SP Plus Corp (SP) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the SP Plus Corporation fourth quarter 2016 earnings conference call. (Operator Instructions). As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Vance Johnston, Chief Financial Officer. Sir, you may begin.

Thank you, Chanel, and good morning, everybody. As Chanel just said, I'm Vance Johnston, Chief Financial Officer at SP Plus. Welcome to the conference call for the fourth quarter and full year 2016. I hope all of you have had a chance to review our earnings announcement that was released last evening. We'll 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'll make some remarks that will be considered forward-looking statements, including statements as to our 2017 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 want to mention that this call is being 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'll turn the call over to Marc.

Thanks, Vance, and good morning, everyone. I want to begin today by acknowledging and thanking our team for the significant progress we've made over the past couple of years in our key strategic priorities. Namely, we've been able to significantly reduce costs and improve productivity by streamlining our organization, optimizing back-office processes, and better managing discretionary spending. We've also been successful in implementing targeted safety and risk mitigation programs across the entire organization and reduced the total cost of risk over the last two years.

We've accomplished all this while still maintaining focus on contract retention and achieving record new business. Successful execution on these initiatives helped us achieve double-digit growth on our core financial measures in 2016, all of which met or exceeded the targets we set at the beginning of the year. Most notably, I'm very pleased that we were able to grow adjusted free cash flow by 26% in 2016. These excellent results for both the quarter and the year could not have been accomplished without the dedication and tireless effort of all of our employees. And for that I am profoundly grateful.

Looking forward to 2017 and beyond, our primary focus will be on accelerating gross profit growth. We recently conducted a strategic assessment of growth opportunities to identify key industry verticals with the most potential to accelerate growth. We're now quickly moving to realign our organization with an industry vertical focus and expect to make strategic investments in certain key areas, particularly in business development resources. We're also heavily focused on building up our revenue management and marketing services capabilities to further drive gross profit growth. We believe these changes will position us well for long-term, sustainable growth.

Given the changes we're making in our business model and the associated investments, we expect 2017 will be somewhat of a transition year. Even with continued gross profit growth, we expect adjusted EBITDA growth will be somewhat less than the 11% we achieved in 2016 and less than what we believe to be the long-term potential of the business, primarily due to the investments we're making this year. We remain committed to driving growth in EBITDA, earnings per share, free cash flow, and return on invested capital, as we believe these metrics correlate most highly with shareholder value creation.

With this in mind, we will also continue to evaluate the best possible options for disciplined capital deployment, which may include additional stock repurchases, dividends, and prudent acquisitions. Finally, before turning the call over to Vance, I want to briefly comment on a few financial and operating highlights, knowing that Vance will discuss the numbers in more detail in a few minutes. Location retention was 87% for the year, which includes the voluntary termination of one contract in New York that had over 200 locations and which we've talked about on prior calls. Had we not chosen to terminate this one contract, location retention would be a solid 93%. Full-year 2016 same location gross profit increased 3% over 2015, with good growth across most industry verticals and geographies, with some exceptions in the New York market and the hospitality vertical.

I also want to highlight some of our notable wins. We continue to have strong relationship with MGM and were recently able to secure the National Harbor Resort in Washington, DC. We were also awarded a multiyear contract to operate the first-ever electric shuttle bus program in the city of Chicago, which links the Aon and Prudential office buildings to mass transit terminals. Finally, we recently began providing ground transportation management service at Seattle-Tacoma International Airport in Seattle, Washington. Our pipeline remains full and active and we're looking forward to another great year for new business.

With that, I'll turn the call over to Vance to lead us through a more detailed discussion of our fourth-quarter and full-year 2016 financial performance and our guidance for 2017.

Thanks, Marc. I'd like to spend a few minutes reviewing our financial results in more detail. Fourth-quarter 2016 adjusted gross profit increased $7.4 million or 19% over the same period of 2015. There were several key factors that helped drive this growth. We experienced lower healthcare costs in the fourth quarter of 2016 compared to the fourth quarter of 2015 as we began to see the benefits of changes we've implemented earlier in the year to control the rising cost of healthcare. We also saw a more significant reduction in casualty loss reserve estimates in the fourth quarter 2016 than in the same period of 2015. Aside from these factors, we also saw growth from same locations and won new business that more than offset the impact from contract terminations.

