SP Plus Corp (SP) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the SP Plus quarter one 2015 earnings conference call. (Operator Instructions) I would now like to introduce your first speaker for today's conference, Mr. Vance Johnston. You may begin, sir.

Thank you, Andrew, and good morning, everybody. As Andrew just said, I'm Vance Johnston, Chief Financial Officer at SP Plus. Welcome to the conference call for the first quarter of 2015. I hope all of you have 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 our financial performance in a little more detail. After that, we will open up the call for 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 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 wanted to mention that is call is in broadcast live over the Internet and that a replay will be available on our SP Plus website for 30 days from now.

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

Thanks, Vance, and good morning, everyone. I am very pleased to report that 2015 is off to a great start. Strong execution helped us to achieve first-quarter results with a significant improvement in our year-over-year profitability. Adjusted EBITDA is up by more than $6 million and adjusted EPS improved from a loss of $0.05 in the first quarter of 2014 to income of $0.13 in the first quarter of 2015. A key driver of our improved performance was an increase in same-location gross profit at operating locations, which was up 6% in the first quarter of 2015 compared to the first quarter of 2014 and which showed growth across the vast majority of our geographic areas.

If you recall, the severe weather during last year's first quarter affected large portions of the country. While we did experience severe weather in the first quarter this year, it was less widespread with the greatest impact in the Northeast, primarily in Boston and New York City. Robust new business activity also contributed to our strong growth in gross profit, as did a significant favorable change in casualty insurance reserve estimates for prior years and a reduction in healthcare benefit costs which Vance will talk about in more detail later.

We are excited about the strong momentum we are seeing in new business activity and have continued to build our pipeline. We are especially pleased with the successful results we're having in the municipal and hospitality markets. Two wins of note -- our municipal deals in Stockton, California and Louisville, Kentucky. And we just learned last night that the city of Los Angeles had awarded us a contract to operate the SP -- meters in the city of Los Angeles for nine years. The city's coin and collection and counting services and also the on-street meters, so 33,000 on-street single-space meters will be operated by SP Plus Municipal Services.

We were selected as the best value to the city due to new technology, improved accountability, and added security that we're going to provide in the collection and counting of over $45 million in coins. LA has the second largest network of on-street meters in the nation, second only to New York City. So we are very, very much looking forward to beginning that contract in a month or so.

With the addition of these municipalities, we now provide on- and off-street parking management, enforcement, and citation processing services to over 90 municipalities across the United States.

On the hotel front, we recently won several contracts in South Florida to provide white-glove valet and parking management services. We are also pleased to report that our overall location retention rate remained strong at 89% for the 12 months ended March 31, 2015.

On the cost side of the business, we continue to be focused on disciplined cost management. Work is now underway to reengineer feedback office processes, improve sourcing and procurement, and continue to realign the management organization. While we certainly have plenty of work ahead of us, I am happy with our progress to date and am confident that we have a solid strategy in place for the future. We look forward to executing on our key initiatives to achieve our profitability goals and drive value for our shareholders.

With that, I will turn the call over to advance to lead you through a more detailed discussion of our financial performance in the quarter and guidance for 2015.

Thanks, Marc, and hello, everybody. I like to spend a few minutes reviewing our financial results in more detail. I want to reiterate that we are presenting and will focus our comments on adjusted results that exclude the impact of nonroutine items such as but not limited to restructuring, merger and integration costs, costs related to nonroutine structural and other repairs, one-time transaction costs, certain nonroutine tax items, and the impact of any nonroutine asset sales or dispositions. We include in this last category the contribution of the Company's Click and Park business to Parkmobile, meaning that we have adjusted the 2014 results as if the Click and Park revenues and costs had already been contributed to Parkmobile for purposes of comparability.

Now on to our results -- first-quarter 2015 adjusted gross profit increased 18% over the same period last year to $41.3 million. As Marc mentioned, strong same-location growth of 6% and strong new business activity contributed to this overall gross profit growth. We also saw favorable casualty loss revenue adjustments for prior years of $800,000 in the first quarter of this year as compared to unfavorable changes of $1.1 million in the first quarter of last year, a swing of $1.9 million on a year-over-year basis.

