SP Plus Corp (SP) 2017 Q3 法說會逐字稿

Hello, ladies and gentlemen, and welcome to the SP Plus Corporation's Third Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Vance Johnston, Chief Financial Officer. Please go ahead.

Thank you, Dan, and good morning, everybody. As Dan just said, I'm Vance Johnston, Chief Financial Officer at SP Plus. Welcome to the conference call for the third quarter of 2017. I hope all of you 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 outlook and 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'm very pleased with the strong performance we've delivered in the third quarter and year-to-date, despite some impact to our operations from the recent catastrophic hurricanes that hit the Gulf Coast, South Florida and Puerto Rico.

Adjusted gross profit increased by 2% and adjusted EBITDA increased by 3%, even as the third quarter was impacted by an estimated $700,000 from the hurricanes. As you know, Puerto Rico is not yet back to business as usual, and we expect that our Puerto Rico operations will continue to feel the impact of Hurricane Maria in the fourth quarter of 2017 and well into 2018 as the island recovers and rebuilds.

While our Airport Division has performed well, we've seen good new business activity in the business throughout, particularly in the hospitality vertical. Much of the year-over-year growth in gross profit is due to continuing favorable trends in our casualty and health insurance programs.

We believe our focus on safety programs and other efforts to reduce the total cost of risk is continuing to pay dividends. Our Commercial Division results were somewhat mixed, and we continue to face challenges at certain lease locations in New York.

We've made some progress in improving our results in New York, by implementing revenue management techniques to drive additional volume and improve revenue and by reducing operating costs. Improving performance in the New York market remains a significant focus for our management team.

In terms of other operational statistics, our overall location retention rate remained solid at 92%, for the 12 months ended September 2017, and we added 18 net new locations during the quarter. Same operating location gross profit was up 1%, excluding hurricane-related impacts.

New business activity continues at a solid pace, and with especially robust success in the hospitality vertical market. Key contracts added in the third quarter include contracts to 2 Ritz Carlton properties in New York at Battery Park and Westchester; 5 hotel properties in Manhattan, awarded by Hersha Hospitality; and a newly constructed Marriott Marquis McCormick Place in Chicago.

Outside of the hospitality vertical, we recently won a contract to provide parking management services at Marymount University in Northern Virginia and will provide parking management services at the Chicago Rockford International Airport, where paid parking will be implemented later this year. We also expanded our relationship with Hines in Northern California.

I want to once again reiterate our primary focus going forward which is to execute our 3 major growth initiatives. And these are, to fully implement our industry vertical and market strategy, to expand our revenue management and marketing services capabilities and finally, to further enhance our safety and risk management programs and culture.

We continue to believe that successful execution of these initiatives will position us well for sustainable long-term growth. We're building up our revenue management capabilities and our pilot is underway.

As I previously mentioned, we feel really good about the traction we're seeing from our risk management programs and the resulting benefits. And we've made good progress implementing our vertical market strategy for hospitality in 2017, and are pleased with the initial results.

We'll be putting more focus on other key industry verticals, including municipal, healthcare and universities in 2018, as we continue to further implement our industry vertical strategy.

We expect to update you in more detail on the progress of our transformation plan during the fourth quarter call, at which time, we expect to provide guidance for 2018.

On a final note, I want to send our thoughts and prayers to all those affected by the recent devastating hurricanes. I'm especially proud of our employees who gave generously of their time and resources to aid in the recovery and rebuilding efforts.

With that, I'll turn the call over to Vance, to lead you through a more detailed discussion of our 2017 third quarter and year-to-date financial performance.

Thanks, Marc. I'd like to spend a few minutes reviewing our financial results in more detail. As we have before, my comments will focus on adjusted results.

Third quarter 2017 adjusted gross profit increased $1.1 million or 2% over the same period of 2016, inclusive of an estimated $700,000 impact related to the hurricanes in the third quarter this year.

As Marc mentioned, the primary driver of gross profit growth was continuing favorable trends in our casualty and health program.

