SP Plus Corp (SP) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the SP Plus Corporation fourth-quarter 2014 earnings call.

(Operator Instructions).

As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Vance Johnston, Chief Financial Officer. Sir, you may begin.

Thank you, Amanda and good morning, everybody. As Amanda just said, I'm Vance Johnston, Chief Financial Officer at SP Plus. Welcome to the conference call for the fourth quarter of 2014.

I hope all of you of had a chance to review our earnings announcement that was released last evening. We will begin our call today with a brief overview by Marc Baumann, our President and Chief Executive Officer. Then I will discuss some of the financials in little more detail. After that, we'll 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 2015 financial guidance and 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 and is available on our SP Plus website. I'd 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'll turn the call over to Marc.

Thanks, Vance and good morning, everyone and thank you for joining us. 2014 was a very busy and productive year. We had some very great accomplishments.

First, we successfully completed the integration of the Central Parking acquisition on time and that was an important step in the evolution of our company. Our ability to complete this planned two-year journey to integrate the legacy standard in Central businesses while retaining our clients and achieving record new business is a testament to the incredible efforts of our talented field and support people. I couldn't be prouder of our team for this terrific accomplishment.

All locations are operating under the SP Plus platform and we can now turn our attention to further optimizing our back-end processes. Also in the second half of 2014, we began the final phase of our brand conversion to SP Plus. Our existing parking locations are well on their way to transitioning to the SP Plus parking brand and all new locations are opening under that brand.

At the end of October we announced the formation of Parkmobile LLC, which combined SP Plus' proprietary Click and Park parking prepayment system with Parkmobile's on demand parking transaction engine. The joint venture will be the first to market with a comprehensive solution that addresses all parking verticals and consumer needs by leveraging the Parkmobile consumer brand and the Click and Park white label parking prepayment transaction engine. The formation of this joint venture represents a major milestone toward realizing our vision to provide pre-scheduled and on-demand parking reservation and payment processing services.

Clearly, the use of technology in our industry is quickly evolving and is a major focal point for us. We believe the critical areas are connected car technology, pre-scheduled and on demand parking reservations, mobile payment processing and targeted consumer advertising among other things, which all represent significant opportunities for us. We're spending considerable time exploring these and other opportunities, which we believe will position us well for the future.

Turning to our operating results, we're pleased to report that our 2014 adjusted EPS and adjusted free cash flow results were consistent with our previously provided 2014 guidance, which was also on an adjusted basis. We are especially pleased with these results given that we were able to overcome a challenging first quarter of 2014 due to the extreme weather conditions.

Digging into the details a little more, we were able to grow our underlying same location gross profit by 4%, write more new business in 2014 and 2013 and retain 90% of our locations, which is a nice improvement from 2013's 87% retention rate. Looking forward to 2015 and beyond, our primary focus will be on driving adjusted EBITDA to $100 million for 2017. We expect to make significant progress toward that goal by 2016.

We've identified and have begun to implement additional initiatives that will help us achieve this goal, including new marketing and advertising initiatives, operational excellence programs and business process reengineering projects designed to further simplify and automate our support processes to achieve additional cost savings. We continue to target 5% to 7% annual gross profit growth, which we expect to achieve through increases in gross profit at the same locations and net new location growth. Gross profit growth at same locations will be driven by, among other things, the marketing advertising initiatives I just mentioned, pricing initiatives, operating cost controls, especially at lease locations, cross-selling of ancillary services and underlying management fee escalators.

Although we've already taken steps to reduce our G&A costs, we believe further opportunities exist. We're implementing a number of process reengineering and cost production initiatives, including consolidating monthly parking and timekeeping systems, procurement and sourcing projects and additional process reengineering and organizational realignment initiatives.

I'm happy to say that 2015 is off to a great start in terms of new business and renewals. We've highlighted a couple of nice recent wins in the earnings release, but in addition to those, we've had a lot of activity, particularly in our hotel and municipal market. I can't get into location specifics now, as we've not secured approval from our clients to discuss these contracts, but I can say that over the next several months we expect to announce several new or renewal deals with municipalities for meters and on and off street parking services as well as with universities, hospitals, stadiums and large venues and of course, many more hotels.

Finally, I am pleased that we've entered into an amended and restated senior credit agreement for $400 million that extends the maturity date out to 5 years, lowers pricing and contains favorable changes to a number of other terms. This was made possible by the Company's improved performance, favorable market conditions and the strong relationship we have with our lender group led by Bank of America and Wells Fargo. I want to thank our lenders for their continued support and also congratulate Vance and his team for getting this deal done in the first quarter.

With that, I'll turn the call over to Vance to lead you through a more detailed discussion of our financial performance and guidance for 2015.

Thanks, Marc and hello, everybody. I'd like to spend a few minutes reviewing our financial results in more detail. We'll conclude the year's review with continued 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, 2013 asset sales, costs incurred for non-routine structural and other repairs, the payments we received for our Hurricane Sandy claim and the tax benefit from the reversal of valuation allowances for deferred taxed assets, all as we've done in prior quarters.

In addition, we've adjusted our results for the fourth quarter and full year for the impact of the Parkmobile transaction, including the one-time gain and the cost of executing that transaction as well as costs incurred related to other related ventures. We've also added back revenues and costs for the post transaction period, November and December as if the transaction had not occurred. Going forward, gains and losses from our 30% equity investment in the Parkmobile joint venture will be presented as equity in the losses or gains from investments and unconsolidated entities within the consolidated statements of income below operating income.

Turning to the fourth quarter's results, reported 2014 fourth quarter gross profit decreased 2% and adjusted gross profit decreased 1% over the same period last year due to the non-comparability of asset sales in the fourth quarter of 2013 and the year-over-year decrease in the benefit from the net accretion on acquired lease contract rights. The final settlement of our insurance claim for Hurricane Sandy went the other way was a non-comparable benefit to 2014. On an underlying basis which controls for these non-comparable items, gross profit increased 3% on a year-over-year basis.

Fourth-quarter 2014 reported G&A increased by $2.7 million from the fourth quarter of 2013. On an adjusted basis, G&A expenses increased by $1.5 million from the fourth quarter of 2013.

Approximately $600,000 of the increase was due to the Society of Actuaries' change in the mortality tables, which affected the Company's deferred compensation cost. This was the first modification to the mortality tables since the year 2000.

As the life expectancy of the population increases, accruals for deferred compensation costs must also increase to ensure that the benefit obligations are adequately covered. Other expected increases in compensation benefits comprise the majority of the remaining year-over-year increase in adjusted G&A.

For the full-year, reported gross profit decreased by $800,000 year-over-year. Adjusting for non-routine structural and other repairs as well as the impact of the Parkmobile transaction, adjusted gross profit increased by $900,000.

Further adjusting gross profit for 2013 asset sales and the year-over-year change in the benefit from net accretion from acquired lease contract rights, as well as the 2014 benefit from the Hurricane Sandy claim, underlying gross profit increased by $6.7 million or 4% in 2014 as compared with 2013. As Marc previously mentioned, we were pleased with these results given the weather-related challenges we faced during the first quarter of 2014.

Full year 2014 reported G&A increased by $2.6 million or 3% from 2013. On an adjusted basis, G&A increased by $5 million or 6%.

Again, the change to the mortality tables contributed to the year-over-year increase. The remainder of the year-over-year increase is primarily due to increases in compensation and benefit costs.

As you may recall, we indicated that we expected 2014 G&A would be higher than 2013 as a result of higher than expected turnover at our offices in 2013 and those open positions were filled throughout 2014, resulting in higher G&A. We also incurred additional costs as we laid the groundwork in 2014 for some management transitions. Stripping away the non-comparable items affecting the year-over-year comparison, underlying EBITDA for 2014 was $75.5 million, up from $74.1 million in 2013.

Reported earnings per share in 2014 was $1.03 as compared with $0.54 in 2013. Adjusted earnings per share was $0.86 for the full-year 2014, as compared to $0.85 in 2013. While the $10.4 million tax benefit in 2014 due to the reversal of valuation allowances for deferred tax assets has been excluded from adjusted EPS, a lower 2014 effective tax rate contributed to the 2014 adjusted EPS being at the top end of the guidance range of $0.77 to $0.87.

In terms of adjusted free cash flow, the Company generated $33.6 million during 2014, which includes the payment of $3.8 million for non-routine structural and other repairs during the year. After adjusting for these non-routine structural and other repair costs, the company generated $37.4 million of free cash flow, right in the middle of our guidance range of $35 million to $40 million, which also excluded non-retained structural and other repair costs. Our underlying business performance as well as our focus on improving working capital contributed to the improved free cash flow generation.

Finally, I want to cover our future outlook and 2015 guidance. As Marc mentioned earlier, we're targeting EBITDA of $100 million for 2017.

Going forward, we plan to have an even greater focus on EBITDA. Our expectation for 2015 is adjusted EBITDA in the range of $83 million to $87 million and adjusted earnings per share in the range of $0.93 to $1.03.

Adjusted EBITDA and adjusted earnings per share will continue to exclude non-routine items such as but not limited to, restructuring costs, asset sales, changes in valuation allowances for deferred tax asset and ongoing costs related to non-routine structural and other repairs. Adjusted guidance will also exclude any gains or losses resulting from our equity interest in the Parkmobile joint venture, which will be presented below operating income on the income statement.

Just to be clear, our 2015 adjusted results will not exclude the net accretion from acquired lease contract rights, as it is expected to be relatively stable the next several years and should not impact the year-over-year comparisons. The adjusted EPS guidance for 2015 assumes that Congress will renew certain tax credits for 2015 and on that basis, we have assumed an effective tax rate of 38% for the full year. However, the company's tax rate could vary based on a number of factors.

Adjusted free cash flow before cash used for non-routine structural and other repairs is expected to be in the range of $30 million to $36 million. While cash from our operating performance is expected to generate substantially higher cash flow in 2015, we are expecting cash taxes to be significantly higher in 2015 than in 2014, perhaps by as much as $16 million or more, primarily due to the fact that we utilized the remaining portion of our federal net operating loss carryforwards in 2014.

As we mentioned on recent calls, we expect it to be subject to cash tax rates more in line with statutory rates going forward. This increase in cash taxes is causing us to temper our adjusted free cash flow expectation for 2015. If you were to exclude cash taxes from both 2014 and 2015, the mid-point of our 2015 adjusted free cash flow guidance range represents an increase of approximately $11 million over 2014.

Just to touch very briefly on what's happened in 2015 thus far, as you know the first quarter's winter's weather has been quite harsh in certain regions of the country. Although we have not yet seen any significant impact on our results, we will continue to monitor and evaluate the situation. My final comment in closing is that we really feel great about the plans we have in place and are confident in our ability to execute them. We are very excited about the opportunities that lie ahead.

That concludes our formal comments and I'll turn the call back over to Amanda to begin the Q&A.

Thank you. (Operator Instructions). Nate Brochmann, William Blair

Good morning, everyone.

Good morning, Nate.

A couple things; one, obviously we still have a lot of puts and takes in terms of a lot of noise in the numbers, which are understandable to some degree with everything going on. If we strip all that out and all the noise out, I don't know if we focus on paid exits, or I know that you said stripping everything out, that gross profit would have been up 3% for the quarter.

Could you give us a little bit more color in terms of the underlying business and the performance in terms of operations in terms of what's going on in terms of the overall, whether the economy is giving you a little bit of a tailwind with employment picking up and miles driven picking up a little bit, how the pricing environment is, if you could delve into that a little bit for us.

Sure, I'd be happy to do that, Nate. As you point out, the underlying gross profit did grow and for the year it grew about 4%, which is a very strong performance. I think when we look at what was behind that, as I mentioned in my comments earlier, we wrote more new business in 2014 than 2013. And prior, I think 2013 was a record year for the combined company. So we have a very, very strong pipeline of new business and we're continuing to see penetration in the markets that we are focused on, which is as we talked before, the municipal markets, hotels, large venues and the like.

So we are seeing plenty of opportunity out there and we're winning deals and as I said in my comments, we'll have some more to announce in the fairly near future. I think from a competitive point of view, the market has not changed too much. It's the same array of large and small competitors and I don't see any real changes in strategy or practices by our competitive set. We're out there battling to do business with them all the time.

I think pricing is benefiting from the economy and when we look at 2014 compared to the prior five years, I would say economic conditions in 2014 were certainly the best we've seen since the big recession. And that certainly has enabled us to continually monitor opportunities for putting up prices both at management locations on behalf of our clients and at lease locations for ourselves where we run leases. We monitor that on a continuous basis and always are looking for opportunities to push prices higher where we can. I don't see economic conditions really precluding that as we come into 2015, so that will be a continued focus for us during the 2015 period.

I think all in all, good economic backdrop. As Vance alluded at the end of his comments, we are seeing some weather conditions that aren't great. I think overall, the winter weather so far has been better this year than it was in 2014, so our expectation is that we're not going to see the same drag on the business this year that we did.

That being said, I think Boston has set records for snowfall and I know in Chicago, we had the record cold in February, which does affect business to a certain extent. There will be some impact, but it's certainly expected to be less than it was last year. Obviously we still have some winter to go, so we don't know what the total story on that's going to be. I think when we look at our gross profit growth, certainly our operating groups performed very well in 2014.

We continue to work on risk management to work on driving costs out of our Business. Bad weather conditions don't help us in that regard. As you know, we get more slips, trips and falls and the like both with our own employees and with customers. So that will continue to be a major focal area and our ability to drive down cost of risk management will be a major contributor to our expected future gross profit growth.

Okay, thanks for that. Second question; for the JV, two-part question, one when you call that in terms of a gain, is that a one-time gain in terms of some benefit or cash that you would have gotten as part of that? Or when you call it a gain, it's just going to be quote unquote gain or loss from the JV on that 30% in terms of the ongoing reported numbers?

And second part of that is what's going to be the new revenue model, particularly for the Parkmobile side of it, obviously we're pretty familiar with the Click and Park side of it, but what's the revenue model going to look like for that going forward?

I think, very quickly, there is a gain that we recorded that is related to the accounting for the transaction and that we've talked about and we've reconciled it in the numbers that are in the release. On an ongoing basis, Parkmobile as a business will generate profits, hopefully, and we'll be recording a share of those in our financials. As Vance indicated, the accounting rules require us to put that below our own operating results. So you'll see that on its own line in our P&Ls.

I think in terms of the opportunity with Parkmobile, we will continue to push to drive the use of the Parkmobile/Click and Park engine for transaction processing throughout our Business. That's been of major focus over the past few years. We're continuing to see opportunities to really try to turn the Parkmobile transaction engine into the default payment option in a lot of scenarios, and that's not just at large events or on street meters, that's throughout the business. That will continue to be something that we focus on in 2015 and beyond.

I think the other benefit to us, though of the Parkmobile transaction, and some of this we talked about in this release and also in the release when we announced it, is that the large auto manufacturers are really moving down the track for connected car and they are thinking globally. The Parkmobile LLC entity that we are involved with as a joint venture has the rights to deploy the Parkmobile/Click and Park engine globally except for Western Europe. So that means third World China, it means all over South America, anywhere this tool can be used on a global basis.

Parkmobile has a very strong relationship with the original Parkmobile entity in Western Europe, so that when presenting the platform to the large auto manufacturers, it's the one company that can offer up a solution that will be truly global, and that's very, very important to the auto manufacturers. We see the contribution of Click and Park to that entity as a means of really driving large transaction volumes in the future through the Parkmobile platform on a global basis, and of course, increasingly in places where we are not the parking operator.

Okay, that makes sense. That's cool to have a bigger global opportunity there too. Last question and then I'll turn it over and this one's a little bit more nit-picky.

If we look back on now having 2.5 or almost 3 years with the Central merger, it seems that $100 million EBITDA target might've been pushed back a year. And obviously, I know there's been a lot of puts and takes, but I was wondering, it seems like would we have a little bit more momentum in terms of overall profitability with that at this point, and again I do know that there's a lot of noise. But I was wondering if you could talk about some of the puts and the takes of why that $100 million target might've been pushed out a year in terms of looking back on it, what some of the hiccups might have been or whether it's just some of the leases that we didn't anticipate in terms of the accounting for all that.

If you could give us a little color on that, I'd appreciate it.

Sure, I'd be happy to.

I think if you go back to three years ago, right around this time when we announced the intended merger of the two companies, we had some expectations about how fast the Standard legacy business would grow, what Standard's legacy G&A would look like and likewise, what Central's legacy business, how it would grow and its G&A would perform. I think we've talked about this a couple of times in the past and that is that, as he went through a seven-month anti-trust process, it became very difficult for the legacy Central business to grow during that time. They were definitely in a holding pattern.

Certainly they were going through some reorganization and restructuring of their back offices and so we went through a process of trying to estimate G&A. I think as you all know from what we've talked about before, we started out as a combined company in the fall of 2012 with lower gross profit and higher G&A than we expected. That's just reality. And while it's certainly disappointing to investors and disappointing to us, that's what we were confronted with.

And what our focus has been since then, is really to ensure that we integrate the operating businesses, integrate our business development capabilities, take the wider array of ancillary services that Standard had coming into the merger and train our colleagues that came over from the Central side and how to go and sell those and create value from those. We're focused on lease performance by creating an operational excellence group that can help us improve performance at leases and do some of the things that we talked about.

All of those things have borne fruit and that's why we're now at a point where we are growing gross profit, as I said on an underlying basis last year at about 4%. But clearly that 4% in 2014, if you look cumulatively over the last three years, is not the numbers we were modeling. We were certainly below our 5% to 7% targeted gross profit growth range. We obviously believe 5% to 7% is appropriate on an organic basis for this business.

Clearly we've indicated that as we look forward, we think we're building some momentum now that will help us amp up the growth in gross profit. On the G&A side, as we talked about, we started with more G&A. That's what led us initially, fairly soon after the merger was announced, to increase our expectations for synergies. As you know, we had to go through a fairly complex process of integration that took two years. I think the good news is we got through that well.

We didn't have any great surprises, but while we were going through that process, we really had to put the two businesses as much as we could into one way of doing things. But it didn't really give us the opportunity to optimize our support processes. And that, we knew we wouldn't be able to do during the two years of integration.

Because we were able to complete the integration on time last fall, we've now kicked off numerous process re-engineering projects, which as we look forward into 2015 and 2016 in particular, will start to make a real noticeable impact on our G&A. So yes, we're a little behind where we thought we would be three years ago when we announced it, but I think we have more confidence now about our ability to get to that target as we look forward over the next couple of years.

Okay, great. I appreciate all that and definitely turn it over.

Thank you.

Thanks, Nate.

David Gold, Sidoti.

Hi, good morning.

Good morning, Dave

Good morning, David

Just a couple points of follow-up; one is the guidance. I know it's a natural moment where we are shifting some of the adjustments more broadly. I was curious if you could give some color on what the range of adjustments you think we might have this year and I'll start there.

David, I'll take the lead on this. I think a couple things. One is, as we spelled out in our release and as we talked about a few minutes ago, I think that going forward we are going to have really two sets of numbers. We're going to have reported results and then we'll have adjusted. We won't have a third, which will be underlying.

In that adjusted, that will capture any non-routine items that are significant. As we look at it today, I think that we're no longer going to adjust for lease accretion. That won't be part of it, but the type of things we could see would be as we continue to restructure our entities and we have reversals of allowances against -- for tax purposes, we could see some adjustments for that.

We have some financing costs, those are the type of things we would be adjusting for; if we have asset sales that take place in 2015 those, types of things. But the idea is to make it much more simpler. So we'll have reported results and we'll have adjusted results for non-routine items and we're hoping that the number of those adjustments decreases as well, but that would be the type of things.

Got you. As we think about the non-routine items that, let's say that we know about as you sit today, can you give a sense for, obviously we don't know what we're selling, what we're not selling, but presumably there's some on the quote unquote integration side that you might have earmarked already. Or is it not that simple?

It's not that simple because and you picked up on another category clearly, which is we'll have some additional restructuring costs. As Marc pointed out, we're through the integration process. There's the potential, and I think it's likely, that we'll have some additional restructuring costs in 2015 as we continue to optimize certain back-office process and do other things. But it's a little bit too early to tell exactly what that dollar amount will be in 2015.

The only thing I would add to what Vance is saying is that, if you think about things that could be large from an adjustment point of view, there's the items that Vance is talking about now. And clearly, if we're going to incur those costs, it's because we believe we are taking permanent G&A out of the business and there's going to be an ROI for doing that, that makes sense to everybody. The other area is on the whole legacy structure repair, indemnity related stuff.

To refresh everyone's memory, we're now in the third year of that. It's a three-year process and we are in the third-year now and this should be the last year where we have that kind of noise clouding our reported results. So we are rapidly trying to move to the endgame on that and get that behind us. I think on the gross profit front, we're not sitting here today imagining that there's going to be too many adjustments to our reported numbers other than any adjustments that might be related to that item.

Got you. And maybe an easier question to ask or way to get at is, when we think about the 2017 target of $100 million of adjusted EBITDA, can you help me bridge that to what free cash flow would look like? I assume the adjusted EBITDA of $100 million presumably should be, one would think, pretty close to real at that point.

I think, to answer your question, first, it would be real because it would be adjusted for any non-routine items and we would expect those to be minimal once we get to 2017

That's what I was getting at

That's the answer to the first question. I think the second one is that we haven't given guidance for free cash flow out anything longer than in 2015 at this point in time. But what we would say, is if you think about the cash flow as it relates to EBITDA for 2015, we would expect that, we would hope we would see some improvements in working capital going forward from 2015 to 2017.

But we would expect, now that we've got free cash flow, implicit in that is cash taxes at a more kind of rate that's closer to our statutory effective tax rate, you'd expect that free cash flow would grow along with EBITDA and maybe grow a little bit more, given some improvements in working capital.

Got you. Perfect, that's helpful. One more, the tough question to ask is, following up on what Nate was saying, it seems the synergies get pushed back a year. Obviously that's a little disappointing, but at the same time, is what it is. I'm curious if you can give some sense of how you get confidence that we don't see this a year from now again, that basically, 2017 we're going to see the synergies come through over the next couple, that we've adjusted properly our time expectation.

I think one answer to that and it's the one that runs through my head, David, is that we've identified the areas from a process re-engineering where we think there are opportunities. It's not like we're starting out, new people come into a company, don't know anything about how it works and you have to take time to figure out where there's inefficiency or where things could benefit from additional automation.

We already know where those areas are and we spent time identifying those during 2014 while we were completing the integration. So I think we have high confidence now that we know what to attack and we've already started down that track. From a G&A point of view, I think the things that cause us a little bit of growth in G&A from where we expected to be are known to us now and we're now in a position to start working on them

Just to echo what Marc was saying, I think we feel good about things because there's a clear line of sight in terms of the projects and the initiatives that we're executing on the G&A side and results that are going to come from those and now we've got the integration. We're past the integration period and all the hard work and effort that went into that. We can really focus in on key projects and initiatives that are going to drive out costs and we have a clear line of sight into those. So I think that makes us feel a lot more comfortable and confident.

So to sum that up, if we go back to the time of the acquisition, were we too aggressive in the amount of synergies that we thought, or just too aggressive in the timeline?

I think actually we weren't aggressive enough. When we laid out the original $20 million, we had one view of where G&A was going to be. When we saw where G&A was really going to land as the merger closed in the fall of 2012, as you know, we upped our estimate from $20 million to $26 million. But I think even at that time, we knew that post integration, there would be a period of time where we could now optimize.

We knew we weren't optimizing. We were really trying to just get onto one platform and get through an integration process and keep the business stable and performing and all those kind of things. I think what we have found, as we went through the initial phases of the integration, is that some of the things that we thought we might be able to rationalize away early on during the integration, we just decided we would have to kick to the future.

We talked about that, for example, the monthly parking system; I think when we announced the merger, we had more confidence that we could go from three, to two, to one, because we have three monthly parking systems and it wouldn't have to wait until after the integration was done. And there's some other areas like that, where as we got into the early phase of the integration, we realized that the complexity of trying to re-engineer some of those processes while we were at the same time integrating the businesses, would just jeopardize our ability to deliver exceptional service to our clients, so we kicked it to the future.

So, I think we did underestimate how quickly we could get some of those costs out, but as Vance and I have been saying, at least now we're done with the integration, we don't have the distraction of that in front of us and we are now focused on numerous projects. It is the prime focus of a major part of our organization is to optimize our back office now.

Great, perfect. Thank you, both.

Thanks, David

(Operator Instructions).

Daniel Moore, CJS Securities.

Thank you. Marc and Vance, can you perhaps quantify the remaining synergies that you hope to achieve over the next one to two years as you optimize support processes? And how much incremental spend or CapEx will you need to achieve those?

Let me start with the first question. I think the best way to think about the amount of synergies going forward, and as Marc alluded to, (technical difficulty), we are now, it's going to be the focus on optimizing back-end processes. There also is going to be a focus on sourcing. Procurement sourcing is another example of where we are going to be taking costs out as well. So we have a number of key projects that we are executing in some of those cases. We know what the individual savings opportunities look like.

In some other cases, it's a little bit too early to have a full handle on what they may be. But having said all that, what we can say is, is that there will be cost reductions that will obviously be taking place as we look at 2014 in absolute dollars where we finish from a G&A standpoint. We view that definitely as the high mark in terms of absolute reported G&A and it will be coming down from there.

And also what I would say is, is that the savings from those cost reduction initiatives that are going to take place in 2015 and 2016 are reflected in our ability to get to the $100 million of EBITDA as we said, by 2017. So I think that we have an estimate obviously, with a lot of detail behind that where we can, that's embedded in that, so it's captured in that.

Did that help you Dan?

It does. Obviously I know it's always dangerous to pinpoint a number. What are some of the puts versus those takes in terms of compensation or other components of G&A which might go the other way over the next one to two years?

The way we think about it is that the cost reduction initiatives that we have, which I think are going to have a considerable impact, net-net are going to offset other things that we will incur, which will be as any company would have, we'll have some increases, whether it's merit increases and normal compensation increases, performance-related increases in compensation. But the net effect of all of that is that the cost reduction initiatives that we have, we expect to take G&A down on a net basis relative to some other minor increases that we may have

That's helpful. Marc, you mentioned pricing as one component of your 5% to 7% gross profit growth goal. Can you talk about the environment and whether that will likely be a headwind or a tailwind or neutral for 2015 and into 2016 if it's not too early to give a little bit of a sense.

I think, Dan, if you look at 2015, the big question is will the economic backdrop be comparable to 2014. As I said a few minutes ago, 2014 was definitely the best economic backdrop we've operated in for several years. Assuming that the economic backdrop in 2015 continues down that track and there's no reason to think that it won't at the moment, we expect that we'll be able to continue to opportunistically put prices up both for transient parking and monthly parking on a nationwide basis.

It's hard to quantify what that translates into because obviously our lease portfolio is not evenly distributed across the geography. And so our ability to put up prices in the Northeastern part of the United States is more valuable to us than in other parts of the country. But we're not expecting any significant change in the opportunity to adjust prices in 2015 relative to 2014 as we sit here now.

Okay and then for 2015, does your gross profit, does that EBITDA guidance embed that 5% to 7% target goal in underlying gross profit growth? I want to make sure, triangulate, make sure that's the same for 2015 as it is your longer-term goal.

I think if you look at our underlying gross profit growth in 2014 of 4%, growing this business at a faster clip is not like flipping a switch and it now goes from 4% to 7% in one year. But I think, and part of the reason that we're not giving guidance on individual components of gross profit, G&A et cetera, is that we feel the most important thing is that we have the right G&A organization to grow gross profit as rapidly as possible and that will enable us to get to the $100 million target in 2017, as we've talked about.

If I was building a model myself, I wouldn't necessarily assume that there's a radical change in gross profit growth from one year to the next. I think it's appropriate to think in terms of continued improvement in the rate of gross profit growth over the next couple of years that will ultimately get us into that target range

That's helpful. And then taking a step back, new business, you said it was the best year on top of what was the best year. Looking at the number of managed locations, still flat to down a little bit. Would you expect the total number of locations to grow in 2015 and beyond, or is that perhaps the wrong metric to look at?

It's one of the most confounding metrics that we probably publish, because obviously all locations are not created equal. Some locations are very low profit and part of large portfolios. And if we win or lose a portfolio, we gain array at a large number of locations all at once.

But if you do look at our location trend, it is somewhat disappointing that we haven't added more net locations. And certainly as we look to grow, our expectation is that our growth does not come solely from putting up prices at existing locations, selling in ancillary services at existing locations, it also comes from increasing our footprint on a net location basis. So I'm hopeful that we will start to see some real movement in our net location count as we go forward over the next couple years

That's great. Lastly and I will let you go; this is the third year, last year of the maintenance CapEx program for the leased locations at Central. I think in the Q you put out a number for the total program previously. Do you have a sense of the range of what that could be for 2015?

Yes, Dan, it's Vance. A couple things; one, I want to also answer the question you had before around CapEx. As it relates to these cost reduction initiatives that we've been speaking about, we don't expect there's going to be significant amount of CapEx per se or it's going to change our CapEx in 2015 and 2016 significantly relative to what it was in 2014.

This is all notwithstanding any CapEx that's spent on structural repair type items, so just to answer that question. Secondly, as it relates to the range of structural repairs, we're going to be issuing our 10-K tomorrow and once we issue our 10-K and release that, there will be more information provided in that.

I think the one good news thing on the whole structural repair issue is that as time has passed, particularly over the last year, we have not added a bunch of new locations. In other words, we identified fairly early the small number and I think we talked about this before, it's like 20 locations, something like that, where these sort of situations are occurring.

We know what those are. Many of those, we've already done the work that needs to be done and others the work is underway now. So we have, I think it's a finite perspective on what our maximum exposure is. This isn't an open-ended thing. I think that's an important thing to remember.

Okay, thank you again.

You're welcome.

Kevin Steinke, Barrington Research.

Good morning. I wanted to circle back on the synergies and congratulations for getting the Central Parking merger integration done. With the completion of that, did you achieve that full $26 million of cost synergies, or are some of those still to come with now the back-office initiatives and procurement sourcing, et cetera?

Hi, Kevin. This is Vance speaking. I think the way to think about it is, as Marc alluded to earlier, there are a number of moving things including the starting point from where we started. The other thing to think about is the $26 million of synergies that were originally laid out, a lot of those were related to G&A. Some of those were not, quite frankly. So it's tough to think about it all flowing through G&A.

Having said that, I think where we're at right now is that, and we monitor this on a very consistent basis, we feel that we are on track to recognize the full $26 million of initial synergies that was laid out.

The vast majority of those have been recognized already, as we sit here at the end of 2014. There's a little bit more to come into 2015 and then on top of that, as we've alluded to, there's a number of additional projects that we've identified that would not have been part of our original thoughts around the $26 million in synergies that we're also executing. So once we get done with everything, I think from our viewpoint now, it will actually end up being higher than $26 million

Okay, good. And then the actual process that you completed in the fourth quarter of getting all the locations onto one common platform, are you able to drill down and say how much in cost that actually saved or is that too detailed?

I think the way to think about that is, there was certainly cost reductions that were recognized when we did that certainly, whether those were alignment of management, recognized as we realigned management or in a variety of other areas. But that's really part and parcel to the $26 million. So there were synergies recognized out of that effort, a big portion of them and then there will be further things going forward.

All right. When we think about gross profit growth in 2015, you obviously said don't expect a jump from 4% to 7%, but as we model it out, the way to think about it, and let me know if this is correct, but to grow off of the underlying gross profit growth number that you have for 2014. Is that correct?

Yes, that would be correct. That's the right way to look at it.

Okay. Also on EBITDA, the $83 million to $87 million guidance, the comparable there would be the $75.5 million in 2014. So that range, if that is the comparable number, would imply 10% to 15% EBITDA growth in 2015. Is that correct?

A couple things, one is that the $75.4 million or $73 million, the number that you are alluding to I think is a good way to think about it. The two exceptions to that would be, as we alluded to in our initial comments, is we're no longer going to adjust for net accretion and amortization of acquired lease contracts, so the $1 million you see there in the bridge between $77.8 million and $75.5 million. That's one thing that will be a little bit different.

The other thing is that we're going to, the adjusted basis for 2014 that we will be comparing against, as we alluded to in our commentary, will not include any EBITDA that we would have had for example from our existing Click and Park business, because that's now contributed to Parkmobile and we have a 30% investment there.

When you actually take that into consideration, I think you are right in terms of how you are thinking about it and in terms of the percentage increase, but when you take those two things into consideration that would probably slightly increase the percentage growth that you are talking about.

Okay. On the actuarial tables update, how significant of a headwind is that to G&A in 2015? Should we just think of that flowing through as an increased cost in 2015?

You should think about there is no significant, it will be slightly down, so it's not going to be a headwind to G&A in 2015. It's effectively a one-time adjustment that takes place that hit in 2014, so we don't view that as an issue

Okay. Lastly, on the $100 million EBITDA target, is the 45% G&A as a percent of gross profit still something you are contemplating in that target?

The way to think about it is that the primary focus, and I think you've got this right, Kevin, the primary focus for the Company going forward is really going to be on EBITDA, free cash flow and then earnings per share. And that's what we've given guidance on and obviously the 5% to 7% comparable underlying growth in gross profit dollars.

We view getting that $100 million in EBITDA as really the primary objective. Having said that, we'll still continue to monitor G&A as a percentage of gross profit and I think that's a good thing and a key metric we should be looking at, but it's really not the primary objective as we look forward

Okay, thanks for taking my questions.

Thank you, Kevin.

I'm showing no further questions. I would like to turn the call back to Marc Baumann, Chief Executive Officer, for closing remarks

Thanks, Amanda and I want to thank everyone for joining us today. We really appreciate your interest in our Company. We're looking forward very much to a terrific year in 2015 and speaking with you next time. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day.