In addition, we saw a significant reduction in health benefit costs in the first quarter of 2015 relative to the first quarter of 2014. Reductions in health benefit costs inure to us as we are self-insured for the cost of medical claims up to a stop loss limit, similar to our casualty insurance coverage.

Adjusted G&A for the quarter of 2015 was flat year-over-year despite a $1.5 million increase in the expected payouts under our 2015 performance-based compensation programs as result of improved performance in the first quarter of this year. Adjusted EBITDA for the first quarter of 2015 was $16.7 million, an increase of $6.3 million over adjusted EBITDA of $10.4 million for the same period last year. And adjusted EPS was $0.13 in the first quarter of 2015, an increase of $0.18 over 2014's first-quarter adjusted loss per share of $0.05.

The increase in adjusted EBITDA and adjusted EPS was primarily driven by the aforementioned increase in adjusted gross profit. Adjusted free cash flow was negative $11.5 million during the first quarter of 2015 as compared to negative $13.9 million during the first quarter of 2014, in line with our expectations. Free cash flow tends to be lowest during the first calendar quarter, for a variety of reasons including seasonality in the timing of cash distributions under the Company's performance-based compensation program. In addition, free cash flow for the first quarter of 2015 reflects a $4.7 million income tax payment which is consistent with the expectation of significantly higher cash taxes in 2015 that we discussed on the last call.

Based on our first quarter financial results, we expect both adjusted earnings per share and adjusted EBITDA for the full year to be towards the higher end of the guidance range and maintain our adjusted free cash flow expectation of $30 million to $36 million.

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

(Operator Instructions) Daniel Moore with CJS Securities.

Marc, I wanted to follow up on your comments around new business wins and opportunities. What are some of the key competitive differentiators that are enabling those opportunities? And how would you characterize the pipeline today versus two years ago or so when you first took over Central?

Well, I think certainly the pipeline is much stronger. I'm going to answer that part of your question first. The one nice thing about the merger of Central and Standard is that both companies had achieved quite a lot of success in the municipal arena. And so I think the advantage of bringing the two companies together from that point of view is that we have a tremendous amount of credibility when we are going in and proposing solutions for a municipal client. And we can point to local municipalities in most major markets where we are providing services. Obviously, when a government agency makes a decision to either outsource meter collection or enforcement, often for the first time, or to disrupt long-term service contracts where these services are provided by others, they want to make sure that they are putting themselves in the hands of somebody who really knows what they're doing. And so, I think some momentum is building. I talked about the fact that we have 90 locations now, and it makes us one of the largest providers of these services in North America. So I think that's a key to our credibility.

The other thing, of course, is that, as we talked before, we invest extensively in our capabilities to provide technical solutions and creative ideas to municipalities. And on the LA award, which I was just talking about a few minutes ago, one of the differentiators that they really highlighted in selecting us was that we were bringing unique technology solutions that were going to give them real-time information about what was going on from a collection point of view, new vehicles with new technology. And I think that's another area where SP Plus stands out in terms of providing the services. And I don't want to mention names. They are obviously out there in the public domain. But the people that we were competing against for this contract are people that are in the technology sphere as well. So, I was very, very pleased to see that we got this win.

One of the challenges for us in the municipal space is that these processes can take a lot of time. They have long lead times. So, we've certainly built a pipeline of all the municipal opportunities that we feel are out there and attractive to us. In this particular case of Los Angeles, the entire process took almost three years. That's on the longer end, but large municipalities have fairly rigorous screening processes and evaluation processes that they go through before they make a decision like this. So, we are very optimistic that we will continue to win more municipal deals on the back of what we have been doing now and see this as a definite growth area for SP Plus.

Very helpful. And maybe just switching gears a little bit, remind us of -- past the first year or two of the integration, remind us of the timeline for collapsing timekeeping systems and other next-level integration projects, what kind of mileposts we should be thinking about over the next few quarters and any update on CapEx anticipated or expected around those projects over the next year or two.