Adjusted G&A for the third quarter of 2017 increased by $200,000 or 1% from the third quarter of 2016, as we've made resource investments to support our growth initiatives that more than offset the impact of previous cost-reduction initiatives and a lower performance-based bonus accrual. Resulting adjusted EBITDA for the third quarter of 2017 increased $800,000 or 3% over the third quarter of 2016.

Adjusted EPS was $0.50 for the third quarter 2017, as compared to $0.37 in the third quarter of 2016, an increase of 35%.

In addition to growth in adjusted EBITDA, lower interest expense and a lower effective tax rate, a $2.5 million reduction in D&A, due to the burn off of certain acquisition-related intangible assets, drove adjusted EPS growth.

I'll touch briefly on the year-to-date results. Adjusted gross profit for the first 9 months of 2017 increased $5.6 million or 4%, as many of the same factors I discussed for the quarter are impacting year-to-date.

Adjusted G&A, for the first 9 months of 2017, decreased by $1.5 million or 2% from the same period of 2016, as previous cost reduction initiatives and continued cost management discipline more than offset the additional resource investments we've made to support our various growth initiatives. Resulting adjusted EBITDA for the 9 months of 2017 increased 10% or $6.6 million over the same period of 2016. Adjusted EPS was $1.30 for the first 9 months of 2017, an increase of 60% over the same period of 2016.

In addition to adjusted EBITDA growth, the lower interest expense and a lower effective tax rate, a $5.5 million reduction in depreciation and amortization expense, largely due to the burn off of certain acquisition-related intangible assets, helped drive the adjusted EPS increase.

The company generated free cash flow of $17.1 million in the first 9 months of 2017, which was slightly behind last year's first 9 months free cash flow of $18 million. The year-over-year decline in free cash flow was primarily driven by fluctuations in working capital that we believe are temporary in nature, including some working capital impact in the areas affected by the hurricanes as well as a higher -- as well higher cash taxes. We expect working capital to return to more normal levels by year-end. I want to reiterate that 2017 free cash flow does not include the after-tax proceeds from our share of the joint venture transaction.

We remain focused on generating significant free cash flow and believe full year free cash flow will be in line with our previously stated guidance.

As you saw in our press release, we are also reaffirming our full year 2017 guidance for adjusted EBITDA and adjusted EPS within the previously provided ranges, despite the impact of the hurricanes.

Consistent with what we have previously discussed, our outlook for Q4 this year is more modest than last year's fourth quarter, which benefited from a substantial reduction in casualty loss reserve estimates, which is not expected to happen again or to the same magnitude this year.

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

(Operator Instructions) And your first question comes from the line of Dan Moore with CJS Securities.

It's Pete Lucas for Dan. I think you just touched on it right at the end there. But if you could kind of follow up, given the strength in EBITDA and EPS in Q3, in relation to expectations, a little surprised at guidance being unchanged. You did mention a reduction there, but are you more comfortable with the high end of the range, as we have just a quarter to go? And if you could just touch again on some of those items that favorably impacted Q4 and maybe create a tougher comp for you going forward?

Well, I think, we both can comment a little bit on this, Pete. Certainly, as we've indicated previously, we had a very strong performance with our casualty programs and healthcare in Q4 last year. And so we had never really anticipated a repetition of that in Q4 this year. And as you guys know, from following us for a long period of time, we don't really have any visibility into how the performance will be for those programs during the fourth quarter until the quarter is closed. So that's certainly something that we can't count on repeating itself. And then as we indicated in our prepared remarks, we are seeing continuing impact from the hurricane, particularly in Puerto Rico, affecting Q4 results. So those things caused us to temper our view of the fourth quarter relative to the prior year.

Great. And also, last quarter, your retention rate dipped down slightly to about 87%, reflecting the loss of one client with multiple locations. When do you anniversary that? And should we expect your retention rate to drift back up towards 90% once that occurs?

