SP Plus Corp (SP) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the third-quarter 2013 Standard Parking earnings conference call. My name is Ben and I will be your operator for today.

(Operator instructions)

I would now like to turn the conference over to your host for today's call, Mr. Marc Baumann, Chief Financial Officer and President of Urban Operations. Please proceed, sir.

Thank you, Ben, and good morning everybody. As Ben just said, I'm Marc Baumann, Chief Financial Officer and President of Urban Operations at Standard Parking. Welcome to the conference call for the third quarter of 2013. I hope all of you have had a chance to review our earnings announcement which was released last evening.

We'll begin our call today with a brief overview by Jim Wilhelm, our President and Chief Executive Officer. Then, I'll discuss some of the financials in more detail. After that, as Ben said, we'll open the call up for a Q&A session.

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

Also, before I turn the call over to Jim, I want to comment on the recasting and restatement of our previously filed financial statements. Our financials for the fourth quarter of 2012, first quarter of 2013, and second quarter of 2013 were all recast to reflect the impact of the final purchase price allocation relating to the Company's Central Parking acquisition as if the final purchase price allocation had been completed at the date of the acquisition.

Our initial accounting for the merger for the first three quarters post merger was based on estimates. And the accounting rules give a Company one year to complete the complex task of determining the final accounting. A recast is the way a Company trues up its preliminary estimate to the final accounting. In our case the recast primarily impacts the adjustment we have to make each quarter to reflect acquired leases at market rent.

Specifically, we have some additional cost of parking services for leases over the first three quarters post merger and this additional amount will flow back through as a reduction of cost of parking services for leases over the lives of the individual leases that the recast amounts relate to.

More significantly, our financials for all three time periods presented in our earnings release were restated to reflect the change in accounting for deficiency payments made under our agreement with Bradley Airport. I think most of you know, we have operated the parking at Bradley Airport for many decades. For 13 quarters, we have been operating under the current agreement and deficiency payments under the agreement were accounted for as a receivable on the Company's consolidated balance sheet.

The accounting for this was determined at the onset of the current agreement way back in 2000, based on a consultation with and concurrence by Ernst and Young, our outside auditors, as to the proper counting treatment. Based in part on our ongoing consultation with and concurrence by Ernst and Young, throughout the entire contract period to date, the Company believed this to be the proper accounting treatment and consistently maintained that treatment over the past 13 years.

On November 5, Ernst and Young advised us that it was reviewing the Company's accounting for deficiency payments under the agreement. After considerable discussions with E&Y over the past two weeks, the Company has determined that since there is a contingent element to the Company's right of recovery of these amounts, the deficiency payments should be recorded as cost of parking services when made. And the repayments to the Company of those amounts should be recorded as a reduction of cost of parking services when received.

Consequently, the Company's restated its reported results for prior time periods up to and including the second quarter of 2013, to eliminate the receivable, and revise the income statement. Changing the accounting treatment for the deficiency payment is not expected to have a material impact on the full year 2013 results. By the way, for the first nine months of 2013, the net impact on gross profit is a positive $80,000.

However, this new treatment of the deficiency payments has impacted inter-quarter comparisons and may impact the Company's operating results in future periods. The revised accounting will not, however, affect the underlying economics of the Bradley agreement or the related cash flows. I would like to add that that agreement has been in place for 13 years. It has 12 more years to run and there may be renewals of the agreement after that. That underlying agreement has not changed in any way.

Most importantly, the Company continues to believe, as it has for 13 years, that it will ultimately receive these amounts in full, with interest. For further information please refer to the Company's most recent current report on form 8-K, the quarterly report on form 10-Q, for the period ended September 30, 2013, and other reports, including amendments to prior reports filed by the Company.

You probably know if you have looked at our website, that we have now amended the 10-K for 2012 and for the first and second quarters of 2013. So, all of the changes that are going to be made, need to be reflected, that has been taken care of and we have now filed those with the Securities and Exchange Commission.

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

Thanks, Marc. Good morning, everyone, welcome to our call. First of all, I want to apologize to all the people that are on this call and our stake holders for all the noise around this singular issue over the last couple of weeks, and the delay of our quarterly statements and our earnings calls, and all of the issue around the, the Bradley contract. The buck stops with me.

