SP Plus Corp (SP) 2016 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the SP Plus Corporation first-quarter 2016 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 call is being recorded.

I would now like to turn the conference over to Vance Johnston, Chief Financial Officer. Please begin.

Thank you, Latoya, and good morning everybody. As Latoya just said, I'm Vance Johnston, Chief Financial Officer at SP+. Welcome to the conference call for the first quarter of 2016.

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 Marc Baumann, our President and Chief Executive Officer. Then I'll discuss our financial performance in a 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 2016 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+ 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 this call is being broadcast live over the Internet and that a replay will be available on our SP+ website for 30 days from now.

With that, I'll turn the call over to Marc.

Thanks, Vance, and good morning everyone. Our overall first-quarter results were largely in line with our expectations, although adjusted gross profit was down compared to last year. On the G&A front, we continued to make very good progress on cost reduction initiatives that resulted in significant year-over-year reductions in adjusted G&A.

We also had another strong quarter of free cash flow generation. As you saw in our release last night, we have had a lot of new wins and renewals. Our new business activity is strong and we hope to write another record year of new business in 2016.

We've begun operations under the previously announced MGM Resorts deal in Las Vegas where things are progressing very well. Other big wins include the award of a contract to provide on-street, off-street, shuttle and consulting services for the city of Annapolis, Maryland, and the extension of our contract for the city of Portland, Oregon to manage eight downtown parking garages.

In addition to robust activity in the municipal vertical, we had nice wins in the hospitality and large venue verticals and also expanded our relationship with some key asset managers. Some of our new contracts will ramp up over time, which we expect will further accelerate gross profit during the year.

Our location retention statistic improved to 90% for the 12 months ended March 31, 2016. And we continue to be focused on improving our location retention rate to 92%, which is a historical level that standard parking had achieved.

In terms of same location, we faced a challenging comparison to a very strong 2015 first quarter. As is typically the case, we saw varied results across geographic markets and industry verticals. In the hospitality vertical, particularly in Chicago, we saw some unfavorable year-over-year results at same location, largely driven by lower hotel occupancy rates, some of which was expected. In Los Angeles, a couple of off-airport locations are underperforming relative to last year and relative to plan as we've seen a big increase in competition.

On the upside, our New York market has recovered nicely and is performing better than last year, some of which was expected due to the impact of elevator repairs on 2015, but it's also performing better than our plan for 2016.

While the quarter's comparative results with last year were slightly lower, I want to reiterate that we were largely on plan for the quarter relative to our internal expectation, and therefore we feel comfortable with our full-year outlook.

Lastly, I want to comment on the progress we've made on our various strategic initiatives. Safety and risk management is an area that is continuing to improve as we see an increased engagement at all levels of the organization relative to our new safety and loss mitigation programs. As we previously mentioned, we are making great progress with new business as evidenced by the number of new contracts we've recently won. We are also making very good progress on cost reduction initiatives, and Vance will talk a little bit more about those later on in the call.

With that, I'll turn the call over to Vance, who will lead you through a more detailed discussion of our financial performance during the quarter.

Thanks Marc. I'd like to spend a few minutes reviewing the financial results in more detail. First-quarter 2016 adjusted gross profit decreased $3.1 million or 7% over the same period of 2015. A significant factor in the year-over-year decrease was an $800,000 benefit in the first quarter of last year due to favorable changes in prior-year casualty reserves which did not recur this year. In addition, costs under our self-insured health program increased by approximately $500,000 due to a combination of higher overall claims costs as well as higher participation as a result of the Affordable Care Act. The remainder of the year-over-year decline was due to performance in certain geographic and vertical markets.

We continued to do a good job managing G&A costs in the first quarter. As a result, adjusted G&A for the first quarter of 2016 decreased by $1.5 million or 6% over the first quarter of 2015. The decrease was largely due to comp and benefit decreases resulting from recent organizational restructurings and other tighter cost controls. We've also made good progress in a number of cost reduction initiatives that we expect to continue to positively impact our results going forward.

Adjusted EBITDA for the first quarter of 2016 was $15 million, a decrease of $1.7 million compared to the same period in 2015. The resulting adjusted EPS for the first quarter of 2016 was $0.10 as compared to $0.13 in the same period of last year.