Yes, Pete. I think our retention rate is actually in the -- I'm not exactly sure what you're referring to, but our retention rate -- location retention rate for the third quarter of 2017 this quarter is actually around 92%. So we -- and we feel comfortable, it was up a little bit in the second quarter. I think it was around 94%, but we certainly feel comfortable with a location retention rate of 92%, and that's back above premerger level -- premerger levels or back consistent with premerger levels, so we actually feel quite comfortable with that and good with that.

And just one more for me, and I'll jump back in queue. With the leverage rate now ticking down towards 1x, could you rank your order of priorities for deploying cash flow? And where does the potential dividend fall in that? And how quickly might we hear something on that front?

Yes. So a couple of things. One, the leverage ratio is about 1.75 turns, so it's not quite down to 1. So I just want to clarify that for everyone on the call. But in terms of -- as it's consistent with what we've said before, we certainly continue to evaluate opportunities to return cash and capital back to shareholders in a productive way. That's an ongoing assessment that we do with our Board of Directors. As people would've seen, certainly, if you go back to 2015 and '16, we initiated a share repurchase program. And so we continue to evaluate that strategy going forward, and I think there will be more to come on that note.

Your next question comes from the line of Tim Mulrooney with William Blair.

So you guys touched on G&A investments to support growth initiatives. And I know you've spoken about them in the past. But can you kind of lay them out for us again, the main growth investments. And if you can give any color around the size of these investments in 2017, and maybe what you expect to carry over into 2018, I think that would be helpful for my model.

We'd be glad to do that. So I think the primary area that we're making investments in to accelerate growth is really adding additional business development resources. And we've talked about this before both in our commercial group and in our hospitality focused vertical. So we feel that there is significant growth opportunities out there for us across our business. And so having more business development resources in place will enable us to grow faster. We've talked about some of those earlier in the year.

The second area that we're making investments in, and of course, this will bear fruit over a long time period is in the area of creating a revenue management capability and expanding some of our marketing services. We're trying to take advantage of the data that's available at parking facilities, and use that data to make better decisions around the pricing of our parking services to customers, and also to the channels that are used to acquire customers. As you know, there a lot of digital players out there now, and we have to make decisions about how to allocate inventory across channels.

So I think it's a very good thing for us to be investing in. Those are investments that are ramping up. We've got a number of the new business development people in place now, and they're out there beating on doors and using databases to access client opportunities for us. We've started to build our revenue management team. And as I indicated in the prepared remarks, we started our pilot, and we're doing a lot of data analysis already. But we'll continue to add resources in that area as we go into 2018.

So I think this is sort of a gradual investment. We talked last quarter about spending 7 figures, I think, low 7 figures, to really make these investments. We'll continue to make investments and try to add additional resources in 2018. The pace of that will be guided a lot by the results that we get. But I think, ultimately, from the work that we've done, and looking at our growth potential across verticals, across geographies and then just in general, we think that there's opportunity to grow by making G&A investments, and we'll continue to do it.

Got it. In the press release, you commented that the Commercial Division continues to experience mixed performance across verticals. And Marc, I know you touched on this a little bit in your prepared remarks, but can you expand on each of these verticals a little bit more? I understand hospitality probably continues to be pressured from ride sharing, but there's also growth opportunity there. But I'm curious about your thoughts beyond that, the other verticals.

Yes. I think it's right. I mean, we've talked on previous calls about the fact that ride sharing does affect certain verticals, like hospitality and airports and event venues. And that's just part of the backdrop like economic conditions that are out there in the world. That being said, we see tremendous growth opportunity in hospitality. We've identified targets for growth there, and we think that we probably only have 10% to 15% of the actual addressable market for hospitality. So there's a long, long way to go for us to grow there.

I think, another vertical that we've talked about is focus areas in the past, which are municipal, healthcare and universities. We've talked about the fact that these are longer sales cycle, longer lead time type growth verticals, partly because some of these services have not been outsourced before. And so that's a decision that the decision-makers in those verticals need to make, and others because of just the nature of their decision-making process is not fast. So we have resources and subject matter experts and others that are focused on those other verticals. And we see, overtime, our ability to grow and expand.

