SP Plus Corp (SP) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2012 Standard Parking earnings conference call. My name is Stephanie 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 call over to your host, Mr. Marc Baumann, Chief Financial Officer and President of Urban Operations. Please proceed, sir.

Thank you, Stephanie; and good morning, everybody. As Stephanie just said, I am Marc Baumann, Chief Financial Officer and President of Urban Operations. I want to welcome you to the conference call for the fourth-quarter and fiscal year-end 2012.

I hope all of you have had a chance to review our earnings announcement, which was released very late last evening. We expect to file the 10-K for 2012 by March 18.

We will begin our call today as usual 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 as to our 2013 financial guidance; statements regarding financial expectations relating to the Company's merger with Central Parking; 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, or other factors including those described in our earnings release issued last night, which is incorporated by reference for purposes of this call. I would also like to refer you to the risk factor disclosures made in the Company's filings with the Securities and Exchange Commission, including its definitive proxy statement filed with the SEC on August 3, 2012, in connection with the special meeting of the Company's stockholders relating to the merger with Central Parking.

Finally, before we get started I want to mention that this call is being broadcast live over the Internet and that a replay of the call will be available for 30 days from now.

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

Thanks, Marc, and good morning, everyone. And thanks for coming on to our call today. As Marc said we have some prepared remarks and then we have plenty of time for Q&A when we complete it.

2012 was potentially the most transformational year in our Company's 83-year history. We are announced the proposed merger with Central Parking on the last day of February and completed the deal on October 2 as planned. Overall, the integration continues to proceed very well and is matching and in some areas even exceeding our original expectations.

We have been operating as a combined company now for approximately five months. The field organization integration has been substantially completed ahead of schedule, and the process of integrating the companies' support office platforms and processes are on track.

The combined operating team is working together extremely well. The collaboration and new ideas they have generated as a team have been very exciting.

The best evidence of our initial success is our ability to maintain our strong client retention rate as well as the significant amount of new business that we have won. While we are working on a lot of new and interesting integration-related matters and initiatives, no one has lost focus on the task at hand -- running the business.

Since the merger, the location retention rate of Central Parking's legacy portfolio was 90% on an annualized basis, while the location retention rate for Standard Parking's legacy portfolio was 89% for those 12 months ended December 31, 2012. Both of these statistics are in line with our historical high retention rates, even though they include and reflect the termination of various locations as required by the Department of Justice's divestiture order.

Because some of our usual statistics are not as informative with just one quarter's worth of Central Parking's results, in those areas we will continue to look at the metrics in reference to the standalone Standard Parking portfolio. One example of this is operating profit retention, which for Standard Parking remained at 96% for the year.

All of the major actions necessary to achieve the projected 2013 cost synergies have been taken, and roles within the organization have been solidified. Development of the software conversion programs necessary to integrate back-office support platforms is continuing as we prepare to initiate the formal conversion process, which is on schedule to start as planned in July of this year. The entire conversion will be implemented in geographically based phases.

Strategic analysis and planning regarding the Company's long-term branding strategy began last fall, and we have completed a lot of interesting work on that. In fact, we expect to announce our new branding strategy during the second quarter of this year.

In terms of the magnitude of projected postmerger cost synergies, we have increased our expectation of net annual run rate cost synergies to be in excess of $26 million by 2015, which is a $6 million increase from our prior guidance. That will be the result of our eliminating an estimated $17 million of G&A expenses, which equates to $0.47 per share, during 2014 and 2015.

Accordingly, we continue to believe the merger will be earnings accretive on a per-share basis by 2015. Of course we will continue to provide any appropriate updates on this topic as the year progresses.

Turning to our results, again for the fourth quarter, our first as a combined Company, I am pleased to say that our results were in line with our internal expectations. Many of the factors that impacted the year-over-year performance had been anticipated and taken into account in our prior guidance. While the continuing impact of several large contract retrades that occurred towards the end of 2011, an unfavorable swing in insurance reserve estimates, and the National Hockey League lockout all negatively affected our operating results, we were still able to generate merger-adjusted earnings per share in line with our prior guidance.

In terms of other statistics we regularly monitor, same-location gross profit for Standard Parking's legacy portfolio would have grown 2% over 2011 on a full-year basis and 1% for the quarter-over-quarter comparison but for the aforementioned retrading of those contracts.