The Company generated adjusted free cash flow of $3.6 million in the first quarter of 2016 as compared to a negative adjusted free cash flow of $11.5 million in the first quarter of 2015. While some of this improvement was due to favorable timing of working capital movements, we continue to be pleased with the progress we are making in managing Accounts Receivable, Accounts Payable terms, and capital expenditures, among other items. In addition, lower interest expense resulting from the Company's renegotiated credit agreement in 2015, as well as lower cash tax payments, net proceeds from the sale of assets, and the receipt of a termination payment benefited 2016 adjusted free cash flow.

Now I want to spend a few minutes talking about the fluctuations in our quarterly performance. As we've mentioned before, there is some underlying seasonality to our business. Reduced air travel and hotel occupancy levels as well as inclement weather and increased snow removal costs in the first calendar quarter typically results in Q1 being our weakest quarter. In addition, we maintain a high deductible casualty insurance program and a self-insured health insurance program that can add another layer of volatility to our quarterly results, which, as Marc mentioned earlier, impacted the first-quarter 2016 comparisons. Since the first quarter's results were largely in line with our internal expectations, and we don't currently see any significant headwinds for the remainder of the year, we remain comfortable with our outlook of adjusted EBITDA to be in the range of $88 million to $93 million, adjusted earnings per share to be in the range of $1.16 to $1.26, and adjusted free cash to be in the range of $40 million to $46 million.

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

(Operator Instructions). Nate Brochmann, William Blair.

Good morning everyone. So, a couple of questions. One, just I mean obviously regarding the insurance, and we completely understand that that always creates a little bit of lumpiness and noise quarter to quarter and hard to predict, but a couple of things along that is, one, have you guys had any new techniques, or is there anything new versus maybe the last couple of years of any way to control or predict that a little bit better within your organization in terms of trying to make it a little bit less lumpy?

Let me take that, and maybe Vance will add to it. I think one of the biggest challenges we have had is with the health program because, pre-merger, Standard Parking had a fully insured health program; pre-merger Central had a self-insured program up to a high limit. And in the combined business, as we've talked before, we went to a self-insured program. So we are still gaining experience with claims patterns. And of course on top of that, we have the Affordable Care Act where you have penalties are starting to ramp up for individuals and they are starting to bite at a level now where people who maybe chose in the first couple of years not to participate are now choosing to participate. And of course, from our point of view, it's hard to tell whether that's a good thing or not a good thing. If it's younger, healthier people who maybe opted not to take insurance and now they are opting in, then it's a good thing that they are joining our programs and adding to our enrollment. If it's people that maybe could get coverage at a price they liked in the exchange, and they are now opting to come over to us, that's a negative.

So, I think we're going to be in a period of lumpiness on the health plan probably for another 12 to 24 months as we just see behavior changing. We are hearing that some of the people that are participating in exchanges, some of the big carriers, are dropping out of some of the exchanges for 2017. So I think we're going to face a period of uncertainty, as every company will, until these behaviors kind of settle down.

I think, on casualty, the good thing for us is that we have had the same actuary working with us going back to when Standard first started doing self-insurance or high deductible insurance back in 2001. So we've had a tremendous amount of continuity. He uses the same methodology and logic that he's used for all of those many, many years. I think what you see there is really just it's the nature of the program.

And particularly when you have a very, very extreme weather condition that the Company and most businesses experienced in the country in 2014, and in addition to some bad weather in 2015, it's very hard for the actuary to really predict accurately what the claim experience is going to be until we get past those years.

So I think, clearly, we are benefiting now in 2016, the weather was very good across the country. It's too early for us to really realize the benefits of that in our insurance program, but I think we certainly feel we are over the hump in terms of the negatives from the very bad weather of 2014 and 2015.

So, in a good way, I think we will continue to sort of see the experience that we've had with risk management, which is that, over time, the net adjustments tend to be a positive for us. That's held true over many, many years. We expect that to continue. And of course, we've got many new initiatives in our risk management area that are taking hold now. We saw our total cost of risk come down in 2015 compared to 2014, and we expect it to come down further in 2016 as those initiatives start to take hold for us.