So let the address the first one and first in order. So as we have laid out on our fourth-quarter call of 2014 and talked about previously, we have a number of cost-reduction initiatives that the Company is pursuing. Those tend to be in the following areas. There are some major process reengineering initiatives. You alluded to one of those. So there's several under that umbrella which include as we look at timekeeping systems and moving from two to one monthly parking systems and other key initiatives in that area. We would expect that those -- we're working on those and they are well underway now. Our anticipation is that we will be executing those over the next couple of years. Some of those we will be able to complete sooner rather than later.

The second set of cost initiatives that we are focused on is on sourcing. We really believe there's an opportunity to leverage the scale of both companies coming together to get better terms and take down our cost of sourcing both direct and indirect spend. So we're working on that, and that is underway as well. Marc alluded to, in his opening comments around those two plus also continuing to look at ways to be more efficient and streamline the organization as well, and then we are also very focused on overall cost control management and putting in place tighter cost controls as well. So hopefully that answers your first question, Dan.

Your second question, around CapEx -- we haven't given, as you know, CapEx guidance for the year, per se. But what we have provided is free cash flow guidance. And so we don't see anything at this point changing relative to our free cash flow guidance, and we feel comfortable with the amount of CapEx that we are spending in order to get to that point. As you look out over the next couple years, we don't see anything different at this point than what we have previously -- the information we have previously provided, which is there will be some additional CapEx that we will have to spend in relation to some of these key reengineering initiatives and some other things will be doing. But we don't view that as significant as it relates to prior years.

Very helpful. Lastly, obviously profitability improved nicely. Just curious -- the number of facilities ticked down a little sequentially. How much active pruning of underperforming is still taking place? And when would we expect or should we expect to see positive growth again just in the overall number of facilities both managed and/or -- and leased?

The way I would describe that is actually, in terms of pruning our underperforming locations, we are pretty much through that. Now, I say that. There's lease locations that will come up over time that our underperforming lease locations. When those come up, we will certainly be looking to either, one, renegotiate those and hopefully we are able to do so at favorable lease rates that allow us to make money. If we are not able to do that then we may, in the end, walk away from those leases. But more of what you saw in the last quarter was relative to a couple of -- certainly one that we pointed out -- larger portfolios whereby we lost a portfolio or two that had a number of locations within those portfolios. The actual contribution that those portfolios made to our overall gross profit was not significant. So even though the location number went down, the contribution to gross profit was not significant on a relative basis. And that's what you saw in the first quarter. Now, having said that, as we said before and continue to be focused on, our overall focus is growing location growth. That is the key thing that we are focused on.

Very helpful. Appreciate it.

Nate Brochmann with William Blair & Company.

So a couple of questions, Vance. You threw out what the casualty reserve change or delta was, $800,000 versus $1.1 million last year. But you didn't give us the health benefits. I was wondering if you could give us that number. And then second question on that is, what are you doing differently there that might be a little bit more sustainable or take some of the volatility out of that number? Obviously, we know throughout all the years that those reserve adjustments do vary and sometimes it's a little bit more, sometimes it's a little bit less. But obviously that's a much bigger delta. And to try to get a little bit of predictability there would probably be helpful, if you could talk about that a little.

Sure, I'll start off and Marc may want to add a little bit as to what we're doing on casualty because I think that is a significant focus of the Company now and going forward. But to your first question on healthcare cost, we saw about a $1.2 million favorable adjustment on the cost. And really, as you think about that, that has to do with the program becoming more mature as we get more information and, quite frankly, the cost expectations that this, like the casualty insurance program, is based on -- we have an actuary, actuarial information that is put together and that assesses this. And the original assumptions that we had -- we're ending up not seeing the number of claims that this point or the severity of those claims being as we may have thought or certainly assumed that they would be when the program was put into place. And now, we are starting to get a little bit more comfortable as the program becomes more mature.

With that, what I would say is that from quarter to quarter and from year to year that can change, based on the number of claims that you get and the severity of those claims. So, we are cautiously optimistic that we hope that the trends we are seeing will continue. But once again, having said that, the way these things work is that you could get claims that could go on when the number of claims that you don't expect or the severity could change as well. So that's how I would describe healthcare cost.