As we reported, we have had several nice new business wins since the deal closed. For example the Piedmont Real Estate Investment Trust awarded us the management of the parking operations at nine of its office buildings across the United States. Our SP Plus Municipal Services team was selected by the city of Scranton to receive its on-street meter collection and enforcement contract. Our Harrisburg First team, which also includes Guggenheim Partners and AEW North America-AEW Capital Management LLP, was chosen by the city of Harrisburg to operate and manage all the city's on-street and off-street parking assets. This is an exciting example of the opportunities that exist in the so-called P3 space, P3 being shorthand for public and private partnership.

On October 1 last year SP Plus Municipal Services also began providing on-street meter enforcement and citations for parking violations for the city of Oxford, Mississippi. We expanded our services at the Horseshoe Casino in Cleveland and were selected to manage the parking operations at five of Gates, Hudson & Associates locations in Arlington, Virginia, including the Westin Hotel there.

All of these wins reflect our team's discipline and hard work in serving our clients' diverse and demanding needs. As we move forward through this important transitional year we expect to maintain our focus on integration and organic growth, without diminishing our ability to commit resources -- both capital and human -- in furtherance of the Company's long-term interest.

So at the same time we are focusing on those important near-term tasks, we are devoting resources to marketing, advertising, and transactional initiatives that, as a result of leveraging our new size and scale, we are confident will generate substantial additional shareholder value over the longer term. As the financial impact of those initiatives are not -- yet to be further understood, we haven't accounted for them in our guidance.

Based on what we know today, we expect to achieve earnings per share in the range of $0.75 to $0.85 for the 2013 full year, excluding expected 2013 merger and integration related costs of $5.5 million or $0.15 per share. Additionally, we expect 2013 full-year free cash flow in excess of $30 million, even after our payment of $17 million in liabilities accrued as of December 31 of 2012 for severance, divestiture, and legal costs.

Finally, reflecting on our confidence in the Company's growth strategies and long-term vision, we have establish long-term financial goals of achieving a 5% compound annual growth in gross profit, and G&A as a percentage of gross profit of no more than 45% by 2015.

With that, I will turn the call back over to Marc to lead you through a more detailed discussion of our financial performance for the fourth quarter and fiscal year-end. Then we will open up the call, as I said, for Q&A.

Thanks, Jim and hello again, everybody. Our fourth-quarter and year-end results were laid out in quite a bit of detail in the earnings release we issued last night, so I am just going to touch on a few of the key points.

In this quarter's release we provided the reported GAAP financial measures, which include the contribution from Central Parking for the full fourth quarter. We also reported merger-adjusted financial results, which exclude the contribution from Central Parking and associated merger and integration related expenses.

There is a very precise definition of merger-adjusted in footnote 2 to the table under the Highlights portion of our earnings release. For simplicity's sake I will just discuss the merger-adjusted results in my comments. A full reconciliation from GAAP to merger-adjusted results is in the tables accompanying the earnings release.

In terms of the fourth quarter's financial results, merger-adjusted gross profit decreased $1.7 million or 8%, as compared to the fourth quarter of 2011. As Jim mentioned, the decrease was primarily due to the full-year effect of several large contract retrades that occurred at the end of last year and a favorable swing in insurance reserve estimates and the impact of the NHL lockout. However, on a same-location basis and excluding Central Parking's operating results and the impact of those few large contract retrades, our fourth-quarter gross profit increased by 1%.

On a merger-adjusted basis G&A decreased by 4% in the fourth quarter of 2012 as compared with the fourth quarter of 2011, as the Company continues to exercise strict cost control. Due to all the factors we have discussed, merger-adjusted net income attributable to the Company for the fourth quarter of 2012 was $4.1 million or $0.26 a share, compared to merger-adjusted net income of $5.1 million or $0.32 a share for the fourth quarter of 2011. The calculation of the fourth-quarter 2012 merger-adjusted net income assumes a tax rate for the quarter of 34.2%, which was the same as the actual effective tax rate for the fourth quarter of 2011.

Obviously we can't determine what standard standalone tax rate would have been for the fourth quarter of 2012. So we are using 2011 as a proxy for that.

Now I will briefly touch on our full-year 2012 merger-adjusted results. Merger-adjusted gross profit for the year was flat compared to 2011. This was mainly due to the full-year impact of the contract retrades that Jim talked about and a $1.5 million unfavorable swing in insurance reserve estimates for 2012 as compared to 2011.

As we have talked before, generally on a long-term basis we expect to have modest favorable insurance reserve adjustments. But from time to time we can have unfavorable adjustments, and that is what happened in 2012.