Okay, thanks for that. And then if we kind of get rid of that noise a little bit, and I know, Marc, I appreciate your comments in terms of kind of location by location, region by region, there's always some puts and takes. But overall if we look at whether it's paid exits or winning more business than you lose kind of thing, pricing, and then also too in terms of just some of the opportunities on the municipalities, can you give us a little sense of the overall environment in terms of how you are feeling as we get through a big period of lumpiness created by a lot of culling of some of the old, unprofitable contracts with Central? And just as we clear out the noise how we are feeling of the underlying business and where we stand?

Yes, I'd be happy to. I think, as you say, there's always going to be things happen at a given location, and sometimes those are surprisingly good and other times they are not. But I think, on a macro level, as you know, we wrote record new business in 2015. We are on a faster pace in 2016, so we are ahead of last year's pace through the first quarter. So I think that reflects well on our business development activities and our ability to win new business. And that's not even really reflecting our nice, big contract in Las Vegas with MGM where we are taking on and operating 12 properties for them. So I think we are feeling very good about our ability to continue to win new business at an accelerating rate.

What was very gratifying to see was that our retention rate ticked up to 90% for the quarter, for the year ending in the quarter. While we talked last year that some of the dip below 90% was due to loss of some portfolio bank branch locations that didn't generate a lot of profit, nonetheless, a major focus in our business and on our operating team is really on driving up retention.

And of course, as we announced at the beginning of the year, we have a new leader of our Urban group, Rob Toy, who has been with us for many years, has moved into the position of President of Urban Operations, and it's given him a chance to tour the country and really look at the nuts and bolts of our business. Where are we doing well, where can we improve? And I think as we continue to focus on getting him out into the business with our operating leadership, we are going to see continued improvement in our retention rate.

Now, we've experienced a few things that we've highlighted. We talked about in LA we have LAX off-airport business (technical difficulty) facing very fierce competition there. And we mention it because it's disproportionately profitable, so the poor performance there really has a big impact on our results for the greater Los Angeles area.

We also talked about some softness we are seeing in some markets with hotels. We mentioned Chicago. It could be that some of these new players like Airbnb are starting to have some effect on hotel occupancy around the country. We are not seeing that on a broad base now, but we are certainly seeing a little bit of softness on hotels in Chicago. That being said, New York has really rebounded. And we had a very strong first quarter. The team there is really focused on driving performance in the New York market, particularly now that these major structural repairs are behind us. So, we will clearly have the kind of ups and downs, ebbs and flows, but I think we feel very good about the year coming ahead.

The other thing that affected the quarter that we probably didn't call out is that we did -- in any detail -- is that we did lose a couple of airports later last year, and of course we are not benefiting from the gross profits that those generated and would've generated in 2015 when we compare 2015 to 2016.

So, all in all, most of what I am describing was anticipated by us. (technical difficulty) gave you our guidance not too long ago, and that's why I know Vance and I are comfortable in reaffirming that as we are having our call with you today.

And then following up with that, Marc, on the competition, is that from some of the other traditional parking players that you've always competed against, or is that from some of the newer entrants in terms of some of the more kind of tech app guys that are going after that business? And regardless of where it's coming from, is there any reason to think, other than just being it's always competitive, that there's any reason for any, like, increasing competition in terms of whether the environment being soft, people are getting more competitive, or again, is it just everyday stuff?

Yes, I would say it's more everyday stuff. And as you guys know, we don't really do a lot of off-airport operations. Our business strategy in the airport market has been to seek and obtain on-airport operations. And we have more on-airport operations than anybody else. So often, our non-airport plans are sensitive to the idea that whoever is operating for them on-airport would also operate off-airport.

So it's a very, very unusual situation around LAX, and it's a legacy operation that's been there for many, many years. A number of things have happened there, a new and established off-airport operator built a brand-new off-airport facility, a beautiful brand-new multilevel facility, so that's happened and that's actually closer to the airport than our operations, which are mostly on Century Boulevard. So that has taken a little bit of a bite out of us.

We had a couple of properties that we operated off-airport that were sold, and so we had to consolidate down our base of operations to a smaller footprint. That has a little bit of an issue in terms of ingress and egress.

