SP Plus Corp (SP) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the SP Plus Q3 2014 earnings conference call. 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 introduce your host for today's conference, Mr. Vance Johnston, Chief Financial Officer of SP Plus. Sir, you may begin.

Thank you, Thea, and good morning, everybody. As Thea just said, I am Vance Johnston, Chief Financial Officer at SP Plus. Welcome to the conference call for the third quarter of 2014. I hope all of you have had a chance to review our earnings announcement that was released last evening. We will begin our call today with a brief overview by Jim Wilhelm, our Chief Executive Officer. Then Marc Baumann, our President and Chief Operating Officer, will provide more color on the operations. And then I will discuss some of the financials in little more detail. After that we will open 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 2014 financial guidance; statements regarding expectations for the integration of Central Parking operations; other statements regarding the Company's strategies, plans, intentions, future operations and expected financial performance. Actual results, performance and achievements could differ materially from those expressed in or implied by these forward-looking statements due to a variety of risks, uncertainties and other factors including those described in our earnings release issued yesterday, which is incorporated by reference for purposes of this call and is available on our SP Plus website.

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 the call will be available on our SP Plus website for 30 days from now. With that, I will turn the call over to Jim.

Thank you, Vance. Good morning, everyone, and thanks for joining us this morning. I am happy to report that we had a busy and productive third quarter. Marc and Vance will go into more detail later in the call, but the key measures and statistics we regularly focus on were very good for the quarter.

Underlying gross profit was up 7% on a year-over-year basis for the third quarter. We continue to see improved performance across most of our markets with especially strong growth in New York City and at some of our airport operations. Strong second and third-quarter growth helped to offset the impact of the weather on the first quarter, resulting in underlying gross profit growth for the first nine months of the year of 4%. We were also very pleased with the substantial adjusted free cash flow of $10 million we generated during the third quarter, which brings us to $24.3 million of adjusted free cash flow through the first nine months of the year, on track toward our goal of $35 million to $40 million for the full year.

Turning to the integration process, I am pleased to report that we are about to complete the integration of the final group of Central Parking locations onto our operating platform. What a fantastic achievement by every member of the SP Plus team to have completed the integrations and successfully and on schedule! We wouldn't have been able to do this without the hard work and dedication of our folks, and I want to personally thank them for all of their efforts.

In addition, as you may recently have seen, we announced the formation of a new joint venture with Parkmobile USA. We believe the venture will become the leading provider of on-demand and prepaid transaction processing for on- and off-street parking and transportation services.

On a personal note, as you saw in our recent press release, this will be my last earnings call as CEO of SP Plus. I will transition at the beginning of 2015 into the role of Chairman of the Board. In doing so, I will pass the baton to my longtime colleague and friend, Marc Baumann, who as of the first of the year will be CEO and President of the Company. I know that Marc is going to do a terrific job, and I look forward to working with him in my new role as Chairman.

With that, I will turn over the call to Marc so he can provide some additional color on the business over the quarter and year to date.

Thanks, Jim. And good morning, everyone. And Jim, thanks in particular for your mentorship over the last 14 years. I know we are going to work closely together as we guide the company into the next phase of growth. I'm excited to work with everyone and capitalize on the many opportunities that we have before us.

As Jim mentioned, we had another very strong quarter. Underlying gross profit growth of 7% was driven by increases in same-location gross profit and robust new business. Underlying same-location gross profit increased 4% year-over-year, which was primarily due to increased parking volumes as well as improved pricing at lease locations, particularly in New York City, coupled with increased penetration of ancillary services and products.

This same-location growth is slightly lower than the 5% reported for the second quarter, but we believe there was some weather-related pent-up demand from the first quarter that benefited us in the second quarter. We're also pleased that location retention improved to 90% for the 12 months ended September 30, 2014.

In terms of new business our pipeline remains strong. The SP Plus event logistics group will consult with NASCAR to improve traffic flow at their facilities at the Richmond International Speedway, the Talladega Superspeedway and the Kansas Speedway. We will implement and manage a traffic management plan and staffing for football games and other events at Baylor University's McLane Stadium. Our USA parking operation was awarded the valet parking contract for the Raleigh Hotel in Miami Beach, Florida, the flagship property for the Raleigh group, which is owned by Tommy Hilfiger. In addition to valet parking, we will also automate the parking facility and install new revenue control equipment. We were also awarded the contract to start up, operate, and manage the consolidated car rental shuttle at the San Diego Airport, which will commence service at the beginning of 2016.

With that, I'm going to turn the call back over to Vance to lead you through a discussion of our financial performance.

Thanks, Marc. And hello, everybody. I would like to spend a few minutes reviewing our financial results in more detail. As we have done in previous quarters, we will focus on the underlying performance of our business, which excludes certain items that are not comparable on a year-over-year basis. To that end, we have adjusted our reported results for merger and integration costs, net accretion on acquired lease contract rights, asset sales, costs incurred for nonroutine structural and other repairs and the partial payment we received for our Hurricane Sandy claim.

Getting to the results for the quarter, reported 2014 third-quarter gross profit increased 9% over the same period of last year. On an underlying basis gross profit increased 7% on a year-over-year basis. As Jim and Marc both mentioned, we are very happy with these results. There's a full reconciliation from the reported to underlying results that accompanied our earning release last night.

Third quarter of 2014 adjusted G&A expenses, excluding merger and integration-related costs, increased $2.5 million from the third quarter of 2013, primarily due to a $1.3 million swing in the accrual for the Company's annual performance-based compensation plan. The plan is trued up each quarter based on expected performance against targets, and in the third quarter of last year the accrual was taken down by $300,000, while in this year's third quarter it was increased by $1 million based on the Company's results. The increase in the third-quarter accrual over last year is mostly just a timing difference.

The remainder of the year-over-year quarterly increase is primarily due to other compensation and benefit costs including increased healthcare enrollment and increased health care costs, along with legal cost associated with the recently announced Parkmobile joint venture transaction. If you recall, we anticipated a G&A run rate of about $25 million per quarter in 2014. Q3 2014 G&A is under that run rate level and is also lower than Q2 2014.

Earnings per share on a GAAP basis were $0.19 for the third quarter of 2014 compared to $0.17 for the third quarter of 2013. Earnings-per-share adjusted for merger and integration-related expenses as well as nonroutine structural and other repair costs were $0.28 per share for the third quarter of 2014, $0.06 higher than the third quarter of 2013 on the same adjusted basis. The increase in net accretion on acquired lease contract rights and the partial payment from the Hurricane Sandy claim increased year-over-year earnings by $0.02.

Based on the $0.50 of adjusted earnings per share for the nine months of 2014, we continue to expect adjusted earnings per share for the full year to be at the lower end of the previously provided range of $0.77 to $0.87 per share. In terms of adjusted free cash flow, the Company generated $10 million during the third quarter of 2014 and $24.3 million during the first nine months of the year. The underlying business performance as well as our focus on keeping past-due accounts receivable balances down during the quarter contributed to strong free cash flow generation. Cash used to pay for nonroutine structural and other repairs was $700,000 for the third quarter and $2 million for the first nine months of the year.

While not a significant amount through the first nine months, the cash requirement for this purpose could increase during the rest of the year, so our free cash flow guidance continues to exclude any nonroutine structural and other repairs at legacy Central Parking lease locations. On that basis the Company still expects 2014 free cash flow to be in the range of $35 million to $40 million at this time.

That concludes our formal comments and I will turn the call back over to Thea to begin the Q&A.

(Operator Instructions) Daniel Moore of CJS Securities.

Jim, just very briefly one behalf of CJS, thanks for all your help over the years. And Marc, congrats on the new role. Vance and Marc, I wanted to focus a little on G&A. Vance, you just mentioned the year-over-year. Sequentially G&A decline over $3 million. You have been making the adjustments. Walk us through what drove the decline. And you mentioned -- your prior guidance was closer to $25 million quarterly. How should we be thinking about G&A for Q4?

Yes. So in the current quarter, as you alluded to, G&A came down. And there's a variety of things that are impacting that, no one thing in particular. So, I think that we are once again starting to control costs better for the Company overall, and that gets to the decline in adjusted G&A. In addition to that, we also had some timing-related items but nothing significant or specific in particular.

As we look forward to the fourth quarter, we would -- the prior guidance that we gave was we would expect G&A to be below $25 million per quarter. We still think that's the case and, in fact, we would expect G&A for the fourth quarter to be not necessarily on an adjusted basis what we had in the third quarter, maybe a little bit higher than that but certainly below the $25 million of guidance that we have previously provided.

If it ticks back up a bit, are there any specific factors you can point out to and what the magnitude might be?

Yes. And I say this all -- this is notwithstanding any adjustments that we would have for our [PBC] accrual. So as we had in the current quarter, we added adjustment to our PBC accrual that was fairly significant. And certainly as you think about it on a year-over-year or change basis, we could have that in the fourth quarter as well based on performance. And hopefully we do; that would be a good sign.

But outside of that, as we move into the fourth quarter, there are certain things like, for example, as we come to the end of the year and we have people that have certain taxes and things of that nature that we no longer have to incur in the fourth quarter that we may have had to incur related to payroll for the first three quarters of the year, that will give us a little bit of a benefit.

There are certain costs that we incurred in the first three quarters that we are now talking about related to the Parkmobile transaction, legal costs and things of that nature. We would expect less of those in the fourth quarter. So those are the type of things. And then also as we continue on with the integration of the two companies and continue to reap the benefits of that as we move quarter to quarter to quarter, we would expect, notwithstanding any kind of one-time costs, those to continue to get traction as well. But those would be the type of things that would result in slightly lower G&A cost for the fourth quarter.

Well, lower than the $25 million, you are speaking of?

Yes, lower than the $25 million. That's correct. But not lower than the amount that we reported in the third quarter.

Adjusted, okay. And stepping back up to gross profit and then I will jump back in queue, last fiscal Q4 obviously had kind of a tough comp. You had a $2 million year-over-year benefit from accretion of leases and sales of JVs and other assets. So as we look out to Q4 gross profit -- would you expect that year-over-year growth rate to moderate before we start to pick back up in 2015?

Dan, the way I would look at it is on an adjusted basis. And we talked about how underlying gross profit is grown at 4% for the year and at a higher clip the last two quarters as we recovered, particularly in Q2, from the adverse weather in Q1 that really took about $3 million out of our gross profit that we would have otherwise had in the first quarter of this year. So I think, as you know, our target in the gross profit growth rate is in the 5% to 7% range. We've run a little higher clip than that the last couple of quarters on an adjusted basis. It would be great if it continues. We hope it does. But I think, as you look at our business, your expectations should be that on an adjusted basis, and that's adjusted to not have asset sales adjusted, to not have the lease accretion. On an underlying basis our target remains to try to get in that 5% to 7% range.

That's helpful. And as I just said -- I will -- a few follow-ups but I'll jump back in queue. Thank you.

David Gold of Sidoti.

First off, of course, Jim, it has been an absolute pleasure working with you. And our congratulations to Marc as well. Thank you both. First, give an update by way of -- I know the bulk of the synergies that you expect or anticipated for 2015. But as we think about a integration, as you put it, largely complete at this point, can you give a sense for how we should think about how the synergies layer in over the next year?

Yes. We haven't really quantified what that is yet, David. But when we went into this merger, as you know, we said we thought we would have $20 million of synergies. We later upped that as we got into the actual process of bringing the two companies together. And as Jim said in his remarks at the beginning, we are basically at the end of the integration process.

However, as you know, our integration process was geared towards getting onto one platform as quickly as we could and to maintain our client relationships. And as I mentioned earlier, it's nice to see that we have ticked up to 90% retention. I think we have done a great job of holding onto our clients through this integration.

What we didn't do, and this was a deliberate decision, was optimize our processes. And so as we now turn our attention into 2015, we see opportunities to take further costs out of our business and to optimize what we do in a number of areas. Just as an example, we didn't rationalize all the ways that Central did things and the way Standard did things. We just kept all of those and we made them work on the Standard back-office platform. So, our goal would be to try to get down to one way of doing things and not two ways or three ways.

So, there will be opportunities. Some of those projects are going to take time. All the benefits of that are not going to flow into 2015, but I think you'll see us working very hard to bring G&A down from current levels as we move forward into 2015 and 2016.

Got it. So, Marc, is that another way of saying, then, that there's presumably another year in there or year and a half of, let's say, project work that it will take to produce those synergies?

It will depend on the area, David. There are some things that are going to happen that are going to be positive for G&A right off the bat, steps that we are seeking now. But some of the more complex things that require IT programs to be modified are going to take a little longer, and we may not see the benefit from those until 2016. But we are at work on that now. Now that the bandwidth for people on the support side of the business and the IT side has been freed up, we're turning our attention to those things. And we're going to grab all we can to make 2015 better, but there's a lot of areas to go at in terms of optimizing our support side of the business.

The thing I would add to that, one of the goals in trying to become more efficient is really to enable our field organization to have more of their focus on client relationships and selling new business. We just had a meeting of our senior leaders over the past week and one of the focal points for us is how do we get people out into the organization more? How do we get them away from their desks and having to do less administrative tasks? How do we automate things that they are still having to spend time on so that they can focus on driving up our retention rates, having better quality operations, selling our ancillary services into our clients? That should be the main focus of our organization. That's how we grow at the 5% to 7% target rate. So a lot of our objectives in becoming more efficient is partly to reduce costs, but it's also partly to make our field organization more productive so that we can grow this business at a faster clip.

Got you, got you, okay. Helpful. One other -- as I delve into the numbers a little bit, on the management contract side it looks like we increased the number of contracts or facilities. But at the same time, average revenue per facility has come in some. I was just curious if you can comment on what's happening there by way of mix.

Yes; it's a tricky one, as you know, because in the aggregate our results are the results of what goes on at thousands of individual locations. But we have the ongoing changes in contract mix. I was a little surprised to notice once again that the mix of contracts had changed between management and leases. We have insurance reserves move up and down on a quarterly basis and we call them out when they are really big. But they do have an impact on our results. And so, I think it's just the ebbs and flows of the business. There's really no one thing that we looked at it we say, well, that's really driving this number.

And of course, for us, the goal is always how do we grow gross profit at the management contract level. And I think we were on track for a great year with new business. We know we had a record year last year so that's a tough par to compare with. But we are doing very, very well against that right now. And I expect to see continued growth in gross profit on the management contract side.

Got you, perfect. That's helpful. Thanks.

(Operator Instructions) Kevin Steinke of Barrington Research.

Let me add my thanks and congratulations to Jim as you transition in your new role and also, Marc, congratulations as well. Just to clarify, obviously you will see the benefits of the integration onto one system around the beginning of 2015. But then you have incremental projects beyond that, that may take a little while and then bleed into 2016. Is that the way to think about it?

Yes. I think the best way to visualize that conversation is with the integration of wrapping up through the end of this year, Marc and Vance on a move-forward basis will be able to remove some of the noise around the comparison of numbers. And the G&A run rate as it kicks off in 2015 will be the result of the work that the integration brought regarding synergies. And Marc addressed that with a finite answer earlier.

I think what we are communicating is that we have known from the time we kicked off the acquisition of Central that following the two-year integration period of getting Central in essence on to the Standard process system that there would be additional G&A to attack by virtue of making that platform more efficient. Those of you that have been -- I think all three of you have been following us long enough to know that before we bought Central we had kicked off an initiative by virtue of investment in technology and the way we looked at systems and a systemic approach to process that began to tackle issues around payroll side of the business and benefits side of the business and the reconciliation of insurance claims, et cetera, et cetera, et cetera. We were only halfway finished with that investment when we bought Central.