Adjusted G&A for the fourth quarter increased by $800,000 or 4% over the fourth quarter of 2015, which was primarily due to a $2.7 million year-over-year increase in the Company's performance-based compensation accrual that was largely offset by lower other comp and benefit costs. New business, same location gross profit growth, and strong cost management helped drive 2016 fourth-quarter adjusted EBITDA of $27.3 million as compared to $20.7 million in the fourth quarter of 2015, a 32% increase. Adjusted EPS was $0.52 for the fourth quarter of 2016 as compared to $0.29 in the fourth quarter of 2015, an increase of 79%. In addition to significantly improved EBITDA performance, lower interest cost and depreciation and amortization expense also were primary drivers of the adjusted EPS increase.

For the full-year 2016, adjusted gross profit increased by $4 million or 2% over full-year 2015. Contributing to the year-over-year increase was same location growth of 3%, lower casualty and health insurance costs, and new business that offset the impact of contract terminations. As Marc mentioned earlier, we're starting to see some financial benefits from the safety and risk mitigation programs we've put in place. Adjusted G&A for fiscal 2016 increased $5.4 million -- I'm sorry. Adjusted G&A for fiscal 2016 decreased $5.4 million or 6% over fiscal 2015 due primarily to our cost reduction initiatives, a decrease that was achieved despite an increase of $1.1 million in our annual 2016 performance-based compensation accrual. As I have mentioned on prior calls, we continue to be pleased with the progress we're making on cost reduction initiatives without it negatively impacting the business.

As a result, full-year adjusted EBITDA increased by $9 million or 11% in 2016 as compared to full-year 2015. Full-year 2016 adjusted EPS was $1.32, an increase of $0.35 or 36% as compared to full-year 2015 adjusted EPS of $0.97. Similar to my comments for the quarter, higher adjusted gross profit and strong cost management, coupled with reduced interest cost and depreciation and amortization expense, drove the ingress in EPS year-over-year. The Company generated adjusted free cash flow of $46.4 million during 2016 as compared to $36.9 million in 2015, a 26% increase. Driving the year-over-year increase was higher EBITDA, favorable movements in working capital coupled with lower cash tax payments, and lower interest expense. We're pleased with our efforts to grow free cash flow, which will remain a primary focus going forward.

Finally, I want to cover our outlook and guidance for 2017. As Marc mentioned, the investments we're making in business development resources as we align our operating model around industry verticals, as well as other investments we're making to further develop revenue management capabilities, will somewhat tempered 2017 EBITDA and free cash flow growth. We believe this is the right time to make these changes in order to set ourselves up to capitalize on attractive industry vertical opportunities and position ourselves for accelerated future growth. With all that said, we expect 2017 reported and adjusted EBITDA to be in the range of $92 million to $97 million, an increase of 4% over 2016 adjusted EBITDA at the midpoint. I think it's important to again point out that we define EBITDA to be after deducting for minority interest expense.

Reported and adjusted EPS is expected to be in the range of $1.55 to $1.65, an increase of 55% over 2016 reported EPS and 21% over 2016 adjusted EPS at the midpoints. As stated in our earnings release, one important point to note is that amortization of intangibles related to all prior merger and acquisition activity will decrease by $7.4 million in 2017 and represents a $0.19 increase in EPS. Our 2017 adjusted EPS outlook anticipates a normalized effective book tax rate of approximately 40%. However, the Company's tax rate could vary based on a number of factors. In addition, while our management contract heavy portfolio provides some measure of protection in economic downturns, our guidance does not contemplate a material change in economic conditions.

While we currently don't anticipate any significant adjustments to EBITDA and EPS, other than the equity and losses or income from our investment in Parkmobile, which only affects EPS, nonroutine items such as, but not limited to, integration and restructuring costs, asset or business sales or dispositions, acquisitions, nonroutine settlements, nonroutine income tax items, and ongoing costs related to nonroutine structural and other repairs, will continue to be adjusted from reported results as they are recognized. We expect free cash flow to be in the range of $47 million to $52 million, an increase of 7% over 2016 adjusted free cash flow at the midpoint. The main driver of the more moderate growth in free cash flow is approximately $2.5 million of after-tax restructuring related severance and nonroutine settlement payments, which if excluded, would result in 12% growth over 2016. We no longer anticipate reporting adjusted free cash flow.

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

(Operator Instructions). Dan Moore, CJS Securities.