I assure you I have had some people that have been working 24/7 for two weeks that I need to get out of here for awhile in order to get some rest to make sure that the accounting for this contract on a move-forward basis would be correct and that we've acted appropriately. Based on consultation with Ernst and Young over a contract, as Marc has said, that we have been administering for the past 13 years on their advice.

That being said, I'm pleased to talk with you today about the Company's solid underlying financial performance. Unfortunately, this noise around Bradley and having to delay has obviously distracted from an overall solid, very, very solid performance this year that continues to build momentum.

For legacy Standard locations' gross profit on a same-location basis, for this year's third quarter increased 4% over the third quarter of last year. Though on a sequential quarterly basis, total gross profit decreased $6 million or 13%, due in large measure to various insurance-related items that Marc will add some color to and we did in our release as well last night. As well as the inter-quarter volatility of Bradley under the new accounting that Marc just mentioned.

Relative to Bradley, we expect that based on current trends at the airport and what we know about the months of October and November, that should those trends continue that Bradley will continue to add to our bottom line over what our original expectations for the Company have been. So if there is any good news that inures from all this racket around the business, it is the current performance at the airport and our airport contracts, in general.

A substantial decline in compensation costs, however somewhat offset the sequential decline in gross profit for the period. The location retention rate for Standard's legacy portfolio remains steady at 88% for the first 12 months ended September 30, 2013, including the impact of the merger-related divestitures. Location retention for Standard's legacy portfolio would have been 89% for the 12 months ended September 30 when you exclude the divestitures.

For Central's legacy portfolio, location retention since the merger close was 85%. This, too, was impacted by those mandatory divestitures. Excluding the divestitures, retention for the Central portfolio would have been 88%, which is a distinct improvement over the renewal percentage that Central was experiencing before we put the two Companies together.

In terms of new business, recent wins include a significant Click and Park contract with us with AEG, a shuttle contract with Porter Airlines, and a terrific win on the Texas toll road. We spoke in detail about which divisions of the Companies were affected by those last night.

We've also seen very, very good, heated activity in the municipal hotel and university markets. Universities, as they relate to our use of our Click and Park product as an entree into the stadium and special event opportunities on campus.

The strategy which Marc and I have talked about dozens of times is, Click and Park generally gets us on a campus, and then we are hired along to manage parking and maintenance and security and shuttle operations after the initial entree. So those opportunities are all over our pipeline as we speak today.

Touching briefly on the integration process, I am extremely pleased with the progress we have made in the year that has elapsed since the mergers closed. The first Penn States have now been migrated to common systems and processes and several more are set to migrate by the end of the year. We are still on track to complete the migration by the end of 2014, and on pace to realize the $26 million in targeted cost savings we have been talking about by 2015.

Finally, we are looking forward to December 2, when we'll unveil our new corporate logo and name as part of our long-term brand strategy. On December 2, Standard Parking's corporate name will change to SP Plus Corporation. And on the same date we plan to change your NASDAQ ticker symbol to SP.

As we have mentioned previously, for the time being we'll continue to conduct our parking operations under the Standard Parking and Central Parking brands and expect to begin a phased transition of these legacy brands to a new SP Plus Parking brand sometime in 2014. The valet parking services we provide to the hospitality industry through our USA Parking subsidiary will be unaffected by the name change.

During the Q&A, if you would like, I can elaborate more on the branding and name change as we get into that. Before that, and with that, I'll turn the call back over to Marc to lead you through a detailed discussion of our financial performance for the third quarter.

Thanks, Jim, and hello again, everybody. Again this quarter, in addition to comparing our results to the same quarter last year, we are making a sequential quarter comparison to help identify trends and key captions for the merged Company. Since our merger with Central Parking closed at the beginning of the fourth quarter of 2012, we expect that this will be the last quarter where we need to present sequential quarter comparisons and plan to focus our future analysis and remarks on the year-over-year comparisons.

2013 third-quarter gross profit increased 87% over the same period of last year due to the merger with Central. On a sequential quarter basis, as Jim mentioned, gross profit decreased 13% from the second quarter of 2013, primarily due to three discrete factors. The first was the timing of the $1.3 million health insurance dividend that benefited second-quarter 2013 gross profit, which obviously impacts the comparison of the quarters.