We talked not too long ago, probably it was last quarter, about our winning the City of Atlanta meter contract. And we've talked about the fact that we have maybe 100, 150 meter contracts across North America. And there's 3,000 municipalities that have on-street paid parking. So once again, our penetration in these growth opportunity verticals is low, despite our size, and we see the ability to grow in them as we go forward.

I think when we talked in the remarks about mixed results, all we're really saying is that in some verticals, in some cities, we had stronger performance. In others, not as strong. Some cities had nice growth year-on-year, and other cities didn't. And of course, there's always a lot of local factors that drive that, including street closures and things that happen in a particular geography, and ultimately, our performance in any city is also a function of our contract mix.

If we're predominantly management contracts, we tend to have less volatility up and down than we do when we have leases. So overall, we're pleased with the performance of our business. We'd like to commend our folks who are working in New York to try to improve performance there. Our team on the ground and others that are supporting them have worked very, very hard and we're starting to see some improvement in revenue there on a year-over-year basis. And we hope and expect that, that will continue as we go forward.

Okay. And Vance, your CapEx for the first 9 months of 2017 is about 1/2 of what it was last year and the year before. Why is that? And should we think about CapEx as being closer to 1% of sales moving forward?

Yes. Couple of things. One, I wouldn't necessarily use CapEx as a gauge, as a percentage of sales, because and I think we've talked about this before, CapEx for us comes in a variety of forms. It comes in -- we have CapEx that we deploy for IT, and things of that nature, and kind of things that we'll do infrastructure-wise at the company, which is typically not a lot given the nature of our business. But we also deploy CapEx related to client opportunities. And that is a bit of an unknown.

And so what I would say, one of the reasons why this year CapEx is down relative to 2016 so far year-to-date, is because we did have some onetime type items, discrete opportunities to deploy CapEx that we thought when we looked at the returns on that capital, primarily around client opportunities that made a lot of sense. Now those we could see some of those in the remainder of the year, but I think, having said that, we would expect 2017 CapEx based on where we're at year-to-date to be down from 2016. And certainly, that's kind of our perspective on it.

Okay. Last one for me, guys. Vance, in your -- in the previous call, your question about capital allocation, you talked about share repurchase and M&A. I didn't hear, maybe I missed it, I didn't hear you mention dividend. I'm just curious what your guys' thoughts are? What your position is? What the Board's conversations are about a dividend? Is it possible, as you think about your capital allocation priorities? Or is that not something that's really on the table?

Yes, I know Tim, no it's definitely something that's on the table for discussion. And as we've kind of mentioned in previous calls, we're the type of company, if you look at peers of ours and given our cash flow profile that could potentially pay a dividend. And so that's one of many things, obviously you mentioned acquisition, share repurchases, which we did previously initiate a program around share repurchases that we're certainly considering with our Board of Directors. So that is on the table, and something we'll certainly give consideration to.

Next question comes from the line of Kevin Steinke with Barrington Research.

So you called out the estimated impact of hurricanes in the third quarter of $0.7 million, some continuing into the fourth quarter and 2018, particularly Puerto Rico. But I know it's probably hard to assess or estimate, but do you have a sense that it might trend a little bit lower as we move into the fourth quarter relative to the third quarter?

Yes, Kevin, this is Vance, I can comment on that. So you know, a couple of things. One, obviously, what Marc mentioned in his prepared remarks, that we estimated the amount at $700,000 of impact for the third quarter of 2017. As we move into the fourth quarter, it's tough to predict, but we don't expect an overwhelming amount, because as you can imagine, the Hurricane Harvey that hit the Gulf Coast and then Irma that hit kind of Florida and a few other regions, most of that is kind of -- at this point has kind of dissipated in terms of the impact to our locations, right? So that's one thing. And then secondly, Maria, obviously, there's still an effort there but certainly it's significant to get Puerto Rico back up and running. So that's going to be a little bit more impactful for us in the -- continuing to be into the fourth quarter. And as Marc said, in his prepared remarks, potentially into -- likely into 2018 as well.