So there remains rather significant activity or a significant opportunity available, whether it's through the investment of additional technology or a reengineering of some of our processes -- and Marc alluded to those in his comments -- that we can take advantage of. Other areas of opportunity on that side are relative to our claims and our exposure for our casualty programs, et cetera. And I know that Marc and Vance are both poised to attack in both of those directions as we get into 2015.

Specifically to answer your question, Kev, I think I would look at as an opportunity for G&A to shrink somewhat over the calendar year of 2015. But as Marc said, the larger opportunity and I think the achievement of the goal -- the goal remains the same, G&A around 45%, between 40% and 45% of gross profit over time. We think that these opportunities complete that cycle for us and ought to get us to those levels.

Okay, great. Thanks for that commentary. And the improved performance that you noted across most of your markets, and you highlighted New York City -- is that just a function of parking volumes picking up? Or can you attribute that just to some of your internal execution as well?

I think it's a combination, like anything else, Kevin. We are certainly seeing a better economic backdrop in 2014 than we've had for some time. So I think that's positive. And when that happens, that means people are out and about. They are making those weekend trips into the city to stay at a hotel. So, I think there has been improving economic scenario for us. And what that has meant is that we have been able to look -- and we do this on a regular basis -- at all of our lease locations for opportunities to increase parking rates as the market moves up. And I think there has been good and maybe better opportunity to do that this year than there has been for some time. And you are seeing that in the lease performance.

We also have a dedicated team of operational experts that we deployed to get out into our business and to help our facility managers improve their performance. And that has been very, very successful this year. In fact, we are going to be expanding that activity as we move into 2015.

So, I think it's a combination of factors, like everything else. But there's a major focus on our business. We can be great on cutting costs. We can be great at being more efficient. We have got some of the noise of this legacy stuff dragging behind us that will get wrapped up during the remainder of this year and into 2015. But ultimately our organization is now focused on how do we grow faster. And you are seeing us as we emerge from the distraction of the integration being able to have our -- expecting our field organization and our support function to focus on making that happen. And I think that's starting to show in our results.

Great. And if I could also ask about the Parkmobile joint venture, if you could just walk through how that works from a financial perspective and also what it really brings to you that you didn't have before and how do you see that relationship working, going forward.

Yes. Thanks for asking about that, Kev. Perhaps the three of us are not overboard in terms of being salesmen, particularly, on these calls. But perhaps the most significant issue in our release this quarter is the joint venture announcement that we made regarding Parkmobile. I've been speaking at all of your conferences over the past years and talking to you about our awareness that the consumer will drastically and dramatically change the way they select parking facilities and transportation rides in the future.

Perhaps the most significant reason for the acquisition of Central Parking was the opportunity that we felt that being able to leverage our size in the marketplace would bring us for the future position of the Company based on the consumer changing their habits in the future. I know all of you read about connected cars and all of you read about making sure that people are reserving spaces at airports for a variety of tiers of parking and the same for stadiums and special events. And I can tell you that doing things as simple as making theater reservations or movie ticket purchasing or dinner reservations will ultimately be accompanied by choices as it relates to people parking their cars.

So the Parkmobile announcement is really the first step of several initiatives that we hope to announce before the end of the year which begin to position our Company well for that change in consumer behaviors. Obviously, for the benefit of our clients at those facilities that we manage and market on their behalf but, just as significantly, in regards to the future opportunities and the value that can be brought to our shareholders. The Parkmobile transaction is the first piece, where we are able to now provide on-demand and reserved parking capabilities to consumers and the way they choose parking.

So picture an airport that typically has its most premium spaces full. And a business person wants to make sure they can access those facilities for easy in-and-out privileges. Well, the Parkmobile products, by virtue of having our Click and Park product joined at the hip with it, will enable that business person to make a reservation for that high-demand parking space in advance. Obviously, all of the peripherals parking control devices are online and with us, and they have been for 10 years, in order to make that reservation available. That person will prepay for their parking while they are at the airport, and for the privilege of doing so they will pay transaction fees, are those transaction fees that will enure to our benefit and the benefit of our shareholders over time.

The same thing with on-demand capabilities. Parkmobile has contracts in a variety of cities where people can pay on demand at parking meters, depending on their sign-up and being preapproved as part of a consumer-facing portal. Those transaction fees also enure to the benefit of the Parkmobile joint venture. So obviously, the first step puts us in a leverageable position as it relates to transacting parking and ridership in the future. I think that [for us] to begin to further leverage our inventory and perhaps the inventory of the parking industry by virtue of portals designed to attract consumers, whether it's on the dashboard of their cars or from their handheld devices or from laptop computers or pads, et cetera, et cetera, et cetera, for making choices about where to park and how to ride in the future with, again, a variety of inventory opportunities to choose from.

So, we're excited about the first step. We will -- are diligently working towards completing some work on the inventory side. And I can only tell you that we've been at this for three or four years in terms of trying to piece all of this together. You can imagine, in a very fragmented industry, trying to consolidate on behalf of the consumer parking and ridership opportunities. So we think -- we are just tickled to death that we are able to get the first phase of this completed. And you will hear Marc and Vance talk about it on a much more involved basis as it moves forward.

Fantastic. Thank you for that commentary. If I could just sneak one last one in, I did notice that the number of leased locations has been coming down the last few quarters. But at the same time, you have seen strong growth in gross profit for leased location, at least as I calculated. Is that a function just, again, of demand picking up across your markets? Or is there any factor in there like you are pulling back from less profitable lease locations and lease contracts as you sort through the portfolio?

Well, you have hit on really all of the things that are going on. And if you go back to the comments I made a few minutes ago, Kevin, I talked about the fact that our existing leases are performing much better because we have been able to put up rates and we have our operational excellence group after working with our facility managers, driving change and to optimize the performance of our leased locations. And that includes making sure we have the right rates in place but also that we have an efficient staffing program and that we are doing all the right things to maximize the performance of our leased location. And we are doing that at the number of locations now. And as I indicated, we are going to be expanding the capacity of that group. We are going to be doubling it in size, actually, as we move into 2015, taking G&A resources from elsewhere in the Company so that we can put more of an emphasis on that because we really see the value of driving improved performance across our 800 leases and, of course, all of our management contracts as well.

Now, the other side of this is that as we look at the portfolio of leases that we inherited, and most of our leases to come from the Central Parking side, I think everyone is aware we had a number of loser leases in that portfolio. And one of the things that we have been very, very actively looking at and working on with those is, first of all, optimize and improve their performance. So even if the lease is losing $100,000 a year, maybe we can make it profitable by doing some of the things that I've just describing. If it's losing more than that, then we can at least reduce the amount of the loss. And some of that has been taking place.

But more importantly, these leases are going to be burning off. And for the most part they are going to burn off over a five- to a seven-year period from the time of the merger. So that's maybe five years more to go from where we sit today. As they burn off, if we are able to convert those into profitable opportunities by adjusting the rent, then we renew them. If we are unable to do that, then we let them go. And we have let a lot of them go.

And you can understand it. In a lot of markets the landlord doesn't care who the operator is. All they care about is maximizing their rent. So when you come in and say, well, we think we need to pay less rent than we were paying before, that's not usually a positive conversation. So we are going to be letting a number of the losers go as time passes. And so, you will see the lease can continue to come down.

The other thing that's happening, and I touched on it but I didn't really elaborate a few minutes ago, is that the continuing trend in our industry is definitely toward management contracts and away from leases. And so, as deals come up for renewal we are seeing many lease scenarios where the client is saying, throw me a management opportunity as an alternative to a lease structure. And so, our percentage of management contracts as a percentage of the total portfolio continues to grow. And that will happen.

Now, what we're doing so that we can participate in that is offering attractive management contract structures to our clients where we participate in the improvement of their operations, because ultimately that's what we are good at. It doesn't matter who has been operating it before, whether it's the clients themselves for another operator. When we come in, we know we are going to drive improvements in revenue of 10% or 20% or more. And we're also going to drive out costs, both because we can schedule efficiently but also because we buy things in large quantities, whether it's uniforms, or parking tickets, or cleaning supplies. So, we are going to improve the financial performance of a parking facility or a transportation operation or other things that we do. And our goal as we position ourselves to offer those services, whether the client chooses a lease or the client chooses a management structure, we want to participate in the benefit, the value that we are giving them.

And that's a little bit of a pivot for us because for many years a lot of our management contracts were structured as fixed fee with a CPI escalator. And I think what we are recognizing and our clients are starting to recognize -- there's value for us to participate with them in the improvement of their operations because they believe that they are going to get more improvement that way. And we are starting to see some evidence of that in the business, and that will be a major focus in 2015 and beyond.

We appreciate the questions that all of you have each quarter about our G&A and how we have addressed it via the integration of the two companies and where the kicking-off point is for further G&A reductions as we now begin to look at an integrated company and take advantage of process opportunities as we spoke of earlier.

But sometimes I think we spend too much time. The opportunity to reduce G&A -- and I don't mean just to reduce it to just academic terms, but good managers will make sure that G&A is reduced. And it has been a focus of ours, certainly in the consideration of the purchase of Central Parking but certainly in our decision to have Vance aboard as CFO to enact that sort of second-phase G&A attack. And the boys have talked about that rather at length now for the last several quarters.

Sometimes I don't think we spend enough time in terms of opportunities to grow gross profit because, on a parallel basis, putting the Company together, putting the companies together now provides a kickoff on a parallel path toward the opportunities that we have on the gross profit side of the business. And I'm talking about the organic side.

Marc talked about it briefly, but we had our entire senior leadership in last week for our annual conference. And we did not discuss G&A at all. G&A reductions will occur by virtue of our support leadership and the initiatives we've talked about. The entire conference focused on growth of our gross profit and the ability now, because we have transitioned our organization charts and the most recent announcements about our succession planning further that. The organization, the operating organization, and the sales organization is now in place for 2015. And they are no longer distracted by the integration that they've had to supervise by virtue of processed change in their geographies.

So we spent the entirety of last week talking about the opportunities to cross sell our products, the opportunities to look in the municipal and institutional markets for growth that those that came with us from Central may not have been aware of. So, we have a variety of tools in our toolkit now that we've fully deployed for the organization to make them aware of the Company's capabilities via the markets that we can serve and the products that we can offer. And again, given the opportunities and the overall targeting, the 5% to 7% organic gross profit growth, I feel a lot better moving into 2015 by being able to remove some of the distractions that we've had for the past two years.

And, just speaking of distractions, being able to communicate those things to you all on a move-forward basis changes radically in 2015. The terms underlying, adjusted, adjusted for this, adjusted for that -- that nonsense begins to go away. And I think that it's rather exciting that Marc and Vance are going to be able to communicate on a much more straightforward basis about the key metrics that drive our growth as we get into 2015 and then reap additional benefits into 2016 and beyond. It's kind of a fun time to be around here.

Fantastic. Thanks for all the helpful commentary, as usual.

Yes. Sorry for the speech, Kev, but, you know, I get a little passionate about it.

Daniel Moore of CJS Securities.

Jim, along those same lines, maybe just update us on renewals. As we look out to 2015, the percentage of contracts that are up for renewal -- does that increase or decrease? I know there are some larger ones. And what's the general environment? Is it a headwind? Is it neutral turning into maybe a little bit of a tailwind? Just update us there.

The best way for us to answer that is that we think it's stabilized. If we measure the change in same-store sales, and the boys spent time this morning and in the release talking about same-store sales, that's the key statistic in terms of renewals. And again, to answer that with one word would be stabilized. For 2015 it's not an unusual year for us in terms of upcoming contracts that are due for renewal. Our airport people have done a fantastic job on our larger contracts. There are always a couple that are out there and we're in the midst of renewing a couple of those now. We had a big win, though, in San Diego for the CONRAC shuttle in San Diego, and we are right down to the wire on being able to tell you about a rather significant airport net change for us.

So there's nothing on the horizon out of the normal for 2015. Marc very elegantly spoke about re-attacking the market with a new pricing model. As we are renewing contracts we've found that we are getting some traction by virtue of proposing to the client that we are so confident that we can raise revenue, your top line that we are willing to risk our fees and our profit opportunities and overhead reimbursement by demonstrating that we can do that.

I often speak about -- sometimes it's in the negative, being the old man around here, because we are moving toward management contract pricing structures that were in place 25 years ago. When I was doing management contracts 25 years ago, they were almost always as a percentage of the gross and you were married to the client in terms of a true partnership and there was transparency in that partnership.

So we've been sort of -- stealthy isn't necessarily the best word. But we have been moving the organization by offering them additional pricing model opportunities that they can take to the market and we've seen some success, which is why some of those headwinds are being reduced.

Very helpful. And one more -- a lot of discussion, and this falls under the bucket of some of those nonrecurrings that will likely go away over the next year or so. But the maintenance CapEx required for Central Parking leases -- lots of discussion. It is only been $1.2 million year-to-date. Can you give us some sense of a range of magnitude that you are thinking about for Q4 and into 2015?

Yes. Dan, this is Vance. So a couple things -- one, I think everybody is familiar with the fact that for those structural repair costs, that there -- a portion of those, 80%, is indemnified through the indemnification provision that we have in our agreement and that we disclose in our 10-Q. And what I would tell you is that we provided a range of -- really, we're still in the process of going through and looking at those individual locations. And as you can imagine, it is fairly complex and we have to have engineers look at that. And as such, we provided a range of additional costs that we would expect or that could take place. We disclosed that in our Q after the end of the second quarter. We will be updating that. And so, that information will be provided in our Q when we issue our Q, which will be the end of this week.

Just one thing I'd add to Vance, because I think you are talking -- you use the term maintenance CapEx. And one of the issues that we've had as we thought about the merger was what's the maintenance CapEx for the business, putting leases to the [targeted] or the business. And what we know is that the premerger Standard was spending about $5 million a year, and the premerger Central was ending $9 million or $10 million a year. And some of that $9 million or $10 million was some centralization and efficiency exercises that they were doing with technology, and some of it was repairs, routine repairs and other things that they were obligated to under their leases.

And so as we went into the deal we thought, well, initially we are going to basically spend the some of that. And of course, if you look at history, that's basically what has happened in 2013 and in 2014, in terms of the trend rates. My hope is that, over time, because we are more current on routine maintenance type activities and we are through the crux of integration, that we will be able to take a larger percentage of that total spend and turn it towards driving costs out of the business, the projects that Vance is going to lead, as we look to optimize.

And so, the absolute number might not come down for a little while, but I think ultimately what we will see is more and more of that spend is going to be driving things that are going to help us grow faster or take costs out of our business as opposed to just cleaning up old stuff from the past.

That's great color. I will look for the Q, and thank you again.

And thank you. I would now like to turn the call back over to Mr. Jim Wilhelm for any closing remarks.

Thank you, Thea. And I just want to thank all of you for having had the opportunity to be on these calls for many, many years. It is the perfect time for this transition with the roll-down now of the Central Parking transition and integration, Marc and I have had a two-year succession plan that obviously is now winding down. But I think we have really been planning and working and nurturing Marc for this job for all 14 years we've been together. So, I look forward to the new leadership that he and Vance and the operating team will have. I get to hang around the Company for a little while, at least, and be here to help them out. But again, now is a perfect time.

I will close our meeting with the same way I closed our annual conference last week. People ask me if I wish anything were different. And the only thing I wish were different is, rather than being my age and having been here 30 years, I wish in another life I was coming back here as a 35- or 40-year-old regional manager to begin to deploy some of the opportunities this Company has in terms of the table being set for the future. And it will be a quite exciting place for those people and those future leaders of the business as the Company continues to enact change across all of its borders.

So again, thanks for hanging in there with me. And thanks for being on the call today. And I look forward to seeing some of you down the road.

Thank you.

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