And then we just have other competitors who are just seeking to kind of growth that off-airport business. And I would say off-airport generally around the country is becoming more competitive now. There are players, established players, who are investing significant resources to try to compete with the on-airports. But as I said, we are not big in off-airport. I think besides the off-airport in LAX, we have one in San Diego and one or two others that aren't that significant. So it's not -- if that trend were to continue and off-airports were to sort of become much more aggressive competitors and play the pricing war game, that's not really a threat to our business in the way that it might be if it was one of the more established parking operators who would be competing with us in more of our urban markets.

Okay. And then, Vance, just one quick kind of housekeeping. D&A was a little bit higher than I expected. One, is there reason for that? And two, is this quarter kind of a good run rate then going forward for the rest of the year?

I think a couple of things. One is that I think you saw kind of -- you know where our CapEx was last year, so over the last couple of years, we've had a little bit higher CapEx as we've moved through the integration, so we will continue to have a little bit higher depreciation and amortization than you may have thought a few kind of, you know, years back due to that. So think about kind of IT projects and capitalization costs related to that, not all but that do kind of integration efforts. But I think it's kind of a reasonable estimate.

The other thing that we do have is that we have some system -- some initiatives going on with our -- on the cost side. And as part of that, we're going to be retiring a few systems, legacy systems, of the Company, and with that we're going to be accelerating the depreciation of that. So you have a little bit of an impact of that also in the current quarter. If you think about the quarters going forward from there, we won't have that impact going forward for the rest of -- kind of into a little bit of the rest of the year but then as you go forward into 2017, you won't see as much.

Okay. Great guys. Thanks for all the extra time. I appreciate it and I'll turn it over.

Daniel Moore, CJS Securities.

Thank you. Good morning. Obviously, I don't want to have you reiterate what you've said twice already, but it sounds like your confidence in full-year really is unchanged and that the quarter was probably more in line with your expectations maybe than ours. Given that our numbers were a little bit lighter -- a little higher than where you came in in Q1, any color you can provide regarding how expectations throughout the remaining two to three quarters might play out? Are there specific quarters where you expect to see larger growth year-on-year in EBITDA and EPS as we look out for the back half?

I would say we normally expect the patterns to be kind of a first quarter is the weakest quarter; Q3 tends to be a very good quarter; Q2 is not a bad quarter, but it is the summertime and so there may be some changes in people's behaviors and parking patterns. Q4 is typically a good quarter, especially now that we have completed our repairs in New York. That was really a drag on us in Q4 last year. So I think that we would expect Q4 to be much better this year than last year for that reason.

But as you know, this is a business, and things happen. We win new stuff. We lose things. We retrace deals. We have surprises that are positive and negative that happen all the time. As I said earlier when I was talking about casualty, I think we feel very good about the measures we are taking that are going to continue to drive down our total cost of risk. That should unfold during the year. And clearly, we will benefit from the better weather that we experienced this year when it comes to casualty, but those benefits may start to show themselves in the fourth quarter or probably 2017.

Very helpful. And then in terms of G&A, adjusted basis $22.3 million for Q1, do you expect that number to continue -- do you expect to be able to continue drive that number lower over the next two or three quarters?

Yes, I think the guidance we have given is that we would expect adjusted G&A in absolute dollar terms for 2016 to be lower than 2015. And a couple thoughts on that. One, we still stick with that and believe that will be the case. Obviously, there's some fluctuations in G&A as you move quarter to quarter, but in absolute terms, we expect it to be down in 2016 relative to 2015.

And in addition to that, as we said in our prepared remarks, we have a number of initiatives that we continue to execute, and so some of those are having an impact and the results you're seeing now. Some of the initiatives are still in the execution phase and we would expect to have an impact kind of later on in the year and into 2017 as well.

Very helpful. Maybe one more. Just maybe update us on any discussions you're having or considering regarding capital allocation, particularly as leverage starts to decline more rapidly over the next year or two?