Merger-adjusted G&A of $44.1 million, however, was down 2% year over year as compared to $45.2 million reported for 2011. I believe that is the second year in a row where actual merger-adjusted G&A was below the prior year.

Merger-adjusted net income attributable to the Company for 2012 was $20.1 million or $1.27 per share, compared to $19.8 million or $1.23 per share in 2011. Again the tax issue surfaces; the calculation for 2012 for merger-adjusted net income and EPS assumes a 38.1% tax rate for the year, the same as the effective tax rate for 2011.

For the 12 months of 2012, free cash flow was $4 million compared with $28.9 million for 2011, as merger and integration costs incurred in 2012 significantly impacted our free cash flow. As Jim mentioned, however, in 2013 we expect to generate free cash flow in excess of Standard Parking's historic levels.

That concludes our formal comments now, so I will turn the call back to Stephanie. You may have some questions, and we will be here to answer them.

(Operator Instructions) Daniel Moore, CJS.

Good morning. At least the initial level of earnings dilution from the integration with Central is a bit higher than we, and I think most, had anticipated. Can you give us a sense? What is your level -- what level of organic growth in gross profit is embedded in your 2013 guidance?

Dan, we don't have a significant amount of gross profit growth in 2011. Our target, as we said, is to grow gross profit at about 5% on a compound rate.

We clearly have not been growing at that rate, if you look at our 2012 results compared to 2011. We weren't getting that growth. Some of that was on the back of those contract retrades and clearly the economic environment that we are operating in.

So we are not estimating that we are going to get right to a 5% growth rate in 2013. I don't have the exact number in front of me, but it will take a while to ramp up to the 5% growth that we are targeting.

Let me add just a little bit of color in terms of -- or some specificity to what is going on. As we get into 2013, there are -- our numbers are affected by the basis from 2012. For instance, the Republican National Convention in Charlotte was -- or Tampa, I'm sorry, was very good for us last year as were the London Olympics; and neither of those will occur in 2013.

We are talking to Sochi and Rio, and as we get into the regular cycle for World Cup and Olympic Games in the future through the Game Day division, but 2013 is a quiet year.

We did not anticipate a significant movement in reversing the year-end accruals for the insurance reserves that Marc mentioned earlier, into this year's budget. And we have a full year of the last of the contract retrades. You heard Marc and I both mention that several times.

As we entered the third quarter of 2011, I briefed all of you that 10 of our top 11 contracts were all -- we faced exposure on 10 of our 11 top contracts within the business through the end of 2012. And we were very, very fortunate to retrade successfully all 10 of those. So they are -- we no longer face that exposure on the top side.

Unfortunately -- and all of those have been renewed for long terms. When you get caught in this sort of an economic situation, it has been my experience that when you negotiate with those clients they begin to do a look-back, and we knew that we were vulnerable because the economy began to decline through '09 and '10 and into '11, and that we would be retrading or renegotiating based on downward swings in the client-generated revenue at airports and some of the larger institutions that were -- called for retrading during that period.

Now, given the fact that all of those have been renewed successfully and we move forward, I can tell you two things. One, if the economy -- and you have heard us talk about consumers and where the consumer is at in terms of transportation, hotels and airports, going to games, whether they are football, hockey, basketball, baseball etc. -- as there is an improvement in the economy the client revenues will improve, as will ours where we are tied to the client either by lease by virtue of pricing, or we are tied to the revenue stream that the client generates, which historically has enabled us to move our rates back up.

Second in terms of the deals that we have won lately and the retrades that we have done lately on smaller deals, we think we have seen the erosion of the industry fees and profitability begin to erode. Certainly getting our deal done in terms of a product offering from the scale that we have to bring to the market in terms of our human and capital resources is inuring now to our advantage, and I would not expect to see that sort of retrading or erosion on retrades occur into the future.

Now, those of you that have been following us for a long time know that we used to set our gross profit threshold at 7%. I think we have allowed for that changing industry condition over the next several years by moving that hurdle to 5%, which we do think is achievable given all of the things that I just spoke to, Dan.

At the risk of trying to pin you down too much, it does sound like at least positive. Lower than the 5%, but certainly flat to positive organic gross profit growth would be likely for '13?

We do expect gross profit growth in '13.

Okay. Looking below that line, how much depreciation and specifically how much intangible asset amortization expense is implied in the 2013 guidance?

