of the city council or the mayor's office just to get documents moved.

So, while the activities ramped up, the pipeline is very, very active on the municipal side and increasingly so on the institutional side as our sales people begin to penetrate. The lead time of closing, what we're learning is, the lead time to close is very near what we've learned that to be in the airport business.

So, it does take a little longer to close. The activity is out of control busy right now. As a matter of fact, before I walked in here, the head of our municipal business development group is in Chicago today for some training. And I spoke to him and just getting the time for him to come to Chicago and get some training done on some development software we've done was taxing to his schedule trying to keep up.

So, that kind of tells me that we're busy out there. The city of New York, for instance, is out on the street now with a privatization for the collection of all of the meters in New York City. So, you can imagine the activity around a contract of that size as well as a range, I mentioned Oxford, Mississippi, so imagine the range of opportunity that we're seeing from Oxford, Mississippi, to Manhattan in New York.

So, we are seeing that privatization occur.

And also in Gameday clearly you've had a good quarter based on the deals you've disclosed. So, in second half, what should, what is sort of your expectation for activity, or wins for Gameday?

I spoke about some of those specifically. We don't break out the profitability by segment for us, other than to say we've talked about the Republican National Convention. We've talked about some of the other wins that Gameday has seen and they are a contributor.

But, we won't talk about any of the segments relative to Gameday or airports or institutional or municipal on an individual basis. But, as we have those sort of wins, we try to get them out there either in terms of individual press releases or part of the quarter.

David Gold, Sidoti & Co.

I have a couple of quick questions for you. First, just on the guidance side for a second. Can you tell us, number one, presumably expecting to close Central end of third-quarter, is that embedded in the guidance, the assumed close for the fourth quarter?

And two, are there any other yet dividends or let's say large, maybe reversals in there that you're prognosticating or that we should know about?

Two things, David, no there's nothing in this guidance relating to the Central Parking merger, whether it's costs that we might incur in the second half or any benefits from obviously revenue or gross profit or whatever, assuming that the deal closes at the timing that we've indicated.

So, all of that will be something that we can comment on once that it's clear that the deal is actually going to close. Clearly, when we get our next call with you in early November, our hope is that, and expectation, is that the merger would have closed and we'll have something to say about what this year will look like in light of the merger having been closed near the of the third quarter.

There are no other large dividends. This health dividend is something that happens once a year. It always happens about this same time. Clearly, on any quarter basis, we do get changes in our insurance reserves. And while we never expect them to be significant, as you know from following us for a while, they can be large positive, they can be large negative or they can be [insignificant.] So, those will continue to happen.

But nothing else very large is expected for the remainder of the year.

And our guidance, David, doesn't assume one way or the other in that area.

Great. Just trying to get at from a distance, obviously not embedded. I know you don't give quarterly guidance, but I guess some sense of, obviously guidance hasn't changed, but we had a nice pop there and you did speak to second half moderating a bit and some push out on the contracts.

But basically, if we didn't have this, what the net sort of delta would be. In other words, (inaudible) it's clear that, in a backwards sort of way, guidance maybe came down a little bit for the second half and I just wanted to get a sense for how significant that is in your mind.

We haven't really changed our own internal expectations about the second half of the year. I think as we said, we're certainly seeing flat paid exits at same-store leases. We talked about 1% growth in same-locations.

So, clearly the growth rate of activity at those facilities we manage has moderated significantly from what we saw in the first quarter and what we saw during 2011. And so, as we look at this year and we look at the good things that have happened already, and our expectations for the year, we're saying it's a bit of an uncertain economic backdrop for our business. And that clearly has an impact on us moderating our expectations somewhat.

Then one other, I missed a little bit of the beginning of the call. But Mark, I'm not sure if you called out, the two things that you had spoken to in the release, the health insurance dividend and the favorable swing in prior year reserves. The health insurance I know you called out, I saw that. But did you call out what the delta was for the swing in prior year reserves?

No, I didn't. But it's not large. It's just that I can say it was positive by a few hundred grand this year. It was negative by a few hundred grand last year in the same quarter. So, year-on-year you're talking about that kind of magnitude of impact.

But when we look at prior year insurance reserve adjustments year-to-date, it was really neutral. So, they were negative in Q1 of this year. They were positive in Q2 of this year. Cumulatively, it's no impact.

So, they're continuing to run in those ranges of a few hundred thousand dollars a quarter that we normally expect. The reason that we mentioned it at all is that we had the couple hundred thousand positive this year and that was in effect comparing to a couple hundred thousand negative last year in the same quarter.

And I think, David, we just wanted to give kind of an At-A-Boy to our risk managers, both on the health side and on the casualty side by virtue of getting that mentioned in the release. The expertise of that particular group within the Company, in other words their growth and expertise and performance has been wonderful and we sort of wanted to carve that out.

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

Thanks, Chuck, and thank you again everyone for joining us this quarter. I think you can sense from the higher than normal excitement that you heard from Mark and I today that we're really looking forward to continuing to report to you on the progress and activity around the merger with Central Parking. That remains a very exciting possibility for us.

So, thanks for joining us and we'll talk to you after the third.

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.