I think what we said on the fourth-quarter call was that we are continuing to make that a focus and we continue to put a lot of effort into kind of assessing the different options for our excess cash and ability to return value to shareholders. So we are very focused on that and looking at the different options, and obviously we're getting the benefits right now in our results in terms our ability to deleverage. But we are, as we indicated in the fourth-quarter call, we are at a point now, and certainly as we move into the rest of 2016, where we believe that we have the opportunity in some form to return value to shareholders with that excess cash. And I think there will be more to come on that in the future, probably nearer-term rather than longer-term. But we are certainly working on that now.

Got it. Thank you very much. Appreciate it. Thanks for the color.

(Operator Instructions). David Gold, Sidoti.

Good morning. A couple of sort of higher level questions. The first one is, as I think about the last year, the shift in numbers of facilities managed, leased, and we look at the aggregate count year-on-year obviously down pretty significantly, how much of that has been by -- or some, if not most, has been by design. But curious, now that we see the first sequential period in a while where your count is actually increasing, if we are through some of that -- some of the process of you taking some out because they are less profitable or whatnot on both counts, managed and leased?

I don't think there's any manage locations that we are looking to exit from. As we have talked before, the structure of management contracts is such that it's hard to have a loose or unprofitable management contract. It can happen, but that's generally not been our experience. And so as I talked earlier about the efforts that are going forth in our operating group to really drive retention rate, it will be a major focus on just executing well at the locations that we have. We are not having a problem getting new locations. The reason that our location rate has dipped down a little bit is that we haven't held onto all of the locations that we already have. So that's why retention in our business is a major focus for our management team.

I think, on the lease front, we still have some leases that are either highly profitable and have rents that are below-market or highly unprofitable and have rents that are above-market that are a legacy of the merger of Central and Standard. And those are going to primarily burn off probably over the next four to five years. So there might be a couple of them that go beyond that, but the preponderance of that is going to be gone over that time period. So you'll see the pattern continue to play out, which is if it's a very profitable lease, we're going to seek to renew that, but recognizing that we're going to have to pay more rent. In fact, we just had one recently where we had to go through arbitration but we ended up paying substantially higher rent. Now, it's still a nice deal for us and we are very happy to have it, but it's not the kind of home run, grand slam, out of the part kind of deal that it was for a long period of time, because it was a lease that had a fixed rent for over 10 years. So now it has a new fixed rent, and that's great, and we'll do nicely there.

On the other side, when the deals are unprofitable because we primarily are feeling that we are paying above market, we attempt to negotiate a profitable deal when those deals come up. But in many cases, the landlord just doesn't have a realistic view, and they feel like I'm not going to just accept your lower offer. I'll go out and see what I can do in the marketplace. And that does mean that, in some of those, we end up having to walk away.

The other issue is that many of these legacy leases had repair obligations or other lease terms that we didn't really like that much. And so we attempt to try to get those changed as well. Now, if we're going to make a lot of money on a lease, we are willing to maybe agree to continue some of the terms that have been there for a long time. If we are not going to make very much, then we push back.

So it wouldn't surprise me to see the number of leases continue to kind of dribble down, just when I think about the kind of nets on all of that, but I do expect us to start to see some growth in our location count. As we've talked before, we can't really grow gross profit on a sustained basis by simply generating more gross profit out of the deals we already have. We have to grow our net location count on a sustained basis.

Got you. And on another topic, historically, Marc, you've said that you guys are fairly agnostic to whether it's structured as a lease or a management contract. Would you still say that's still the case?

Yes, I think that is, and we are certainly not -- we have more expertise now is how I should say it. It's coming from the old Standard business where we didn't have a lot of leases. We have a lot more expertise now in our business in how to do leases successfully. So if anything, I would say we are probably more eager and open to doing leases than maybe we had been in the past. But again, what it comes down to is the landlord or the owner of the property has a preference for contract type. And so they're going to ultimately decide what the contract type is.

Now, as we talked before as well, we like leases that don't shift all of the risk of ownership onto us, and sometimes leases do do that. And those kind of leases we don't really like, because we are not compensated enough in what we're going to make from operating the location to justify that shift to us. So as long as we can get lease terms where the obligations we take on, the risks and exposures we have are commensurate with the amount of money that we are going to make for operating the facility, we are happy to do it. And if we can't make that trade up work for us, that we are not going to do it.