I am going to make a few comments that I think will be helpful to you and to anyone who is trying to build a model. Because, obviously, it is a transitional year for us. The results for '12 are clouded by so many actual issues around one quarter of Central and four quarters of Standard.

I have spent a little time trying to think about ways that we might be able to be helpful to you. I think Q4 in some ways is not a bad proxy for maybe a low base that you could annualize. I will give you a few comments about things that you might want to make adjustments to.

But we have -- except for the first two days, and that is really not relevant -- we have a full quarter of the combined Company and I think it does give a decent starting proxy for gross profit, when you take into account the fact that the starting gross profit using Q4 would be a little lower, because we had Hurricane Sandy affecting primarily the Central business, but also a bit of the Standard business during Q4. We had NHL lockout affecting Q4. And obviously Q4 was also affected by insurance reserve movements which we have highlighted in the release.

So I am not literally saying take Q4 and annualize it and that is a good number. But it is not a bad place to start, if you make a few adjustments.

The information that you are asking specifically, Dan, about D&A -- if you were to annualize Q4 D&A you are not going to be too far away from the annual D&A that we have for the Company using what we think is the correct purchase accounting. We haven't finalized our purchase accounting; we have a year to do that. But we have spent a lot of time with outside advisers analyzing the intangible assets of Central, and I think we feel we have a pretty good estimate that is correct in all material respects.

So again, if you annualize Q4 you are not going to be too far off for a D&A estimate. Likewise, if you annualized interest expense in Q4 you are not going to be too far off from an annual estimate.

The one piece of information that you don't have that I will give you is where we are in synergies. We had about $2 million of synergies in the fourth quarter. If you annualize those, that is $8 million. So obviously we will get the full-year effect of those in 2013, and we expect to have about another $10 million in 2013.

So I think with those factors and the fact that we mentioned $5.5 million of transaction costs in '13, you should be able to build a fairly decent estimate for 2013 numbers.

Very helpful. I was looking also specifically for amortization, given that is a non-cash noneconomic charge. But if need be I can wait until the K comes out.

Yes, I don't have those details with me. But we are not going to be too far off in total. Clearly you know what Standard's D&A was prior to the -- and the details of what Standard's premerger D&A was; and that is not really changing.

Understood. Lastly and then I will jump back in queue, you raised the accretion or the synergies expectation from $20 million to $26 million. What is the right base to think about in terms of the uplift? Is it 2013 guidance or some other base, in order to think about the delta over the next two to three years?

Well, I am not sure if I am answering your question, but what I think you are asking me is -- and if you go back to the comments I just made -- we think we have achieved, will have achieved about $18 million in gross synergies through 2013. We said there is going to be another $17 million.

We initially had estimated an additional $11 million. So we have uplifted that $11 million by $6 million. Most of that is going to occur in 2015.

We also have dissynergies. So we are saying that our net synergy, the estimates are moving up $6 million from $20 million to $26 million. But it will mostly be in the out period.

Okay, thank you for your help.

David Gold, Sidoti.

Hi, good morning. I am still at a little bit of a loss, and maybe you can help me on two things. The message, if I am hearing it correctly, is -- we have found more synergies; we have allocated them; we actually are on plan at least or maybe ahead of plan. But at the same time presumably 2013 is going to be quite a bit worse than both we thought and the Street thought. Sort of saying, okay, there are better synergies here but at the same time maybe the Central business is going to cost us a hell of a lot more near term than in later years.

So I guess if you can, I would just be curious on what sort of maybe we missed as the Street, or what you guys really found recently that just shows that it is going to dilute you so much near term, but at the same time in three years from now we are going to have a great benefit.

I think the issue there, David, is we did not give guidance for the intermittent period between the time the deal would close and the time it would take us to integrate the back-office systems. We consider ourselves to be on track with where we thought we would be, given what we were thinking last summer and as we got into the fall, about bringing the Central accounting platform and back-office support platform onto a single platform with us. And that remains on time for us.

So it is really -- in terms of the way we have looked at it, and Mark can add a little more color to the numbers if he likes, we believe that that schedule is on track. We did not guide the intermittent periods.

We think we have found additional synergies. We know we found additional synergies in putting the two companies together. The schedule for integration is on time for us. And we think that, as I said, by the time we get into '14 and '15 we will hit the targets that we did guide to when we talked about the deal initially.

Yes. Just to add to what Jim is saying, David, and clearly we have not tried to analyze the models of people that are outside the Company. But I suspect that what has happened is that people have assumed faster growth was taking place in not just Central's business but Standard's business.