The second factor was the swing in insurance loss reserve adjustments related to prior periods. In the second quarter of 2013 we experienced a favorable loss adjustment while in the third quarter we experienced an unfavorable adjustment.

Although none of these loss adjustments may be significant on an individual basis, the swing from favorable to unfavorable impacted the sequential quarter comparison for insurance by $1.8 million. That excludes the health insurance dividend. That's just for the casualty and worker's comp programs.

Finally, in the second quarter of 2013, we received $800,000 in deficiency repayments under the Bradley agreement, while in the third quarter the Company had to make deficiency payments of $300,000 for a swing of $1.1 million. As I mentioned earlier, on the year-to-date basis through September, the net is a deficiency repayment to us of about $80,000, so essentially break even. Of course Jim talked about our expectations for the fourth quarter a few minutes ago.

Additionally, there was some volatility at some of our lease contracts, some of which was seasonality and some of which was timing-related. We don't believe this is indicative of any negative trends affecting our lease portfolio.

G&A expenses, excluding merger and integration-related costs, increased $7.8 million from Q2 of 2012 to Q3 of 2013, primarily as the result of the Central Parking merger. On a sequential quarter basis, G&A excluding merger and integration-related costs, decreased by $5.1 million in the third quarter of 2013 as compared to the second quarter of this year. The decrease was due primarily to a reduction in compensation-related costs, the majority of which resulted from truing up estimated cumulative compensation costs for bonuses and deferred compensation.

Adjusted G&A as a percentage of gross profit was 46.4% in the third quarter of 2013. Since, as I just described, much of the decrease in G&A on a sequential quarter basis resulted from a cumulative change in our estimates, we do not expect G&A to remain at quite this low a level in the near term. However, we continue to expect G&A as a percentage of gross profit of 45% in 2015.

EBITDA, adjusted for merger and integration-related costs was $20.8 million for the third quarter of 2013, double the adjusted EBITDA from the third quarter of last year, which was before the Central merger. Earnings per share on a GAAP basis were $0.17 for the third quarter of 2013, as opposed to $0.15 for the second quarter of 2013, and $0.14 for the third quarter of 2012.

Earnings per share adjusted for merger and integration-related expenses were $0.22 in the third quarter of 2013, as compared to $0.24 in the second quarter of 2013. On a year-over-year basis, adjusted EPS for the third quarter of 2013 decreased from the same period last year due to the impact of amortizing intangibles acquired in the merger, which impacted EPS by $0.10 in the quarter.

In terms of free cash flow, we are disappointed that the Company had negative free cash flow of $1 million for the third quarter of 2013, and negative $4 million for the first nine months of the year. Obviously, comparing to our expectation of $30 million for the year, we have a ways to go.

The year-to-date free cash flow has been impacted, once again, by higher than normal receivables from some of our large airport clients. And while we continue to expect that these balances will be fully collected, and we expect to see some real progress on that during the fourth quarter, those collections might not be completed fully by the end of the year.

In addition, cash use for merger and integration, including capital investments in IT in connection with the integration, have been higher than initially expected. Accordingly, we are reducing our free cash flow expectation for the year by $10 million to around $20 million for the year.

Though we're moderating our full-year free cash flow expectation, we maintain our earnings per share expectation of a range of $0.75 and $0.80 per share for the year, excluding all merger and integration-related costs. And also excluding any costs incurred related to restating our historical financial statements, including but not limited to, the legal accounting and other professional fees and costs that we have incurred.

We are not yet able to accurately quantify the total fees incurred related to the restatement, so we can't give you an estimate yet. We expect full year earnings per share to be between $0.60 and $0.70, excluding only any costs that we incurred related to the restatement activities.

So, that is it for our formal comments. I'm going to turn the call back over to Ben to begin the Q&A.

(Operator instructions)

Daniel Moore, CJS Securities.

Good morning.

Morning, Daniel.

The restructuring expense change, was that related to mostly personnel? Do you expect, I should say, via the incremental $5 million or so around the IT, with related to restructuring expense, do you expect any incremental benefits, long-term earnings and cash flow as a result of that?