As it relates to casualty, what I would say is that this relates to prior-year losses, the $1.9 million swing that we saw in the first quarter of 2015 relative to 2014. Really, the way to think about that is that, once again, and actuary actually does -- looks at all the information and looks at our liability and mix the calculation thereof. Some of the things that could have impacted that would have been prior-year losses that we think the liability is less and is a favorable change. Some of it could have been due to the fact that we had some improved performance we would like to think that in 2014 that helped as well. And then, as I mentioned earlier, certainly as we going forward, safety and risk management across the Company is now a major pillar and a major thing that the Company is tackling because it really does have an impact for us. And this is an area where we can really make a long-term impact based on the number of claims, how quick and how well we process those claims and things like that.

And maybe Marc can add to that as well.

Sure. And let me -- before I do, I'd just make one comment on the health plans, because we're still in the early days, as Vance located, of operating self-insured health plans and one of the variables that impacts the financial performance of the health plans is the level of participation that we achieve. And obviously, most companies are still facing the settling out of what the world looks like in the post-Obamacare scenario. And for us what we have found at least so far in 2015 is that we have higher participation than we expected. And if that continues, then that usually is a good development from the point of view of the financial performance of the health plan, independently of claims. But whether or not that is sustainable or not, whether some of that increased participation is at locations that we retain or don't retain is very hard for us to forecast. So I think this is an area where there will be, for a while, some movements that are going to be hard to forecast. And hopefully at least when they happen they are going to be favorable. But we can guarantee that, obviously.

On the risk management side for the casualty programs, we did bring in a new leader of the risk management area very late last year and asked him to take a fresh look at all of our risk management programs, the levels of coverage that we have, how our third-party administrators operate, what is our safety culture, how do we motivate the correct behaviors out in our organization to prevent accidents and identify unsafe conditions. And all of that is kicking off now. And as we look forward over the next couple years, we're going to expect to see positive movement in our total cost of risk. How big that will be is very, very hard to predict. But at least in terms of the things that we can control directly, I'm confident that we are now pulling on all the levers to incentivize our organization to make bringing down the total cost of risk a major component of what we do every day.

The benefits we got in the first quarter of 2015, as Vance indicated, really relate to 2014 and so are not reflective, I don't think yet, of any of those kinds of changes that we are just starting to implement now. But I will say this, and this is not unusual -- our casualty programs have been structured and our estimates of cost are based on the presumption that over time the cost will come down. That has been our long-term historical experience. What we saw over the past couple of years were costs moving the other direction. So 2014 was one of the years where we had the most unfavorable movement; 2013 is kind of similar.

So to a certain extent, my own subjective assessment of it is that what we are seeing now is maybe a little more of a return to norm and particularly because we have more normal weather so far this year. That helps a lot. When the actuaries see horrific weather and a spike in claims like we had in early 2014, they start to become very conservative about estimating. And so, I think that factored into the estimates that were made during 2014 and the results that we reported last year.

So hopefully those positive trends will continue, but as you know from following our business for some time, these kind of things can move both directions, sometimes by large amounts, but at least we're getting the kind of performance on the casualty program that we would like to see and that we expect to have happen for us.

Okay, that's helpful. Thanks for all the detail on that. And then -- and I know that that variable is indeed unpredictable a little bit but to the degree that it seems that we are behind all the noise that we had the last couple of years as we went through all the integration, while there are still some ongoing integration costs and we still have some of this activity going on that hopefully, I believe, should be, if I recall correctly, done by the end of the year, it seems like things should be a little bit more stable and your new business wins that you have been able to win, I think, show a little bit more that we have a little bit more resources going towards growth as opposed to just all the distractions from the integration. Just wondering if you could comment a low bit in terms of how you see that in your own words of being on the move forward after have some degree of disruption the last couple of years with a lot of integration issues.

That's a great question, Nate. And I think generally I would agree with your observation. Certainly a merger integration of the scale that we attempted and succeeded at doing is a major distraction for people at all levels of the business and in particular people in the field organization who we ask to go get new business, we ask them to maintain client relationships, we ask them to operate their facilities to a high standard and at the same time adapt to massive change in their systems, processes, and reporting. And so there is no doubt that that was a major distraction for the organization.