We talked about a year ago when we gave expectations for 2012 that we would have fairly low gross profit growth in 2012 because of all those contract retrades that Jim has talked about repeatedly. So we guided to low growth in gross profit for 2012. We came in at low growth.

It came in a little bit lower because of that year-on-year change in insurance reserve adjustments that I mentioned in my remarks. But essentially Standard was not growing in 2012 at its historical growth rate.

And that is not going to just magically flip to 5% compounded rate in 2013. We are going to build from where we are today.

And I think it is safe to say that a similar pattern was laying out for Central. So you have the combined business now; we know that we can grow at a faster rate; we have many, many exciting things that Jim has been talking about and that we have been working on to get our growth moving more rapidly. But it is not going to be rapidly accelerating in 2013; and we ourselves never expected it to be rapidly accelerating in 2013.

I think internally the guidance that we have given you for '13 is tracking very well with what we had modeled when we had laid out this merger. So that is why we specifically were not confident enough about all of the interim stuff that we would want to give guidance, and we didn't give guidance for '13, '14.

But we can kind of see our way through the integration period to what we think will be a very nice shareholder value-adding merger.

Yes, I mean if we build on that thought a little bit, our ability to leverage some of the things I talked about in the release last night and in the script this morning, regarding the ability to leverage the new size of the business, were not things that we could work on until the deal closed. And while we would like to think that there was no distraction in terms of getting the deal done and any impact upon gross profit from '12 to '13, certainly the divestiture of the properties as a result of the Department of Justice review and some of the other things that we have talked about have an impact on that.

Now that the companies are put together and we are past the Department of Justice review and we can begin to springboard off of those items that we know we can leverage -- and again I advised you this morning we haven't included some of those things in our guidance for the future -- I tend as always to look at the end effects, based on a reasonable expectation of cost and efficiency control, and top-line gross profit growth, in order to get well in excess of $100 million of EBITDA.

I know that that is not a great GAAP term and we are not going to put it in a lot of our numbers. But when I begin to analyze the business in terms of shareholder value creation, I think about a couple of things. That is getting the Company's EBITDA to over $100 million in the 2015, 2016 time frame, based on what we are talking about; and generating free cash flow, bringing our debt down over that period back to our historic levels at near investment-grade; and inuring the value thereof in terms of additional investment; and being able to take that basis forward from today's market cap and today's enterprise value.

So that is really the way I look at it, David. And certainly knowing, tracking us for a while and our historic performance, we tend to hit our goal.

Right, right. Okay, fair. So should I take that the commentary earlier, though, about the world changing a little bit to mean -- basically, I mean if we just look at -- if we just bridge 2012 without Central to 2013 guidance with Central, right? For 2012 you are around $1.20; for 2013 the midpoint is about $0.80.

If we look at -- is all of that deterioration basically -- obviously you have higher debt and higher D&A. But basically is all of that coming from the Central acquisition? Or is there some deterioration more expected in 2013 in the core business as well?

No, there is no deterioration expected. I think the way I would look at the numbers is to say the merger-adjusted EPS for '12 is $1.27. So that is basically standing alone as though there was no merger.

We have guided to midpoint guidance range for 2013 with Central is $0.80. And we also talked about the future G&A synergies that we expect to get, which is another $0.47.

So if you take a synergized '13 but without the growth that is going to occur in '13 into '14, '15, '16 that Jim is talking about, just take a synergized '13, you're at the same $1.27. So there is not a deterioration.

But absorbing their business, having our estimated synergies having occurred, on that basis bottom-line 2013 looks a lot like 2012. But that is before we start doing the things -- the growth that is going to come from the expanded platform, the new brand, and all the other initiatives that we have underway.

That is why as we look forward a couple of years we will not only be very accretive but we will generate quite a lot of free cash flow, as Jim has talked about. When we announced this merger a year ago we talked in terms of it taking a couple of years before this deal was accretive and was able to generate the kind of growth and cash flows that people were expecting, and I think that is still our outlook.

You don't know us to get too overly excited, but I can tell you that if you read through the lines we are finding things, an ability to leverage this deal in excess of what we thought when we were thinking about it. So now that we are getting through the numbers and we have got our arms around the accounting at Central, and we can begin to file the Ks and the Qs and the SEC requirements and blah blah blah blah blah, we can get to work now on leveraging that scale. That is the fun stuff that I think you will here us make announcements for and get through this summer.