But one thing to keep in mind is that it's also for us the financial impact is due -- has the impact of that is due to the fact that we have management versus lease locations. So we have, obviously, a significant population of management locations, typically around 80%, that can vary by region. But that kind of minimizes the impact for us on things like this. So we don't expect it to be some significant impact in the fourth quarter of 2017 or in 2018. But there will be an impact.

Okay. That make sense. So you're pleased with your efforts in the hospitality vertical in terms of adding business development people out in the field. I'm just wondering, given the success of those efforts early on, if you continue to add in new markets or if you expect to add in additional markets as we move into 2018, I know you've called out Southern California in the past, but just wondering if you've added or will continue to add in other markets.

Yes. I think we expect that we will. I mean to the question that the previous questioner asked, we will look to make investments to accelerate growth. So I think as long as we see the potential to get growth in a market by putting a resource there, we're going to make those investments. And of course, as we all know, we don't put a person in place, and then immediately we win a whole bunch of new opportunities. So there is a lag effect between making an investment and then getting the benefits. So we are constantly looking at that.

And right now, we're formulating our budgets and our plans and focus areas for 2018. And one of the factors in our thinking is exactly what you're asking, Kevin, and that's where can we deploy more resources to accelerate growth? And I think as we had a good year with growth, and in some ways, it's grown a little faster than we maybe indicated through the first 3 quarters, we also realized that a lot of that growth has come from our insurance programs, and not necessarily from our underlying business. And so I think we are very mindful of that and very focused on adding additional business development and other resources where we think we can move the growth curve in whatever market that might make sense. And that would especially be in hospitality, but also be in some of these other areas that we think we have growth opportunities in.

Okay, right. And you talked about some of the other verticals you're looking to invest in next year, municipal, healthcare, universities. So I imagine you have to have experts for each of those particular markets. So just wondering what that implies for the level of hiring relative to 2017, if you're adding experts in 3 markets versus just 1 in hospitality, if we should expect a more significant ramp-up in headcount? Or am I thinking about that the right way?

Well, I think, you -- the part that you are thinking about in the right way, is that you do need experts in those verticals to help make sales happen, because you have to understand the dynamics of those verticals and what the decision-making process is for the people who might choose our services. The good news is that we've made investments in the past in those type of experts. And so we have experts in our business now who understand the university space, the healthcare space, the municipal space, et cetera.

And so as we look to 2018, we're constantly evaluating, do we need any additional? Do we -- would we want to add someone else to try to give us greater coverage? But there's not going to be a big ramping up of G&A investment in 2018 or the need for it. And as I said, we're going to be opportunistic. We want to invest for the long term to accelerate our growth. At the same time, we recognized that we have to think about costs and manage our business very carefully as we go through the year. So where we think there's opportunity, we'll make investment, but you're not going to see a big spike up in the need to bring in experts in some of those other markets.

Okay, that's very helpful. Just can you update us on the revenue management pilot? Or I think you talked about last quarter moving that pilot or those learnings to other locations? Just how far along are you in that effort? I mean, how many locations have you rolled it out to? Just any color you could provide around that revenue management effort would be helpful.

Yes, I'd be glad to. I mean, we're still in the very early stages now. We're -- we initially set out to do a pilot in one market where we had a fairly easy access to the data, and that's underway now and we're learning things. But I think the goal for 2017 and into the early parts of next year, is not necessarily to generate a lot of additional revenue from revenue management, it's really to learn and understand the pricing dynamics. Excuse me -- the pricing dynamics in that market.

What we have done is -- made as a decision is to start to look at other markets where we can get access to the data easily, and where perhaps decision-making around what drives a consumer to go to a particular garage versus another place might be different than the initial market. So we're now looking at a handful 5 or 6 other markets where we think there's an opportunity to apply these kind of techniques. And we're getting ourselves geared up to be able to do some pilots and testing in those markets in the next few months.