Well, our focus has been on trying to continue to get the integration done in the time frame that we have indicated before, which is by the end of 2014, Dan. I think as we have looked at options for spending money, we have said more investment in IT should pay dividends for us down the road in terms of a greater efficiency in our back office process. So I think it will, but we are not able to quantify what it is yet.

Okay. And if I look at the number of managed and leased locations, sequentially down about 2% each during the quarter, have we seen most of the integration-related declines at this stage? And when should we expect to see net net growth again on the number of locations?

I think we have seen the end of the integration-related declines. And quite frankly, the decreases that you have seen this quarter are really not related to the integration. We had a couple of portfolio decisions where we had a high number of locations that didn't really contribute much in the way of gross profit to us, that were scaled back by the clients who decided that they didn't want those services. So it had a disproportionate impact on location accounts but not really any noticeable impact on gross profit.

Okay, and lastly a little more color around the volatility that you described, in lease locations that impacted gross profit. Were there specific geographies that were soft or any other factors you can highlight there?

Yes, I think obviously now that we have merged with Central, and our lease portfolio has gone from about 200 locations, which is what Standard had pre-merger, to now 800 or 900 locations, we are going to see a greater volatility in the business, based on seasonal factors and certainly local activity that is going on in markets where we have a lot of leases. So I think it would be natural to say that if there is volatility on leases, we're really talking about New York, Boston, Washington. That is the main corridor where we have all of the acquired leases from the Central portfolio.

But our business is looking strong now. We certainly seem, we are in the fall season now which is very important in New York in the November-December period. We're seeing good activity there. That is why I think we are comfortable, saying what happened during the quarter we don't feel indicates a concern with the lease portfolio.

Thank you.

Nate Brochmann, William Blair.

This is Diana Rashkow calling in for Nate Brochmann.

Hi, Diana.

Jim, I thought I would take you up on your offer give us a little more detail on the branding and the name change and how you made various decisions about the portfolio and what you guys are thinking on that.

As you know, because you guys have been with us for a long time, this isn't a recent decision. We have migrating the business to SP Plus for the last four or five years. So based on the acquisition and merger with Central Parking, we worked hard for the last nine months of the year with the logical assistance of refreshing our logo, making sure that our new logo is representative of our legacy as well as Central's. But also thinking on a move-forward basis with the opportunity to refresh the legacy logo of a business that's been in place in Chicago since 1929. So SP Plus itself is not a new concept.

Many of our operations, our SP Plus Game Day division is already branded that way as we manage large venues. The signs we deploy and the uniforms that our people wear have been SP Plus Game Day for quite some time. The same holds true in our airport division. Our airport division has always had the latitude to brand our identity at individual airports as SP Plus Airports. Given the fact that we are doing parking, ground transportation, shuttle, maintenance work, et cetera, we are able to utilize a singular brand and be recognized by the airport community as SP Plus Airports.

When I talk about the phased rollout, many of the operating divisions have been identified with the legacy SP Plus. On December 2, you'll have a look at our new logo. It is pretty neat and it affords us the opportunity to do some things with it. We have been very, very careful to make sure that we incrementally change the brand over on the, primarily the commercial side of the parking business. Where we are still Standard and Central, and USA, we'll phase that rollout, much like we are phasing in the integration of the back office processes, across the geography of North America.

In terms of what I said earlier on the call, it's very, very likely that if you are at one of our airports, or if you're at one of our event centers, or you are at one of the municipalities where we are doing municipal outsourcing under the brand SP Plus Municipal Services, you have already seen our people in our Company deployed in that manner. This gives us the opportunity now, given the acquisition of Central, to roll that out in its entirety. As I said, refresh the logo and then ultimately bring all of the 4,400 parking locations under the one brand flag. It is worth mentioning that within our hospitality division, that where those facilities that are currently operated by our USA Parking subsidiary, the USA Parking subsidiary at our hotels will retain their brand indefinitely. Those hotels that we operate currently under either the Standard or Central flags will migrate over to SP Plus Hospitality services and then I suspect there will be continued consolidation as we get down the line.