It also, David -- to add just a little more granularity to the numbers that Marc is talking about. Obviously we knew when we announced the deal last February that we were going to do this deal; and we knew where we were in terms of the industry as it was at the time. If we weren't doing the deal we might've pulled the trigger on some other things in terms of the short-term for Standard parking on a stand-alone basis sooner.

But knowing we were going to get the deal done, knowing we had a Department of Justice review to get through, and some of the pressure on the organization, it made no sense to trigger those things early. So that is, with a little more specificity, exactly what Marc was talking about in terms of getting this deal accretive as we get into the '14, '15, '16 time frame.

Got you, got you. Okay. One other just quick one. On the 45% target G&A, how much of that, when you think about that, is going to be a function of just getting the top line to grow, gross profit to grow a little more aggressively, versus obviously we know about the $17 million that you can pull out -- but presumably versus other cuts that you can make there?

Well, it is a bit of both as you would imagine, David. I think there is fairly simple math on that. As long as we grow gross profit at a faster rate than G&A, the G&A as a percentage of gross profit is going to go down with time. That is for sure.

But I would say when we indicated that we had another $6 million of G&A cuts that we were going to be taking on top of what we estimated originally, that is the portion of getting to the 45% from where we would have been otherwise. That is coming from G&A cuts, and the rest is going to come from gross profit growth.

Initially that answer has to do with the magician's hat that Marc is talking about because you get the reduction in the percentage of G&A as gross profit goes. However, we are talking about bringing Central Parking onto basically our platform with some add-on applications to make us more efficient. We have not yet completed all the efficiencies to our own platform that we have been investing in over the years that caused us to be more efficient in terms of everything from processing payroll and HR and benefits and AP and AR and all of those support functions, client statement, treasury, reconciliations, bank statements etc. etc.

That is where we think on top of the synergies that we have identified for bringing Central onto our platform, by making our platform more efficient we obviously reduce the per-capita cost of processing those metrics.

So we still have CMS, LMS, our contract management systems and location management systems, which can become more efficient. And how we interface with our customers can be more efficient, driven by improvements in the applications we use and deploy via the technology to process at last look somewhere like 180 million or 180 billion transactions a year and 750,000 monthly parkers.

We have an eye towards continuing to streamline our technology deployment, David, in order to get ourselves down to 45%. So I am as much focused on what we can do with efficient systems as I am with the magician's hat on getting gross profit up.

Got you. Perfect. Thank you both.

(Operator Instructions) Kevin Steinke, Barrington Research.

Good morning, Jim and Marc. I calculate that for Standard Parking on a standalone basis for full-year 2012 merger-adjusted G&A was about 50% of Standard's gross profit, which is -- that is trending down from the previous year. Then I look at merger, combined, merger-adjusted G&A as a percent of total gross profit in the fourth quarter was about 61%. Obviously Central is running at higher G&A levels.

Then if I just do some rough math I think it looks like that combined number of 61% could maybe go down to about 55% of gross profit in 2013, if you take into account cost synergies. Does that sound about in the ballpark?

Well, it is definitely going to come down, Kevin. We are not really prepared to give guidance on each line item in the P&L, but you have hit on an important thing.

And this is something that we have known all along; it was in the proxy and in our prior disclosures. That is that from a back-office processing efficiency point of view Central was a less efficient business than Standard and had a higher G&A to gross profit -- G&A as a percentage of gross profit than Standard. This is one of the shareholder value-creating opportunities that we saw in this merger, was because we have honed our business through very efficient back office. We knew that by merging with them we could do the same thing as we move to one platform.

So that is why we have guided you to 45% for 2015. And clearly to go from where we expect to be in '13 to where we will be in '15 we are going to be taking real costs out. That is why I have given you those numbers earlier in the presentation around absolute amounts of G&A.

So we will have significant decrease in G&A over the next two years. We may or may not be exactly at 55% in 2013, but we will be lower in '13 than we were in '12, no doubt about it.

If you were to take a full-year '12 for Central and a full-year Standard '12 on a combined basis we will definitely be at a lower G&A as a percentage of gross profit in '12. It will be lower still in '13 -- I'm sorry in '13; it will be lower still in '14; and it will be lower still in '15 to get us to our 45%.

Sure, yes; that makes sense. Now at the time the merger was announced you had given a combined adjusted EBITDA number of -- I think it was about $76 million for the trailing 12 months. I can follow up off-line if necessary, but would you have a similar number for full-year 2012 for the combined business in terms of an adjusted EBITDA number?