So we're not moving the needle yet in terms of our own results, but I think we're moving forward pretty rapidly and having a better understanding of not only what the pricing structure should be at facilities, in a given market, but also some of the things that I touched on in my earlier remarks, which is, when you use a digital aggregator to sell inventory, which ones, what makes sense, what doesn't. We're filling our base of knowledge on those things so that we can make better decisions both at our lease locations but also as we continue to be recognized by clients as sort of the go-to parking operator to advise them to optimize the performance of their facilities.

(Operator Instructions) Your next question comes from the line of Marc Riddick with Sidoti.

I wanted to start with where -- if you could give us a bit of an update as to where you are in the process of going through those contracts that come up each year, maybe a percentage of the contracts or percentage of the business that you've gone through over the last few years, and when those contracts come up for renewal kind of where you are in the process of going through that entire slate? I mean, would you say you're about half through or as those contracts roll up for renewal and making the decision as to whether or not that makes sense to go forward with those?

Well, I think, Marc, as you might imagine, we have contracts that have expiration dates literally any day of the year. So there's a constant renewing of contracts, a constant of winning new contracts. There's a constant process of looking at contracts that where we might make a decision not to renew it. Generally speaking, it's very difficult for us to not want to renew a management contract, because we're usually able to operate management contracts profitably. It's a very, very unusual and rare situation where that doesn't happen.

So what we're really talking about is our lease portfolio in terms of us making decisions. And so we have leases that have many, many years to go before they would need to be renewed. And we have others that expire all the time. But there's no one big chunk or moment in time where a lot of things expire or where we need to look at a lot of things. But I can tell you that we have good disciplines in our business around renewing contracts and making decisions to renew contracts. And if a contract can make money and be a success for us, then we're going to work very, very hard to renew it. If we look at what we're making or indeed if we're not making money, then we go away. So we don't -- we're not driven by a market share strategy. We're driven by making money and being successful at the locations and the properties we operate. So I think that's really the way that we look at it.

Okay. And I wanted to switch over to the focus on the verticals. And certainly, I think you had touched on some of the progress you're making on the hospitality side of things. Are there any particular things that you're looking at within hospitality? Putting aside the hiring of experts, but more from the best practices, a way of looking at things or whether it's from a technology standpoint or what have you? Is there any particular best practices that you see transferring over to other verticals that are maybe lower hanging fruit than other things like hiring new experts?

Well, I think, some of the best practices that we're known for within hospitality are really providing exceptional service at the front door to the guests of the hotel property. And we have more 4 and 5 diamond hospitality properties than any other parking operator, so that's a vote of confidence from people whose service expectations are extraordinarily high. So that's probably our main expertise. And that expertise comes from over many years hiring, selecting, training and supervising people, developing talent, to work in those environments and to satisfy those demands that a hospitality client has.

We've also brought technology into hospitality. And whether you want the high-end Rolls-Royce, all bells and whistles technology, which can be very expensive, or you want something more basic that helps you manage and minimize waiting times for guests, waiting to get their cars, we have deployed an array of technology and we have expertise in all the types of technologies that are in use there.

So if your question is, how are we successful in the hospitality vertical? I think that's really the way, aside from going out and making people aware of what our capabilities are. But I do think a lot of that does transfer over into other parts of our business, and particularly healthcare, where one way to win and develop the healthcare client business is bring in those some services standards. Because a hospital is often competing with other hospitals and what happens at the front door when a patient or a visitor of a patient comes to the hospital is very, very important to how the hospital projects itself in the marketplace. So I think a lot of that same training and skills and technology that are used in hospitality also are very, very important in the healthcare vertical, for example.

Okay. So is it fair -- because you mentioned within hospitality that you think you're pretty early in the process? I don't remember the percentage you mentioned, might have been in the teens or something like that. But I think as far as being in the early stages of addressing and capturing the hospitality opportunities that you have before you, is it fair to then characterize it as really more taking advantage of and expanding the awareness of the services that you have to national or regional players? Is that kind of really more the low-hanging fruit that you see? Or maybe if you could sort of expand on that early stage of the hospitality opportunity that you see, if that's the primary driver of that?