Perfect. Thank you. Just one last, Marc, as we see retention ticking up here, can you speak to what you're doing differently there? Are you being more aggressive on some of the renewals than maybe you've been, or are there other factors at work?

I think a lot of it is kind of getting back to -- what we say getting back to basics. And there's no substitute for regular ongoing contact with our clients. And we've just completed a client survey which has given us some very useful feedback on how many of our clients view us, and we were pleased to see that we had some very, very strong, positive feedback. On the other hand, we have some clients who gave us some feedback that is not the kind of feedback that you want to hear. And I think that the message we are hearing from that is that now that we have completed the integration of Central and Standard, we have stability in our management team. It's important that our folks in our organization are really out in front of clients, not only understanding what the clients' expectations are, but also offering up and pitching new ideas, because we are still the leader in new technology and new marketing initiatives in our industry. And so driving up retention is one of those ongoing efforts where you are listening to your clients, understanding their needs and expectations, and then you're offering up creative solutions.

And of course there's a lot going on with technology, new things, and we are at the forefront of all of that. So we should be in front of our clients on a regular basis talking to them about what we can do to drive their objectives, whether that's more profit in the facility or more utilization in the facility, or a better parking experience, or tap into new technologies. If we are in front of the client doing those kind of things, we're going to retain those client relationships. And if we are not, if we are simply taking a client for granted, then we are at risk that someone else is going to come in and say that they can do a better job. So it's really just a fundamental focus on execution, both in terms of the performance of the facility, but also in the relationship with the client on a day-in/day-out basis.

Perfect. That's helpful. Thank you both.

Kevin Steinke, Barrington Research.

Good morning Marc and Vance. Following up on the earlier question about trying the quarterly cadence of results as we move throughout the year here, I was just looking back at your 2Q call from last year, and you did call out a $700,000 benefit from casualty loss reserve estimates as well as a $900,000 benefit from health costs in the year-ago 2Q. So I guess those two items would kind of argue for a little bit of a tougher comp again here in the second quarter. Is that the right way to think about it?

This is Vance. As you know, we don't provide quarterly guidance, but I think you point to two things that are somewhat similar to the first-quarter comparisons as well. And so obviously when we've structured kind of our plan and kind of how we think we are doing relative to our plan, we have considered that. But I think, in the second quarter, the second-quarter comparison, all things considered equal, obviously we don't know kind of how casualty is going to play out and we don't know how kind of our healthcare -- exactly what that's going to look like. But those were two benefits that you point in the second quarter of 2015 that we certainly got and will impact our year-over-year comparisons. But like I said, we factored that all into kind of our plan for the year. And we said, after the first quarter, we are already on track with our plan and feel comfortable with the guidance that we provided for the full year because we have a good understanding of what we think is going to play out quarter to quarter to quarter throughout the rest of the year.

Right. I guess the other piece of that is Marc mentioned in his opening comments about recent new contract wins will ramp up over time, which I think you said will improve gross profit throughout the year. So I guess that argues for some build up in gross profit as we kind of move throughout the year. Is that, again, a fair way to kind of think about things?

Yes. I think I guess two things. One is that there's a couple of things that will continue to get traction throughout the rest of the year. So on one hand, you have the items that you've noted, which are both kind of casualty and healthcare adjustments, and you know, the degree of the impact in 2015 where we got maybe favorable adjustments, or where we may have unfavorable adjustments, that's going to vary quarter to quarter to quarter and have an impact on year-over-year comparisons for those quarters.

In addition, I think the way we think about it is we have new businesses ramping up. I think Marc mentioned MGM Resorts, which would be one, which is really kind of in the start up phase at this point in time and we would expect, all things considered (technical difficulty) equal, the results of that to have an impact, a larger impact, on the second, third, and fourth quarter of the year than it would've had on the first quarter of the year in 2016. And there's other new business that we've won that would ramp up.

In addition we have G&A cost reductions of which we are continuing to see favorable impact from that as we move throughout the year. We would expect to get -- continue to get more traction on that and that will have, all things considered equal once again, have a favorable impact.

And then as we continue to deleverage, not considering anything else that we may do, as we deleverage, our interest costs come down, both related to the amount of debt that we have and are paying interest on and then as we enter into different thresholds based on our leverage calculations for the actual interest rates that we have to pay on that debt. And so I think those are some of the -- obviously, there's a lot that goes on with our business, but those are some of the factors that we would expect to contribute throughout the rest of the year.