No. I mean one of the challenges that we have had all along -- and you saw some of this when you read the proxy -- is that we had Central's reported results and then we have, what do we take out to get to an adjusted recurring expected level of EBITDA for that business?

We are just in the final stages now of ramping up the 9/30 audit of Central, which we decided that we would do. So it may be that in the future we will have a little better picture of that. But of course as you know, when you do an audit you get into looking at adjustments that maybe weren't identified in diligence and they are different or they were different numbers.

So we have some work to do to try to figure that out. And if we can figure it out it is something that we will talk about in future calls. But right now I don't have a clear picture of what that would be.

Okay. No problem. Now the 5% compound annual growth in gross profit through 2015, are you assuming any meaningful cross-selling or sales synergies in that number?

No. Well, some cross-selling; but the 5% we can usually generate if we are in a stabilized environment is that our contracts, both managements and leases, should grow by inflation via the contractual obligations or the contract language between the two, as we have talked about in the past. So that participates towards some of that 5%.

We generally -- and given the stabilization in the retention, and quite frankly I am surprised that the retention rates have stayed so high through this distracting period -- as we reported this morning, that the difference between what we may lose in a year and what we add in business won adds several other points.

Then our ability to cross-sell some additional stuff, as you will, into our locations, it historically had gotten us to 7%. That was the foundation. I think we have allowed for our uncertainty about the economy and the ability for the industry to grow over the next several years in putting together the 5% estimate.

I just want to add one thing. Because the way that you asked your question, Kevin, made me think that we may not have communicated clearly. We are not suggesting that when we are in 2015 we will look back and we will have grown gross profit by a compound rate of 5% over the period from now to then.

What we are saying is that our target is to move our growth from where it has been, which is a couple of percent compound growth, excluding insurance reserve adjustments, up to 5%. And we are going to be doing it by doing the things that Jim is talking about along with all the new initiatives that we are working on.

So our goal is that -- it is a long-term goal. It is a goal to resume our more historic 5% gross profit growth. That is really what we were trying to peg in our guidance. Separately from that we are saying that we expect to have G&A as a percentage of gross profit of 45% by 2015.

Okay. Good. Now on the free cash flow side, it looks like if you were to exclude the acquisition-related items in 2012, that free cash flow would have been actually maybe stronger than what you had originally projected. Is that the right way to think about it?

One of the things that is probably the most -- let's just say frustrating to a reader of the combined financial statements is trying to interpret the statement of cash flows. Because it doesn't really do what it normally does, which is explain the movements between one year and the next.

There are so many issues around purchase accounting and how those things flow through that statement of cash flows it becomes very, very difficult to make general statements about what would merger-adjusted free cash flow be. One of the reasons why we spent as much time as we did, and have made our earnings announcement when it was, is that we wanted to try to really understand what was happening with free cash flow as much as we could.

We had hoped at one time that we could really isolate merger-adjusted free cash flow, and we just didn't have a good enough information to feel confident in putting something out there. So the challenge that you have with your statement is -- go back to what we said, what I said earlier and that was said in the release. That is, that there is $17 million of accrued liabilities at the end of 2012 for severance, divestiture costs, and legal accruals, where the cash for that is going to go out in '13.

So some of the $28 million that we highlight, some of those are in that $28 million. So you can't just take $28 million of, let's call it merger-related costs from 2012, add that to $4 million and say merger-adjusted free cash flow would have been $32 million.

But what I can't do for you is to parse it out and say -- well, what portion -- you don't want to go the other way and say, well, it's $28 million minus $17 million; so now you take $9 million and add it to $4 million; and it would have been $13 million.

That is not right either. It is very, very confusing.

So I think we just have to say the merger has made understanding Standard's standalone free cash flow for the last year so murky you really can't explain it. I mean, with a lot more work we might be able to figure it out; but we decided to put our energies into trying to make good estimates for 2013 and being prepared to grow the business.

Okay, great. No problem. What enabled you to increase your goal for cost synergies?

I think like any goal, you have limited information about the future when you are setting goals and plans and targets. We did a lot of diligence; and quite honestly, the $20 million of net synergy goal that we identified, that was really from work done in the fall of 2011 before we actually had full access to everything about Central Parking and were able to fully understand how that business and our business, our legacy businesses, would come together.