This is actually Larry Solow calling in for Dan. A few questions. You mentioned some of the investments and steps taken -- or you guys are taking to realign the organization, accelerate top-line growth. Sounds like you're going to be making those investments throughout 2017. Do you expect it to be pretty much done as you enter 2018 and then maybe you can start seeing some of the benefits ramp up as we get into 2018?

Yes, that's right. And I think what we're really talking about in terms of investment is really adding new people to our organization. We've obviously been writing record new business over the past several years, and each year we've set new records. But we think as we look forward the opportunity for growth, particularly in some of the verticals that we focus on -- which are hospitality, municipal, university services, and health care -- those are the major verticals we've talked about for a long time where we think there is growth. What we're doing now is really putting more resources in place to enable faster growth into those verticals. And obviously there's a lag time between putting people in new roles and getting them geared up to go develop new business opportunities for us, and when those -- the results of those are reflected in our financials from a point of view of faster growth.

Okay. And then just in terms of outlook for 2017, in terms of swing factors that could drive you to the lower or higher end, outside of underlying gross profit growth, other things that may contribute toward the lower or towards the higher end -- any thoughts there?

Well, I think one thing you have to bear in mind if you look at our 2016 results -- and while they were terrific, we are seeing improvement in both our casualty programs and our healthcare programs. And we got a nice end to the year on both of those programs. And I think in both cases, as Vance and I have indicated, that's reflective of our efforts to either make changes to our healthcare program to control the costs better, or in the case of casualty, all of the risk programs that we've implemented over the last two years to focus on safety and new training and even incentives out to our field organization to mitigate claim incidents for us.

We're seeing the benefit of that, but it's also a fairly -- those were fairly large benefits in one quarter, and it's very difficult to predict what's going to happen in a given quarter or even over a given four quarters. So we continue to believe that we will see positive trajectory in our casualty programs in particular, but we don't know whether they'll be as large as that or potentially as significant in 2017 as it was in 2016. So that's an important thing to bear in mind. I think the other thing is that we've talked about our ability to win new business, and we've now -- I think this is our third year in a row with record new business.

And there's obviously -- as you add records each year, you have more challenges to continue to get new records and to generate more new business. That's why we're making the investments we're making in more business development resources. How quickly those resources actually translate into more new business is certainly a question. And we obviously are optimistic about our ability to set even more new records as we go forward. We don't know what the pace of that is going to look like, and that could be a variable. And finally, the whole area of retention. We talked about our retention rate, both our reported rate of 87% and then our adjusted rate of 93% when we took out that one marginally profitable contract from New York.

We've talked for a while about our desire and our belief that we can have an ongoing, sustainable location retention rate in the 92% to 93% range. So, if we can repeat that in 2017, that's going to be a very, very good support to our ability to get higher in our guidance ranges. If we are unable to repeat that then obviously it can go the other way.

Got you. And then just lastly, you've mentioned -- sounds like certainly some operating investments. How about on the capital expense side? You gave us free cash flow guidance. Any thoughts on just capital expenditure outlook for 2017? Thanks.

Yes. As you may recall, we don't typically gave specific guidance on CapEx. Having said that, we don't expect, as Marc alluded to, any significant additional incremental investments in CapEx related to some of the changes to our operating model that we're talking about. It's more going to be focused around investment in -- or resources in new business development, for example. So having said all that, we don't expect CapEx to be materially changed, for example, from where it came in, in 2016.

Great. Thanks a lot, guys. Appreciate it.

Tim Mulrooney, William Blair.

So, thinking about these contract wins, some of the major recent business wins that you've had, whether it's MGM properties in Vegas and DC or at the Millennium properties in Chicago. Can you talk about the thing or things that really led you to win that contract over the competition? Is it your existing relationships with these clients or the technology or ancillary services you provide? What part of your value proposition do you think is really helping drive these big contract wins?

I think, Tim, what we've been able to do successfully is take advantage of our size and scale. And what that means is that we have experts in every area of parking management. Whether it's technology, operations, supervision, creative marketing programs to drive volume, expertise in working with aggregators and people in the digital space to drive volume in the properties. And I think when you put all of that together, it's a very compelling story for a client who has a large and complex operation.

And that's the kind of operations that we like the most, because obviously we can bring our expertise to bear and differentiate ourselves from other operators who don't have all those capabilities. I think in particular in Las Vegas, obviously MGM was a new client and they were making a decision to bring paid parking to Las Vegas for the first time and taking a leadership role in the decision. And clearly they wanted to put their decision in the hands of somebody who had the experience to handle all the complexity of bringing that about.