Okay, that's helpful. And stepping back a little bit, you've talked about the G&A cost reduction initiatives that you have going on. Kind of give us a look at how far along you are into that effort, how much more is on the drawing board, just kind of what inning we are in overall in terms of your ability to continue to execute initiatives that will reduce G&A costs.

Happy to do that. One thing, just as an overriding comment, is that we are becoming more efficient in reducing G&A and reducing costs, some of which, a large portion of that which impacts G&A, some of that which impacts cost of sales, cost of parking, if you will. And we are doing this in a way which is we happen to have a number of opportunities. We've had a good, fresh look at things. These are not items that we think are going to impact kind of the ability to grow the business at all. And so -- but having said that, it really depends on the area. So I think we've called out a number of areas. So one is kind of back-office processes and reengineering that. I would say that we've done some of that work. More of that is to come. That won't be the most significant area in terms of total cost reductions. But we are clearly not all the way through that, and we have some more to go there, so we will have some additional kind of opportunities that will come out of that that will impact G&A.

And then sourcing, we've talked about that before. I would say we are only in the beginning stages of being able to kind of source direct and indirect spend based on being able to consolidate our spend and get more favorable terms. Most of that -- well, some of that will impact kind of cost of parking; some of that will impact G&A as well. But we are -- we've made some progress on that, but we are kind of in really the early stages of that. Not the biggest opportunity, but clearly we think there's some opportunity there.

Organizational realignment, restructuring, things of that nature, we've continued to do that. I think that we've made a lot of progress there, so there's probably not as much opportunity going forward there. But we have the impact of kind of the actions that we have taken to kind of get the organization more appropriately aligned, and the cost benefits from that will continue to kind of get traction on that throughout the rest of the year.

And then you have kind of cost of risk, which I would say that's a longer-term opportunity which we think will have a significant impact on the business and our results. So we're really at the kind of beginning stages of that, but I think we are seeing some good results from the programs that we are introducing and some good progress from that. But it's not something that's going to impact us, kind of as Marc talked about earlier, not necessarily in the next quarter, but we do expect to see benefits from that and that's part of our overall plan.

And then lastly is discretionary spend. And we've really executed a number of initiatives around that. It's everything from the amount of corporate space that we need to things like T&E and a variety of things like that. And I think we've seen very good results from that and that's having an impact on our G&A. And I think that a lot of that we've got to and have executed. There's a little bit more of that that will come as well. But it kind of really depends on the area you're talking about, but that's kind of how I would evaluate it.

Okay, very helpful. And just lastly, in addition to the nice wins you highlighted in your earnings release, you did mention that you terminated operations at a large Chicago hospital. Did you call that out for any particular reason? Was it a kind of disproportionately large or profitable deal, or just any additional color on that statement in the release there?

I think it's one of those situations that we called out because, in terms of giving a balanced view on what's happening in the business, we don't always want to just crow about our great wins and our record new business. We feel we need to occasionally make mention of things that don't go the way that we would like.

This particular case, at one time, this was a long-term lease and at one time was a very, very profitable, important contract to the Company for many years. Unfortunately, again, there were some competitive issues. Other garages were built in proximity that siphoned off some of the parkers that were operated by -- owned and operated by other people. And so this lease performance has been in decline for some time. So we kind of projected there's another garage going to be built, it's under construction now, again, unaffiliated with this client, that's going to siphon off probably some additional parking. We took an opportunity to talk to the client about terminating that lease early and being able to walk away from it while it was -- it kind of lost all its profitability. So it's not a big blow to lose it now, but certainly compared to what it was generating maybe three years ago, it's a fairly significant contract for the Company.

Okay. Thanks for taking my questions.

At this time, I'd like to turn the call back over to Marc Baumann for closing remarks.

Thank you Latoya. I appreciate everyone taking the time today to listen to us and hear our results for Q1. As we said, we are very excited about all the things going on in our business and the rest of the year is ahead of us. So we'll get back to business and we hope you all have a great day. Thank you.

Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.