So we have now been running the combined business for almost six months. We have good visibility into what efficiencies we think we can gain, how all those processes work. I think that is really what gave us the confidence to say there is more to be had than what we had originally identified.

Okay. Well, thank you. That is all I had for now.

Diana Rashkow, William Blair.

Hi, yes. It's Diana in for Nate Brochmann today. Just had a really quick question again on the synergies. You have got $17 million in G&A, which is your new revised up estimate; and then that leaves $9 million to get to the total of $26 million. Could you just give a little more detail in terms of where that $9 million is coming from?

Well, we have dissynergies as well. So I think what I tried to say in my earlier remarks, Diana, was that we had $18 million of synergies through '13. We had $2 million in '12, annualized to $8 million, annualizes to $8 million, plus $10 million more in '13 makes $18 million.

And we have identified $17 million more. These are gross synergies now. And that $17 million more is an increment of $6 million over what we had estimated before. So that is really where the numbers go.

Okay. I am following you now. Great; that was my only question. Thank you.

Daniel Moore, CJS.

Thank you again. Jim, forgive me if I am reading too much into it. You mentioned in your prepared remarks marketing and advertising initiatives were not included in the guidance. Can you elaborate a little? Just help me understand if that's potential net positive, negative, or both?

We would obviously think of it as positive. What I was referring to in those comments is we have understood from the beginning that being able to do a merger of this size would -- it has some considerations, but it also has a lot of upside in terms of opportunities.

So if we think about leveraging the scale of the organization as it relates to the future, in terms of the technology that can be deployed to be consumer- and customer-facing, that allows people to make choices about where they are going to park and how much they will pay to park and creating a reservation in order to park, we have the combined pieces of those. We have had our Click and Park product for many years that we deploy.

But what does the future look like in terms of handheld devices, pay by your phone, pay on the dashboard of your car? Those are conversations that we have been having all along with other interested potential partners of ours.

Given the ability to leverage the inventory of over 2 million parking spaces, and walls that can be used for advertising, and uniforms, and parking tickets, and websites that can be used for advertising, as well as entering ourselves further into the -- when I speak about transactional related in the release we are talking about being able to conduct those transactions from our own transaction engine, which is -- we are the only ones that have it and we are able to serve all of our clients with it.

That is certainly the more the technology-driven opportunity that we are going to spend the bulk of 2013 in terms of understanding. I didn't want to add to what we were guiding towards unless I felt pretty secure that advertising and marketing and consumer-facing initiatives as well as the growth of our transaction engine can do some of the things that we think we can do.

If you believe -- continue to look at the future and the deployment, think about the data that we will be able to collect and how we can leverage that data and our scale for those three disciplines that I mentioned as well as consumer behaviors, and at some point algorithmic pricing based on our remote monitoring and managing of fully automated parking facilities, and the upside for our clients. So I would refer you to things like the airline industry's pricing and hotel room pricing.

Those are the areas that we were excited about before we did this deal, and we knew that leveraging and acquiring inventory would help us achieve it. And now we want to begin to understand the totality of its value to our shareholders. But that is just the first seedlings are beginning to sprout for us.

That's great, Jim, with color. Last just a maintenance type question. Tax rate assumed for 2013?

39%.

Thank you very much.

But I will say, just to not throw you off too much, much lower for cash taxes. I don't have a set rate for that, but it will be substantially lower than that.

Got it.

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

Thank you very much. And I do want to thank everybody for joining us today and for your continued interest in our Company.

As you sense from us, we are off to a good post-merger start and we are confident that our best days are now ahead of us. I assure you that we are constantly striving to fulfill our potential in order to create significant value for all of our primary stakeholders, our investors, our employees, and our customers, clients and customers. We look forward to discussing the 2013 first quarter with you in May.

And I hope that we have fulfilled our promise to you that we gave you when we talked to you last about trying to sort through all of this noise in order to give you some clarity about our near-term which is -- our near-term is obviously important, but the longer-term which is really where the value can be driven through getting this deal done and the investment that all of you representing our shareholders and stakeholders in getting Standard Parking to the point of getting that deal done, truly begins to bear more fruit.

So I think that but for a lot of tired people around here who have been taking a lot of time to get our arms around the accounting side of the business, the field organization and the planning organizations and the product management organizations around the business are really, really pretty excited in the laboratory right now, trying to develop even more products that we can utilize out in the field as a result of our size. So thank you very, very much for taking the time to tune in again, and we look forward to talking to you soon.

Thank you.

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.