Now, while all of that is going on, we did set the stage over the two years to be able to grow faster, and we did that by ensuring that we put added resources in our business development organization, that we trained people from both companies on our capabilities because we obviously have an expanded array of things we can do. We want people to be able to go out and sell those things successfully. The growth in the municipal area that I talked about earlier has led us to add resources there. I think we have added two or three full-time people to that area over the past six months just in recognition of the growth of that area. We are also adding additional resources in our hospitality area because that represents another major growth area for us.

So, we are clearly making sure that in the areas where we see the most potential for growth -- the institutional space, which includes airports; the hospitality space; the large event space -- we are ensuring that we provide the resources that those elements of our business really need to be able to grow and to be able to invest in these long-term multiyear processes, as I talked about the lead times and the amount of investment that is needed, in some cases, over a couple-of-year period.

We are also expanding our investment in the marketing area. One of the things that the combined Company has a fairly large and probably one of the largest marketing functions of anybody that does what we do. And yet we are giving them additional resources. As consumers start to change the way that they interact with parking equipment or parking decisions that they make, we are putting more marketing resources out into our business so that, as we are getting in front of clients, we're able to differentiate what we do and offer up creative solutions to clients that other competitors are not doing.

Fabulous, I appreciate it. I'll have a few more questions, but I'll turn it on over and get back in queue.

(Operator Instructions) David Gold with Sidoti & Company.

So just to follow up a tiny bit, not to beat a dead horse, Marc, I'm not sure if I caught in the health care piece -- or Vance -- if you gave the actual number for what the benefit was maybe year to year.

Yes, we did, a few minutes ago. It was $1.2 million year over year.

Perfect. And then part two is I know you gave -- talked a little bit about some of the things and the pluses and minuses. But from where you sit today presumably, as the actuaries look at it, I guess I'd like to get a sense. Presumably we must think this is sustainable, right? And I guess the question is on that, beyond the $1.2 million, how much do you think on an ongoing basis we would have? So in other words, to the extent that some of that is reversal and accruals, how much on an ongoing basis in savings do we think there is?

Well, David, I think what we said a few minutes ago was, is that -- just to answer your question is we, one, are moving from a -- we have just, the last couple years, put in place effectively a self-insured type healthcare insurance program. We are now starting to see that program hopefully get to a little bit more maturity. You have to wait a number of quarters until you feel confident, start to feel confident that you have more of a mature program. And having said that, what we've seen so far is that we've seen that the number of claims and the severity of those claims has been less than what we and our actuaries would have anticipated upfront when we put the full program into place.

Now, going forward, we are cautiously optimistic that we will continue to see somewhat similar trends. But the reality of it is that we don't really know for sure because the number of claims that could hit at any one time, the severity of those claims could cause our liability to go up. And so that's the way, I think, that we would characterize it.

And the only thing I would add is, when I made the comment about enhanced or expended enrollment, that's an important feature because obviously the unknown in the Obamacare world is to what extent are the penalties that people face for not buying insurance motivating them to buy insurance. Nobody really knows yet how that's all going to play out. It's clearly, the people that have illnesses and are likely to be using insurance are going to make a decision to buy insurance. So we are always going to have those people participating in the medical plan. What a healthy medical plan setup needs are people that are healthy and may not use the medical plan services to also participate. So I think we are encouraged by the higher participation that we saw in these 2015 enrollment. But whether or not those people stay with it as the monthly premiums come out of their paychecks or whether they make other decisions, we don't yet know.

And how that plays out will have an impact on the financial performance of the health plan independent of what our claims experience is.

Sure, sure. Well, maybe -- can you give us some framework, because I'm still at a little bit of a loss here. So let me just ask it a different way. When you began implementing the self-insurance program, what type of savings were baked in there so, once it's fully implemented, when you thought about the benefits, what kind of savings might we see or might you guys see once we are fully up and running and folks have signed on?

That's impossible to gauge, David. There's a tendency to think of the health plans as being like the casualty plan because they are both self-insured. But they couldn't be more different. There's nothing that we can really do that's going to drive the level of claims. That's just going to happen.