Hopefully that adds to some of it. We have got letters going out to investors and clients this week. I'm giving them a sneak peek at the new logo, with further definition of what we're trying to accomplish. Doing an internal webcast to all of our employees this Thursday, building on two or three webcasts that we have been building internally all summer, announcing the change and preparing for all of the frequently asked questions that we anticipate getting, again with the external rollout as we have softly mentioned to you in this quarter's release and discussing with you on the phone today.

Great. Thanks. That is very helpful color. And then, it is great to hear you have got, sounds like a really robust pipeline in terms of those municipal opportunities, hospitals, and especially the universities in terms of leading with the Click and Park. On the universities, I was just wondering if there is any seasonality to that business, in terms of when campuses are making those decisions? And if you have more success leading with the Click and Park at particular times of the year?

Yes, that is a great question. Normally, there is not a lot of seasonality to the consulting or the front end of working with universities. However, what we found is when you get into the fall season, and football is the predominant driver of large events at some of these major universities. University of Texas, University of Tennessee, et cetera, et cetera, et cetera. When those folks realize that there can be solutions applied to make access to those stadiums easy, and our people can be on site with them and actually work with them on the day to show them where there are solutions for ease of access and ease of reservations systems, that there is nothing like being on site with them, experiencing the problems we're having and being able to talk with them as a matter of factly, about how that problem can be solved. They tend to sign up a little more quickly right after.

I would tell you that is the same, we have been doing a lot of work with the NASCAR circuit, and the PGA of America. So as those events occur, Diana, and we are side by side acting as a consultant toward solving access, and either single cars or shuttle access to those venues, that the ability for us to be brought on board to not only provide the Click and Park product but organize the event, becomes much more real. Oftentimes the contracts that we are signing anew are right after those events occur. On the university side, as I said, because that's a predominantly fall football season, we have seen that activity just skyrocket during this quarter.

That's great. All right, thanks a lot for taking my questions.

You are very welcome.

(Operator instructions)

David Gold, Sidoti.

Good morning.

Hi, David.

Just wanted to follow-up a little bit. I know you commented on the change in number of locations. Was curious, Marc, you are referring to the change in managed, when you were speaking about some of the locations where they were lower gross margin spots, A. And B, do we have any reason to think, do we expect a bigger step down, say, as we get into the fourth quarter? Are there others that we know are running off?

It is management locations that I was speaking to, David. We do have, in our business, a wide range of locations and client relationships. Some, we have one location, and it's a very lucrative, profitable deal for us. We have others where there are numerous small locations.

There are other clients in our portfolio where we have a high number of low-margin locations. Sitting here today, I'm not expecting more to roll off, but this does happen from time to time. If you go back over the last three or four years, you'll see that at times when win a portfolio with a lot of small locations and it adds to our location count. At other times it goes the other way, as it did this quarter.

Got you. Okay. And then moving forward, I think you said on the integration side, you're still looking for about $26 million by way of synergies as we get into 2015. Was just curious on one little thing, which was, I guess during the quarter, we reduced our cash flow estimate. We think there is another $5 million of costs. So curious if you can talk about that, and if there is any incremental benefit we might see down the road from that?

It's similar to the first question that was asked. The cost side is primarily involved in IT investment towards creating a common platform for Standard and USA and Central to land on. And I think that's been the primary use of the cash flow that's been put out. So the next logical question is that, recurring to our capital spend and the answer would be no. I can also tell you that some of that capital was also deployed to make the Click and Park product more robust as well, David. We are literally handling hundreds of thousands of transactions now, through the online payment and reservation system. We continue to make sure that we are staying ahead of the investment debts required so that we can capture where we see that technology taking us into the future.

That certainly will inure to the benefit of the shareholders as we get through the remainder of this year. We talked about the AEG win in this quarter's press release. That is a significant win for us, given AEG venues all over the country for concerts and sporting events, et cetera, et cetera, where goers to those events are able to procure the parking for those events and pay for that parking with us well in advance. That is a significant win for our team on the Click and Park side. That will only exponentially increase over the years as more and more people turn to their cell phones and their laptops and their devices, to think about making sure that they have parking.

With minimal deployment, we've recovered pretty much all of the investment that we have made in that product and we are finding that our costs in that area don't increase incrementally. We might have to add a server here and there to handle volume, but we are continuing tweak the software, to make the Click and Park product more compatible with additional devices. Can it be compatible with cell phone infrared technology? Can it be compatible with bar code technology? Not only deployed by paper, but also deployed by cell phone, much like you might get your airline ticket. It is those sort of investments also that will inure in the future to the bottom line. I would like to be able to tell you a whole lot about that future, but you've just got to stay tuned as we continue to make progress.

Got you. Presumably not as direct dollar-for-dollar as we might think or hope?

I don't want to minimalize it, but in terms of the free cash flow, I have got to tell you that on a short term it is not paramount to my thinking. My thinking is, what does the Company begin to look like in 2014 and 2015? And if you begin to sort out the investments and the timing of the investments that we have made, as well as staying on track with the integration of the central processes, and what's going on with the pipeline and wins on the top line of the statement. I want to obviously, as I apologize for this two-week nightmare that we have had, has been a distraction on the business. The fact of the matter is, being focused on where the future is taking SP Plus as a business, is highly, highly exciting. Sometimes you get kind of bummed out when you get through accountancy issues. But hopefully, we have been able to communicate that the underlying business is pretty exciting around here at the moment.

Perfect. That is helpful. Thank you both.

Thank you, Dave.

David Steinke, Barrington Research.

Good morning. Kevin Steinke, Barrington Research. Hey Marc, I want to follow-up a little bit on the G&A and the sequential drop you saw there. Was that completely related to compensation? Or was there any acceleration of merger-related synergies?

Well, I think as you know, our G&A is almost exclusively compensation. We do rent a few offices, as you know, but any time our G&A moves up or down, it is almost always going to be driven by compensation changes. I think what I wanted to highlight in my remarks was that we had some things that really, on a year-to-date basis, don't just affect the third quarter. And so there was a much bigger drop than what you might expect based on the underlying business.

There is no doubt that we are starting to see the benefits of synergies take hold. As I was looking at our financials, I was noting how gross profit has basically doubled, but G&A hasn't. Whereas pre-merger, Central's G&A for in essence the same amount of gross profit as Standard, was much, much higher than Standard's. So we have made tremendous progress taking G&A out of the combined Company that will continue over the next year and a half. I think we are starting to see some of that flowing through the quarter. But a lot of it is what I said, and that is the year to date true-up of our estimates on some of those other areas.

Okay. So when we think about the fourth quarter, should we expect it to normalize to what you saw in the first half of the year? Or a little bit below that?

I would probably be looking at the first three quarters and saying what is the average of that G&A? And that might be a decent proxy for Q4. I haven't done that calculation, but as I said, we have caught up with the changes in estimates for the first three quarters that affected Q3 in a positive way. I think that is probably a realistic proxy for the fourth quarter.

Okay. On the deficiency payments and repayments, it sounds like, based on your comments, that you feel like you are going to have pretty good visibility into how those are going to play out quarter to quarter, based on trends over the first month or two of the quarter. Is that how you are expecting it to play out? Or do you think this could add a little bit more volatility, in terms of unpredictability, anyway?

Well, I think that the history of this contract over 13 years, is that in the kind of economic backdrop we have now, the contract flows positive cash flow. In an excellent economic backdrop, it flows a lot of positive cash flow. And in a recession, particularly the kind of recession we saw following the financial crisis of 2008, it goes the other way. So if you look at the history in our disclosures, you'll see that for example in 2012, we had to make deficiency payments of about $1 million and a similar number in 2010. And in 2009 I think it was $2.5 million.

But yet if you go back to the 2005, 2006, 2007 period, we were flowing $1 million to $2 million a year positively. It will introduce some volatility that will be driven almost exclusively by the economic backdrop of, let's call it, the Hartford area. Our expectations as we've look forward, given that we're moved back into a positive mode this year, is that we will have future positive cash flows from this contract that should be beneficial to our results in flowing through gross profit. But obviously it can go the other way.

Now on an inter-quarter basis there is volatility. Q1 is seasonally weak, just like it is for the overall business. When I mentioned that we had $80,000 positive year to date, and I had also mentioned what the numbers were for Q2 and Q3, obviously Q1 was negative. It was one of those $400,000-ish negative in Q1, 800 positive in Q2, 400 or 300 in Q3. That is how we get to the $80,000 positive year to date.

Typically Q2 and Q4 are better quarters than Q1 and Q3. But a lot will depend on what the airlines do at that airport, what happens to airline traffic generally. It will introduce a new volatile element into our business. Hopefully on a quarter-to-quarter basis, it won't be large, but a bit like insurance reserve adjustments and leases in the portfolio. I think the three I called out really says that, for our business model now, we will have a little more choppy results from one quarter to the next. But on a long-term trend basis, just like insurance, I think Bradley will be positive.

I think, to add a little bit to that, the Bradley Airport is really no different. The trends at the Bradley Airport are really no different than any of those in terms of the overall scheme of North American passenger traffic. Understanding that the second and fourth quarters are the highest, are the best quarters for us, I think using the term poor quarters is wrong. It is just that the first and third quarter, because of post holiday and vacation season in the third quarter, are offset by higher activity in the second and fourth quarters. And Bradley follows that trend. There is nothing cute or different about Bradley that would cause that to vary much for purposes of your planning.

Also, you should know that we have had ongoing discussions with the State of Connecticut for quite some time regarding future development and additional activity at the Bradley Airport, which will impact the land that our lease sits on. I would suspect as we get further along into 2014, that the agreement that we are currently under and have had to have spent this last couple of weeks working on, may change some in the future. We'll keep posted on that and hopefully any deal we strike for the future will take some of the volatility out it.

Okay, great. That is really helpful commentary. In terms of the free cash flow and the collections with the few large airport clients, is there anything you can do to accelerate that? Or are you subject to their schedule? Or is it just a timing issue? How do you think about that whole situation?

Yes, I think there is a couple of things at work. But in particular, the ones that we are highlighting, if you recall we said over the past couple of years, that we were renewing some of our larger airport contracts. It is not an unusual situation when a contract turns over, that there is a change in the administrative process that the airport authority uses. That is what we have seen happen, particularly on two of our very largest airports where the administrative process of reviewing our submissions to them has gotten bogged down in the bureaucracy and as a result we aren't getting paid on a timely basis. We are working on that very aggressively, there is no disputes with these clients. It is merely about getting invoices processed and getting them to release the funds.

They understand they are overdue in paying us, and that this is not something that we are happy about and are prepared to accept on an ongoing basis. I think you'll see progress in the fourth quarter. I think you'll see more progress in the first quarter of next year. Because of the efforts that are required to get a bureaucracy to change what they do, it is not like flipping a light switch. It is going to take a little time for them to work through that stuff.

Again, as I mentioned earlier in the call, in terms of 2013 being the first period of time with the merged Company together, as I said to all of you last October, as we announced the deal and got into this period of transition and integration, the top priority for the field organization was to work with all 4,400 of the existing clients, and assure them that this merger would not only have no effect on them in the near term, but would certainly inure to their benefit, given some of the products and services that the merged Company could bring to them in the future. Strategically, we did not give as harsh instructions on receivables through that process as we normally would have, as we are trying to keep the retention rate in the high 80%s and low 90%s across the board. So when I was telling you earlier that there are things that are on the front burner for me and things that are a little bit on the rear burner, now that we are a year into this and our retention rate has actually exceeded my expectations for having put the Companies together. And most of our clients have been assured that they not only were getting the same great level of service from Central and from Standard in the past, we are starting to show them improved services and products and processes that will allow those renewals to continue into the future. So I can instruct the field organization to press a little harder on the receivable.

And that goes for me as well. There are some accounts locally here in Chicago, that I keep as house accounts. Trust that I'm working diligently along with the rest of the field organization on getting those together. In terms of the long-term impact on our free cash flow projections that we have given in the past, I would say that guidance is unaffected by this year's period of transition.

Okay great. And it's been a little over a year since the Central Parking merger closed, and you talked about the good activity on the municipal and institutional side and some nice wins with Click and Park. As you look back, how have things progressed over the last year relative to expectations? And how you are ramping towards that longer-term goal of about 5% gross profit growth?