And in particular with the new T-Mobile arena that was built by MGM in the area there, our expertise with SP+ GAMEDAY and running Super Bowl and other large event venues was I think a crucial factor in their decision to select us over some of the other operators.

Got it. Thank you. And then I'm curious about the -- shifting gears a little bit -- about the size of your opportunity in the municipal market. How many municipal contracts do you service today? And are these all on-street parking enforcement contracts? And then thinking more broadly about your penetration opportunity, I'm assuming that you will only serve municipalities that are big enough to make it worth your while. So of this opportunity set, how much of this market is currently outsourced versus insourced today?

Yes, very little of it is outsourced. We're one of the largest providers of outsourced parking management services to the municipal space. And when we do talk about municipal, we obviously are talking about primarily around parking meters, although many of these operations also include off-street parking garages that we operate either as part of the same contract or separately, so not exclusively meters. But I would say, generally speaking, there are -- I think there's 3,000 or 4,000 municipalities that have paid parking on-street, and we have a couple hundred contracts I think in that space. And like I said, that makes us one of the largest providers, so it's a huge opportunity for growth.

And the opportunity for the municipality is also very, very large because of two reasons. One, they may not have examined their parking rates and looked at the potential for adjusting rates at certain peak demand times or bringing in new equipment that could bring that about. And we have a technology integration group that advises clients on how to do just that. And then of course we bring our marketing programs and revenue management expertise to bear to help them make the right decisions around what rates to charge for parking on street. So there's a huge revenue upside that these places are seeing.

The other is just with technology generally. People are obviously paying for parking in new ways, looking to use smartphone apps, and they need somebody that has the expertise to advise them on how to do that, handle complex residential permitting situations. And so often we see that we were selected over other operators because we have greater expertise in those areas. Finally, just the decision to outsource in and of itself is often a big one for a municipality if they've done it in-house for many years. But again, once again, we're able to bring a more effective management in place -- to bear on those kind of operations and generally can do the enforcement as well as collecting the money out of meters and do so at a lower cost to the municipality than if they were doing it themselves.

Okay. Thanks for all that detail. One last question. There was a big step down in amortization expense for 27 -- and I think of, like, a $7 million step down. So just to make sure I'm modeling D&A correctly out in the next several years, can you share with us today how much you expect amortization to step down in 2018 and 2019? Because that $0.19 was a pretty big delta, and I want to make sure that we're all getting it right in some of the out years.

Yes, we don't typically give individual guidance on amortization as an item. And so it's also, to be quite honest, Tim, as we look out, the things that are going to be -- that are intangibles going forward are going to be more related to contracts that we have. And so those contracts, the timing of when they fall off, may vary based on if there's an early termination or things of that nature as well. So it's not something that we have typically provided specific guidance on, and there is some variability to it as we look out into the future given the nature of the intangibles. I think we'd probably rather not do that at this point.

I think one thing, just to add to Vance's comment, when our 10-K is filed for the year you'll be able to see the componentry of our intangible -- intangible assets, and what sort of lives are being used to amortize and depreciate those things, so that might help you as you think about your model.

That's right.

Okay. Helpful, guys. Thank you very much.

Kevin Steinke, Barrington Research.

I appreciate your plan to invest more in growing those key industry verticals that you talked about. And I believe you obviously already had a focus on trying to grow in those verticals, so is this investment just really applying more people to the same thing you were already doing? Or is there some sort of -- something new or a change in the way you're actually approaching the market?

Yes, there's actually a little bit of both. We're certainly going to be applying more people, as we indicated in our earlier comments, Kevin. But I think also our management structure for our operating business was really aligned more toward our traditional commercial business. And we had a focus on these verticals. It's not a new focus, or not new that we've just identified opportunity, but in the work that we did in our strategic review of our business we began to determine how big the opportunity was in hospitality or municipal or university or healthcare. And by doing so it gave us confidence to make some changes in our organizational structure, both in terms of adding resources but also lines of authority and responsibilities for things so that we could actually bring all of that together successfully and being able to grow in those verticals, maybe more rapidly than we have over the past couple of years.

Okay. That's helpful. And when you talk about adding new people, I think you traditionally -- you like to have experts in certain markets such as you municipal, institutional, hospitality, et cetera. So how hard is it to find those people that you want to find to help drive that new business? I'm just wondering how that hiring process goes.

Understood, understood. I should say -- we shouldn't maybe give the impression that all the quote-unquote new people are people going to new roles are necessarily coming from outside the Company. So part of what we've done is to spend some time looking at the talent we have inside the business, and maybe someone has shown the capabilities to go beyond what they've been doing and take on new responsibilities. Maybe somebody had shown a talent for selling in a different vertical and has had some success there, and so there's an opportunity to move them into a new role. Some of this is about giving opportunities to people that are already in our organization to take on new roles and responsibilities and obviously backfill them with others who maybe are also ready to step and take more responsibility.

But you're right in what you're saying. In order to sell successfully in any vertical you need to have some expertise in that vertical. You can't just be a quote-unquote salesman or saleswoman. You need to have selling skills and you need to know how to make presentations and proposals, but you also have to know the substance of what you're talking about. So we will and we do find that we can go outside and find people that are in those verticals. And they're eager sometimes to make a change in career and to come into our organization. So I think it's not like you flip a switch and they're all there. It's a process that involves recruiting and talking to people, and that's something that's underway now.

Okay, great. Thanks for that color. And then as we look to 2017, how should we think about general and administrative expenses in light of some of the investments you are making, as well as any other opportunities you have to further reduce cost?

Kevin, this is Vance. A couple things. One is that we're going to continue to be very focused on managing G&A expenses and to executing key initiatives that we have to further reduce G&A as we move forward, and we think there's additional opportunity there to do that. Having said that, we will also be looking, as we have alluded to in our prepared remarks and on the call, some of that, those savings, we'll be reinvested back in the business in the form of, for example, new business development resources in certain verticals and in certain markets. And then also with any business we'll also be somewhat constrained by our ability to reduce G&A further going forward based on inflationary costs as well. But no doubt about it, it's definitely a continual effort of ours to drive down G&A costs.

All right. All right, fair enough. Can you just expand, too, on what you mean by -- when you talk about building up revenue management capabilities? And I think you also referenced marketing or marketing capabilities and resources as well.

Sure, absolutely. Well, I think one of the things that we have been doing for a while is advising clients on how to -- what's the right pricing to put -- to use to charge for parking, whether it's for a monthly parking or transient parking. Or might be flexed based on special events or other things that are happening around the properties. But one of the things that we haven't fully taken advantage of in the past is all of the data that's generated by the parking equipment. And we're now moving forward to capturing that data and using that to develop algorithms and have more informed decision-making around what's the optimal pricing to put at a parking facility. Whether we're advising a client or whether we're advising ourselves, if you will, for our lease locations. So that's really the reason.

We announced early in the year that we brought on a fellow named Jeff Eckerling who's got a revenue management expertise. He came out of Orbitz and other organizations where they're maybe ahead of our industry in terms of using data to make better decisions. There's also, as I indicated to an earlier question -- people are changing the way that they make decisions about not only how to pay for parking but also to choose where to park. Historically people have driven around near where their ultimate destination was, they looked around, they saw a parking facility, and they said, okay, I guess I'll go in there. Increasingly people are either being routed to a facility through a computer program on their phone or their car or they're making a decision before their journey.

And we obviously want to be active both in advising our clients on how to take advantage of those changing consumer behaviors and how to make sure that they are making money appropriately off of all that and pricing it correctly and marketing and promoting themselves to consumers who might be interested in using an alternative way through the digital space to make decisions about where to pay -- or where to park, rather -- and the want to pay in new ways. So, I think for us investing resources in revenue management and also continuing to invest in marketing services allows us to have a differentiated offering that we can present to clients to help them optimize the performance of their facilities, and at the same time use that expertise to help us optimize the performance of our lease locations.

So we see that as an area that we'll be investing in both in terms of adding more people -- I know Jeff is starting to build out his team -- and also we'll be looking and using outside resources to help us move down the track in terms of developing that capability. And I think realistically our expectation is that as we move through 2017 we're going to have learned a lot and developed our expertise, and we'll probably see more of the benefit from these moves as we move into 2018 and beyond.

All right. That's very helpful. And then in terms of how you're thinking about gross profit growth in 2017, I know you talked about a lot of the puts and takes there in terms of new business win rates and retention and how casualty loss reserve estimates trend and all that, but is it reasonable, do you think, to expect some level of gross profit growth as we think about the midpoint of the range? Or just wondering if you have anything specific baked into those expectations you have out there.

Sure, sure. And of course, as you know, we don't give guidance on gross profit per se. But we are expecting additional gross profit growth as we go through 2017 compared to 2016, and we would be expecting that in the absence of making these changes in our organization that we're talking about. We have a lot of good people doing great things every day, so I'm not concerned about getting growth. I think the stuff that we've been talking about in terms of the investments we're making. Which are, as Vance said, are going to take some of the savings from additional G&A savings that we're making and reinvesting those in these additional G&A resources to help us grow faster.

Our goal here is -- if we look back over the past few years, our gross profit growth has not been at the rate that I think this business is capable of. And so our expectation is that we will have nice growth in 2016, but we're really primarily focused on making these investments in people, in talent, so that we can accelerate that growth and get the higher levels of gross profit growth than we've experienced over the past couple of years. But that will mostly start to show itself as we move into 2018 beyond.

Okay, okay. Makes sense. Just one last one for me. As you think about the same location gross profit growth that you had in 2016, that 3%, is there any way you can attribute that to, say, the market versus maybe your own internal efforts in terms of cross-selling additional services? Or I don't know if there's any way you could parse that out and what perhaps drove that same location growth last year.

Like anything we do, it's all -- it's difficult to generalize. Because obviously in certain markets we have had no difficulty putting up parking rates, and that's contributing to gross profit growth. At certain locations and with certain clients we're be able to sell in additional ancillary services, and that's driving up gross profit. We obviously also have the situations where we're unable to do that, and so we're not getting as much growth as we would like at certain locations. And of course one of the big things is that the focus we've put on driving down our total cost of risk, the safety programs and the things that we've talked about on the prior calls, that's obviously reducing one of our costs and reducing the cost of our casualty program. That's benefiting our gross profit as well.

All of those things contribute together. What I will say is that it's been a good market for parking. There's been a lot of development, and so that for the most part has the effect of giving support to higher parking rates in places where a lot of development is taking place because some inventory is being taking off the table. So we think the economic conditions are generally good and we'll pull on all those levers in all those places to try to continue to get gross profit growth.

Okay, great. Thanks for taking the questions.

(Operator Instructions). Marc Riddick, Sidoti & Company.

I was wondering -- you've answered a lot of questions I already had about the results of the process and the results of the focus on the capabilities that you're looking at. I was wondering if you could spend a little time going into the process of the analysis and maybe what precipitated it and how you went about it. And then I have a couple of follow-ups on that.

Okay. Well, I'll start and maybe Vance will have some additional thoughts. I think realistically, as I was just saying to Kevin's question, as we looked at our business we feel that this is a business that can generate faster gross profit growth than the 2% to 3% that we've had over the past few years. As we look forward, how do we not just sustain the growth rate that we've had on gross profit, but how do we actually increase that and get above 3% or get to 4% or 5% if we can. I think that's always in our minds.

And I think what we found is that, as I said to an earlier question, we've primarily kept the same organizational structure for some time, really since Standard Parking and Central Parking merged four years ago. And I think it was time for us to just take a fresh look at both what's the growth opportunity in the various verticals -- and we didn't just look at those ones that I mentioned. We looked at all the verticals in which we operate and we said how do we grow in this article? How do we grow in that one? How much of a market share do we have? What's the potential to add new business? Where should be add more resources? Are we aligned?

And we did have some outside help we brought in to help us with it. We felt that was good to have a fresh pair of eyes looking at us and our data and giving us some thoughts and suggestions. But what came out of it was very, very encouraging. Because number one, it reinforced these newer verticals that we've had some focus on for a few years, and so that was the good news. It also reinforced the fact that we have the right set of services and products that we can offer to clients. It wasn't like we have to generate a whole bunch of new things and new expertise. The one area where we are investing to do that obviously, as I said, is a revenue management.

But beyond that we had the right skills and expertise to be able to grow. A lot of the -- let's call it the obstacle to be overcome, if you will, to be able to take advantage of these terrific opportunities is really aligning our organization a little differently internally and adding some additional resources to help us get out there and increase the bandwidth of our organization to be talking to people about new business opportunities. I wouldn't say it easy, because it never is, but it isn't like we had to fundamentally rethink our business. We just really had to make sure that we were -- our operating model was aligned to enable us to be able to grow faster.

And Kevin, I would just add to what Marc was saying. Agree to everything Marc said, and then the one other thing I would just add is that not only did we look at the potential size of the opportunity in detail, in thorough detail -- by vertical, industry vertical, if you will -- but we also crossed that by market. We understood some of this before, but now in a much more detailed way so we can think about how we're going to allocate resources by vertical, by market, meaning geographic market. And so that was helpful as well as we thought about where the opportunities are to deploy resources more effectively to grow certain verticals and markets better.

Okay, great. That's helpful. And I was wondering, then maybe on the flipside of that, are there -- so I would imagine there are certain areas that maybe would be a little bit more deemphasized, I suppose, going forward. I was wondering if you could share what we might say is taking a bit of a backseat to some of these things that you're more bullish on.

I think as we've talked -- and I even indicated this earlier on the call, Marc -- our great expertise as a large organization is that we are able to bring together a diverse set of skills. Whether it's a revenue management and marketing services, technology, operations management, financial expertise in terms of modeling and projecting and creating reports. We're able to bring these together, and obviously the kind of clients that are interested in that are people that have large, complex challenges in their own business. And that's not a new thing, but that's clearly out there.

If we are looking to compete against our other, larger operators that are out there or even against local operators, the kind of clients that we want to go for are the kind of people that have these kind of needs. And obviously we operate a lot of surface parking lots with automated pay stations and we operate automated self-parking garages and we will continue to look for opportunities to add those into the portfolio, but our main focus is going to be on these larger, more complex opportunities where clients are able to take advantage of our expertise, or where we're able to bring that expertise to bear not only for their benefit but we're also able to be paid appropriately for what we do.

Okay, great. And my last question would be around the implementation of the safety and risk programs, which were -- I wanted to get a sense of that because new leadership had been brought in to head that. And I guess it seemed as though you've gotten benefits of that faster than I was expecting, and I was wondering if you could maybe touch on that a little bit as to how comfortable you are as to the process or the programs. Not just from the results that have been produced, because that obviously can vary from quarter to quarter, but as far as the implementation and as to the behavior modification, if you will, and your comfort level as to where you are as to how effective those programs can be going forward. Thank you.

Sure. Great question. And you're right, we did bring in Steve Bruner to head up that area a couple years back. And he had tremendous expertise in the area of safety culture. He told me the story when we were bringing him in about how in his prior company every meeting started with a discussion of safety. And that's what you have to do in order to really get people to change their beliefs and their behaviors about what is possible, and you have to attack limiting beliefs. For example, there will always be accidents is a limiting belief. And if you buy into that thinking, then you're going to become complacent and not take all the actions that you could take.

So he's really I think helped us re-energize in our own business a focus on safety. We always had one, but I think we've brought in a number of new initiatives, some of which we've talked about in the past. And a lot of it is about education and getting people to recognize that they can do something to create a safer environment both for their employees, themselves and for our clients, and for the general public who's using our parking facilities. So it's one of those kind of things where you can -- it's inspirational because you can actually create a safer place for lots and lots of people, the millions of people who use our facilities. And that's a good thing in and of itself.

It also happens to be a good thing to do if you operate the kind of insurance programs we do, where lower claim costs and expenses are beneficial to the Company. But we've also -- one of the key things we've done is actually put incentives out there into the organization, so we're not just having a conversation with people and saying safety is important, are you doing your safety reviews of your facilities, do you have all of your safety materials there, are your people properly trained, et cetera. But you actually have a financial incentive to engage in safe practices and to ensure your team is engaging in safe practices. So that's been another key hallmark to it.

And finally, we've done a lot more auditing. We've looked at our locations that generate a disproportionate number of incidents, and we go out there, we send people that we've added to our team here in Chicago. They go out there and they look at those and do audits of those facilities and look for opportunities to work with the local management to effectuate change that will reduce claims. So, it's a long-term, multifaceted kind of exercise. We're not done. We're trying and enrolling on new things all the time, so I would view this as we're at the early stages of what I believe will be a long-term, permanent focus on safety which will continue to generate positive benefits for our employees and customers, and also obviously for the bottom line.

I appreciate the color there. Thank you.

Thank you. And I'm showing no further questions at this time. I would now like to turn the call over to Mr. Marc Baumann for closing remarks.

Thank you, Chanel. And I just want to thank all of you for joining us today and for your support and interest in our business. And we're looking forward to a terrific 2017, and we'll see you next time. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.