That wasn't the question, though, Marc. The question was, presumably you did an assessment on the program before you implemented if, right, to see what type of savings Standard Parking might see by implementing this. If it were a bigger cost driver, you wouldn't have done it. So I guess really more trying to get a sense for what type of savings one expected by doing this. If you expected to cost you more money, I can't imagine you would have it into place.

No, we didn't expect it to cost more money. But we didn't really go down this path because we thought it would be a giant savings. It's much easier to operate a fully insured medical plan. The challenge for us as a business is, given our size and the populations that we have, the cost of a fully insured plan which have been substantial. I should say that the premerger standard was not a fully insured plan, and we were having trouble maintaining that plan and not facing gigantic cost as Obamacare was rolling out. Central had already been on a self-insured plan. So the decision to really go the self-insured route was really more about mitigating potential increases in cost as opposed to setting ourselves up for cost reductions.

Got you. Okay, that's helpful. And then one other -- as we look at Parkmobile, can you give a little bit of an update there as to when -- a little bit of, you know, say, the planned trajectory and what the thinking is there as to when it may be a profit driver?

Yes. Obviously, like any business there's the need to anticipate what might happen into the future. What I can say is that they are well underway in integrating the legacy Parkmobile platform and the Click and Park platform that we contributed to that business. And they are out there aggressively selling the capabilities of their combined platform. We are pushing in our own organization to expand the use of Click and Park or the Parkmobile functionality to our clients, because we obviously think there's tremendous value in offering that up as an alternative means of paying for parking instead of the old way of pulling tickets and putting credit cards in machine.

But in terms of how quickly they are going to get to that point, it's hard to estimate right now. I would say Parkmobile is a fairly young business. And like many young businesses, they are making investments in technology and expansion of their platform and capability to enable the growth that we continue to believe is there for that business.

And so I would say -- all I can say for certain is that we are not expecting it contribute positively to our bottom line in 2015. But beyond that we haven't formed a more -- a clearer picture of when that might happen.

Got you. All right, that's helpful. Thank you both.

Kevin Steinke with Barrington Research.

As you think about the 6% same-location growth in gross profit during the quarter, do you have a sense as to how much that might have benefited from the weaker year-ago quarter from weather?

Yes, Kevin, this Vance. Thanks for joining the call and asking the question. So, yes, I think that as we mentioned in our opening comments, we do believe that was a factor. Clearly, the first quarter of 2014 was one that we saw more of a significant impact of weather. It was more vast in terms of areas that it impacted us. So tough to really calculate year over year the relative change in the impact of weather. But having said that, we do believe that less weather impact in the first quarter of 2015 helped contribute to that 6% growth in same locations.

So let me just add a little to what Vance has said. First of all, we had worse weather in some of our markets. So New York and Boston, in particular, I would say had worse weather this winter. And we certainly saw that the performance of those markets relative to 2014. So the picture for 2015 is not all rosy weather conditions. It is very, very hard to estimate how much is weather and how much is all the other variables that go on in a market. But our belief is that in aggregate clearly the weather was not as severe through many parts of the country, as 2014 saw extensive ice storms and other problems in the Southeast, in particular, where we have a lot of [lease] locations. And we didn't see that again in 2015.

So I think, as we look at our business, we've talked about our expectations for gross profit growth. We want to be in the 5% to 7% range. Obviously more would be nice, but I think we are targeting that range for our business. We have gotten close to that the past couple quarters. We've been hovering around 4%. So it's nice to see this uptick. I'd like to believe that our underlying weather-adjusted gross profit growth in the quarter was right in that realm where we have been the last couple of quarter. I hope it's more, but I'm certainly feeling that at least a couple of percent of the growth that we had in the quarter was due to just improved weather year on year.

Okay, thanks for the color. And in terms of the new contract with Los Angeles, how sizable is that expected contribution in terms of gross profit relative to your overall contract portfolio? Is it at the larger end?