I think we are right on track. Unfortunately, we are in the middle of our 2014 budget process over the last few weeks. We have had to completely pull off of this. I have had people assigned to the issue around Bradley and the delay in our statements. But the budget effort resumes tomorrow, and I'll have a little better view as we lead towards giving you guidance in 2014, specifically for that year. But in terms of the buzz around the business, about three weeks ago we had our annual operations conference in Chicago, where we have the top 175 people in ops in Chicago to review the year past and look in terms of the development of our products and our new business and sales opportunities for 2014. It was quite rewarding sitting in my chair, just listening to the buzz in the pipeline. Certainly the organization has a much further understanding than we did a year ago of the capability of the merged Company on a go-forward basis as it relates to cross-selling products and services, the integration of the Click and Park technologies, what we have been favorably using as lead ins to the penetration in the municipal and institutional markets, as well as the wins.

I don't want to understate the commercial side of the business. From the legacy office building and hotel business, the activity has been phenomenal, particularly on the hotel side. All three flags, the Standard flag, the Central flag and the USA flag are all increasing their shares on the hospitality side, as there is a synchronized or synergized effort in terms of the level of service that we provide and the types of the agreements we like to provide on the hotel side. Why the USA Parking division has oversight over the entirety of our hospitality division, I think that that culture has permeated much more quickly than I thought it might. Again, I'm just talking about one individual sector that is inuring benefit to us now, as well as in the long run.

Again, certainly the integration of the back office process is something that I want to make sure we get through. I don't want to refer to it as a distraction, because it's a requirement. But it is taking up lots of our bandwidth, again on a planned basis, but it is taking up a lot of bandwidth that ultimately will be deployed towards making the Company even more efficient from a central processing basis. That part, given the fact the integration is on time, our deployment of the operating cultures and our retention rates and our same store growth, are all meeting or exceeding the thresholds that we've set for them this year. The amount of new business that I have referred to on the last couple of calls that we have been winning, is exceeding where we thought we'd be for 2013. Again, at first glance, on 2014 the pipeline looks pretty full.

I would say we are absolutely on track, if not a little ahead of the expectations that we had for achievement as a merged and integrated business through 2014 and certainly in 2015. Sorry for the speech. But you set me up for one of those.

All right, great. No problem. Thanks for all the commentary. That's all I had.

Glad to do it.

Thanks Kevin.

Daniel Moore, CJS Securities.

Thank you again. Looking at the guidance range that remains unchanged, but still a pretty wide range with just one quarter to go. Given the lower gross profit in Q3, should we be thinking around the lower end of that range? Or is the full spectrum of the range still a realistic possibility in your minds at this point?

I think we can still achieve the entire range, but I think we are more likely to be in the lower half of the range, given that we only have three months left to go. I think on an adjusted basis, I feel a lot more comfortable with that range. As you have seen, by spending extra cash on the integration, we are seeing some of our merger and integration costs go a little higher than we estimated. And that will definitely put pressure on our reported guidance. Clearly, as we said in earlier comments, both the adjusted guidance and the reported guidance exclude the costs that we've had to incur related to Bradley.

Thank you.

Just to add to that, again, the base business itself performs with significant predictability, as you know. Those areas where we have volatility, and as you get into the fourth quarter, it becomes a little less volatile. But those areas where we have four quarters of volatility are always the true-up of our risk management program, now the true-up of the Bradley agreement before it may change in nature. Earlier in the year it is how much of the new business and lost business estimates that we have made as part of the budget actually take place, affect the actual operations. That doesn't have much of an effect as we get into the fourth quarter. So taking out the difference between new and lost, which are reflected in terms of the restatement of our guidance, I would expect the only areas of volatility in the fourth quarter from the midpoint of our guidance, would be around the risk management program and this new reconciliation for the Hartford Airport which we'll obviously carve out for you to give you clarity on the base business as we report the fourth quarter.

Got it. Appreciate it. Very helpful.

Thank you. 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 so much. I thank everybody for taking their time out of their day for us today. Again, I do want to apologize for being late. Mark and I have never been late in 13 years of doing this, and I can assure you that we won't be late again over the next 13 years, barring anything as completely distracting as this issue we have had over the last couple of weeks. Thanks for hanging in there with us. Hopefully we have been able to give you some pretty good insight to our growing, happy little parking and transportation business. We look forward to talking to you all next quarter with our year end results.

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.