Sure. Well, I would say, I think what I did say is that we have maybe -- we have currently maybe 10% to 15% of what we think the addressable market is. Now -- that's a subjective judgment about what's the addressable market. But -- so I think we have a long way to go. Now the question might be, why don't we have more of it? So what do we have to do to get it? Do we have to offer different services than we have today? Or is it simply that we need to do something different in geographies where we don't have a lot of hotels?

I think the good news is that the services we offer in the markets where we have a lot of hospitality clients which are Chicago, New York and Florida, are the same services that hospitality clients want in the other markets where we have very few hotels. And I think what we've learned and this is what we've talked about on previous calls is that it's not the need to acquire new capabilities, it's really the need to take the capabilities that we have in some parts of the country and apply those capabilities in other parts of the country.

So the deployment of people is really to get out there and be able to do that. I think what we've found is that the competitors in markets where we have fewer hotels, are the same competitors in the markets where we have a lot of hotels. So I think, realistically, that's an easier way to grow, because now you're taking a demonstrated confidence that you have in some places and you're deploying people that understand how to deliver that to clients and you're putting them in other markets in order to do the exact same thing.

The other side of it is that we -- and kind of a growing capability is to go beyond just the valet at the front door and to be -- take the luggage all the way to the room to be, in effect, the bell captain or provide other services in and around the front doors or lobbies of the properties. And we have numerous hospitality clients where we do that. And it's a compelling argument, because you can have one manager who manages all of it, you can have more efficient labor and staffing.

And as hotel and ownership groups look for ways to be efficient and still deliver high quality service to their clients and guests, that's a very compelling argument. And so another area that we are focusing on is how do we present those -- that broader array of services to the clients where all we do is the valet at the front door. So I think, I think we are very, very excited about this vertical. We think it has a lot of potential for growth. And I think those are really going to be the ways that we go about doing it over the next few years.

And then one last thing for me. And I know we've spent a lot of time on these other things but I did want to touch a little bit on current thoughts and how you're seeing the airport vertical and what you're looking at there and what we may see going forward with some of the opportunities that you are approaching there?

Yes. Once again, when we have -- because we have 70 airports, the prime focus of our business is to make sure that the clients at those 70 airports are happy with our services and that we are able to, not only retain those contracts as they come up for renewal, but also look for additional services that we can provide at those airports. And so for example, our basic service at most airports tends to be running a self-park parking garage. That being said, we do have some airports where we also manage the curb front, which means that we dispatch taxis, limousines or manage the movement of vehicles around the curb front. That's a service that we provide.

At other airports, we provide maintenance services. And in some cases, we do some cleaning services in the garage and in some cases beyond the garage. So I think we also run ground transportation services at many airports, and those can be either a shuttle bus to move employees, it can be a shuttle to move passengers between terminals or we sometimes act on behalf of the car rental companies and we run consolidated car rental shuttles, where we're, instead of a Hertz and Avis and National bus, there's just one bus and we operate that bus.

So even within, and especially within the 70 airports where we already have a relationship with a client, there's growth opportunities in all of those areas to provide additional services. Clearly, because airports are generally run by government or a government agency, there's a fair bit of transparency about contract terms, when contracts come up for renewal, who the current operator is, what the structure is of that current operator's arrangement.

And so we are actively aware of all of the airports that we don't operate. And we are continually looking for opportunities to bid on proposals and to try to win those contracts away from the competition. And that might be going in and winning parking management or any of the other services that I've just mentioned, because sometimes they're bid as a bundle, and sometimes they're bid separately. And so we think the airport space is an excellent one. It's a gray area where we are sort of recognized as the leader and nobody else has the kind of breadth of types of properties that we have. So it's an area of focus. And that's partly why we have dedicated people who are experts in that area, focusing on getting growth in the airport area.

And there are no further questions at this time. I'd now like to turn the call back over to Marc Baumann for closing remarks.

Okay. Well, thank you, Dan. And I'd just like to thank all of you for joining us today and your continuing interest in SP Plus. We're looking forward to putting forth all of our maximum efforts to get a strong finish for the year and speaking with you again in early 2018. Have a great day now.

This concludes today's conference. You may now disconnect.