Not necessarily. As we've talked before, the larger, more complex arrangements that we enter into, to provide services, whether that's a large, complex meter contract or whether that's an airport or an office campus -- we tend to be compensated better than on, obviously, a surface log or a commercial office building. That's a general statement. But in the municipal realm there's a public bidding process. And there are several criteria that a municipality will use to make a decision about who to select to provide services. And certainly price is one of them.

We don't attempt -- we've talked about this for some time -- to be the low bidder. But you can't be oblivious to what other people might bid or what the incumbent is being paid because some of the services that we have been awarded were provided by another company for many years. So there is public information around what they are being paid for those services. So the total value of the contract award is like $27 million. But that obviously includes all the expenses that we are going to be incurring to operate the contract.

So we don't disclose gross profit from a typical contract. But, given that we spent three years trying to win this deal, I think it's safe to say that we felt it was a worthwhile investment of our time and energy.

Okay, great. And Vance, you mentioned in your prepared comments, I believe, a $1.5 million increase from performance payments or payouts due to the better performance thus far in the year. How should we think about that impacting the G&A run rate as we go through 2015?

Yes, so I think the way to think about it is that, first, given that we have now guided to the higher end of the range, toward the higher end of the range, I think that with that one would expect that our performance-based compensation, which is tied to that, would be a little higher. And that hits G&A. And so we saw that really in the first quarter. If you may recall, as we talked about this a minute ago, in the first quarter of 2014 that was a much more challenging quarter for us, given the weather impact and other things but primarily the weather impact in the first quarter of 2014. So there was a year-over-year swing for our compensation program of about $1.5 million that took place. It's tough to really -- it really depends in our performance but we would expect that we would have slightly higher compensation cost throughout the rest of the year, based on what we expect now to be improved performance for the year overall.

Okay, thanks. And I just wanted to --

And Kevin, I would just add that the way to think about it, which you are probably picking up, is that obviously we are very focused in reducing costs. And indeed, what we saw in the first quarter of 2015 and what we would expect going forward is, notwithstanding any increases in compensation cost, that our absolute G&A dollars will be coming down.

Okay, that was actually my next question. Absolute G&A in terms of on an adjusted basis coming down, ex- the performance bump or on an --?

Yes, Kevin, yes. So the way that we -- when we originally discussed this on the fourth quarter of 2014 conference call we said that the absolute G&A costs, which we were inferring that that would have in our reported cost, in 2014 we would expect to come down as we go into 2015 and we move forward. And we still believe that that's the case and obviously are very focused on taking out costs, not only G&A but also cost of parking as well.

All right. But that's the reported number you are talking about, including the merger and integration expenses, etc.?

Yes. That's how we thought about it, one, just because we would expect merger and integration costs to come down. And then, two, we would expect to continue to reduce our costs. And obviously, when we thought about that we also thought about the potential for some increased compensation costs. But once again, we stick with the fact that we expect costs to come down on an absolute basis relative to the reported G&A that we had in 2014.

Okay, good. One last question for me, just maybe an update on -- you've talked about in the past you have an operational excellence group out there looking to improve performance at existing locations. Any update on how that's going, any benefits you are seeing from that effort?

Sure, be happy to talk about that. Probably the most notable thing is that we expanded the size of that group significantly in 2015 from 2014. We close to doubled the size of it. So I think now we have seven people working full-time on this. And we will expand it more as we feel that the opportunity is there for us to do something.

One of the things that we have focused a lot on this year is making sure that the operational excellence group is covering a larger part of our portfolio. And so, we set some fairly aggressive targets for them and are expecting more than a doubling in the number of locations that they are going to visit this year. We are continuing to see the same kind of impact that we've seen before, where when we compare locations that they have worked at compared to our other locations, we tend to see greater revenue growth and greater gross profit growth than at the existing locations. So continue to see this as a valuable area for our business, and we will continue to add resources to that group until we reach a point where we don't see that the value is there for us.

Okay, thanks for taking my questions.

I'm showing no further questions or comments at this time. So with that said, I would like to turn the call over to Mr. Marc Baumann.

Thank you, Andrew. And more importantly, thank you to all of you for joining us today and taking an interest in our Company and our results. We really appreciate the opportunity to explain our performance for the first quarter, and we look forward to speaking to you again next quarter. Thank you and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect.